UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 20-F

              [ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)
                  OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
                                       OR
                [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1999
                                       OR
              [ ] 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 1-9178

                              KOOR INDUSTRIES LTD.
            (Exact name of Registrant as specified in its charter and
                 translation of Registrant's name into English)

                                     Israel
                                     ------
                 (Jurisdiction of incorporation or organization)

                     21 Ha`arbaa St., Tel-Aviv 64739, Israel
                     ---------------------------------------
                    (Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:
     Title of each class              Name of each exchange on which registered
     -------------------              -----------------------------------------
     Ordinary Shares (1)              New York Stock Exchange (2)
     American Depositary Shares (3)   New York Stock Exchange

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

                                      None
                                (Title of Class)

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

                                      None

                                (Title of Class)

(1)  Not for trading, but only in connection with the listing of the American
     Depositary Shares.
(2)  The Ordinary Shares are also listed on the Tel-Aviv Stock Exchange.
(3)  Evidenced by American Depositary Receipts, each American Depositary Share
     representing 0.20 Ordinary Shares, par value NIS 0.001 each.

Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of December 31, 1999: 15,901,407 Ordinary
shares NIS 0.001 par value (the "Ordinary Shares"), 1,541,947 of which are
represented by American Depositary Shares ("ADSs").

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 which financial statement item the registrant has elected
to follow:

                Item 17  X         Item 18
                        ----               ----
<PAGE>
                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

All references in this document to "Koor" are to Koor Industries Ltd., a
company organized under the laws of the State of Israel, and all references
to "the Company" or "the Koor Group" are to Koor and its consolidated
subsidiaries and affiliates. Certain amounts reported in adjusted New
Israeli Shekels ("NIS") on Koor's consolidated financial statements for the
year ended December 31, 1999 (the "Financial Statements") have been
translated into United States dollars (the "dollar" or "$") for the
convenience of the reader at the exchange rate of the dollar prevailing at
December 31, 1999 (NIS 4.153 = $1.00), as published by the Bank of Israel.
In this document, all references to Koor's percentage of equity ownership
in its subsidiaries are prior to having taken into account the possible
dilution that may be caused by the exercise of options granted to executive
officers of certain subsidiaries. See "Item 12. Options to Purchase
Securities From Registrant or Subsidiaries".

General

Koor is a diversified investment holding company. Koor is engaged, through
its direct and indirect wholly and partially owned subsidiaries and
affiliates, in the following core businesses: telecommunication equipment,
defense electronics and agrochemicals as well as in other businesses. The
Company is also engaged in seeking out new investment opportunities in high
technology and life science businesses. In 1999, international sales
represented approximately 58% of Koor's consolidated revenues. A majority
of the Company's revenues are derived from businesses in which it is the
leading producer or provider of such goods and services in Israel. In 1999,
Koor reported NIS 10.7 billion ($2.6 billion) of consolidated revenues, NIS
838 million ($202 million) of consolidated operating earnings, and NIS 549
million ($132 million) of consolidated net earnings.

Koor's ADSs are listed on the New York Stock Exchange. The address of the
registered office of Koor is 21 Ha`arba`ah Street, Tel Aviv 64739, Israel,
and its telephone number is 972-3-6238333. Koor's office in the United
States is located at 10 East 53rd street, New York, New York 10022 and its
telephone number is 212-751-2600. Koor was founded in 1944. Koor's Ordinary
Shares are listed on the Tel-Aviv Stock Exchange (the "TASE") and on the
New York Stock Exchange ("NYSE"). The address of Koor's internet website
is: WWW.KOOR.COM.

Strategy

In October 1997, as a result of certain transactions, the Claridge Group
(comprised of Claridge Israel Ltd. ("Claridge") and additional entities)
became the largest shareholder of Koor, holding of record, as of June 1,
2000, 34.7% of the outstanding Ordinary Shares. Beginning in July 1998,
Koor initiated an extensive corporate restructuring program, designed to
transform the Company into a diversified investment holding company with
controlling stakes in leading high-growth, export-oriented Israeli
companies. Based on these criteria, Koor has made the strategic decision to
focus on three businesses: telecommunication equipment, defense electronics
and agrochemicals. Koor's holdings in these businesses have the potential
to grow internally, as well as through mergers and acquisitions.
<PAGE>
Management has implemented key elements of the strategic program to date,
including a substantial capital reallocation process, in which proceeds
from the sale of low growth domestic businesses have been re-invested to
increase Koor's stakes in its core businesses. In this regard, in 1999 and
in the beginning of 2000, Koor continued to divest itself of non-core
holdings, including its interests in Koor Finance, Contahal, Merhav, the
Switching Division of Tadiran Telecommunications, Tekem (ATL), Tadiran
Information Systems, Koor Metals, Phoenicia, Yonah, Tadiran Com, Tadiran
Telematics, Mashav (Nesher), Merkavim, Middle East Tube and The Q Group.

In addition, as part of its strategic plan, Koor is seeking out new
investment opportunities in high growth potential business in the fields of
telecommunications technologies and services located in Israel and around
the world. Koor also invests in Internet ideas and technology through
investments in leading funds and recently established a joint venture to
invest in biotechnology and life science companies in Israel.

The Telecommunication Equipment Business

The activities in this business are conducted through (i) ECI Telecom Ltd.
(NASDAQ: ECIL), (ii) Telrad Networks Ltd. (formerly Telrad
Telecommunication & Electronic Industries Ltd.) and (iii) Tadiran Microwave
Networks Ltd. Until 1999, this business also included the activities of
Tadiran Telecommunications Ltd ("TTL") that was merged into ECI Telecom
Ltd., effective as of January 1, 1999.

Koor's Telecommunication Equipment business generated NIS 2,200 million and
NIS 3,420 million of revenues in 1999 and 1998, respectively, representing
20.6% and 26.7%, respectively, of Koor's consolidated revenues for such
years. International sales accounted for 70.0% and 64.4% of the revenues of
the Telecommunication Equipment business for 1999 and 1998, respectively.

A substantial portion of the sales made by the Telecommunication Equipment
business, other than those of ECI Telecom Ltd. which was not consolidated
in 1999 and 1998, are made to two principal customers: Northern Telecom
Ltd. ("Nortel") and Bezeq, The Israel Telecommunications Corporation
Limited ("Bezeq"). In 1999, the sales to those customers represented 38.0%
and 12.3%, respectively, of the Telecommunication Equipment business'
revenues. In May 2000, Koor, Telrad and Nortel signed an agreement to
establish a new Company under the name Nortel Israel. This new venture, in
which Nortel will be the majority shareholder and Koor would own 28%, will
acquire and operate Telrad's public switching and TX1 Systems businesses,
which currently comprise the majority of Telrad's sales to Nortel and
Bezeq.

The principal companies in the Telecommunication Equipment business are:
<TABLE>
<CAPTION>
                                                        Percentage
                                                         of Equity
                                                         Ownership         Principal Products and Services

<S>                                                      <C>               <C>
ECI Telecom Ltd. ("ECI").........................         32.9%(1)(2)      Telecommunication equipment and systems
Telrad  Networks Ltd. ("Telrad") formerly -
 Telrad Telecommunications & Electronic
 Industries Ltd. ................................         80.0(3)          Telecommunication equipment and systems
Tadiran Microwave Networks Ltd. ("TMN")..........        100.0             Microwave networks communication
</TABLE>

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

(1)  Not consolidated in Koor's Financial Statements and not included in backlog
     data.

(2)  The ordinary shares of ECI are quoted on the Nasdaq National Market.

(3)  Koor's interest in Telrad will increase to 100% in connection with the
     closing of an agreement with Nortel to establish Nortel Networks Israel
     (discussed below). See "-Telecommunication Equipment -Telrad."
<PAGE>
ECI

ECI is a provider of integrated network solutions for digital
communications and data transmission systems enabling network operators to
deliver cost-effective services. ECI designs, develops, manufactures,
markets and supports end-to-end digital telecommunications solutions for
today's new services and converging networks. ECI's products create
bandwidth, maximize revenues for network operators, expand capacity,
improve performance and enable new revenue-producing services. These
products enhance the capabilities of existing networks to support voice,
data, video and multimedia services. ECI's equipment supports traffic in
more than 500 service networks in over 145 countries.

ECI offers the following main types of products and solutions (including
products and solutions acquired in the TTL merger that is discussed below):

Infrastructure solutions/products: These include products designed to increase
transmission capacity of satellite communications, fiber optic cable, microwave
and other communications. These products allow connectivity and various
management functions through digital communication, mainly through fiber optic
communication installations. These also include DCME compression solutions,
Network Systems transmission solutions, Digital Cross Connect bandwidth
management solutions and systems designed to provide revenue protection and
fraud management.

Access solutions/products: These include products which offer value-enhancing
residential and business service applications. Among the products are single
pair carrier/pair gain solutions, ISDN network terminations, telephony and data
solutions over cable TV (HFC or hybrid fiber/coax) facilities and a wide variety
of broadband access solutions to support Internet, teleworking, video services,
XDSL and ADSL (Asynchronous Digital Subscriber Loop) applications. These also
include: Voice over Internet Protocol (VoIP) gateway solutions providing next
generation telephony; Business Systems providing communications systems and
turnkey projects for public and private organizations; and the Wireless Local
Loop product line providing fixed wireless access solutions.

At the beginning of 2000, following the appointment of new senior management,
ECI announced a new strategic plan designed to focus its operations on key
product growth areas, including broad band access, transport systems and media
gateways.

ECI's revenues, gross profit, income from continuing operations and net income
in 1999 amounted to $1,115 million, $595 million, $166 million and $103 million,
respectively. ECI is included in Koor's Financial Statements on an equity basis.
See Note 3A of Notes to Financial Statements.

Since the beginning of 1999, Koor has increased its stake in ECI to 32.9% (as of
June 20, 2000) through the following transactions: the exercise of a call option
to purchase an additional 5% interest in ECI from Clal Electronics on February
8, 1999 for a total consideration of NIS 593 Million ($142 Million); the merger
between ECI and TTL pursuant to which Tadiran received a 12.5% interest in ECI;
additional open market purchases by Koor; and the effects of an open market
stock buyback program by ECI.
<PAGE>
In 1998, Koor and Clal Electronics signed a voting agreement, pursuant to which
both companies agreed to vote their shares at the ECI General Meeting of
shareholders to permit Koor to nominate a majority of the directors of ECI, and
to permit Clal Electronics to nominate 20% of the directors.

In March 1999, TTL, formerly an 81% subsidiary of Tadiran, was merged into ECI.
Pursuant to the merger, the shareholders of TTL were issued new shares of ECI
representing a 15.4% interest in ECI. In 1998, TTL's results of operations were
consolidated in Koor's Financial Statements. In 1998, TTL reported sales,
operating income and net income of NIS 1,761 million, NIS 179 million and NIS
169 million, respectively.

TTL's public switching equipment division was not included in the merger and
during 1999 Tadiran sold substantially all the assets and liabilities of the
switching division for $24 million.

The merger was recorded in Koor's Financial Statements at book value in
accordance with the Israeli GAAP rule for similar asset exchange transactions
which resulted in no recognition of gain and an increase of NIS 179 million in
the amount of goodwill in ECI recorded in Koor's Financial Statements. In
accordance with US GAAP, Koor would have recorded a capital gain (after taxes)
of NIS 64 million and an additional increase in goodwill of NIS 191 million.

For additional information with respect to the ECI merger, see Notes 3A(1) and
28A(2) of Notes to Financial Statements.

In October 1999, Ectel Ltd., a wholly owned subsidiary of ECI, whose
principal business is the development, production and marketing of fraud
detection systems in communication networks and improvement of traffic
quality in communication networks, completed an initial public offering on the
Nasdaq Stock Market. As a result of this offering ECI recorded a capital
gain of $29.7 million. ECI holdings in Ectel declined to 75%. In October
1999 Telegate Ltd., an affiliate of ECI completed a share and capital notes
exchange transaction with Terayon Communications Systems Ltd., which
resulted in a capital gain to ECI of $25.5 million. ECI recorded an
additional gain of approximately $30 million in the first quarter of 2000
in connection with the transactions related to the exchange offer.

In 1999 ECI recorded a loss of approximately $37 million as a result of the
termination of four different discontinued operations. In addition, in 1999 the
current loss from these discontinued operations amounted to approximately $26
million.

Telrad

Telrad is one of Israel's leading suppliers of telecommunication equipment.
Telrad supplies equipment to the Israeli and international markets and is
involved in the design, manufacture and marketing of digital public switching
equipment, private exchange equipment, voice and data transmission equipment and
telephones.

Telrad's sales to Bezeq amounted to NIS 272 million in 1999 compared to NIS 193
million in 1998. Sales to Bezeq of digital public telephone switches account for
a substantial portion of the total sales to Bezeq. Other sales to Bezeq include
other products such as innovative telephone products and services, and ISDN
(integrated services digital networks) products.
<PAGE>
On November 1998 Telrad's Board of Directors approved a reorganization
plan. According to Telrad's new organizational structure Telrad operations
were divided in 1999 into three independent market-oriented profit and loss
businesses. At the end of 1999 Telrad's Board approved an additional
restructuring program at a cost of NIS 85 million (pre-tax) for the
reduction of additional employees. This plan is in addition to the first
plan provided for in 1998 at the cost of NIS 223 million (pre-tax). Through
December 31, 1999 Telrad's work force was reduced by approximately 950
employees without disturbances to labor relations mainly through voluntary
resignations and early retirement, and approximately 100 more employees
retired by the end of the first quarter of 2000. In addition, in the first
quarter of 2000, Telrad included in its financial statements an expense of
NIS 80 million (pre tax) following the approval by Telrad's Board of a plan
to reduce its workforce by another 200 employees.

As part of Telrad's reorganization plan, Telrad is in the process of spinning
off certain of its technology and development divisions into separate start-up
subsidiary companies, in order to provide Telrad with new sources of proprietary
technology-based growth in the internet and telecommunications fields. Telrad
established five start-ups by mid-2000 and expects to set up a similar number
of new start-ups by the end of the year.

For a discussion of the investigation of the Israeli Commissioner of Restrictive
Trade Practices concerning Telrad, see "- Risk Factors.".

Relationship with Nortel

In 1999 and 1998, Telrad's sales to Nortel accounted for 42% and 35%,
respectively, of Telrad's total sales. Furthermore, approximately 85% and 87%
of Telrad's total sales in each of those years, including sales to Nortel, were
based on products licensed from Nortel.

Telrad holds licenses to the know-how underlying the digital switching and
transmission systems utilized in its public and private switches pursuant to
agreements with Nortel. The term of these agreements has been extended from time
to time, and the current term of such agreement expired in December 1999. Under
its licensing arrangements with Nortel, Telrad has agreed to limit its sales of
products based on Nortel's technology to specified countries and has agreed not
to sell competing products without Nortel's prior written approval.

In January 1995, Telrad entered into a cooperation agreement with Nortel that
enabled Telrad to market Nortel products in Israel and other specified
territories and to sell Telrad developed products to Nortel. In January 1997
Nortel exercised its option, granted in 1995, to purchase 20% of Telrad's
ordinary shares for $45 million. In connection with the Nortel investment Koor,
Telrad and Nortel entered into a shareholders agreement which provided Nortel
with certain veto rights regarding Telrad management. Pursuant to the
shareholders agreement, in the event that Telrad does not effect an initial
public offering prior to the year 2000, Nortel had the Put option to sell its
Telrad shares for the greater of $45 million or the equity value of the shares.
In addition, Nortel was granted a Call option to increase its holdings in Telrad
up to the equity interest owned by Koor.

In January 1997, Telrad licensed the right to use certain existing and future
know-how from Nortel for a ten-year period for which Telrad is unconditionally
required to pay Nortel NIS 62 million ($15 million) in four equal annual
installments, bearing interest commencing January 1998, which will be deducted
from future licensing fees. Through December 31, 1999, Telrad purchased NIS 27
million ($6.4 million) of know-how on account of such undertaking. Telrad is
currently negotiating with Nortel to terminate this agreement.

All of the foregoing agreements with Nortel will generally be superceded by the
changes in Telrad's business that will result from the implementation of the
following arrangements concerning the establishment of Nortel Israel.
<PAGE>
Relationship with Nortel Israel

In May 2000, Koor, Telrad and Nortel signed an agreement (the "Nortel Israel
Agreement") to establish a new company under the name of "Nortel Israel". This
new venture, of which Nortel will be the majority shareholder and Koor and
Telrad will own 28%, will acquire from Telrad the sales, marketing and support
functions of its public switching and TX1 Systems businesses and Telrad's
operations in these fields outside Israel in several markets including South
America and Africa. In addition, Nortel Israel will coordinate Nortel's
activities in Israel that were not previously conducted through Telrad and will
have direct access to the use of Nortel's current and future technologies.

Telrad will sell these businesses to Nortel Israel for an estimated US $95
million. The business operations that Telrad will sell to Nortel Israel
constitute approximately 40% to 50% of Telrad's business. Telrad will retain its
proprietary key system business known as SBS and its internet and
telecommunications startup businesses as well as continuing to manufacture (both
directly and through out sourcing arrangements) and undertake research and
development on behalf of the new company and Nortel. The parties are currently
finalizing the terms of such ongoing business arrangements. As part of the
overall agreement, Koor will acquire Nortel's 20% stake in Telrad for $45
million and will invest $49 million in shares and loans to Nortel Israel. In
addition, Koor was granted a put option to sell its holding in Nortel Israel to
Nortel. The option is exercisable at the end of three years, at a price based on
a formula set forth in the Agreement. The completion of this transaction is
contingent upon the receipt of regulatory approvals, including that of the
Controller of Restrictive Trade Practices.

Telrad's Other Markets. Telrad supply public switches abroad. The major
customers are located in Ethiopia, Papua New Guinea, the Palestinian Authority,
Chile, Peru, Bolivia, Georgia, Ukraine and Russia. Sales to these countries
typically include extended credit terms, which involve certain risks in light of
the political and economic conditions in such countries. As of December 31,
1999, Telrad's long-term credit-risk exposure from such agreements amounted to
NIS 216 million ($52 million) (representing the uninsured portion of the trade
receivables). These operations will be transferred to Nortel as part of the
Nortel Israel Agreement, with Telrad retaining the responsibility of collecting
the outstanding receivables.

Telrad's Backlog. As of December 31, 1999, Telrad had an aggregate backlog of
confirmed orders of NIS 1,247 million ($304 million) compared to NIS 1,126
million, as of December 31, 1998.

Other Businesses within the Telecommunication Equipment Business

On April 21,1998, Tadiran through TMN acquired for NIS 133 million from
California Microwave Ltd. ("CMI"), a U.S. company, CMI's activities in the field
of wireless microwave telecommunication, conducted by its microwave networks
division.

During the first quarter of 1999, Koor divested its holdings in several
subsidiaries and affiliates for a consideration of NIS 20 million.

On January 18, 2000 Koor sold its 23% interest in Q Multimedia PLC ("Q"), which
develops and markets multimedia systems for language instruction, for
approximately NIS 41 million. Q shares are traded on the London Alternative
Investment Market.
<PAGE>
Defense Electronics Business

The activities in this business are conducted through various subsidiaries of
Tadiran Ltd., including Elisra Electronic Systems Ltd., Tadiran Electronic
Systems Ltd. and Tadiran Spectralink Ltd. (together "the Elisra Group") , and
principally involves the design, manufacture, distribution and support of a wide
range of advanced electronic systems, primarily for military purposes. Koor's
Defense Electronics business had revenues of NIS 1,334 million and NIS 1,573
million for 1999 and 1998, respectively, representing 12.5% and 12.3% of Koor's
consolidated revenues during such periods. In 1999, the majority of the sales of
Defense Electronic business were made to defense-related customers.

In 1999, the Elisra Group's sales to the Israeli Ministry of Defense ("IMDF")
represented 22.1% of the Elisra Group's revenues.

The principal companies in the Defense Electronics business are:

<TABLE>
<CAPTION>
                                                        Percentage
                                                         of Equity
                                                         Ownership         Principal Products and Services

<S>                                                      <C>               <C>
Elisra Electronic Systems Ltd. ("Elisra")........        100.0             Electronic warfare, equipment and systems
Tadiran Electronic Systems Ltd. ("TES")..........        100.0             Command, control, communications and
                                                                           intelligence systems for defense applications
Tadiran Spectralink Ltd. ("Tadiran
Spectralink")....................................        100.0             Advanced data and video links for military use
B.V.R Systems Ltd. ("BVR").......................        28.5(1)(2)        Advanced military training and simulation systems
</TABLE>

(1)  Not consolidated in Koor's Financial Statements and not included in backlog
     data.
(2)  The ordinary shares of BVR are quoted on the Nasdaq National Market.

Through a tender offer process begun in November 1998 and completed in January
1999, Koor obtained full ownership of Tadiran's equity, by acquiring the 33.6%
equity interest held by the public, for an aggregate consideration of
approximately $245 million.

In 1999, Tadiran implemented a restructuring plan. The plan included
reduction of Tadiran's headquarters staff and its merger with Koor's
headquarters, divestiture of software services and consumer appliances
businesses (which are included in the Other business) and the management of
Tadiran's real estate by Koor Properties. See "-Real Estate." Tadiran also
transferred its holdings in TTL to ECI by means of a merger.

In order to simplify Koor's corporate structure, on January 20, 2000, Koor,
Tadiran and Elisra entered into agreement pursuant to which Tadiran will
transfer all of its holdings in Elisra to Koor. In addition, Tadiran will
transfer its shares in TES and Tadiran Spectralink to Elisra. The completition
of this transaction is subject to the receipt of various approvals.

Elisra designs, develops and produces electronic warfare and surveillance
systems for military purposes, as well as a range of electronic and
microwave components for the commercial market. Elisra offers a diversified
range of combat-proven electronic warfare (EW) systems, including radar
warning systems, active countermeasure systems, comprehensive
self-protection systems, electronic intelligence (ELINT) systems,
sophisticated communication links, complemented by extremely light-weight
components. Elisra also develops a wide range of active and passive
microwave components. Microwave and RF components are essential to nearly
all intricate electronic equipment, as well as microwave telecommunication
and satellite systems.
<PAGE>
TES is engaged in providing solutions for a variety of customers in the
field of C4I (Command, Control, Communication, Computing Intelligence), EW
COMINT systems and spectrum management and control systems.

An array of electronic hardware and computer software is incorporated into the
C4I systems, which enable the collection, processing, analysis and display of
large quantities of information to facilitate effective dissemination and
accelerate decision making for better Battle Management capabilities.

TES has developed a simulator for a Tactical Ballistic Missile ("TBM"), Defense
Battle Management Center for the U.S. Ballistic Missile Defense Organization
("BMDO") and the Israeli Ministry of Defense. The simulator is currently
operating and providing information for both organizations.

TES is also a supplier of the Battle Management Center of the Israeli Arrow
Defense weapons system.

TES's activities in the field of electronic warfare systems involve the
design, development and distribution of a broad range of strategic and
tactical electronic warfare systems for ground, naval and airborne
platforms. Passive electronic warfare systems analyze and display
information with respect to incoming signals and weapons, while active
electronic warfare systems render hostile communication ineffective through
electronic countermeasure techniques.

Based on electronic warfare technology, a new range of commercial applications
have evolved in the area of spectrum management control. Integrated spectrum
management and monitoring systems provide nationwide solutions to various
telecommunication administrations.

Tadiran Spectralink develops and manufactures data and video links for a
variety of applications, including unmanned aerial vehicles, guided weapons
and satellite communications. Based on these links, command and control
systems for airborne and naval applications are developed.

As part of its strategy to focus on the Defense Electronics business, in
1999 Koor and Elisra acquired a 28.6% interest in BVR. BVR is a diversified
world leader in advanced military training and simulation systems, which
offers highly efficient and cost effective solutions for the simulation,
training and debriefing needs of modern air, sea and ground forces. Koor
acquired its interest in BVR through open market share purchases at various
prices with an aggregate cost of $20 million and through the acquisition by
Elisra of shares in BVR in a private placement transaction for an aggregate
consideration of $14 million. In connection with this acquisition, Koor
received the right to appoint three out of seven nominees to BVR's Board of
Directors.

Tadiran Com is a leading manufacturer of sophisticated defense
communications equipment and is a primary supplier of tactical radios to
the IMDF. Tadiran Com had revenues of approximately NIS 381 million in the
nine months ended September 30, 1999 and NIS 660 million in 1998 fiscal
year, representing 3.6% and 5.2% of Koor's consolidated revenues in 1999
and 1998. On November 10, 1999, Koor completed the sale of its holdings in
Tadiran Com. for an aggregate consideration (including final dividend to
Tadiran) of NIS 616 million ($149 million). Koor recorded pre tax capital
gain of NIS 317 million from this transaction.

The Defense Electronic business operates in an environment marked by a general
decline in worldwide military spending (including Israel) and competition from
companies that receive governmental subsidies.

Sales to governments, their agencies and government-controlled companies
within the Telecommunication Equipment and Defense Electronics businesses,
are subject to substantial governmental regulation affecting the award,
performance, payment and termination of government contracts. See
"Regulation-Defense and Government Contracts."
<PAGE>
As of December 31, 1999, the Defense Electronics business had an aggregate
backlog of confirmed orders of NIS 1,848 million ($445 million) compared to
NIS 2,809 million, as of December 31, 1998. As a result of the divestiture
of Tadiran Com. in 1999, the backlog of confirmed orders as at December 31,
1999 compared to December 31, 1998, has decreased by NIS 960 million. In
the first quarter of 2000 the Defense Electronics business received new
orders of approximately $207 million mainly from the IMDF.

Agrochemicals Business

The activities in the Agrochemicals business are conducted primarily
through the direct and indirect subsidiaries of MA Industries Ltd. -
Makhteshim, Agan and Milenia (sometimes collectively referred to as the "MA
Group"). These companies are leading international suppliers of generic
crop protection products. Makhteshim and Agan are Israel's largest
producers of insecticides, fungicides and herbicides. Agan is also a
manufacturer of synthetic aroma chemicals. The Agrochemicals business had
revenues of NIS 3,541 million and NIS 3,377 million in 1999 and 1998,
respectively, representing 33.2% and 26.4% of Koor's consolidated revenues
during such periods. International activities, primarily sales in Europe,
North America and Latin America, accounted for 89.3% and 90.6% of the
Agrochemicals business' revenues in 1999 and 1998, respectively.

The principal companies in the Agrochemicals business are:

<TABLE>
<CAPTION>
                                                        Percentage
                                                         of Equity
                                                         Ownership         Principal Products and Services

<S>                                                      <C>               <C>
Makhteshim-Agan Industries Ltd. ("MA Industries")...     59.9(1)           Holding Company
Makhteshim Chemical Works Ltd. ("Makhteshim").......     100.0(2)          Insecticides and fungicides and other chemicals
Agan Chemical Manufacturers Ltd. ("Agan")...........     100.0 (2)         Herbicides and synthetic aroma chemicals
Milenia Agro Ciensias S.A. ("Milenia")..............     70.0 (3)          Formulation and distribution of crop protection
                                                                           chemicals
</TABLE>
---------------------

(1)  The ordinary shares of MA Industries are traded on the TASE.

(2)  Indicates the percentage of direct ownership by MA Industries.

(3)  Represents the aggregate ownership of Makhteshim and Agan.


The Agrochemicals Business Environment in 1999

During 1999, the global agrochemicals market decreased by approximately
5.7% in real terms which the MA Group believes was due to the following
factors: the low prices for agricultural crops, the reduction in the amount
of land cultivated in western Europe in the wake of the land set - aside
policy, the use of genetically engineered seeds in the U.S. and Argentina,
and financial crises in emerging markets. 1999 was the third consecutive
year of decline in the industry.

In addition, during 1999 there was a move towards consolidation among the
major multinational companies in the agrochemicals industry which resulted
in fewer but larger competitors in this field.
<PAGE>
As a result, the MA Group has adopted a comprehensive two-year
restructuring plan which includes consolidating manufacturing facilities,
both in Israel and abroad; reducing the number of employees, particularly
among administration and management; across-the-board cost-cutting
measures; focusing on the MA Group's essential businesses; and improving
the MA Group's operating cash-flow to take advantage of opportunities
within the industry as they arise. Specifically, the MA Group will
consolidate its manufacturing plants in Brazil, close down its Be'er
Sheva-based production facilities and relocate production to the MA Group's
main plant in Ramat Hovav. The MA Group has taken provisions of
approximately $33 million to implement the plan, most of which should be
completed in the year 2000.

Crop Protection

Generic agrochemicals offer an alternative source for widely utilized
chemicals previously manufactured under patent by larger research-based
chemical manufacturers. Research-based chemical manufacturers often focus
their resources on developing new agrochemicals and supply of additional
chemicals by generic manufacturers, such as Makhteshim and Agan, to
supplement their capacity. In the next few years, as a result of decreased
resources commited to research and development of new agrochemicals
products and expire of existing patents, significant number of widely used
agrochemicals are expected to lose patent protection in many geographic
regions (primarily South America), substantially increasing the available
market for sales by generic manufacturers. The off patent component of the
agrochemical industry is anticipated to grow from about 50% today to over
70% of the market by 2004. In addition, the modernization of the
agricultural industries of Eastern Europe and other developing countries
offer increasing sales opportunities for both research-based and generic
agrochemical manufacturers.

The major competitors of this business in the international market for
agrochemicals are major international research-based chemical producers. The
major international chemical producers have significant influence on the prices
of most of Makhteshim's and Agan's products. In the Israeli market, Makhteshim
and Agan compete with importers with respect to most of their products, and
Makhteshim competes with both importers and Israeli producers with respect to
non-pesticide products.

The development of new generic products require significant investments for
research, licensing, establishment of production and marketing facilities.
The MA Group typically focus on products that require a high degree of
sophistication in process development and production, which are, therefore,
less susceptible to extensive competition. Their prices, therefore, tend to
be relatively higher than sectors where competition is more prevalent. For
many of these products, the MA Group is the world's second largest
manufacturer, with the original research-based chemical company maintaining
the majority share. The Company believes that the MA Group's ability to
compete with major international research-based chemical companies and
other generic chemical manufacturers is based upon their flexible
manufacturing facilities, advanced research and development capabilities,
fulfillment of stringent registration and licensing requirements of various
countries, compliance with environmental regulations, material purity,
worldwide marketing and cooperation with certain multinational companies
regarding the production and marketing of numerous products.

An essential component of the MA Group's ability to maintain its market
share on the worldwide market is the successful introduction of new generic
products immediately after the expiration of the patents validity. In 1998,
an amendment was passed to Israeli Patents Law 1967, which has certain
beneficial ramifications for the Israeli agrochemical industry. Under this
amendment, (i) subject to certain conditions, research activities on a
patent during the patent period for the purposes of production deployment
after the patent expiration will not constitute misuse of an invention, and
(ii) the period of patents in the agrochemical industry cannot be extended.
These changes should facilitate the introduction of new products by the MA
Group.
<PAGE>
The MA Group plan to develop, over the next several years additional
agrochemical products, including fungicides, insecticides, herbicides and
biotechnological products, based primarily on a substantial number of
patents of other parties expiring within the next few years. MA Group's
total average investment program for the next several years has an
estimated yearly budget of $50 million and includes substantial investments
in these products. Recently, the MA Group purchased the right to
manufacture and market certain new agrochemical products from the
developers of such markets. The MA Group also entered into an additional
co-production agreement with Monsanto.

New research and developments in the field of trans-genetic plant species that
can tolerate insects and in plant species that are resistant to fungal diseases
may have an adverse impact on the demand for the MA Group products during the
next few years, depending upon the success of such developments.

Makhteshim and Agan market their crop protection chemicals primarily to foreign
manufacturers which use such chemicals in the formulation of a wide range of
products and sell the formulations to distributors and end users. Agan
manufactures over twenty different active ingredients which are sold as
technical grade materials and "ready" formulations. These technical grade
materials are used in the formulation of a wide range of herbicides and plant
growth regulators. The "ready" formulations are sold to distributors. Agan sells
its synthetic aroma chemicals principally to the detergent, soap and cosmetics
industries.

No single product manufactured and sold by Makhteshim and Agan accounted for
more than 10% of Makhteshim's and Agan's total sales in 1999 or 1998.

Foreign Activities

As part of its strategy to focus on its core businesses and to increase
market penetration in these fields, Koor has continued to expand its
businesses in the Agrochemicals business abroad.

In November 1998, the activities of Defenpar Participaceos S.A. and
Herbitecnica Defensivos Agricolas S.A., two Brazilian subsidiaries of
Makhteshim and Agan engaged in the formulation and distribution of crop
protection chemicals, were merged into Milenia, in which Makhteshim and
Agan hold 70%.

During 1999, the local currency in Brazil was devalued in relation to the
dollar by approximately 48% and the currency rate was extremely volatile
during this period. Until the third quarter of 1999, most of the customer
debts of Milenia in Brazil were linked to the exchange rate of the dollar.
During the third quarter, owing to the sharp cumulative rise in the
exchange rate of the local currency against the dollar, the customer market
in Brazil no longer accepted linkage to the dollar and therefore customer
balances of Milenia in Brazil as at December 31, 1999 amounting to a total
of $140 million are not linked to the dollar. As a result of the change in
the accounting method in the third quarter, relating to the linkage of the
customer balances, a customer debt from the previous period was adjusted to
the new accounting method and this led to inclusion of expenses amounting
to $12.6 million deriving from the adjustment of customer balances and from
the granting of discounts due to the devaluation.

In December 1998, MA Group acquired a 45% interest in Productos Fitosanitarios
Proficol El Carmen S.A. ("Proficol"), one of the leading agrochemicals
distribution companies in Colombia. MA Group may increase its holdings in
Proficol up to 60% at the beginning of 2002. Koor believes that Proficol
constitutes a significant anchor for the MA Group activities in the Paco-Andeau
region (the northern South American countries).

In the beginning of 1999, Milenia established a joint venture with Kasba
S.A., a leading marketer of agricultural inputs (including fertilizers,
seeds and crop protection chemicals) in Paraguay.
<PAGE>
Other Matters

In July 1999, the MA Group acquired a 50% interest in Luxembourg
Pharmaceuticals Ltds ("Luxemburg"), a manufacturer of pharmaceuticals and
medical instruments for a total consideration of $7.1 million. Concurrently
with the acquisition the MA Group sold to Luxembourg its holdings in a
subsidiary Koor Medica Ltd. for $1 million. The MA Group has a call option
to acquire the remaining 50% interest of Luxembourg and the shareholders of
Luxembourg have a put option to require that, the MA Group acquire such
interest by December 31, 2001 for $7 million.

From time to time, certain of the Company's agrochemicals products have
been the subject of legislative or other initiatives to curtail or regulate
their use due to environmental, health and safety concerns. Also, most
countries require MA Group to obtain regulatory approval prior to selling
newly-introduced products, procedures which are both time-consuming and
costly. For a discussion of certain governmental regulations applicable to
the Agrochemicals business, see "Regulation."

Building and Infrastructure Materials Business

In 1999 the Company produced construction materials through its cement, steel
and pipes businesses. The Building and Infrastructure Materials business had
revenues of NIS 1,446 million and NIS 1,645 million in 1999 and 1998,
respectively, representing 13.5% and 12.9% of Koor's consolidated revenues for
such periods. The Building and Infrastructure Materials business sells its
products primarily in Israel (including the West Bank and the Gaza Strip).

Pursuant to its business strategy to focus on certain core businesses, in 1999
and the beginning of 2000, Koor sold its interests in Mashav Initiating and
Development Ltd ("Mashav"), Middle East Tube Co. Ltd ("Metco") and Merhav
Ceramic and Building Materials Ltd. ("Merhav"). In addition, in March 2000,
United Steel Mills Ltd. ("United Steel"), in which Koor has a 72.7% interest,
applied to Court for the appointment of a trustee.

On October 5, 1997 and January 5, 1998, in authorizing the merger of the
Claridge Group and Koor, the Controller of Restrictive Trade Practises
imposed certain restrictions on both Koor and the Claridge Group regarding
their joint holdings with Clal Industries and IDB in Mashav (including
Granite) and in ECI. In accordance with the restrictions, Koor signed an
agreement in April 1998 with Clal Industries pursuant to which Clal
Industries received an option to acquire 25% of Mashav's share capital from
Koor.

On December 5, 1999 Koor and Clal Industries signed an agreement pursuant to
which Koor sold on January 6, 2000 its 50% interest in Mashav in consideration
of NIS 889 million ($214 million). In addition Koor received a 47.5% interest in
a Mashav subsidiary, Mashael Alumina Industries Ltd. In the first quarter of
2000, Koor recorded capital gains, of approximately NIS 231 million (after
allocation of deferred taxes) in connection with the sale of its interest in
Mashav. Prior to the sale, on December 30, 1999, Koor received dividends from
Mashav in the amount of NIS 355 million

In accordance with the April 1998 agreement, in May 1998 Mashav sold its
interest in Tambour Ltd. for NIS 128 million and on July 8, 1998, Mashav
divested its holding in Granite for a total consideration of approximately NIS
778 million. In 1998, Koor received a dividend from Mashav of NIS 394 million
distributed out of these proceeds and an additional dividend of NIS 187 million.
<PAGE>
Cement

Prior to the sale of its interest in Mashav, Koor indirectly owned a 50%
interest and jointly controlled Nesher Israel Cement Enterprises Ltd.
("Nesher"), Israel's only cement producer. Nesher operates 3 cement plants
and in 1998, Nesher began regular operation of a dry line cement plant in
Ramla. The first dry line plant, which is an efficient user of energy,
significantly increased Nesher's capacity for cement production from
in-house made clinker and clinker production. Clinker is an intermediate
product in the manufacture of cement and is ground into an extremely fine
powder to produce finished cement. Nesher invested approximately $180
million in the first dry line cement plant. In April 1997, Nesher began to
establish a second dry-line plant in Ramla, which involves an investment of
$175 million. The on-going operation of the new plants began by the end of
1999. Mashav revenues included in Building and Infrastructure Materials
business amounted to NIS 718 million and NIS 777 million in 1999 and 1998,
respectively.

Steel

United Steel is Israel's largest manufacturer of steel reinforcement bars,
wire rods and wire mesh. United Steel supplies approximately 40% of the
concrete reinforcement products used in the Israeli construction market and
the remainder is supplied by another Israeli manufacturer and by importers.
Most of the products manufactured by United Steel are sold in Israel, the
Gaza Strip and the West Bank. United Steel had revenues of NIS 449 million
and NIS 448 million in 1999 and 1998, respectively.

United Steel owns and operates six main production facilities, including a
scrap yard and a shredding plant that processes steel scrap, a melting
plant, two rolling mills and a plant that manufactures wire mesh, used in
the construction industry to reinforce concrete, and a range of other steel
products used in manufacturing.

Currently, the Israeli Government does not materially restrict the import of
steel to Israel, although certain other foreign countries protect their local
industry in various ways, such as by imposing import and other tariffs. Imports
of foreign steel have adversely affected sales by United Steel.

As a result of increased dumping and low selling prices, United Steel's
recorded net losses of NIS 31 million and NIS 77 million in 1999 and 1998,
respectively. As a result of such continuing losses, United Steel
experienced liquidity problems, which led United Steel and Koor to conduct
negotiations with United Steel's creditors to reach an agreement to
reschedule United Steel's debt. On March 2, 2000 United Steel announced
that it had not obtained an arrangement with it creditors and that the
negotiations between the parties had been terminated.

On March 16, 2000 United Steel applied to a Court for a stay order on
preceedings pursuant to Section 350 of the Companies Law and for the
appointment of a trustee. In the same day an order was made for a stay of
proceedings for 90 days, thus rendering it impossible to continue or
initiate any legal proceedings against United Steel, unless with the
approval of the court so as to permit the formulation of a comprehensive
recovery plan and arrangement of creditors to be submitted to the Court. On
March 20, 2000 the Court appointed a trustee for the period of the order
and revoked the powers of the Board of Directors. On May 16, 2000 the stay
of proceeding order was extended until September 2000.

In 1999, Koor recorded a write off of NIS 102 million for its total investment
in United Steel's equity and the balance of Koor's loans at December 31, 1999.
In 2000, Koor loaned United Steel NIS 15 million to permit United Steel to
continue operating during the pendency of the Court proceedings. For additional
information see Note 27 C of Notes to Financial Statements.
<PAGE>
Pipes and Faucets

Metco is the largest producer of steel pipes in Israel. Metco manufactures
a wide range of welded steel pipes for water and sewage infrastructure,
plumbing, oil and gas transportation and the transportation of
petrochemicals and industrial liquids, as well as pipes for the
construction industry. Metco had revenues of NIS 238 million and NIS 269
million in 1998 and 1997, respectively.

On December 23, 1999 Koor signed an agreement to sell its 76% interest in
Metco for a total consideration of NIS 84 million, which sale was completed
on March 30, 2000, after the receipt of various approvals.

Merhav operates two manufacturing facilities in Israel and is a leading
Israeli producer of metallic faucets for home use and sanitary-ware,
including toilets and sinks. In 1998 Merhav reported revenues from
continuing operation of NIS 163 million. On June 21, 1999, Koor sold its
interest (76.4%) in Merhav for a total consideration of approximately NIS
35 million.

Other Businesses

Koor has an interest in certain service industries, mainly tourism, real estate
and trading and in the production of batteries. In the previous years this
segment also included electrical appliances, software, food, consumer products
and metal products.

The principal companies in Other Businesses are:

<TABLE>
<CAPTION>
                                                        Percentage
                                                         of Equity
                                                         Ownership         Principal Products and Services

<S>                                                      <C>               <C>
Sheraton Moriah (Israel)  Ltd. ("Sheraton Moriah")...    55.0              Hotel chain
Isram Wholesale Tours and Travel Ltd.("Isram").......    70.0              Tourism Services
Knafaim-Arkia Holdings Ltd. ("Knafaim")..............    28.1(1)(2)        Aviation and tourism services
Tadiran Batteries Ltd. ("Tadiran Batteries").........    100.0             Lithium batteries
Koor Properties Ltd. ("Koor Properties").............    100.0             Real estate
Koor Trade Ltd. ("Koor Trade").......................    100.0             International trade
Balton C.P. Ltd. ("Balton")..........................    49.0(1)           International trade
</TABLE>

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

(1)  Not consolidated and not included in business data.

(2)  The ordinary shares of Knafaim are traded on the TASE.
<PAGE>
Tourism

Koor's interests in Israel's tourism industry include ownership and management
of hotels and resorts, and other tourism-related services, such as airlines. The
Tourism business had revenues of NIS 588 million and NIS 394 million for 1999
and 1998, respectively.

On January 24, 1999 Koor and Sheraton International Inc. ("Sheraton
International") won a public tender for the purchase of a 100% interest in
Sheraton Moriah. On April 12, 1999 the transaction was completed based on a
value of NIS 266 million ($63.5 million). In October 1999, Koor completed the
sale of a 20% interest in Sheraton Moriah to a subsidiary of Bank Hapoalim
Currently Koor has an 55% interest in Sheraton Moriah.

On December 30, 1999, Koor merged its other hotel operations, including its
interest in Herod's Hotel in Eilat into the Sheraton Moriah network. Prior to
the sale Koor recorded a NIS 38 million provision for a write off in value of
these hotels.

The Sheraton Moriah hotel network consists of approximately 3,000 rooms in 11
hotels (owned and leased) in major tourist locations in Israel, operating under
the following brand names: Sheraton (7 hotels), Luxury Collection (one hotel)
and Sheraton Four Points (three hotels).

Koor holds a 28.1% interest in Knafaim. Knafaim owns a variety of businesses in
the travel and tourism industry, including Arkia Israeli Airlines Ltd.
("Arkia"), Israel's largest domestic airline. Arkia also purchases and leases
back aircraft and operates charter flights to Europe. Knafaim also holds other
companies that supply various tourism services, both domestically and
internationally.

Koor has a 70% interest in Isram. Isram is registered as a travel agency in the
United States and is primarily engaged in Israel-oriented tourism.

In February 2000, Koor completed the transfer of its holdings (51%) in
Histour Eltiv Ltd. ("Histour") which provides tourist services in Israel in
consideration of a release of Koor`s guarantees of the liabilities of
Histour. In addition Koor invested approximate NIS 15 million in Histour in
exchange for preferred shares.

In April 2000, Koor divested for NIS 17 million its 33.3% interest in Y.D.
Vehicles and Transportation Ltd., an Israeli car rental and leasing company
which operates the concession of Europe-cars.


Tadiran Activities - Electrical Appliances, Batteries, Software and Other

The following activities of Tadiran have been classified in the Other business.

On March 9, 1999, May 16, 1999 and June 1, 1999 Tadiran divested its
holdings in three software development and services companies for a total
consideration of NIS 464 million. Koor recorded in 1999 NIS 244 million
capital gain before taxes from these transactions.

On February 15, 2000, Tadiran divested its holdings in Tadiran Telematics Ltd.
for a consideration of NIS 30 million.

Tadiran Appliances is major Israeli manufacturer and distributor of no-frost
refrigerators, air conditioners and mini-bars. Tadiran Appliances also imports
and distributes in Israel certain brand name and private label electrical
appliances. On December 30, 1999 Tadiran signed a agreement for the sale of its
56.6% interest in Tadiran Appliances for a total consideration of NIS 133
million, which sale closed on March 30, 2000.
<PAGE>
Tadiran Batteries Ltd. ("Tadiran Batteries ") is major Israeli manufacturer
and distributor of batteries, including high technology lithium thionly
chloride batteries. Tadiran lithium thionyl chloride batteries are
principally used as a primary and backup power supplies for utility
matters, communication equipment, smoke detectors, burglar alarms and other
products.

On March 15, 2000, Koor entered in agreement with Electric Fuel Corporation
Ltd. ("EFC"), a public company whose shares are traded on the Nasdaq Stock
Market pursuant to which EFC would acquire Tadiran Batteries from Tadiran
and Koor would invest $10.5 million in EFC in exchange for an allotment of
approximately 14% of the EFC common stock to Koor and Tadiran.

In May 2000, the sale of Tadiran Batteries was cancelled by mutual consent. In
June 2000, Koor invested $10 million in the share capital of EFC.

On June 15, 2000, Tadiran signed an agreement to sale its interest in Tadiran
Batteries for a total consideration of approximately $33 million.

In 1997, Tadiran together with U.S. investors established a U.S. subsidiary to
engage in the marketing of technologies and solutions for locating cellular
phone users who have dialed the emergency service number to assistance centers
(911).

Real Estate

Koor Properties own and develop real estate in Israel. In 1999 Koor Properties
assumed the management of seven Tadiran sites with an aggregate area of 250,000
square meters. Annual rent from these sites is NIS 47 million ($11.4 million).
In addition, Koor Properties owns real property of 570,000 square meters in the
aggregate, of which a significant part is undeveloped and the rest is in various
phases of development. Koor Properties has entered into several agreements with
respect to this property to build industrial and commercial parks and to build,
renovate and lease buildings. The land is being developed according to market
conditions, and the development is being financed through bank loans secured by
the land. Koor Properties also owns a prefabricated concrete element plant.

In December 1999 Koor Properties purchased Soltam Ltd. interest (50%) in an
industrial park at Yokneam for NIS 21 million ($5 million).

Trading

Koor Trade imports, exports and distributes a broad range of industrial,
agricultural and consumer products through its worldwide network of offices,
including offices in Europe, Asia, Latin America and Australia. Koor Trade had
revenues of NIS 121 million and NIS 138 million in 1999 and 1998, respectively.
Koor Trade owns a 49% equity interest in Balton, an English international
trading company, which is engaged in trading activities in seven countries in
Africa relating to agricultural, telecommunications, electromechanical and
air-conditioning equipment, construction and other projects.

Food and Related Products

In October 1999 Koor completed the sale of its 75% interest in Phoenicia Glass
Works Ltd, Israel's sole producer of glass containers, bottles and jars for food
uses for NIS 6 million. In addition, in July 1999 Koor completed the sale of
Yona Fishing and Industry Ltd. that produces canned and smoked fish.
<PAGE>
Metal Products

In January 2000, Koor completed the sale of all its holdings (51%) in Merkavim
Metal Works Ltd in consideration of NIS 17 Million. On August 1999 the Company
completed the sale of its interest (100%) in Koor Metals Ltd. for a total
consideration of NIS 11 Million. In addition in September 1998, the Company
completed the sale of all of its holdings (100%) in Soltam for the aggregate
consideration from this transaction of NIS 145 million.

High Technology Investments

As part of Koor's strategic plan, Koor is exploring new investment opportunities
in high growth potential businesses located in Israel and around the world in
the fields of telecommunications and internet technology biotechnology and life
sciences.

Commencing at the end of 1999, Koor made commitments to invest $55 million in
Polaris III, Genesis and Carmel, three leading Israeli venture capital funds.
Koor has also directly invested approximately $20 million in start-up technology
companies, including Orsus Solutions, a developer of business to business
internet integration software; NetPost Inc., an internet publishing company;
Sigma-One, a developer of cellular handset location technology; 3G.Com, a third
generation cellular chipset developer, and FolloWap, a provider of instant
messaging software for WAP enabled cellular phones.

In addition, in March 2000, Koor signed an agreement with Medabiotech SA, a
Swiss venture consulting firm, to invest $10 million in early stage companies in
the fields of life sciences located in Israel.

Suppliers

The companies engaged in Koor's businesses purchase the materials and components
used in their products from numerous independent suppliers. These materials and
components are not normally purchased under long-term contracts. Most of the
items purchased by these businesses are obtainable from a variety of suppliers,
and such businesses normally maintain alternative sources for major items. In
some cases these companies have annual purchasing agreements with their major
suppliers, which establish prices, quality thresholds and delivery schedules.

To date, the Company's businesses have not experienced any significant
difficulty in obtaining timely delivery of supplies, and management believes
these businesses maintain adequate inventories of certain significant imported
components. However, with respect to certain components, there maybe a lengthy
period of preparation for production and adaptation for the businesses
requirements. Accordingly, short-term shortages may arise in the event that
these companies were required to change suppliers without advance planning. The
unavailability of such components during such change-over period could result in
production delays, which might adversely affect the business.
<PAGE>
Research and Development

The companies in the Koor Group in the Telecommunication Equipment, Defense
Electronics and in the Agrochemicals business are actively engaged in
research and development programs intended to develop new products,
manufacturing processes, systems and technologies and to enhance existing
products and processes. Research and development is conducted throughout
the Koor Group, and is funded by a combination of the Company's own
resources and grants from the Israeli Government and in the case of Elisra
group, the Israel-United States Bi-National Research and Development
Foundation ("BIRD-F"). The Company believes its research and development
effort has been an important factor in establishing and maintaining its
competitive position. The Company has increased its research and
development expenditures significantly in the past few years and intends to
continue such expenditures in the future.

The following table sets forth the percentage of gross research and
development expenditures incurred by the Koor Group's principal businesses
in 1998 and 1999 as a percentage of the total sales of these businesses:

                                           1998                      1999

Telecommunications Equipment...........    11.1%                     10.2%
Defense Electronics....................     5.4                       5.3
Agrochemicals..........................     2.3                       1.9

The Koor Group's updated research and development efforts have resulted in
an increase in the sales of internally designed products. Management
believes that research and development in high technology areas, such as
the Telecommunication Equipment, Defense Electronics and Agrochemicals
businesses, is important to the Company's future growth, particularly in
products targeted for export markets. Accordingly, it is anticipated that
the foregoing businesses will account for a majority of the Koor Group's
research and development efforts in the future. As part of its research and
development programs, the Company not only seeks to develop new products,
but also seeks to apply newly developed technologies to improve its
existing products.

In each of the last three fiscal years, the Company received grants from
the Government of Israel through the Office of the Chief Scientist (the
"OCS") for the development of certain products. The Company generally may
receive from the OCS 20% to 66% of certain research and development
expenditures for particular projects. Under the terms of Israeli Government
participation, a royalty of 3% to 5% of the net sales of products developed
from a project funded by the OCS is generally required to be paid,
beginning with the commencement of sales of products developed with grant
funds and ending when 100% to 150% of the grant is repaid. The Company has
paid in the past, and currently pays, royalties on sales of such products.
Terms of Israeli Government participation also require that the research
and development be conducted by the applicant for the grant as specified in
the grant application and that the manufacturing of products developed with
government grants be performed in Israel, unless a special approval has
been granted. Separate Israeli Government consent is required to transfer
to third parties technologies developed through projects in which the
government participates. Such restrictions, however, do not apply to
exports from Israel of products developed with such technologies. From time
to time the Government of Israel has revised its policies regarding the
availability of grants and participation, and there can be no assurance
that the Government's support of research and development will continue in
the future. In addition, in order to be eligible for the governmental
grants, programs and tax benefits, the Company must continue to meet
additional certain conditions, including making certain specified
investments in fixed assets. Should the Company fail to meet such
conditions in the future, it could be required to refund grants or tax
benefits already received (together with interest and certain inflation
adjustments). Although the Company expects that the Approved Enterprise
status of its facilities and programs will continue, the termination or
reduction of certain grants, programs and tax benefits (particularly
benefits available to the Company as a result of the Approved Enterprise
status of substantially all of the Company's facilities and programs) could
have a material adverse effect on the Company's results of operations and
financial condition. See Note 16G(2) of Notes to Financial Statements.
<PAGE>
In May 1999, Israeli Ministry of Finance decided to place limits on the
funds OCS grants to Israel's 24 largest companies. The full extent of the
decision is unknown, however it may have a material adverse effect on the
Company's results of operations.

The following table shows, for each of the periods indicated, the gross research
and development expenses of the Company, the portion of such expenses that were
funded by the Israeli Government (primarily through the OCS) and BIRD-F, and the
net cost to the Company of its research and development expenses:

<TABLE>
<CAPTION>
                                                                                      Year ended December 31,
                                                                                      -----------------------
                                                                  1997      1998       1999            1999
                                                                 (Adjusted NIS in thousands)     ($ in thousands)

<S>                                                             <C>        <C>        <C>             <C>
Gross research and development expenses.....................    552,262    583,778    443,367         106,758
Portion funded by the Israeli Government and BIRD-F(1)......     45,665     56,180     15,645           3,767
                                                                -------    -------    -------         -------
Net research and development expenses.......................    506,597    527,598    427,722         102,991
                                                                =======    =======    =======         =======
</TABLE>

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

(1)  Net of royalties.


Competition

In 1999, the majority of the Company's revenues from Telecommunication
Equipment, Defense Electronics and Agrochemicals businesses were derived from
international sales. The companies comprising these businesses are focusing on
developing new markets to increase international sales. The worldwide marketing
of products in each of these businesses is highly competitive and certain
competitors are substantially larger and have substantially greater financial,
production and research and development resources, more extensive marketing and
selling organizations, greater name recognition and longer selling experience
than the Company. Some of the competitors are also able to provide their
customers with more direct financing or greater access to long-term, relatively
low-cost government loans to finance equipment purchases.

Patents and Intellectual Property

Companies in the Koor Group own and control a substantial number of patents,
trade secrets, confidential information, trademarks, trade names and copyrights
which, in the aggregate, are of material importance to the Company's business.
Management is of the opinion that the Koor Group's business, as a whole, is not
materially dependent upon any one of such assets or any related group of such
assets. The Koor Group is also licensed to use certain patents and technology
owned and controlled by others, and, similarly, other companies are licensed to
use certain patents and technology owned and controlled by the Koor Group.

The IMDF retains (and, in certain limited circumstances, certain of the
Company's other customers, including the United States Government, may
retain) certain rights to technologies and inventions resulting from the
Company's performance as a prime contractor or subcontractor under certain
contracts and may disclose such information to third parties, including
other defense contractors who may be competitors of the Company. When the
IMDF and, in certain limited circumstances, certain of the Company's other
customers, fund research and development, they usually acquire rights to
data and title to inventions and the Company may retain a non-exclusive
license for such inventions. In certain circumstances, the IMDF and some of
the Company's other customers are entitled to receive royalties in respect
of the sale of products, the development of which was financed by those
entities. However, if the IMDF or one of the Company's other customers
purchases only the end product, the Company normally retains the principal
rights to the technology.
<PAGE>
Regulation

The Company's diverse businesses are subject to significant statutory and
administrative regulation in the various jurisdictions in which the Company
operates throughout the world. Among the regulations to which the Company is
subject are those described below.

Monopoly and Pricing Regulations

In connection with the purchase of Koor shares by the Claridge Group, and the
application submitted to the Restrictive Trade Practices Controller regarding
the merger of Koor and the Claridge Group, the Controller, in his approval to
the merger on October 1997, imposed several restrictions upon Koor. These
restrictions were cancelled following Koor's sale of its interest in Mashav.

Koor or other subsidiaries or affiliates of Koor may be declared monopolies or
otherwise be subject to certain legal obligations and restrictions established
by the Restictive Trade Practices Controller or by the Restrictive Business
Practices Court (the "Court") in the event that the market share of these
companies exceeds certain prescribed limits.

Environmental, Health and Safety Matters

General. The Koor Group is subject to laws and regulations concerning
environmental, product safety, health and safety matters, and regulation of
chemicals in countries where it manufactures and sells its products. These
requirements include regulation of the handling, manufacture, transportation,
use and disposal of materials, including the discharge of pollutants into the
environment. In the normal course of its business, the Company is exposed to
risks relating to possible releases of hazardous substances into the
environment, which may cause environmental or property damage or personal
injuries. In Israel, where the Company maintains its principal production
facilities, losses and damages relating to continuous environmental pollution
are currently uninsurable.

It is the Company's policy to comply with environmental product safety, health
and safety requirements, and to provide workplaces for employees that are safe
and environmentally sound, and that will not adversely affect the health or
environment of communities in which the Company operates. From time to time, the
Company's facilities may be subject to environmental compliance actions and the
resolution of such matters has in the past involved the establishment of certain
compliance programs. Israeli legislation enacted in 1997 amended certain
environmental laws by authorizing the relevant administrative and regulatory
agencies to impose certain sanctions, including issuing an order against any
person that violates such environmental laws to remove the environmental hazard.
In addition, such law imposes criminal liability on the officers and directors
of a corporation that violates such environmental related laws, and increases
the monetary sanctions that such officers, directors and corporations may be
ordered to pay as a result of such violations. The Company has established
worker safety programs and procedures in its plants, which the Company believes
are reasonable under the circumstances, and the Company believes that its
experience relating to worker accidents is generally consistent with
industry-wide experience. Furthermore, the Company believes that it is not
currently subject to material liabilities for non-compliance with applicable
environmental, health and safety laws, although there is a risk that legislation
enacted in the future could create liabilities for past activities undertaken in
compliance with then-current laws and regulations or that there may be
environmental damage of which the Company is not aware.
<PAGE>
In addition to the specific matters described below, at a number of locations at
which certain of the businesses have conducted manufacturing operations for many
years, it is possible that contamination may exist as a result of on-site waste
disposal, spills, use of wastewater treatment ponds, or other historical
practices. While in recent years industrial solid wastes generally have been
disposed of at a central State-authorized disposal facility in Ramat Hovav, this
central facility was not available to Israeli industry during earlier periods of
operation. It is unclear whether any existing conditions on any Company-owned
property will require significant redemption or cleanup in the future, and the
Company cannot speculate about the timing or potential costs associated with
such cleanup. It is possible, however, that material expenditures could be
required with respect to these past practices.

In recent years, the operations of the Company's businesses have become subject
to increasingly stringent legislation and regulation related to occupational
safety and health, product registration and environmental protection. Such
legislation and regulations are complex and constantly changing, and there can
be no assurance that such regulatory changes in the future will not require the
Company to make significant capital expenditures to modify, supplement or
replace equipment, or to change methods of disposal or discharge, or the manner
in which the Company manufactures products or operates its businesses. In
Israel, in particular, the Company anticipates that increasingly stringent
requirements will result in substantial expenditures, particularly for
improvements of environmental controls at older facilities. The Company has
generally adopted, or intends to adopt in its newer facilities, environmental
control standards comparable to those set by the German Technische Anleitung
Luft air emission regulations. These regulations set forth strict controls on
air emissions from industrial facilities. The Israeli government has looked to
these standards as a basis for upgrading its air pollution requirements and has
applied the standards to some, but not all, facilities in Israel.

The Company regularly incurs capital expenditures and operating costs to comply
with various environmental, health and safety laws and regulations. The costs
related to environmental matters may increase significantly in the future if the
implementation of new environmental standards in Israel is more rapid or
stringent than currently anticipated by the Company, or if contemplated
pollution control measures do not achieve the desired results.

MA Group. The distribution and use of agricultural chemical products, including
crop protection chemicals such as those produced by the Agrochemicals business,
are regulated in most parts of the world, requiring extensive testing, quality
control and compliance with registration procedures. The strictest standards are
applied in the United States, where the Environmental Protection Agency ("EPA")
is the leading regulator, and in Japan and Western Europe. The granting of a
registration involves consideration of health, safety and environmental issues,
as well as the performance and benefits of the product. The registration for an
agricultural chemical product in the U.S. and in Western Europe is often subject
to data call-in or process. Usually, updating the registration necessitates the
submission of additional data by the Company. Re-registrations, which permit the
continued sales of pesticides for an additional period, are frequently granted
as a matter of course, subject to compliance during the term of the registration
period. While Makhteshim and Agan are not aware of any immediate intent to
cancel any of their registrations, there can be no assurance that the Company
might not face a revocation process or encounter difficulties in renewing the
registrations for its products for additional periods.

From time to time, some of the Company's agrochemical products are subject to
legislative or other initiatives to curtail or regulate their use due to
environmental, health or safety concerns.

Registration expenditures for the MA Group in each of the last two years
averaged approximately $20 million. The Company believes that its registration
expenditures in the future will increase, based on the stricter standards that
are expected to be applied in countries where the Company sells its products. As
a result of the foregoing developments and obligations, virtually all of the
Company's businesses in recent years have spent significant amounts on operation
and maintenance, as well as under capital programs to address increasingly
stringent requirements with respect to environmental, safety, and health
protection concerns.
<PAGE>
Agan expects to invest approximately $20 million over the next five years in
biological wastewater treatment facilities, pollution control equipment and
other environmental related matters.

Pursuant to recent analysis of underground sub-layers in Ramat Hovav, where one
of Makhteshim's plants is located, signs of possible contamination were
discovered. Further surveys are being conducted in conjunction with other plants
in Ramat Hovav by certain University institutions, and Makhteshim has undertaken
to finance one-third of the $1.2 million research expenses. At this stage,
Makhteshim cannot assess the possible cost it might incur in respect of the
above, should a solution be found and implemented.

Defense and Government Contracts

The businesses of the Company which sell their products to military and
governmental markets are subject to various statutes, regulations and
administrative rules governing defense and government contracts and the
manufacture and sale of defense products in the United States, Israel and other
countries, including the following:

Defense Electronics subsidiaries export a number of military systems and
products in accordance with the military export policy of the State of Israel.
Current Israeli policy encourages exports to approved customers of military
systems and products similar to those manufactured by the Company, provided that
such exports do not run counter to Israeli Government policy, including national
security considerations. A permit is required to initiate a sale proposal and an
export license is necessary for the actual sale transaction. To date, the
Company has not encountered significant difficulties in obtaining or retaining
the necessary permits or licenses, but no assurance can be given that the
Company will continue to be able to obtain or retain such permits or licenses
or, that one or more permits or licenses will not be revoked, or that
governmental policy with respect to military exports will not be altered.
Difficulties in obtaining or retaining such permits or licenses, if encountered
in the future, could have a material adverse effect upon the Company.

In addition, the revocation of a required permit or license after having been
granted would likely preclude the Company from fulfilling its contractual
obligations. In such a case, the Company might be unable to assert the defense
of force majeure (or a similar defense) relating to any resulting breach of
contract claim and might therefore be held liable for damages, or subject to
other penalties. Substantial damages arising from such a claim could have a
material adverse effect upon the Company's results of operations and financial
condition. In addition, suspension or debarment of the Company as a government
contractor is among the possible penalties imposed for defaulting on a
contractual obligation due to the revocation of a license.

Joint Ventures, Subcontracting and Teaming Arrangements. Certain military
projects of the Company are conducted under joint ventures, subcontracting
or other "teaming" arrangements pursuant to which the Company is
responsible for a portion, but less than all, of a project. In certain of
such instances, the Company is not permitted to participate, or even
assist, in that portion of the project for which it is not responsible.
Notwithstanding the foregoing, in the event of a termination of, or a
default under, certain prime contracts or subcontracts (whether or not the
Company is a party to such prime contract or subcontract), including a
termination for cause or convenience or a default on the part of a joint
venture, prime contractor, subcontractor or "teaming" partner (for which
termination or default neither the Company nor such other person is
responsible and which termination or default may be beyond the control of
the Company and such other person), the Company might be held liable for
damages, or subject to other penalties, which could be very substantial and
might have a material adverse effect on the Company's results of operations
and financial condition. Moreover, certain joint ventures, subcontracting
or other "teaming" agreements to which the Company is a party, deny or
limit the right of the non-defaulting party to seek damages or
indemnification from the defaulting party in such circumstances.
<PAGE>
Contract Financing. There are various types of financing terms applicable
to defense contracts (and in some cases, large telecommunications
contracts). In some cases, the Company receives progress or milestone
payments according to a percentage of the progress in performance or
achievement of specific milestones. In certain cases, work is performed
prior to receipt of any payment, which means that the Company finances the
project. In other cases, the Company receives advances prior to incurring
the cost of fulfilling the contract, which creates a positive project cash
flow. In this latter case, the customer normally requires financial
guarantees against advances paid. The Company often receives substantial
advances from its customers. In the event that a contract under which an
advance has been paid is canceled, the Company may be required to return
all or a portion of such advance to the customer. If sales had been
recognized under such a contract, such cancellation could cause losses to
the Company that might have a materially adverse effect on the Company's
results of operations and financial condition.

Fixed Price Contracts. Approximately 90%-95% of the Company's defense contracts
are made on a fixed price basis. Such contracts are subject to the risk that
actual costs may exceed those anticipated at the time the contracts are
executed, particularly when the products to be sold pursuant to the contracts
require a substantial amount of development.

Employees and Labor Relations

The Company is subject to various Israeli labor laws, collective bargaining
agreements, Israeli labor practices, as well as orders extending certain
provisions of collective bargaining agreements between the Histadrut
(currently the largest labor organization in Israel) and the Coordinating
Bureau of Economic Organizations (the federation of employers'
organizations). Such laws, agreements and orders are of wide scope,
including minimum employment standards (including, among other things,
working hours, minimum wages, vacation and severance pay), and special
issues, such as equal pay for equal work, equal opportunity in employment,
and employment of women, youth and army veterans. Currently, all of Koor's
employees have individual employment agreements with Koor.

According to the National Insurance Law, Israeli employers and employees are
required to pay predetermined sums to the National Insurance Institute, an
organization similar to the United States Social Security Administration. These
contributions entitle the employees to benefits during periods of unemployment,
work injury, maternity leave, disability, reserve military service, and
bankruptcy or the winding-up of the employer, in addition to health insurance.
The National Health Insurance Law 1994 imposes a health tax at a rate of 4.8% of
the base wage.

The collective bargaining agreements of the Company's subsidiaries cover a term
of one to three years or are for an indefinite period. Upon expiration of the
term of an agreement, and pending negotiations for extension, the provisions of
the agreement remain in force unless one of the parties gives a notice of
termination or a new collective agreement is signed. Management believes that,
upon expiration of such existing agreements, its subsidiaries will be able to
negotiate, without material disruptions to the Company's business, satisfactory
new agreements. However, there can be no guarantee that satisfactory agreements
will be reached in each subsidiary or that the negotiation of such agreements
will not generate material disruptions to the Company's business.

In 1999, total labor costs of the Koor Group (including temporary employees)
amounted to approximately NIS 2,687 million, which represented approximately
25.2% of the Koor Group's total revenues. The majority of the Koor Group's labor
costs are denominated in NIS and are affected by the periodic changes in the
inflation rate in Israel.

The future success of the Company will depend significantly upon its
ability to attract and retain highly skilled and qualified personnel.
Although competition for such personnel is generally intense, the Company
believes adequate personnel resources are currently available in Israel.
<PAGE>
In October 1994, a claim seeking declaratory relief was filed by the
Engineering Workers Union against Telrad in the Tel-Aviv Regional Labor
Court, demanding the recognition and application of the wage tables
contained in the collective bargaining agreement signed in 1993 and 1994,
between the Engineering Workers Union and the employers in the public
service sector. On January 31, 1996, the Tel-Aviv Regional Labor Court
rejected the above claim on the grounds that the Koor Agreement from 1994
is not a collective agreement and, therefore, not enforceable by the
Engineers Union. The Engineers Union has appealed the decision to the
National Labor Court. The appeal was heard and the parties are awaiting the
Court's decision. Telrad's management believes, based upon an opinion of
counsel, that the claim of the Engineering Workers Union is deficient in a
number of significant ways and that Telrad's chances of prevailing are
good, in view of its defenses.

At the opening of the hearing of the appeal, the Histadrut submitted a
petition that Koor be added as a party to the proceedings. Koor contested
the petition. The National Labor Court has not yet made a determination on
this issue. In the opinion of Koor's legal counsel, Koor has strong
arguments against the Histadrut's petition and under the prevailing law
there is no basis to grant the petition to add Koor as a party to the
proceedings.

In April 1996, the Lod Workers Council, on behalf of Telrad's Committee of
Monthly Workers, filed in the Regional Labor Court a claim concerning the
application of wage tables applicable in the public service sector, to Telrad
monthly employees. The parties to the litigation agreed to stay the proceedings
until the National Labor Court decides on the appeal of the Engineering Workers.

In 1999, a claim was filed against Telrad by company employees who are
members of the company's workers committee. They are suing to examine
Telrad's accounts so that they can calculate the distribution of earnings
to employees. They are also suing for a declaratory judgment in order to
require Telrad to prepare new accounts for the distribution of earnings. In
addition, an application was filed to recognize the plaintiffs as the
representatives of all of Telrad's workers and employees. In response,
Telrad filed an application, as agreed, to extend the date for submission
of its response on the grounds that another proceeding is pending between
the parties in which the matter of a class action has also arisen. This
application was accepted.

Risk Factors

In addition to the other information in this Annual Report on Form 20-F, the
following risk factors should be carefully considered in evaluating the Company
and its businesses.

Certain statements included in this Annual Report, which use the terms
"estimate," "project," "intend," "expect" and similar expressions are
intended to identify forward-looking statements within the Private
Securities Litigation Reform Act of 1995. These forward-looking statements
are subject to risks and uncertainties that could cause actual results to
differ materially from those contemplated by such forward-looking
statements, including the factors set forth herein and elsewhere in this
Annual Report. See "Item 9. Management's Discussion and Analysis of
Financial Condition and Results of Operations." Because of time and other
factors affecting the Company's operating results, past historical
performance should not be used as an indicator of future performance, and
investors should not use historical trends to anticipate results or trends
in future periods.
<PAGE>
Dependence on Subsidiaries and Affiliates for Dividends and Management
Fees. Koor conducts its business primarily through its wholly and partially
owned subsidiaries, and is dependent upon management fees and cash
distributions from its subsidiaries and affiliates as a source of cash flow
for funding its corporate level activities. Koor received management fees
in the amount of NIS 65 million and of NIS 63 million in 1999 and 1998,
respectively, pursuant to management agreements between Koor and certain
subsidiaries and affiliates. In addition, in 1999 Koor received NIS 1,540
million in dividends from subsidiaries and affiliates, of which NIS 1,131
million was received from Tadiran, including with respect to sales of
interests in subsidiaries, and NIS 355 million was received from Mashav. In
1998, dividends received by Koor aggregated NIS 1,298 million, of which NIS
543 was received with respect to sales if interests in subsidiaries and NIS
422 due to the delisting of Tadiran. In recommending dividends and
approving management fees, the directors and applicable committees of each
subsidiary must take into consideration (i) Israeli corporate law, (ii) tax
exemption for undistributed profits under the Investment Law (as defined
below), (iii) the provisions of the charter documents of the subsidiary,
(iv) the best interests of such subsidiary, and (v) any restrictive
covenants that may be contained in financing or other agreements of such
subsidiary. Certain of Koor's subsidiaries are subject to certain dividend
payment restrictions derived from such certain subsidiaries' partnership
structure organizational documents, credit agreements and tax
considerations. Koor's other principal sources of funds are from bank loans
and sales of assets, including shares of Koor's subsidiaries. In the event
that Koor was to experience a substantial reduction in the level of
payments of dividends and management fees, there can be no assurance that
alternative sources of cash flow will be available to Koor to carry out
certain of its investment plans, to pay dividends on its capital stock and
to service its debt.

In addition, all unsecured indebtedness of Koor is effectively subordinated
to all liabilities, including trade payables of Koor's subsidiaries. Any
right of Koor to receive assets of its subsidiaries upon their liquidation
or reorganization (and the consequent right of the holders of Koor's
indebtedness to participate in those assets) will be effectively
subordinated to the claims of that subsidiary's creditors (including trade
creditors), except to the extent that Koor is itself recognized as a
creditor of such subsidiary, in which case the claims of Koor would still
be subordinate to any security interests in the assets of such subsidiary
and any indebtedness of such subsidiary senior to that held by Koor. Under
Israeli law, certain indebtedness of a company under liquidation, including
certain indebtedness resulting from an employment relationship or tenancy
and certain indebtedness resulting from governmental and municipal tax
liabilities may rank prior to other unsecured indebtedness.

Necessity to Develop and Introduce New Products in the Telecommunication
Equipment and Defense Electronics Businesses; Reliance on Licensed
Technology. For the years ended December 31, 1999 and 1998, the
Telecommunication Equipment and Defense Electronics Businesses accounted
for approximately 33.1% and 39.0% of Koor's consolidated revenues,
respectively, in each of these years. In addition the investment in ECI and
BVR accounted for 91% of the investments in investees. The businesses and
markets in this segments are characterized by rapid technological
development. Consequently, the ability to anticipate changes in technology
and to develop and introduce new and enhanced products incorporating such
new technologies on a timely basis will be significant factors in the
ability of the businesses in the Telecommunication Equipment and Defense
Electronics Businesses to grow and to remain competitive. Telrad, Elisra
and ECI establish their own research and development priorities and
budgets. In addition, certain of Telrad's products have been based on
technology licensed from Nortel. As a result, the Company's ability to
introduce new and enhanced products has been partially dependent on Nortel
continuing to provide advanced technology to Telrad. However, following the
completion of the establishment of Nortel Israel and the related change in
Telrad's business, such reliance shall be substantially reduced. In
addition, one of the Company's objectives is to continue to seek to apply
certain of the advanced technologies developed in its Defense Electronic
Businesses to new commercial products. However, there can be no assurance
that such technologies will be successfully applied or that markets will
develop for such products. See "-The Telecommunication Equipment and
Defense Electronics Businesses."
<PAGE>
Reliance on the Expiration of Patents and Need for Regulatory Approval in
the Agrochemicals Industry. For the years ended December 31, 1999 and 1998,
Agrochemicals business accounted for approximately 33.2% and 26.4% of
Koor's consolidated revenues, respectively. The MA Group specializes in the
improvement and production of agrochemical generic products, which are
products that are based on expired patents. Development of new generic
products requires substantial expenditures for research and development,
product registration, construction of production lines and marketing in
support of new product introduction. An important component for the growth
of the Agrochemicals business is the successful introduction of new generic
chemical products to the market in a timely manner (promptly after patents
expire). Reintroduction of any new legislation to extend the life of
patents on chemical products could adversely affect the ability of the
Agrochemicals business to introduce new products.

Also, most countries require the Company to obtain regulatory approval
prior to selling newly introduced products, which is both time consuming
and expensive. Any delay in the development or introduction of new products
or in obtaining regulatory approval from the countries where the
Agrochemicals business markets its products may have a material adverse
effect on the Company's results of operations and financial condition. In
addition, new developments in the field of trans-genetic plant species that
are toxic to insects and plant species that are resistant to fungal disease
may have an adverse effect on sales of the Agrochemicals business. See
"Agrochemicals Business" and "Regulation."

An Investigation of the Office of Restrictive Trade Practices. Koor or
other subsidiaries or affiliates of Koor may be declared monopolies or
otherwise be subject to certain legal obligations and restrictions
established by the Israeli Restrictive Trade Practices Controller or by the
Court. See "-Regulation-Monopoly and Pricing Regulations." On December 13,
1998 the Controller announced in a press release that the Investigations
Department of the Antitrust Authority has concluded the investigation
regarding allegations of illegal restrictive arrangements between Koor,
TTL, Telrad, Bezeq and Bezeqcall Communications Ltd. in the field of the
supply of public switches and in the N.S.R. area. According to the
announcement, the investigators recommend indicting some of the examinees
regarding some of the allegations investigated, and the Legal Department of
the Antitrust Authority will decide if offenses were in fact committed and
if there is a sufficient evidential basis for trial. As of June 15, 2000,
no details were released about the findings of the Legal Department. Under
the Law, a fine may be levied against an entity that has violated the Law.
There is also the possibility of negative repercussion in the civil domain,
should it be proven that violations have indeed been committed. The
management of the Company and its subsidiaries, after consultation with
their legal counsel, are in the opinion that, at this stage, as long as the
results of the Controller examinations have not yet been published, it is
not possible to assess the possible developments in this matter, nor to
evaluate if a significant loss is expected to result, if at all.

Dependence on Key Customers and Supplier. Telrad has been substantially
dependent upon its relationship with Nortel as a key supplier of technology
and as a key customer of Telrad's products. For the years ended December
31, 1999 and 1998, approximately 7.8% and 4.2%, respectively, of Koor's
consolidated revenues and 43.2% and 36.8%, respectively, of Telrad's
revenues were derived from sales to Nortel. This dependence will be
substantially reduced after completion of the transaction with Nortel and
Nortel Israel. See "Telecommunication Equipment Business - Telrad."

Future Military Spending. For the years ended December 31, 1999 and 1998, sales
of military products accounted for approximately 10.9% and 14.6%, respectively,
of Koor's consolidated revenues. A decline in worldwide military spending may
have material adverse effect upon the Company's results of operations and
financial condition. Both in Israel and worldwide, demand for military products
has been generally declining during the past few years.
<PAGE>
Exchange Rate Fluctuations and Impact of Inflation in Israel. Koor's, major
subsidiaries and affiliates make significant portions of their sales
outside of Israel in dollars or other non-Israeli currencies and incur
significant portions of their expenses in NIS, and some subsidiaries and
affiliates whose sales are principally in NIS incur expenses in dollars or
in other non-Israeli currencies. For example, a significant portion of the
revenues of the Telecommunication Equipment, Defense Electronics and the
Agrochemicals businesses are in dollars, whereas a significant portion of
expenses of these businesses are incurred in NIS and generally linked to
the Consumer Price Index (the "CPI"). In addition, certain borrowings are
linked to the dollar or other non-Israeli currencies or to the CPI. However
the rate of inflation in Israel in the past years is gradually declining.
During the calendar years 1997 and 1998 the annual rate of inflation was
approximately 7.0% and 8.6% respectively while the NIS was devalued against
the dollar by approximately 8.8% and 17.6% respectively. In 1999, the
annual rate of inflation increased approximately 1.3%, while the NIS
appreciated against the dollar by approximately 0.2%. Continued inflation
in Israel and the delay in or lack of any devaluation of the NIS in
relation to the dollar and other currencies may have a material adverse
effect on the Company's results of operations and financial condition. See
"Item 9. Management's Discussion and Analysis of Financial Condition and
Results of Operations-General."

During 1999, the local currency in Brazil was devalued in relation to the
dollar by approximately 48% and the currency rate was extremely volatile
during this period. Until the third quarter of 1999 most of the customer
debts of Milenia in Brazil were linked to the exchange rate of the dollar.
During the third quarter, owing to the sharp cumulative rise in the
exchange rate of the local currency against the dollar, the customer market
in Brazil no longer accepted linkage to the dollar and therefore customer
balances, net of Milenia in Brazil as of December 31, 1999 amounting to a
total of $140 million are not linked to the dollar. The MA Group has
entered into a hedging arrangement for $65 million to offset this exposure.

To compensate for inflation in Israel and changes in the relative value of
Israeli currency compared to the dollar and other currencies, Koor and
certain of its subsidiaries and affiliates have adopted financial
strategies, including entering into foreign currency transactions with
respect to certain specific commitments and general hedging transactions
with respect to monetary assets and liabilities denominated in non-Israeli
currencies (including Brazilian currency). There can be no assurance,
however, that such activities, or others that may be from time to time
undertaken by the Koor Group, will eliminate the negative financial impact
of such fluctuations. See Note 21B of Notes to Financial Statements and
"Item 9A. Quantitative and Qualitative Disclosures About Market Risk."

Operations in Israel; Political and Military Conditions; Economic
Conditions. Koor and its principal subsidiaries are incorporated under the
laws of the State of Israel, where their principal offices and substantial
portion of the Koor Group's operations are located. The Company is directly
influenced by the political, economic and military conditions affecting
Israel. Accordingly, any major hostilities involving Israel, the
interruption or curtailment of trade between Israel and its present trading
partners, a significant increase in inflation or a significant downturn in
the economic or financial condition of Israel could have a material adverse
effect on the Company's business, results of operations and financial
condition. Despite the progress towards peace between Israel, its Arab
neighbors and the Palestinians, there remain a number of countries which
restrict business with Israel or Israeli companies. There can be no
assurance that restrictive laws or policies directed toward Israel or
Israeli businesses will not have an adverse impact on the expansion of the
Company's business.

Year 2000 Issue. The "Year 2000 issue" refers to the use by many computer
hardware and software systems of only two digits to represent the calendar
year. As a result, these systems and programs may not process dates beyond
1999, which may cause errors in information or systems failures. The
Company believes it has taken all reasonable and prudent steps to protect
its assets and operations from the impact of the Year 2000 Issue. To date
there have been no known adverse effects on any of the Company's operations
or offices. While the change in date has occurred, it is not possible to
conclude that all aspects of the Year 2000 Issue that may affect the
Company have been fully resolved. The Company believes that exposure to
business disruption remains, but does not expect it would have a material
impact on the Company's results of operations, liquidity and financial
condition.
<PAGE>
ITEM 2.   DESCRIPTION OF PROPERTY

Koor's headquarters are located in the Platinum building at 21 Ha`arba`ah St.,
Tel-Aviv, Israel where Koor owns an aggregate of 18,000 square feet of office
space. Koor purchased this facility in 1998.

The manufacturing facilities of the Koor Group companies are located
throughout Israel. Major concentrations are in the Beersheva/Ramat Hovav
area in the south and the Tel Aviv-Petach Tikva-Holon- Ramla-Lod-Ashdod
area in the central part of Israel. The Company owns its major
manufacturing plants, facilities, machinery and equipment. In addition, the
Company leases certain manufacturing and office facilities.

Most of the industrial land utilized by the Company is under 49-year leases
from the Israel Lands Authority (in a significant number of cases with
options for an additional 49 years). Land rent on uncapitalized leases is
generally equal to 4% of the value of the land per annum and is subject to
revaluation every seven years.

The Company believes that, in general, it has sufficient plant capacity for its
current level of operations and that it has the ability to expand its plant
capacity when required.

ITEM 3.   LEGAL PROCEEDINGS

For a discussion of the Company's employee relations and certain legal activity
in connection therewith, see "Item 1. Description of Business-Employees and
Labor Relations."

For a discussion of the investigation of the Restrictive Trade Practices
Controller concerning Tadiran and Telrad, see "Item 1. Description of Business -
Risk Factors.

The companies that comprise the Koor Group are involved in various other
litigation proceedings incidental to the Company's business, see Note 18a of
Notes to Financial Statements. Management does not believe that any of such
proceedings will have a material adverse effect upon the Company.
<PAGE>
ITEM 4.   CONTROL OF REGISTRANT

The following table sets forth certain information regarding the ownership of
Ordinary Shares as of June 1, 2000, with respect to: (i) each person known by
Koor to own more than 10% of the outstanding Ordinary Shares, and (ii) all
officers and directors of Koor as a group.

<TABLE>
<CAPTION>
                                                                                  Number of                Percentage of
                                                                               Ordinary Shares      Outstanding Ordinary Shares
                                                                             Beneficially Owned       Beneficially Owned(1)(2)

<S>                                                                              <C>                        <C>
Claridge Group (3)....................................................           5,389,573                  34.70%
Hapoalim Properties (Shares) Ltd. (a subsidiary of Bank Hapoalim).....           3,180,279                  20.48%
Officers and Directors as a Group (19 persons)........................             225,023(4)                1.43%
</TABLE>

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

(1)  Based upon 15,459,199 Ordinary Shares issued and outstanding on June 1,
     2000, which amount excludes 442,208 Ordinary Shares reacquired by Koor
     through May 2000 under Koor's Board resolution to use $50 million for
     reacquiring Koor's Ordinary Shares and 624,577 Ordinary Shares owned by
     Koor Trusts (1995) Ltd. that do not confer voting or distribution rights.
     See Note 20 to the Financial Statements. The respective numbers of Ordinary
     Shares listed as beneficially owned in the table above, and the percentage
     of outstanding Ordinary Shares represented thereby, do not give effect to
     (i) the conversion of NIS 93,740,446 aggregate principal amount of Series F
     convertible debentures into 284,062 Ordinary Shares, and (ii) Ordinary
     Shares issuable upon exercise of options granted pursuant to the 1997 and
     1998 Plans, which are exercisable within 60 days of this Annual Report. See
     "Item 12. Options to Purchase Securities from Registrant or Subsidiaries",
     and Note 20C to the Financial Statements.

(2)  As of June 1, 2000, certain subsidiaries of Koor held an aggregate of
     182,436 Ordinary Shares and 12,927,374 deferred shares of Koor, par value
     NIS 0.001 per share (the "Deferred Shares"). Holders of Deferred Shares are
     only entitled to receive the nominal paid-up value of the Deferred Shares
     in the event of the winding up of Koor, subject to prior payment of the
     nominal paid-up value of the Ordinary Shares to the holders of Ordinary
     Shares. The holders of the Deferred Shares do not have any voting rights
     and they are not entitled to participate in the distribution of dividend of
     any kind.

(3)  The Claridge Group holdings are comprised as follows:

     a)   Claridge Israel L.L.C., a Delaware limited liability company, which
          holds 4,542,333 Ordinary Shares. Claridge Israel L.L.C. is owned by
          the following two different trusts, whose beneficiaries are relatives
          of Charles Bronfman, Koor's Chairman of the Board:

          I.   Charles Bronfman Trust - a trust established under the laws of
               the U.S.A. (primarily) for the benefit of Charles R. Bronfman and
               Ellen J. Bronfman Hauptman and her issue;

          II.  Charles R. Bronfman Trust - a trust established under the laws of
               the U.S.A (primarily) for the benefit of Charles R. Bronfman and
               Stephen R. Bronfman and his issue.
<PAGE>
     b)   Anfield Ltd., a company registered in Israel, which holds 847,240
          Ordinary Shares. Anfield Ltd. is owned by Jonathan Kolber, Koor's
          Chief Executive Officer and Vice Chairman of the Board of Directors.

          The holdings of the Claridge Group in Koor shares were pledged in
          favor of Bank Hapoalim as a guarantee for a loan that was given to the
          Claridge Group by Bank Hapoalim.

          Pursuant to certain restrictions under an amendment to the Banking
          (Licensing) Law 1981, with respect to non bank-holdings held by
          banking corporations, on July 12, 1998, the Claridge Group and Bank
          Hapoalim, on behalf of Hapoalim Properties (Shares) Ltd., signed
          certain agreements concerning their holdings in Koor, the principles
          of which are:

          (i)  Bank Hapoalim was granted a put option to sell to the Claridge
               Group its holdings in Koor which are in the excess of 20%. The
               put option is exercisable from January 1, 1999 until December 1,
               1999. The Bank exercised the put option with respect to 364,038
               shares and the Claridge Group acquired such shares in December
               1999.

          (ii) The Claridge Group was granted a right of first refusal in
               respect of Bank Hapoalim's holdings in Koor of up to 20% ("the
               remaining shares of Bank Hapoalim"). Should the Claridge Group
               not exercise the above right, and Bank Hapoalim desires to sell
               its remaining shares to any third party, Bank Hapoalim will have
               the right to demand that the Claridge Group sell to that
               particular third party up to 5% of its holdings in Koor shares,
               to the extent these holdings exceed 32.5% of Koor's capital, in
               order to enable that particular third party to purchase a total
               of up to 25% of Koor Shares. In that case, the price per Ordinary
               Share owned by the Claridge Group will be the higher of $142.50
               or the price at which Bank Hapoalim sells its remaining shares to
               that particular third party. Such right will expire should Bank
               Hapoalim's holdings in Koor shares be lower than 19%, under
               circumstances stipulated in the agreements; and

          (iii) As long as the Claridge Group has the power to nominate the
               majority of Koor's Board members, and as long as Bank Hapoalim
               holdings in Koor will not fall below 5%, then the Claridge Group
               is committed to vote for the appointment of members recommended
               by Bank Hapoalim to the Koor Board of Directors, at graduated
               rates of 10%-25% of the members.

4)   Includes options to purchase Ordinary Shares held by certain officers and
     directors, exercisable within 60 days of the date of this Annual Report and
     40 shares held by one director, and does not include Ordinary Shares held
     by the Claridge Group and Hapoalim Properties (Shares) Ltd. which may be
     deemed beneficially owned by certain officers and directors as described in
     Note 3 above.
<PAGE>
ITEM 5.  NATURE OF TRADING MARKET

Koor's securities have been listed on the TASE since 1956. Koor's Ordinary
Shares have been listed on the TASE since 1991. The Ordinary Shares are not
listed on any other stock exchange and have not been publicly traded outside
Israel.

In the United States, the ADSs are traded on NYSE under the symbol "KOR" and are
evidenced by ADRs. Each ADS represents 0.20 fully paid Ordinary Shares. The ADSs
are issued pursuant to a Deposit Agreement entered into by Koor and The Bank of
New York, as depository. In addition, the ADSs are quoted on the Stock Exchange
Automated Quotation International System operated by the International Stock
Exchange of the United Kingdom and the Republic of Ireland Limited (SEAQ).

The table below sets forth for the periods indicated (i) the high and low last
reported prices of the Ordinary Shares on the TASE (in nominal NIS), and (ii)
the high and low closing sales prices of the ADSs as reported on the NYSE
Composite Tape.

<TABLE>
<CAPTION>
                                                                                                           ADS
                                                                                                       Equivalents
                                                                         Ordinary Shares                    (1)
                                                                         ---------------              --------------
                                                            -----------------------------------------  High     Low
                                                                              NIS                        $       $
                                                            -----------------------------------------  ----     ---
                                                                    High                  Low
                                                            -------------------  --------------------
Year ended December 31, 1998:

<S>                                                                <C>                  <C>           <C>      <C>
First Quarter...........................................           448.00               335.00        25.00    18.31
Second Quarter..........................................           484.00               450.00        26.56    23.12
Third Quarter...........................................           469.00               320.00        25.00    16.25
Fourth Quarter..........................................           392.00               268.00        18.50    12.50
Year ended December 31, 1999:
First Quarter...........................................           419.00               341.00        21.44    17.00
Second Quarter..........................................           493.00               417.00        25.13    21.13
Third Quarter...........................................           485.00               359.00        24.75    17.19
Fourth Quarter..........................................           436.00               352.00        21.50    16.00
</TABLE>

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

(1)  Represents actual sales prices of ADSs, as reported on the NYSE Composite
     Tape.


As of June 14, 2000, the last reported price of the Ordinary Shares on the TASE
was NIS 425.60 and the closing price of the ADSs as reported on the NYSE
Composite Tape was $20 5/8.

As of March 31, 2000, 6,747,615 ADSs (representing 1,349,523 Ordinary Shares)
were issued and outstanding and represented approximately 8.5% of the total
number of issued and outstanding Ordinary Shares of Koor. The ADS's were held of
record by 70 registered holders.

The address of The Bank of New York that serves as the depositary for the ADSs
is 101 Barclay Street, New York, New York 10286.
<PAGE>
Dividend Policy;  Repurchase of Shares

In determining whether to declare a dividend, Koor's Board of Directors may take
into consideration, among other things, Koor's profits, business and financial
conditions, the economic situation and other conditions, as deemed appropriate
by the Board of Directors. As to Koor's dividend payment, see Note 20D to the
Financial Statements.

Koor paid an interim dividend for 1999 of NIS 3.60 per Ordinary Share on July
28, 1999, and declared additional dividends for 1999 of NIS 2.70 and NIS 7.80
per Ordinary Share which were paid on January 11, 2000 and April 10, 2000
respectively.

In April 2000, Koor`s Board of Directors approved the purchase of up to $50
million worth of Koor's Ordinary Shares and ADR`s, from time to time, in
open market purchases on the Tel Aviv and New York Stock Exchanges. Through
May 2000, Koor had purchased approximately $40 million in shares pursuant
to such program and wrote a put option exercisable at 14 August, 2000, for
115,000 Ordinary Shares at an exercise price of $92.949 per one Ordinary
Share.

ITEM 6.   EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS

Under current Israeli regulations, any dividends or other distributions paid in
respect of ADSs or Ordinary Shares may be paid in non-Israeli currencies, or, if
paid in Israeli currency, will be freely repatriable in non-Israeli currencies
at the rate of exchange prevailing at the time of conversion. Because exchange
rates between the NIS and the dollar fluctuate continuously, a U.S. shareholder
will be subject to the risk of currency fluctuations between the dates when
NIS-denominated dividends are declared and paid by the Company in NIS. See "Item
1. Description of Business-Risk Factors-Exchange Rate Fluctuations and Impact of
Inflation in Israel."

Neither the Memorandum of Association of the Company nor the laws of the
State of Israel restrict in any way the ownership or voting of Ordinary
Shares by non-residents, except that certain restrictions may exist with
respect to citizens of countries which are in a state of war with Israel.

ITEM 7.   TAXATION

The following discussion represents a summary of certain Israeli tax laws
affecting U.S. and other non-Israeli shareholders, for general information only
and is not intended to substitute for careful or specific tax planning. To the
extent that the discussion is based on legislation yet to be judicially or
administratively interpreted, 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. Each investor should
consult his or her own tax advisor as to the particular tax consequences of an
investment in the Ordinary Shares including the effects of applicable Israeli or
foreign or other tax laws and possible changes in the tax laws.
<PAGE>
Under current law, sales of ADSs or Ordinary Shares of the Company are exempt
from Israeli capital gains tax so long as they are listed on the TASE or on a
stock exchange, such as NYSE, recognized by the Israeli Ministry of Finance and
as long as the holder of such securities is an individual or a company
wholly-owned by individuals which did not receive trading income in the relevant
tax year or which has not claimed a financial expenses deduction in such year.
The latter condition with respect to a company wholly-owned by individuals was
added as a result of an amendment from October 1998 to the Income Tax
(Adjustment for Inflation) Law 1985 (the "Inflationary Adjustment Law"), which
extended the applicability of such law to include companies, including
non-resident companies which are not wholly-owned by individuals. Taxpayers to
whom the Inflationary Adjustment Law does not apply are exempt from tax on
profits deriving from the sale of listed securities, as described above. As a
result of the amendment, taxpayers to whom the Inflationary Adjustment Law
applies, will be liable to tax on the real gain accruing to them at the time of
sale of securities. The base cost for calculating the gain will be the market
value of the securities on December 31, 1998. Notwithstanding the foregoing,
dealers in securities in Israel are taxed at applicable tax rates to ordinary
income.

Pursuant to the Convention Between the Government of the United States of
America and the Government of Israel with Respect to Taxes on Income, as amended
(the "U.S.-Israel Tax Treaty"), the sale, exchange or disposition of ADSs or
Ordinary Shares by a person who qualifies as a resident of the United States
within the meaning of the U.S.-Israel Tax Treaty and who is entitled to claim
the benefits afforded to such resident by the U.S.-Israel Tax Treaty ("Treaty
U.S. Resident") will generally not be subject to Israeli capital gains tax
unless such Treaty U.S. Resident held, directly or indirectly, shares
representing 10% or more of the voting power of the Company during any part of
the 12-month period preceding such sale, exchange or disposition, subject to
certain conditions. A sale, exchange or disposition of ADSs or Ordinary Shares
by a Treaty U.S. Resident who held, directly or indirectly, shares representing
10% or more of the voting power of the Company at any time during such preceding
12-month period would be subject to such Israeli tax, to the extent applicable;
however, under the U.S.-Israel Tax Treaty, such Treaty U.S. Resident would be
permitted to claim a credit for such taxes against the U.S. income tax imposed
with respect to such sale, exchange or disposition, subject to the limitations
in U.S. laws applicable to foreign tax credits.

Non-residents of Israel are subject to income tax on income accrued or derived
from sources in Israel or received in Israel. Such sources of income include
passive income such as dividends, royalties and interest, as well as non-passive
income from services rendered in Israel. On distributions of dividends other
than bonus shares (stock dividends) by the Company, income tax at the rate of
25% is generally withheld at source, unless a different rate is provided in a
treaty between Israel and the shareholder's country of residence.

During May 2000, the Public Committee regarding Changes in the Tax System in
Israel (Ben Bassat Committee) published various recommendations to reform the
tax laws, including recommendations that deal with tax relief on earned income
and with taxation income derived from capital and from capital market
operations.

According to the recommendations, capital gain from quoted securities of an
Israeli company, realised by an individual or a company, to which the
Inflationary Adjustment Law does not apply, will be taxable at the rate of 25%.
However, according to a clarification which the Ministry of Finance published on
May 9, 2000, residents of countries with whom Israel has signed a Treaty for the
Prevention on Double Taxation (such as the United States) will be tax-exempt on
gains from securities of companies that are listed on a stock exchange (such as
the Ordinary Shares and ADR's of Koor). In the case of controlling shareholders
who according to provision of the Treaty are liable to capital gains tax in
Israel, those person will have to report their income in Israel.

These recommendations are currently under review and there can be no assurance
as to whether or not such recommendations will be adopted or whether the final
form will differ from the proposals.
<PAGE>
ITEM 8.   SELECTED FINANCIAL DATA

Yearly Selected Financial Data

The selected consolidated financial data is derived from the Financial
Statements, which have been prepared in accordance with generally accepted
accounting principles ("GAAP") in Israel, which differ in certain respects from
U.S. GAAP. See Note 28 to the Financial Statements.

The financial data amounts are expressed in adjusted new Israeli shekels ("NIS")
or in United States dollars ("dollars" or "$"). For the convenience of the
reader, the 1999 data contains translation of NIS into dollars. No
representation is made that NIS amounts have been, could have been or can be
converted into dollars at the prevailing rate on December 31, 1999, or at any
other rate.

All figures have been adjusted to reflect the increase in the Israeli Consumer
Price Index and are accordingly all expressed in the terms of the purchasing
power at December 1999, and not in the figures as originally reported. See "Item
9. Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Unless otherwise stated, the translations of NIS into dollars appearing in this
data have been made at the representative exchange rate effective for December
31, 1999 of NIS 4.153 = $1.00 as published by the Bank of Israel, see Note 2B(1)
of Notes to Financial Statements. Therefore, it is possible to compute the
dollar equivalent of any of the figures in adjusted NIS by dividing such NIS by
the rate of exchange at December 31, 1999. See Note 2 of Notes to Financial
Statements.
<PAGE>
<TABLE>
<CAPTION>
                                                                      Year ended December, 31

                                 --------------------------------------------------------------------------------------------------
                                     1995             1996            1997              1998             1999             1999
                                 -------------    -------------   -------------    ---------------    ------------    -------------
                                                                   Adjusted NIS                                             $
                                 ----------------------------------------------------------------------------------    ------------
                                                               (In thousands, except per share data)
                                 --------------------------------------------------------------------------------------------------

Operating Data:
Israeli GAAP:
<S>                                <C>              <C>             <C>                <C>             <C>               <C>
Sales                              12,313,596       12,519,342      12,925,375         12,792,316      10,675,301        2,570,503

Gross profit                        2,711,880        2,822,887       3,035,346          2,925,292       2,545,435          612,915

Operating earnings                  1,082,782        1,093,732       1,035,594            711,950         837,870          201,751
Financial expenses, net               148,511          137,569         151,843            251,015         358,289           86,273
Other income, net                      19,411          160,175         117,399           (71,270)         107,228           25,820
Minority interest, net                160,300          249,587         254,530            239,964         (2,472)            (595)
Result of discontinued
 activities, net                       20,581           16,590          15,929             69,420                               -

Net earnings for the year             638,460          692,396         537,337             47,121         549,119          132,222

Earnings per Ordinary
 Share                                  45.70           45.71           35.05                3.07           34.89             8.40

Cash dividends declared
 per Ordinary Share                      5.85            6.41            7.56              13.94            14.13             3.40

U.S. GAAP:
Income before                         656,995          661,760         478,098            41,373          532,424          128,202
 extraordinary item

Net income                            658,025          666,214         480,740             43,190         537,899          129,521
Earnings per Ordinary
 Share                                  47.35            44.09           32.03               2.77           34.20             8.24
Earnings per ADS                         9.47             8.82            6.41               0.55            6.84             1.65

Balance Sheet Data:
Israeli GAAP

Working capital                     2,292,442        2,343,577       3,045,391          3,487,042         910,131          219,150
Total assets                       12,153,753       13,638,925      14,853,291         17,785,548      17,370,600        4,182,663
Short-term debt                     1,520,226        1,829,827       2,186,861          2,730,806       3,559,014          856,975
Long-term debt                      1,811,036        2,024,935       2,103,303          4,695,801       4,070,334          980,094
Shareholder's equity                3,518,056        4,040,471       4,532,206          4,075,918       4,384,714        1,055,795

U.S. GAAP:
Total assets                       12,120,276       13,835,621      15,136,166         17,986,891      17,560,693        4,228,436
Shareholder's equity                3,439,906        3,961,587       4,532,207          4,043,258       4,422,258        1,064,835
</TABLE>
<PAGE>
Quarterly Selected Financial Data

The selected consolidated financial data set forth below for the three months
ended March 31, 1999 and 2000 are derived from the unaudited financial
statements of the Company, not included in this annual report which, in the
opinion of management, have been prepared on the same basis as the audited
Financial Statements and reflect all adjustments (consisting only of normal
recurring adjustments) necessary for the fair presentation of the consolidated
financial condition and results of operations of the Company at the date and for
the periods indicated. All comparative figures have been adjusted to reflect the
increase in the Israeli CPI and are accordingly all expressed in the terms of
the purchasing power at March 2000, and not as originally reported.

<TABLE>
<CAPTION>
                                                                                                Three Months
                                                                                                   Ended

                                                                                                  March 31,
                                                                                                  ---------
                                                                                        (adjusted NIS in thousands)

                                                                                             1999            2000
                                                                                        --------------- ----------------
Operating Data:
Israeli GAAP:
<S>                                                                                          <C>              <C>
Sales                                                                                        2,637,891        2,144,712
Gross profit                                                                                   603,069          574,897
Operating earnings                                                                             166,640          239,614
Financial expenses, net                                                                        101,710           57,470
Other income (expenses), net                                                                   (4,067)          306,771
Taxes on income                                                                                 18,565          166,046
Equity in results of affiliates, net                                                            19,287           40,040
Minority interest, net                                                                          14,907           11,778
Net earnings for the period                                                                     46,678          351,131

                                                                                                   March 31,
                                                                                                   ---------
                                                                                                     2000
                                                                                                     ----
                                                                                          (adjusted NIS in thousands)

Balance Sheet Data:
Israeli GAAP
Working capital                                                                                               2,141,387
Total assets                                                                                                 14,986,712
Short term debt                                                                                               1,892,403
Long term debt                                                                                                3,905,344
Shareholders' equity                                                                                          4,615,858
</TABLE>
<PAGE>
ITEM 9.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the
Financial Statements and the Notes thereto, which appear elsewhere in this
Annual Report. The Financial Statements are prepared in conformity with Israeli
GAAP, as applied to Koor's Financial Statements. Israeli GAAP differ in certain
respects from U.S. GAAP, as described in Note 28 of Notes to Financial
Statements.

General

The Financial Statements are presented in NIS, adjusted to reflect changes in
the CPI through the latest balance sheet date. The financial statements of the
MA Group, Elisra Group and ECI are prepared in dollars, the functional currency
of these companies, which are then translated into NIS at the rate of exchange
prevailing at the end of the period. See Note 2B to the Financial Statements.
For comparative purposes, financial data of prior periods for these companies
are adjusted to reflect changes in the CPI between the prior periods and the
most recent reported period. During periods when the rate of inflation in Israel
differs significantly from the rate of devaluation of the NIS in relation to the
dollar, application of inflation accounting to Koor's Financial Statements
creates distortions between the comparative financial data of subsidiaries whose
functional currency is the dollar, as reported in the financial statements of
those companies and as reflected in Koor's Financial Statements.

Currently, Koor's management is exploring the possibility of preparing Financial
Statements in dollars as from April 1, 2000. The presentation in dollars is
subject to approval by Israeli authorities, and is conditioned on deriving a
majority (approximately 75%) of revenues in dollars and other foreign currency.

In accordance with Opinion No. 57 of the Institute of Certified Public
Accountants, the financial statements of companies that were jointly controlled,
principally Mashav, which includes the results of Nesher and Taavura, were
included in Koor's Financial Statements, in accordance with the proportionate
consolidation method. See Note 2C(2) to the Financial Statements.

Transactions between Koor's subsidiaries are entered into on an arm's-length
basis and, in management's opinion, generally on terms no less favorable than
those available from third parties. See "Item 13. Interest of Management in
Certain Transactions."
<PAGE>
Impact of Devaluation on Results of Operations and on Monetary Assets and
Liabilities

The following table sets forth, for the periods indicated, certain information
with respect to the rate of inflation in Israel, the rate of devaluation of the
NIS in relation to the dollar and the rate of inflation in Israel adjusted for
the NIS-dollar devaluation:

<TABLE>
<CAPTION>
                                                                       Closing                                 Annual
                                  Israeli           Israeli           Exchange             Annual            Inflation
        Year ended                Consumer         inflation         rate of the         devaluation        adjusted for
       December 31,            Price Index(1)       rate(2)           dollar(3)            rate(4)         devaluation(5)
       ------------            --------------      ---------         -----------         -----------       --------------
<S>        <C>                     <C>                <C>                 <C>                <C>               <C>
           1995                    129.4              8.1             NIS 3.135              3.9                4.0
           1996                    143.1              10.6            NIS 3.251              3.7                6.6
           1997                    153.1              7.0             NIS 3.536              8.8               (1.7)
           1998                    166.3              8.6             NIS 4.16              17.6               (8.3)
           1999                    168.5              1.3             NIS 4.153             (0.2)               1.5
</TABLE>

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

(1)  For purposes of this table, the CPI figures use 1993 as base equal to 100.
     These figures are based on reports of the Israel Central Statistics Bureau.

(2)  Annual inflation is the percentage change in the CPI in Israel between
     December of the year indicated and December of the preceding year.

(3)  Closing exchange rate is the rate of exchange between the NIS and the
     dollar at December 31 of the year indicated, as reported by the Bank of
     Israel.

(4)  Annual devaluation is the percentage increase in the value of the dollar in
     relation to the NIS during the year indicated.

(5)  Annual inflation adjusted for devaluation is obtained by dividing the
     Israeli inflation rate (column 2 plus 1) by the annual inflation rate
     (column 4 plus 1), minus 1.

Since most of the Company's operations are based in Israel, the Company incurs
significant expenses in NIS, which expenses are usually linked, wholly or
partially, to changes in the CPI.

The relationship between Koor's monetary assets and liabilities, and the
extent to which these are linked to a particular currency or price index,
affects Koor's financial results. In the event of a devaluation of the NIS,
in relation to the dollar, Koor would report a financial expense to the
extent that its dollar-denominated or dollar-linked monetary liabilities
exceed its dollar-denominated or dollar-linked monetary assets or,
conversely, Koor would report financial income if its dollar-denominated or
dollar-linked monetary assets exceeded its dollar-denominated or
dollar-linked monetary liabilities. On December 31, 1999, the excess of
Koor's foreign currency denominated or linked monetary liabilities over its
foreign currency denominated or linked monetary assets was NIS 3,521
million (the majority of which was dollar-denominated or dollar-linked).
However, in accordance with applicable accounting rules the effect of
changes in the dollar exchange rate on the balance of dollar denominated
loans amounting to approximately NIS 1,900 million that were taken to
finance acquiring ECI, the MA Group and Tadiran's equity, was charged to
Koor's shareholder's equity under "Cumulative foreign currency translation
adjustments", rather than being reported as a financial expense.

In addition, Koor and certain subsidiaries have entered into financial
agreements with major Israeli banks and other financial institutions in
order to reduce the overall exposure of assets and liabilities denominated
in foreign currencies, and commitments for the purchase of raw materials
and the sale of goods in currencies other than the dollar arising from
foreign currency exchange rates. Such agreements include forward sales,
purchase contracts, sale options and swap transactions. As at December 31,
1999, the balance of Koor hedging agreements amounted to approximately NIS
1,400 million.

Also, the receipt of divestiture proceeds on January 6, 2000 significally
reduced Koor financial debt and overall exposure to currency exchange rates. By
the end of February 2000 Koor`s hedging activities of NIS 1,400 million expired
and were not renewed.
<PAGE>
Koor and its subsidiaries do not hold or issue financial instruments or
derivative financial instruments for trading purposes. See Note 21B to the
Financial Statements. The caption "Financial expenses, net" in the Financial
Statements includes the impact of these factors on monetary assets and
liabilities, as well as regular interest expense.

Effective Corporate Tax Rate

Koor does not file a consolidated tax return with its subsidiaries, and is
taxed only on its own income. Each subsidiary of Koor files its own tax
return, based on its own taxable income. The income tax obligations of Koor
and its Israeli subsidiaries are based on earnings determined in nominal
NIS for Israeli statutory purposes, adjusted for tax purposes, in terms of
end-of-year Israeli currency, in accordance with changes in the CPI. The
tax provision in the Financial Statements does not directly relate to
income shown on such statements, for the reconciliation between the
theoretical and actual tax expense. Non-Israeli subsidiaries are taxed
based upon tax laws in their countries of residence. The effective
corporate tax rate is affected mainly by tax benefits arising from reduced
tax rates applied to Approved Enterprises, utilization of tax loss
carryforwards for which no deferred taxes were recorded, the effect of the
Inflationary Adjustment Law on Israeli companies, whose functional currency
is the dollar and disallowance of provisions for anticipated losses from
the sale of assets. The Company's overall effective tax rates for 1997,
1998 and 1999 were 23.6%, 60.0% and 27.6%, respectively. See Note 16G(2) to
the Financial Statements.
<PAGE>
The following tables summarize certain recent financial information relating to
each of the Company's businesses. The tables are prepared on the same basis as
that utilized in the Financial Statements. See Note 24 to the Financial
Statements.

<TABLE>
<CAPTION>
                                                                                                               Convenience
                                                                                 1998/1997                     Translation
                                                 CPI - adjusted NIS            Changes  CPI - adjusted NIS     into     1999/1998
                                  -------------------------------------------          --------------------   Dollars    Changes
                                       1997        %         1998         %      %         1999         %      1999         %
                                  -------------  ------  ------------- ------ -------- ------------  ------  ---------- ---------
                                 (In thousands)          (In thousands)               (In thousands)       (In thousands)
REVENUES FROM SALES


<S>                                <C>            <C>    <C>            <C>    <C>    <C>            <C>     <C>         <C>
Telecommunication equipment        NIS 3,408,168  26.37  NIS 3,419,501  26.73    0.3  NIS 2,199,702   20.61  $  529,666  (35.7)
Defense electronics                    1,458,576  11.28      1,572,584  12.29    7.8      1,333,690   12.49     321,139  (15.2)
Agrochemicals                          2,881,212  22.29      3,376,893  26.40   17.2      3,540,922   33.17     852,618    4.9
Buildings and infrastructure
  materials                            1,964,115  15.20      1,645,089  12.86  (16.2)     1,445,878   13.54     348,152  (12.1)
Other                                  3,213,304  24.86      2,778,249  21.72  (13.5)     2,155,109   20.19     518,928  (22.4)
                                   ------------- ------  ------------- ------  -----  -------------  ------  ----------  -----

Total                                 12,925,375 100.00     12,792,316 100.00   (1.0)    10,675,301  100.00   2,570,503  (16.5)

OPERATING EARNINGS:

Telecommunication equipment              299,429  25.59         46,406   5.28  (84.5)       260,662   27.67      62,765  461.7
Defense electronics                      138,126  11.81        167,684  19.07   21.4         69,060    7.33     16,629   (58.8)
Agrochemicals                            359,271  30.70        428,441  48.74   19.3        390,503   41.45      94,029   (8.9)
Buildings and infrastructure
  materials                              202,857  17.34         76,251   8.67  (62.4)       127,210   13.50      30,631   66.8
Other                                    170,317  14.56        160,293  18.24   (5.9)        94,685   10.05      22,799  (40.9)
                                   ------------- ------  ------------- ------  -----  -------------  ------  ---------- ------

Total                                  1,170,000 100.00        879,075 100.00  (24.9)       942,120  100.00     226,853    7.2
                                   ============= ======  ============= ======  =====  =============  ======  ========== ======

CAPITAL EXPENDITURES:

Telecommunication equipment              223,654  22.99        208,106  19.09   (7.0)        67,051    9.50      16,145  (67.8)
Defense electronics                       50,429   5.18         67,772   6.22   34.4         42,888    6.07      10,327  (36.7)
Agrochemicals                            312,166  32.08        340,780  31.25    9.2        277,545   39.31      66,830  (18.6)
Buildings and infrastructure             165,007  16.96        289,308  26.53   75.3        119,455   16.93      28,764  (58.7)
Other                                    221,709  22.79        184,375  16.91  (16.8)       199,078   28.19      47,936    8.0
                                   ------------- ------  ------------- ------  -----  -------------  ------  ---------- ------

Total                                    972,965 100.00      1,090,341 100.00   12.1        706,017  100.00     170,002  (35.2)
                                                 ======                ======  =====                 ======             ======
DISCONTINUED ACTIVITY                     64,053                31,873
CORPORATE ASSETS                           1,870                27,112                       14,052               3,383
                                   -------------         -------------                -------------          ----------

                                       1,038,888             1,149,326                      720,069             173,385
                                   =============         =============                =============          ==========
EXPORTS OF KOOR PRODUCTS
BY BUSINESSES (1)

Telecommunication equipment        NIS 1,755,604  30.27  NIS 2,201,755  33.40   25.4  NIS 1,539,242   27.53    $370,634  (30.1)
Defense electronics                    1,069,771  18.44      1,069,924  16.23    0.0        763,151   13.65     183,759  (28.7)
Agrochemicals                          2,336,356  40.28      2,789,365  42.32   19.4      2,918,533   52.19     702,753    4.6
Building and infrastructure               23,075   0.40         18,641   0.29  (19.2)        12,810    0.23       3,084  (32.3)
Other                                    615,352  10.61        511,554   7.76  (16.9)       357,830    6.40      86,162  (30.1)
                                   ------------- ------  ------------- ------  -----  -------------  ------  ---------- ------

Total                                  5,800,158 100.00      6,591,239 100.00  13.64      5,591,566  100.00   1,346,392  (15.2)
                                   ============= ======  ============= ======  =====  =============  ======  ========== ======

EXPORTS OF KOOR PRODUCTS
BY DESTINATIONS (2)

North America                          1,785,456  30.78      1,907,365  28.94   6.83      1,608,174   28.76     387,232  (15.7)
Europe                                 1,588,563  27.39      2,032,650  30.84  27.96      1,710,133   30.58     411,782  (15.9)
South America                          1,295,826  22.34      1,563,876  23.72  20.69      1,433,075   25.63     345,070   (8.4)
Africa                                    77,826   1.34        176,423   2.68 126.69        129,132    2.31      31,094  (26.8)
Asia and Australia                     1,052,487  18.15        910,925  13.82 (13.45)       711,052   12.72     171,214  (21.9)
                                   ------------- ------  ------------- ------  -----  -------------  ------  ---------- ------

Total                                  5,800,158 100.00      6,591,239 100.00  13.64      5,591,566  100.00   1,346,392  (15.2)
                                   ============= ======  ============= ======  =====  =============  ======  ========== ======
</TABLE>
-----------

(1)  Including foreign industrial operations.
(2)  Destination to which shipment is made.
<PAGE>
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

The following is an analysis of Koor's consolidated results of operations, which
is followed by an analysis of results of operations of each of Koor's
businesses.

Revenues. Revenues decreased 16.5% to NIS 10,675 million in 1999 compared to NIS
12,792 million in 1998. Exports and international operations, representing 57.9%
of revenues, decreased 14.3% in 1999, primarily due to sales of companies which
are no longer consolidated in the framework of consolidated financial statements
which was partially offset by increased exports in Telrad and in the
Agrochemicals business.

Revenues increased 4.9% in the Agrochemicals business and decreased by 35.7%,
15.2%, 12.1% and 22.4% in the Telecommunication Equipment, the Defense
Electronics, the Building and Infrastructure Materials and in the Other
Businesses, respectively.

Operating earnings. Operating earnings increased 17.7% to NIS 838 million in
1999 compared to NIS 712 million in 1998. Operating earnings increased 461.7% in
the Telecommunication Equipment business and 66.8% in the Building and
Infrastructure Materials business. Operating earnings decreased 58.8% in the
Defense Electronics business, 8.9% in the Agrochemicals business and 40.9% in
the Other Businesses business.

Financing expenses, net. Financing expenses increased 42.6% to NIS 358 million
in 1999 compared to NIS 251 million in 1998. The above increase occurred
primarily in Koor, as a result of increase in long-term bank borrowings during
1999 and in the MA Group, as a result of significant translation differences
between the Brasilian currency and the dollar.

Other income, net. Other income, net amounted to NIS 107 million in 1999
compared to other expenses of NIS 71 million in 1998. Other income in 1999
consisted mainly of NIS 642 million in capital gains derived from from the
divestiture of holdings, mainly in Tadiran Com. and Tadiran's software
companies (NIS 434 million in income in 1998), net of NIS 206 million in
additional provisions for retirement and pension arrangements, in
particular in Telrad and MA Group (NIS 269 million in provisions in 1998)
and from NIS 266 million in expenses in respect of writing down of assets,
mainly United Steel, Hotels and the reorganization program in the MA Group
(NIS 232 million in expenses in 1998). Other income, net was partially
offset by an amortization of goodwill of NIS 49 million in 1999 ( NIS 27 in
1998) and NIS 53 million provision due to uncertainty in Brasil in 1999.

Taxes on income. Taxes on income decreased 30.8% to NIS 162 million in 1999
compared to NIS 234 million in 1998. Taxes on income as a percentage of
income before taxes in 1999 and 1998 were 27.6% and 60.0%, respectively.
The decrease in taxes derives mainly from the anticipated utilization of
carryforward losses of NIS 129 million in Koor and the decline of the
adverse affect of devaluation on the tax expense of subsidiaries the
financial statements of which are dollar adjusted. Taxes on income in 1999
include taxes on capital gains of NIS 190 million compared to NIS 95
million in 1998.

Equity in the operating results of affiliates, net. Koor's share in net
profits of affiliated companies increased to NIS 122 million in 1999
compared to NIS 62 million in 1998, primarily as a result of the increase
in Koor's share in the profits of ECI from NIS 49 million in 1998 to NIS
144 million in 1999.

Minority interest in subsidiaries, net. Minority interest in the losses of
subsidiaries amounted to NIS 2 million in 1999 compared to minority interest in
the profits of NIS 240 million in 1998. The decrease in this item occurred
mainly in the profits of Tadiran as a result of Koor's purchase of the minority
interests, the termination of consolidation of TTL and the decline in profits of
the MA Group.
<PAGE>
Net earnings. As a result of the above factors, net earnings increased to NIS
549 million in 1999 compared to NIS 47 million in 1998. As a percentage of
revenues, net earnings were 5.1% in 1999 compared to 0.4% in 1998.

<TABLE>
<CAPTION>
Telecommunication Equipment Business

                                                                            Year Ended December 31,
                                                            -----------------------------------------------------------
                                                                 1998             1999              1999
                                                            -------------    -------------    ---------------
                                                             (Adjusted NIS in thousands)      ($ in thousands)

<S>                                                         <C>              <C>                  <C>
Revenue.................................................    NIS 3,419,501    NIS 2,199,702        $529,666
Operating earnings......................................           46,406          260,662          62,765
</TABLE>

Revenues from the Telecommunication Equipment business decreased 35.7% to NIS
2,200 million in 1999 from NIS 3,420 million in 1998. The termination of
consolidation of TTL in 1999 following the ECI merger caused a decrease in
revenues of NIS 1,717 million. Telrad increased its sales by NIS 484 million in
1999 mainly as a result of increased supplies to Nortel.

Revenues from this business related to sales of telecommunication equipment to
Nortel were NIS 836 million in 1999 compared to NIS 533 million in 1998, or
38.0% compared to 15.6% of the Telecommunication Equipment business revenues in
1999 and 1998, respectively.

The Telecommunication Equipment business exports amounted to NIS 1,539 million
in 1999 compared to NIS 2,202 million in 1998. The decrease of export sales
resulted primarily from the termination of consolidation of TTL in 1999, which
was partially offset by increased export sales of Telrad.

Operating earnings from this business increased 461.7% in 1999 to NIS 261
million compared to NIS 46 million in 1998. The increase in operating earnings
was a result of an NIS 264 million operating profit in Telrad in 1999 due to a
reorganization program implemented by Telrad's new management since the second
half of 1998 and an increase in Telrad sales of telecommunications equipment. In
1998 Telrad's operating loss amounted to NIS 113 million. In 1998 the businesses
operating profit included NIS 176 million from TTL, which merged into ECI
effective as of January 1, 1999.

In May 2000, Telrad signed an agreement to sell the Public Switching and other
operations that constitutes approximately 40%-50% of Telrad's business to Nortel
Israel.

<TABLE>
<CAPTION>
Defense Electronics Business

                                                                            Year Ended December 31,
                                                            -----------------------------------------------------------
                                                                 1998             1999              1999
                                                            -------------    -------------    ---------------
                                                             (Adjusted NIS in thousands)      ($ in thousands)

<S>                                                         <C>              <C>                  <C>
Revenues................................................    NIS 1,572,584    NIS 1,333,690        $321,139
Operating earnings......................................          167,684           69,060          16,629
</TABLE>

Revenues from the Defense Electronics business decreased 15.2% to NIS 1,334
million in 1999 from NIS 1,573 million in 1998. This decrease was primarily due
a NIS 280 million decrease in revenues from Tadiran Com. due to the sale of this
company in the fourth quarter of 1999 and the decrease in military exports of
communication systems to the U.S. Army. This decrease was partially offset by an
increase in sales of Elisra.
<PAGE>
Operating earnings from this business decreased 58.8% in 1999 to NIS 69 million
compared to NIS 168 million in 1998. The decrease in operating earnings was a
result of an NIS 60 million decline in operating profit in Tadiran Com. in 1999
and NIS 47 million decline in operating profit in TES mainly due to the cost of
a reorganization program and a result of decline in sales that was partially
ofset by an increase in operating profit in Elisra and Tadiran Spectralink.

<TABLE>
<CAPTION>
Agrochemicals Business

                                                                            Year Ended December 31,
                                                            -----------------------------------------------------------
                                                                 1998             1999              1999
                                                            -------------    -------------    ---------------
                                                             (Adjusted NIS in thousands)      ($ in thousands)

<S>                                                         <C>              <C>                  <C>
Revenues................................................    NIS 3,376,893    NIS 3,540,922        $852,618
Operating earnings......................................          428,441          390,503          94,029
</TABLE>

Revenues from the Agrochemicals business increased 4.9% to NIS 3,541 million in
1999 compared to NIS 3,377 million in 1998, primarily as a result of increased
sales of newly launched herbicides and insecticides products and sales of newly
acquired companies. Approximately 89.3% and 90.7% of the sales in 1999 and 1998,
respectively, were made outside of Israel. 36.1% and 39.0% of total sales in
1999 and 1998, respectively, were to South America.

Operating earnings for this business decreased 8.9% in 1999 to NIS 391 million
compared to NIS 428 million in 1998. The decrease in operating income was
primarily due to the erosion of sale prices as a result of reduced demand for
agrochemicals and increased competition from major international chemical
companies.

<TABLE>
<CAPTION>
Building and Infrastructure Materials Business

                                                                            Year Ended December 31,
                                                            -----------------------------------------------------------
                                                                 1998             1999              1999
                                                            -------------    -------------    ---------------
                                                             (Adjusted NIS in thousands)      ($ in thousands)

<S>                                                         <C>              <C>                  <C>
Revenues................................................    NIS 1,645,089      NIS 1,445,878              $348,152
Operating earnings......................................           76,251            127,210                30,631
</TABLE>

Revenues from the Building and Infrastructure Materials business decreased 12.1%
to NIS 1,446 million in 1999 compared to NIS 1,645 million in 1998. The decrease
in revenues in 1999 was primarily a result of a continued erosion in selling
prices in cement and pipes due to slowdown in the Israeli construction market as
well as, the divestiture at the end of the second quarter of 1999 of Merhav. In
1999, Metco's revenues decreased 18.2% to NIS 196 million compared to NIS 240
million in 1998.

Operating earnings for this business increased 67.19% in 1999 to NIS 127 million
compared to NIS 76 million in 1998, primarily due to a substantial decrease in
operating losses of United Steel and increase in operating profit in Nesher due
to the commencement of production at its dry line plant.

In 1999 and at the beginning of 2000, Koor disposed of its interest in all of
the companies in this business other than United Steel Mills.
<PAGE>
<TABLE>
<CAPTION>
Other Businesses

                                                                            Year Ended December 31,
                                                            -----------------------------------------------------------
                                                                 1998             1999              1999
                                                            -------------    -------------    ---------------
                                                             (Adjusted NIS in thousands)      ($ in thousands)

<S>                                                         <C>              <C>                  <C>
Revenues................................................    NIS 2,778,249        NIS 2,155,109              $518,928
Operating earnings......................................          160,293               94,685                22,799
</TABLE>

Revenues of the Other business in 1999 decreased 22.4% to NIS 2,155 million
compared to NIS 2,778 million in 1998. The decrease was principally the result
of the sale of a number of holdings in this business in 1998 and 1999, including
Soltam, Pri Hagalil, Hod Lavan, the Software companies of Tadiran and others.
This decrease was partially offset by an increase in sales of Sheraton Moriah of
NIS 142 million which was consolidated for the first time in 1999.

Operating earnings for this business decreased 40.9% in 1999 to NIS 95 million
compared to NIS 160 million in 1997, primarily due to the divestiture Tadiran
software-related companies and food-related companies which reported operating
earnings in 1998 and an increase in the operating losses from the tourism hotel
activities.

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

The following is an analysis of Koor's consolidated results of operations, which
is followed by an analysis of results of operations of each of Koor's
businesses.

Revenues. Revenues decreased 1.0% to NIS 12,792 million in 1998 compared to NIS
12,925 million in 1997. Exports and international operations, representing 51.5%
of revenues, increased 13.6% in 19, primarily due to increased exports in the
Telecommunication Equipment and Defense Electronics business and in the
Agrochemicals business.

Revenues increased 17.2% in the Agrochemicals business, 7.8% in the Defense
Electronics business and 0.3% in the Telecommunication Equipment business.
Revenues decreased by 16.2% in the Building and Infrastructure Materials
business and 13.5% in the Other Businesses.

Operating earnings. Operating earnings decreased 31.3% to NIS 712 million in
1998 compared to NIS 1,036 million in 1997. Operating earnings increased 19.3%
in the Agrochemicals business and 21.4% in the Defense Electronics business.
Operating earnings decreased 74.5% in the Telecommunication Equipment business,
62.4% in the Building and Infrastructure Materials business and 5.9% in the
Other Businesses.

Financing expenses, net. Financing expenses increased 65.3% to NIS 251 million
in 1998 compared to NIS 152 million in 1997. The above increase occurred
primarily in Koor, as a result of increase in long-term bank borrowings and the
real devaluation of the NIS against the dollar in 1998, and in MA Industries, as
a result of a significant increase in its operations.

Other expenses, net. Other expenses, net amounted to NIS 71 million in 1998
compared to other income of NIS 117 million in 1997. These expenses in 1998 are
comprised mainly of NIS 269 million in expenses derived from additional
provisions for retirement and pension arrangements, in particular in Telrad and
Metco (NIS 27 million in 1997) and from NIS 232 million in expenses in respect
of writing down of assets, mainly due to discontinuance or sale of operations
not synergetic to Koor's core businesses (NIS 70 million in 1997). Capital gain
of NIS 434 million in 1998 from divestiture of holdings mainly in Gvanim,
Soltam, Home Center, TTL's wireless division and Tambour, partially offset the
amount of other expenses (NIS 180 million in 1997).
<PAGE>
Taxes on income. Taxes on income decreased 0.8% to NIS 234 million in 1998
compared to NIS 236 million in 1997. Taxes on income as a percentage of income
before taxes in 1998 and 1997 were 60.0% and 23.6%, respectively. The increase
in taxes as a percentage of income in 1998 is mainly attributed to the non
allowance for tax purposes of provisions for the write-down of the value of
assets and the adverse affect of devaluation on the tax expense of subsidiaries
the financial statements of which are dollar adjusted.

Equity in the operating results of affiliates, net. Koor's share in net profits
of affiliated companies increased to NIS 62 million in 1998 compared to NIS 11
million in 1997, primarily as a result of Koor's share in the profits of ECI.

Minority interest in subsidiaries, net. Minority interest in subsidiaries
amounted to NIS 240 million in 1998 compared to NIS 255 million in 1997. The
decrease in this item was less than the decrease in net earnings, primarily due
to the fact that certain losses of Telrad were not attributed to the minority
shareholders who have a put option to sell Koor their Telrad shares under
certain conditions.

Discontinued operations, net. This item increased to NIS 69 million in 1998
compared to NIS 16 million in 1997. This increase was due to a capital gain in
1998 amounting to NIS 60 million (net of income taxes) from the divestiture of
Granite.

Net earnings. As a result of the above factors, net earnings decreased to NIS 47
million in 1998 compared to NIS 537 million in 1997. As a percentage of
revenues, net earnings were 0.4% in 1998 compared to 4.2% in 1997.

<TABLE>
<CAPTION>
Telecommunication Equipment Business

                                                                  Year Ended December 31,
                                                            ---------------------------------
                                                                 1997                 1998
                                                            -------------        -------------
                                                             (Adjusted NIS in thousands)

<S>                                                         <C>              <C>
Revenues................................................    NIS 3,408,168       NIS 3,419,501
Operating earnings......................................          299,429              46,406
</TABLE>

Revenues from the Telecommunication Equipment business increased 0.3% to NIS
3,420 million in 1998 from NIS 3,408 million in 1997. This increase was
primarily due to an increase in civilian export sales of telecommunication
equipment by TTL and Telrad. This increase was partially offset by a decrease in
sales of telecommunication equipment to Bezeq.

Revenues from this business related to sales of telecommunication equipment to
Bezeq were NIS 525 million in 1998 compared to NIS 818 million in 1997, or 15.4%
compared to 24.0% of the Telecommunication Equipment business revenues in 1998
and 1997, respectively. The decrease in Bezeq related revenues was consistent
with changes that occurred in 1997 in which Bezeq reassessed its equipment
procurement policy and negotiated lower prices.

The Telecommunication Equipment business exports amounted to NIS 2,202 million
in 1998 compared to NIS 1,756 million in 1997. The increase of 25.4% in export
resulted primarily from increase in civilian telecommunication equipment sales
and the sales of TMN, which was consolidated for the first time in 1998.

Operating earnings for this business decreased 74.5% in 1998 to NIS 46 million
compared to NIS 299 million in 1997. The decline in operating earnings was a
result of an operating loss in Telrad due to a decline in supply of
telecommunications equipment to Bezeq and to the reorganization program
implemented by Telrad's new management. This decline was partially offset by
improvements in Tadiran's telecommunication business.
<PAGE>
<TABLE>
<CAPTION>
Defense Electronics Business

                                                                        Year Ended December 31,
                                                                     ---------------------------
                                                                           1997         1998
                                                                     ---------------------------
                                                                     (Adjusted NIS in thousands)

<S>                                                                  <C>             <C>
Revenues....................................................         NIS 1,458,576   NIS 1,572,584
   Operating earnings.......................................               138,126         167,684
</TABLE>

Revenues from the Defense Electronics business increased 7.8% to NIS 1,573
million in 1998 from NIS 1,459 million in 1997. This increase was primarily due
to an increase in export sales of Tadiran Electronic Systems. This increase was
partially offset by a decrease in military exports of communication systems to
the U.S. Army.

Operating earnings from this business increased 21.4% in 1998 to NIS 168
million compared to NIS 138 million in 1997. The increase in operating
earnings was a result of increased sales of Tadiran Electronic Systems.


<TABLE>
<CAPTION>
Agrochemicals Business

                                                                        Year Ended December 31,
                                                                     ---------------------------
                                                                           1997         1998
                                                                     ---------------------------
                                                                     (Adjusted NIS in thousands)

<S>                                                                  <C>             <C>
Revenues....................................................         NIS 2,881,212   NIS 3,376,893
    Operating earnings......................................               359,271         428,441
</TABLE>


Revenues from the Agrochemicals business increased 17.2% to NIS 3,377
million in 1998 compared to NIS 2,881 million in 1997, primarily as a
result of increased sales of herbicides and insecticides in South America
by subsidiaries acquired in 1997 and 1998. Due to the timing of these
acquisitions in 1997, the financial statements of these newly acquired
companies were fully reflected only in Koor's 1998 Financial Statements.
Approximately 90.6% and 89.8% of the sales in 1998 and 1997, respectively,
were made outside of Israel. 40.1% and 35.9% of export and international
sales in 1998 and 1997, respectively, were to South America.

Operating earnings for this business increased 19.3% in 1998 to NIS 428
million compared to NIS 359 million in 1997. The increase in operating
income was primarily due to increased sales and the launching of new higher
margin products that was partially offset by increased provision for
doubtful debts and expenses related to the merger of the Brazil activities.
<PAGE>
<TABLE>
<CAPTION>
Building and Infrastructure Materials Business

                                                                        Year Ended December 31,
                                                                     ---------------------------
                                                                           1997         1998
                                                                     ---------------------------
                                                                     (Adjusted NIS in thousands)

<S>                                                                  <C>             <C>
Revenues....................................................         NIS 1,964,115   NIS 1,645,089
   Operating earnings.......................................               202,857          76,251
</TABLE>


Revenues from the Building and Infrastructure Materials business decreased
16.2% to NIS 1,645 million in 1998 compared to NIS 1,964 million in 1997.
The decrease in revenues in 1998 was primarily a result of a slowdown in
the Israeli construction market due to a general slowdown in the Israeli
economy as well as continuous erosion in selling prices in cement, pipes
and steel. In 1998, Nesher marketed 6.5 million tons of cement, compared to
6.8 million in 1997. Nesher's sales of cement and the portion of Ta'avura's
infrastructure sales represented 47.4% of the business sales. In 1998,
revenues from United Steel decreased 15.6% to NIS 450 million compared to
NIS 533 million in 1997, and Metco's revenues decreased 11.5% to NIS 241
million compared to NIS 273 million in 1997.

Operating earnings for this business declined 62.4% in 1998 to NIS 76
million compared to NIS 203 million in 1997, primarily due to a lower level
of sales and erosion in prices in United Steel and Metco.

<TABLE>
<CAPTION>
Other Businesses

                                                                        Year Ended December 31,
                                                                     ---------------------------
                                                                           1997         1998
                                                                     ---------------------------
                                                                     (Adjusted NIS in thousands)

<S>                                                                  <C>             <C>
Revenues....................................................         NIS 3,213,304   NIS 2,778,249
Operating earnings..........................................               170,317         160,293
</TABLE>


Revenues from Other Businesses decreased 13.5% to NIS 2,778 million in 1998
compared to NIS 3,213 million in 1997. This decrease was primarily due to
(i) a decrease of NIS 453 million (54.6%) in revenues of Koor's
food-related companies as a result of divestitures of Shemen at the end of
1997 and Hod Lavan and Pri Hagalil in 1998; (ii) a decrease of NIS 142
million in revenues from metal-related companies including, among others,
Soltam following their divestiture through 1997 and 1998; and (iii) an
increase of NIS 111 million in Tadiran Appliances.

Operating earnings for this business decreased 5.9% in 1998 to NIS 160
million compared to NIS 170 million in 1997, primarily due to an increase
in operating earnings of Tadiran Appliances, Taavura (the non
infrastructure related activities) and the tourism group. Such increase was
partially offset as a result of the above divestitures of food-related and
metal-related companies.
<PAGE>
Liquidity and Capital Resources

Koor finances its corporate level activities principally through proceeds from
divestitures, management fees and dividends it receives from subsidiaries and
affiliates and through debt financing. In 1999 and 1998, Koor received
management fees in the amount of NIS 65 million and of NIS 63 million,
respectively, and dividends (including return of investment) in the amount of
NIS 1,540 million and NIS 1,298 million, respectively. The dividends received in
1999 and 1998 includes dividends from Tadiran, Mashav and Telrad Holdings that
represent proceeds received from divestitures.

Koor's shareholders' equity at December 31, 1999 increased 7.6% to NIS 4,385
million, compared to NIS 4,076 million at December 31, 1998. The increase in
1999 is primarily due to a NIS 549 million net profit, net of NIS 226 million
interim dividends declared.

Working capital at December 31, 1999 was NIS 910 million, compared to NIS 3,487
million at December 31, 1998 and NIS 2,344 million at December 31, 1997. The
decrease in 1999 is primarily due to a NIS 887 million investment in affiliated
companies and divestitures.

Long-term debt aggregated NIS 4,070 million at December 31, 1999 and constituted
23.4% of total assets, compared to NIS 4,696 million constituted 26.4% of total
assets at December 31, 1998. The decrease in the balance of long-term debt is
attributed mainly to long-term debt repayed by Koor in 1999.

Total debt at December 31, 1999 increased 73.1% to NIS 7,629 million, or 43.9%
of total assets, compared to NIS 7,427 million, or 41.8% of total assets, at
December 31, 1998. This increase was a result of a NIS 828 million increase in
the short- term debt.

Cash Flows

Cash flows from operating activities increased 6.0% to NIS 721 million in
1999, compared to NIS 680 million in 1998 and NIS 823 million in 1997. The
increase in 1999 was primarily due to a decrease of NIS 4 million in net
asset and liability items relating to current operations, mainly the
increase in trade and other payables in 1999, compared to an increase of
NIS 88 million in 1998. The increase in trade and other receivables in 1999
of NIS 364 million relates mainly to Telrad and the MA Group and is due
mainly to an increase in credit to foreign customers.

Cash flows used for investment activities decreased 59.4% to NIS 1,743
million in 1999 compared to NIS 4,296 million in 1998 and NIS 1,067 million
in 1997. Investments in fixed and other assets, net of investment grants,
aggregated NIS 717 million in 1999 compared to NIS 1,133 million in 1998
and NIS 995 million in 1997, and represented 126% of depreciation and
amortization compared to 166% in 1998 and 148% in 1997. The principal
investments in fixed assets during 1999 were by the MA Group, Mashav and
Tadiran.

The net proceeds from sale of investments and fixed assets contributed NIS 834
million to cash flows generated from investment activities in 1999, compared to
NIS 926 million in 1998. The 1999 net proceeds are mainly from the sale of
holdings of software companies and Tadiran Com. at Tadiran, Koor Finance,
Merhav
and others, as well as the sale of fixed assets, mainly hotels and by the car
hire subsidiary.

In 1999, investment in affiliated companies, net, aggregated NIS 887
million compared to NIS 1,897 million in 1998 and NIS 40 million in 1997,
mainly due to the NIS 662 million invested in 1999 in the purchase of
shares of ECI.

The investment in consolidated subsidiaries aggregated NIS 119 million in
1999 compared to NIS 1,255 million in 1998 and NIS 94 million in 1997. The
1999 investment is primarily attributed to the completion of Koor`s
investment in the purchase of Tadiran's shares.
<PAGE>
Financing activities in 1999 generated NIS 989 million compared to NIS 3,708
million in 1998 and NIS 584 million in 1997.

Long-term debt incurred during 1999 totaled NIS 826 million, compared to
NIS 3,395 million in 1998. Long term debt in 1999 consisted primarily of
loans taken by MA Group and Telrad. Repayment of long-term debt totaled NIS
606 million in 1999, compared to NIS 685 million in 1998.

Net short-term debt increased by NIS 914 million in 1999, compared to NIS
173 million in 1998. Short-term debt in 1999 increased mainly in Koor - the
parent company, in Tadiran and Mashav.

Dividends in the amount of NIS 144, 193 and 127 millions were paid to
Koor's shareholders in 1999, 1998 and 1997, respectively.

ITEM 9A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of changes in the value of financial
instruments caused by fluctuations in interest rates, foreign exchange
rates and equity prices.

Market risk related to foreign currency exchange rates

At December 31, 1999, the Company had net monetary liabilities in foreign
currency amounting to approximately NIS 3,500 million. Substantially all of
such net monetary liabilities was denominated in dollars or linked thereto,
except for approximately NIS 600 mllion of net monetary assets denominated
in Brasilian reales. At December 31, 1999, the Company had a balance of
approximately NIS 1,500 million of financial instruments designated to
hedge dollar denominated loans and divestiture proceeds received in the
beginning of 2000. The Company had a balance of approximately NIS 270
million of financial instruments designated to hedge Brasilian reale
assets.

In addition to hedging its foreign currency exposure with financial
instruments, the Company's foreign currency exposure is reduced in the
following ways:

(1)  Approximately NIS 1,160 million of the Company's net monetary liabilities
     in foreign currency are liabilities of subsidiaries whose functional
     currency is the dollar and who are therefore not exposed to market risk
     with respect to such liabilities from changes in the exchange rate of the
     dollar; and

(2)  Approximately NIS 1,900 million of the Company's net monetary liabilities
     in foreign currency are dollar liabilities that were incurred by the
     Company to acquire shares in investee companies whose functional currency
     is the dollar. As a result, the additional financial expenes that arise
     from an increase in the exchange rate of the dollar are offset by the
     increase in the value of underlying assets.

Market risk was estimated as the potential increase in net monetary
liabilities resulting from a hypothetical 5% increase in the exchange rate
of the dollar. At December 31, 1999, assuming such increase in the dollar
exchange rate, the Company's financial expenses would decrease by
approximately NIS 50 million.

Primarily as a result of the repayment of the balance of the specific loans
described above and the expiration of the majority of hedging instruments
in the first quarter of 2000, at March 31, 2000, a 5% increase in the
dollar exchange rate would increase Company's financial expenses by
approximately NIS 50 million.

For a disclosure regarding the Company's foreign currency exchange rate
financial instruments to reduce its overall exposure to foreign currency
exchange rate risk and the linkage terms of the net monetary liabilities,
see Note 21 to the Financial Statements.
<PAGE>
Market risk related to interest rates

The Company does not hold or issue financial instruments regarding interest
rate risk.

At December 31, 1999 approximately NIS 4,500 million of the Company's net
financial liabilities were in dollars or linked thereto and bore variable
interest rates. Market risk was estimated as the potential hypothetical
increase of 1% in the interest rate and amounted to NIS 45 million increase
in annual interest expense. According to Koor's agreements with banks, Koor
has the right of early repayment of NIS 1,040 million until July 2000 and
NIS 1,260 million in the following year.

At December 31, 1999 and at March 31, 2000, approximately NIS 600 million and
NIS 300 million, respectively, of Koor's net excess of financial liabilities
over financial assets were linked to the CPI and bear fixed interest rates.
Market risk was estimated as the potential hypothetical decrease of 1% in the
relevant interest rates. Such decrease would have no immediate influence on
Koor's financial expenses. According to Koor's agreements with banks, Koor has
the right of early repayment regarding NIS 400 million of the above liabilities
from July 2000 and until the date of maturity in June 2003. Therefore, the
change in the fair value of these long term financial liabilities would not be
material.

Market risk related to equity prices

The Company has equity marketable securities at December 31, 1999 of
approximately NIS 90 million. Market risk was estimated as the potential
hypothetical decrease of 20% in the prices of these securities. Assuming such
decrease, the fair value of the equity marketable securities would decrease by
approximately NIS 18 million.
<PAGE>
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

<TABLE>
<CAPTION>
Name                                Age    Position

<S>                                 <C>    <C>
Charles R. Bronfman.............    69     Chairman of the Board of Directors
Jonathan Kolber(1)..............    38     Vice Chairman of the Board of Directors and Chief Executive Officer
Dr. Janet Aviad.................    58     Director
Joseph Dauber(1)(3).............    65     Director
Moshe Dovrat (2)(4).............    55     Director
Ron Feinstein(2)................    62     Director
Avi Harel (2)...................    52     Director
Andrew Hauptman (1)(3)..........    31     Director
Jacob Hornik(1)(2)(3)(4)........    58     Director
Eli Hurwitz.....................    68     Director
Samuel Minzberg.................    51     Director
Chemi Peres.....................    42     Director
David Biran.....................    60     Director
Prof. Gavriela Shalev...........    59     Director
Danny Biran.....................    57     President
Yosef Ben-Shalom................    44     Executive Vice President and Chief Financial Officer
Shlomo Heller...................    56     General Counsel and Corporate Secretary
Gil Leidner.....................    49     Vice President and Head of Mergers and Acquisitions
Aron Zuker......................    54     Vice President
</TABLE>

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

(1)  Member of Koor's Executive Committee.

(2)  Member of the Audit Committee.

(3)  Member of the Remuneration Committee.

(4)  Independent directors. Under the Israeli Companies Law 1999 (the "Companies
     Law"), publicly held companies in Israel are required to appoint at least
     two independent directors.

Under Koor's Articles of Association, the appointment of members to the
Board of Directors, their replacement and removal, and the appointment of
the Chairman of the Board of Directors is effected by Koor's shareholders
by ordinary resolution. Each member of the Board of Directors shall remain
in office until his office shall be vacated due to any one of the following
events: his death, legal incompetence, bankruptcy or resignation or upon
his removal at Koor's shareholders meeting. Koor's chief executive officer
is appointed by the Board of Directors. Koor's executive officers serve at
the discretion of Koor's chief executive officer pursuant to powers
delegated to him by Koor's Board of Directors.

Charles R. Bronfman has been Chairman of the Board of Directors of Koor since
November 1997. Mr. Bronfman is a director, Co-Chairman and Chairman of the
Executive Committee of the Seagram Company Ltd., Chairman of the Board of
Directors of Claridge Israel (1996) Inc., Claridge Israel Ltd. and the CRB
Foundation. He is also a director of the Power Corporation of Canada.
<PAGE>
Jonathan B. Kolber has been Vice Chairman of the Koor Board of Directors
since November 1997 and Chief Executive Officer of Koor since July 1, 1998.
Mr. Kolber has been President of Claridge or its predecessors since 1989.
Mr. Kolber was associated with Cemp Investments from 1985 to 1987 and was a
Vice President of Claridge Inc., an affiliate of Claridge, from 1986 to
1990. He also serves as director of other Israeli companies, including Teva
Pharmaceutical Industries Ltd., MA Industries, Tadiran, Arkia and R.M.
Renaissance Management (1993) Ltd.. He also serves as Chairman of the Board
of ECI since April 1997. He has a Bachelor degree in Near Eastern Languages
and Civilizations from Harvard University and a Certificate on Advanced
Arabic from the American University of Cairo.

Dr. Janet Aviad has been a director of Koor since June 2000. Dr. Aviad
serves as Vice President of the Andrea and Charles Bronfman Philanthropies,
a family of private foundations dedicated to Canadian Heritage and Jewish
Peoplehood, and as a director of Keren Karev, the Israeli branch of the
Philanthropies. Dr. Aviad was a Senior Lecturer of Education at the Hebrew
University in Jerusalem for almost twenty years. Dr. Aviad has an M.A. and
a Ph.D. in the Sociology of Religion from Columbia University and a BHL
from the Jewish Theological Seminary.

Joseph Dauber has been a director of Koor since June 1995. Mr. Dauber has been
the Chairman of the Board of Directors of Poalim American Express since April
1995 and also of Isracard Ltd. and its subsidiaries since April 1994. Mr. Dauber
has been a Joint General Manager of Bank Hapoalim since 1994. He has been a
member of the management of Bank Hapoalim since July 1988. During the last five
years, Mr. Dauber has been and is a director of Isracard Ltd., Eurocard Ltd. and
Poalim Properties (Shares) Ltd. He has also been a director of The Investment
Company of Bank Hapoalim Ltd. since June 1994. Between 1989 and February 1995,
Mr. Dauber was a director of Bank Hapoalim (Switzerland) Ltd.

Moshe Dovrat has been an independent director of Koor since March 1997. Since
1992 to September 1996, Mr. Dovrat was the General Manager of the Investment
Center of the Ministry of Industry and Trade. Prior thereto, Mr. Dovrat was the
owner of an economic consulting company, before which, he was the Head of the
Economics Division of Kupat Holim, the major health insurance fund in Israel.
Since 1997, Mr. Dovrat has been a director of Rotlex (1994) Ltd. and Makefet
Pension Fund, a Chairman of the Board of Directors of Kfar Bloom Hotel and an
independent director of Etgar Investments and Development Ltd.

Ron Feinstein has been a director of Koor since October 1991 and since 1999
he has served as a Chairman of the Board of Directors of Sheraton Moriah
Israel and Tadiran. From 1996 until 1998 Mr. Feinstein served as a Chairman
of the Board of Radisson Moriah Hotels Ltd. Since 1992, Mr. Feinstein has
also served as the Chairman of the Board of Tourist Industry Development
Corporation Ltd. Mr. Feinstein was a partner in the law firm of Glass,
Feinstein and Bar-Sela from 1981 through March 1997 and since then he is a
senior partner in the law office and notary of Feinstein and Feinstein.

Avi Harel has been a director of Koor since September 1998. Mr. Harel is a
Chairman of the Board of certain affiliates of Bank Hapoalim, including
Poalim Capital Markets - Investment Bank Ltd., Poalim Capital Markets and
Investments - Holdings Ltd. and Capital Markets and Investments Ltd. Mr.
Harel also serves as a director of Poalim Real Estates Markets Ltd. and
Ma'alot the Israeli Company of Securities Grading Ltd. Mr. Harel holds an
MA in Economics from the Tel-Aviv University.

Andrew Hauptman has been a director of Koor since November 1997. During the
past five years, he was a Director of Business Development and Strategic
Planning at the Universal Studios Holdings (UK) Ltd. and at present he is
the President of Andell Inc. Mr. Hauptman holds an MBA degree from Harvard
University.
<PAGE>
Jacob Hornik has been a director of Koor since March 1997. Prof. Hornik was
the Associate Dean and he is a Professor of Marketing and Advertising at
the Leon Recanati Graduate School of Business, Tel-Aviv University. Prof.
Hornik holds a Ph.D. in Business Administration from Syracuse University,
New York. Prof. Hornik acts as a consultant to various organizations and is
an independent director of Supersol Ltd. He serves on the editorial boards
of several academic journals, including the International Journal of
Research in Marketing. Prof. Hornik has also taught and lectured at a
number of universities outside Israel, including, the University of
Chicago, Northwestern University, New York University, and the University
of Washington at Seattle.

Eli Hurwitz has been a director of Koor since November 1997. Mr. Hurwitz is
the President and Chief Executive Officer of Teva Pharmaceutical Industries
Ltd. Mr. Hurwitz was sentenced to payment of a fine of 700,000 NIS
($170,000) and a suspended sentence of 18 months, following the decision on
December 1998 to convict him on charges of assisting a third party in the
avoidance of income taxes. Mr. Hurwitz was acquitted from all the other
charges. In March 1999, attorneys for Mr. Hurwitz filed an appeal to
Israel's Supreme Court. The State of Israel appealed against the decision
to acquit Mr. Hurwitz from the additional charges and against the sentence.

Samuel Minzberg has been a director of Koor since November 1997. He is also the
President of Claridge Inc.

Chemi Peres has been a director of Koor since June 2000. He is a Managing
Director and Founder of Polaris Venture Capital, a venture capital fund.
Mr. Peres is one of the pioneers of the venture capital industry in Israel.
In 1992 he founded and managed Mofet Israel Technology Fund, and Israeli
venture capital fund. Mr. Peres is the Chairman of the Board of WebGlide,
and serves as a director in Orckit Communications Ltd, Aladdin Knowledge
Systems Ltd and several other companies. Mr Peres holds a B.Sc. in
industrial engineering and management and M.B.A. from Tel Aviv University.

David Rubner has been a director of Koor since June 2000. He is Chairman
and CEO of Rubner Technology Ventures Ltd. and Chairman of Net2 Wireless
Inc. Mr. Rubner was employeed with ECI from 1970 and was its President and
CEO from 1991 to October 1999 and February 2000, respectively. Since
November 1999 he serves as Vice Chairman of the Board of Directors of ECI.
He serves as Chairman of the Board of Ectel Ltd., and director of VPS Ltd.,
Transit Networks Ltd., Chekpoint Software Ltd. and Efcon Ltd.. Mr. Rubner
holds a B.Sc. (Hons) in Engineering from Queen Mary Colledge, University of
London and a M.S. from Carnegie Mellon University. He is a member of the
Presidium of the Israel Manufacturers Association and was a recepient of
the Industry Prize for 1995.

Prof. Gavriela Shalev has been a director of Koor since February 1999. Prof.
Shalev is a Contracts Law Professor in the Hebrew University in Jerusalem. Prof.
Shalev also serves as a director of several other companies including Van-Lir
Institute and Hadassah Hospital.

Danny Biran has been President of Koor since July 1, 1998. He was a director of
Koor from November 1997 until his resignation on February 2, 2000. He serves as
Senior Vice President of Claridge Israel, as the Chairman of the Board of MA
Industries, Tadiran, Elisra, Isrex (94) Ltd., Koor Properties, Koor Trade, R.M.
Renaissance Management (1993) Ltd. and is also a director of Barak ITC (1995) -
The International Telecommunications Services Corp., Knafaim, and various
companies within the Koor Group. He is a graduate of the Law faculty of the
Tel-Aviv University. He served as a senior executive in the Office of the Prime
Minister in Israel for more than ten years.

Joseph Ben-Shalom has been Executive Vice President and the Chief Financial
Officer of Koor since July 1, 1998. He served as the Vice President and Chief
Financial Officer of Tadiran from February 1995 to June 1998. He joined Tadiran
in 1986 and served as its Director of Finance from 1991 through January 1995.
Mr. Ben-Shalom serves as a director of Tadiran, MA Industries, Telrad Networks
and other Israeli companies including Nice Systems Ltd. and Investec Clali Bank
Ltd.
<PAGE>
Shlomo Heller has been General Counsel and Corporate Secretary of Koor since
August 1997. Between 1990 and 1997 he was the General Counsel of United Mizrahi
Bank Ltd. Mr. Heller has served as a director of Telrad since January 1998. He
also serves as a director of several other companies within the Koor Group.

Gil B. Leidner has been Vice President of Koor since July 1, 1998 and has
been the Head of Mergers and Acquisitions of Koor since December 1997. From
1995 to 1997, he served as the General Manager of Koor Tourism, from 1992
to 1995 as the General Manager of M.I. Holdings Ltd. the Israeli Government
company responsible for the privatization of the banking system; and from
1989 to 1992, as Deputy General Controller of the Israeli Government. Mr.
Leidner serves as a director of ECI since 1998. Mr. Leidner is also a
director of several other companies within the Koor Group, including
Telrad.

Aron Zuker has been Vice President of Koor since January 1999. He serves as a
managing director of R.M. Renaissance Management (1993) Ltd. and serves as a
director of Isrex (94) Ltd., Clalcom Ltd., Barak ITC (1995) Ltd.,(as an
alternate director), Tadiran, Elisra, Telrad Networks and various companies
within Koor Group. Between the years 1990-1995 he served as CFO and then CEO of
The Jerusalem Report Publication. He is a graduate of B.F.A. of New York
Institute of Technology.


ITEM 11.  COMPENSATION OF DIRECTORS AND OFFICERS

The aggregate compensation paid to or accrued on behalf of all Koor's
directors and executive officers, as a group, during 1999, was NIS
14,766,000, which includes salaries, bonuses and expenses and amounts set
aside or accrued to provide pension, retirement, or similar benefits, but
does not include expenses (including business travel, professional and
business association dues and expenses) reimbursed to directors and
officers and other fringe benefits commonly reimbursed or paid by companies
in Israel. On October 3, 1995, Koor entered into an agreement with Bank
Hapoalim, pursuant to which all directors' compensation paid by Koor to any
member of the Board of Directors associated with Bank Hapoalim, would be
paid directly to Bank Hapoalim. These directors received compensation,
identical to that received by other Koor directors, which is the highest
compensation payable pursuant to a formula determined by Israeli law with
respect to independent directors. In addition, in connection with the
Claridge Acquisition, four directors associated with Claridge assigned
their directors' compensation to Claridge. In 1999, one officer of Koor
received options under the 1998 Plan (as defined in Item 12), see "Item 12.
Options to Purchase Securities from Registrant or Subsidiaries". For
additional information concerning the compensation of directors, see Note
25G to the Financial Statements.

The General Meeting of Shareholders held on August 30, 1998, approved the
salary of Mr. Jonathan Kolber, Koor's Chief Executive Officer in the sum of
NIS 195,000 per month and the salary of Mr. Danny Biran, Koor's President
in the sum of NIS 150,000 per month. The Remuneration Committee of the
Board of Directors was authorized to grant them annual bonuses of up to
maximum of 8 monthly salaries, subject to profits being shown in Koor's
consolidated financial statements and based upon stated criteria which
shall be approved in advance by the Audit Committee and the Remuneration
Committee.

For the fiscal year ended December 31, 1999, Koor accrued the following
compensation for it four the most highly compensated officers (which
amounts are includes in the aggregate amount set forth above):

          Name                     Amount in NIS thousands
          ----                     -----------------------
          Jonathan Kolber                  4,692
          Danny Biran                      3,684
          Gil Leidner                      2,113
          Joseph Ben Shalom                1,973
<PAGE>
ITEM 12.  OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES

The 1997 Stock-Based Compensation Plan

On May 26 1997, Koor's Board of Directors adopted the 1997 Stock-Based
Compensation Plan (the "1997 Plan"). The 1997 Plan authorizes an issuance at no
cost of options to purchase 188,968 Ordinary Shares. On May 27 1997, options to
purchase 134,547 Ordinary Shares were granted at an exercise price of $90.989
per share, and on November 6 1997, additional options to purchase 54,421
Ordinary Shares were granted at an exercise price of $98.747 per share. At June
20, 2000, options to purchase 120,838 shares were outstanding under the 1997
Plan. The options vest over a three-year period from the date of grant. Unless
exercised, options granted under the 1997 Plan shall expire five years from the
date of grant.

A subsidiary, Koor Trusts 1995 Ltd. ("Koor Trusts") together with a trust
company of a bank (together - the "Trustee") serve as Trustee for the purposes
of the 1997 Plan. According to the 1997 Plan, Koor Trusts will purchase for the
optionee, utilizing funds provided by the Company, such number of Ordinary
Shares issued upon the exercise of such options by the optionee, at a price per
share equal to the average closing price per share of the Ordinary Shares on the
TASE in the ten trading days immediately preceding the date of the exercise, as
are equal (based on such price) to the aggregate exercise price paid by such
optionee upon exercise of such options. Upon completion of the above described
transactions, the employees will hold that portion of shares which reflects the
component of profit and the balance of shares will be held by Koor Trusts. The
shares which will be purchased by Koor Trusts will be reserved for granting them
in the future to any specific employee or employees of Koor, subject to receipt
of approvals described in the 1997 Plan. Koor Trusts will not participate or
vote in General Shareholders Meetings and will not participate in any
distribution with respect to those shares. If the shares so held by Koor Trusts
in reserve shall not be granted to employees within a reasonable period of time,
Koor shall take steps to defer the rights attached to such shares or eliminate
them from Koor's share capital by way of a reduction of capital pursuant to the
Companies Ordinance.

On August 28, 1997, Columbus Capital Corporation ("Columbus") (a member of the
Claridge Group), undertook to grant put options to those senior employees of
Koor, who were eligible for options to purchase Ordinary Shares by virtue of the
1997 Plan (as well under a prior employee stock option plan). These put options
are exercisable within 90 days from the first date in which the employees are
eligible to exercise the options under the plans. The put options confer to the
employees the right to sell to Columbus the outstanding shares granted to them
and the profits inherent in the exercise of the options. Columbus will purchase
these shares from the employees, if they should desire, for $121.25 per Ordinary
Share. In 1998 and 1999, employees exercised put options with respect to 127,506
and 9,360 Ordinary Shares, respectively.

The 1998 Stock-Based Compensation Plan

On August 30 1998, an Extraordinary General Shareholders Meeting approved
the issuance, at no cost, of 400,000 options to be granted to employees of
the Company (the "1998 Plan"). Of such options, 353,596 options have been
granted to senior employees (of which 105,263 options have been granted to
Koor's Chief Executive Officer who is also Vice Chairman of the Board of
Directors) and 46,404 options have been allotted to a trustee, to be held
in trust for other employees. Each option may, theoretically, be exercised
into one Ordinary Share. In practice, however, the optionee will not be
issued the total number of shares to which he is entitled upon exercising
the options, but only the number of shares reflecting the monetary benefit
component of the option as at the exercise date. The options vest over a
three-year period from July 1998. Unless exercised, options granted under
the 1998 Plan shall expire on July 16, 2003 (excluding those granted to the
Chief Executive Officer which expire on July 16, 2002). The exercise price
of the options (excluding those issued to the trustee that do not yet have
an exercise price) is $114.7, excluding options issued to the Chief
Executive Officer, which their exercise price is $118.3 per share. The
exercise price of these options is subject to downward adjustment in the
amount of the dividends per share that are paid prior to the date of
exercise.

As of June 20, 2000, options to purchase 353,596 Ordinary Shares were
outstanding under the 1998 Plan.
<PAGE>
Year 2000 Stock-Based Compensation Plan

On June 14, 2000, the Executive Committee of Koor's Board of Directors
approved (subject to the approval of the Full Board of Directors), the
issuance at no cost of up to 400,000 options to be granted to employees of
the Company (the "2000 Plan"). The exercise price of the options is $97.39
per share. The terms of the 2000 Plan are substantially similar to those of
the 1998 Plan.

Israeli Banks' Options

Within the framework of the comprehensive arrangement signed in September
1991 between Koor and Israeli banks, the banks were given options to
purchase 5,405,918 Ordinary Shares (the "Israeli Banks' Options"). As of
June 1, 2000, options to purchase 46,985 Ordinary shares were outstanding.
The options may be exercised at any time through September 2001. Upon the
exercise of an option by any of the banks, an Ordinary Share held by Hevrat
Ha'ovdim is converted automatically into a deferred share, so, for all
practical purposes, the total number of Ordinary Shares shall not be
changed.

Option Plans of Certain Subsidiaries

Certain Koor's subsidiaries have option plans issued to their senior
employees. The term of the options expires generally in 2001. The exercise
price is similar to the market price of the subsidiary's shares, upon
issuance of the options. The rate of dilution in these subsidiaries,
following the exercise of the options, will not exceed 2%. The subsidiaries
are MA Industries and United Steel.

ITEM 13.  INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

Ordinary Course of Business Transactions with Affiliated Companies. From
time to time, the Company engages in transactions with companies affiliated
with Bank Hapoalim and Claridge. Certain subsidiaries also engage in
ordinary course of transactions with other companies in the Koor Group,
such as supplying building materials or other products and foreign currency
transactions, the terms of which in each case are negotiated on an
arm's-length basis and are conducted upon terms that the Company believes
to be generally no less favorable than would be available from unaffiliated
third parties. The Company intends to continue to engage in transactions on
a similar basis with such affiliated businesses. Because of the large
number of entities with which such transactions have been concluded and
because they are carried out in the ordinary course of business,
determination of the amounts of such transactions is impractical.

Registration Rights Agreements. In April 1995, Koor entered into a
registration rights agreement with the Shamrock Group, a former principle
shareholder of Koor ("Shamrock") and Bank Hapoalim ("the 1995 Registration
Rights Agreement"). In connection with the acquisition of Shamrock's
holdings in Koor by the Claridge Group (the "Claridge Acquisition"),
completed in October 1997, Koor entered into a registration rights
agreement with Claridge that is similar to the 1995 Registration Rights
Agreement. Under these agreements, each of Bank Hapoalim and Claridge have
the right to make two requests that Koor register its Ordinary Shares
and/or issue a prospectus for the public offering of the Ordinary Shares
held by them, under the Securities Act or the securities laws of the State
of Israel. These registration demand rights terminate upon the earlier of
(i) April 12, 2007, or (ii) the date on which the amount of Ordinary Shares
held by either Bank Hapoalim or Claridge is less than 5% of the issued and
outstanding share capital of Koor. In addition, if Koor proposes to
register any of its securities under the Securities Act or the securities
laws of the State of Israel, such holders are entitled to include such
number of Ordinary Shares as either or both such holders may request,
provided that, among other conditions, the underwriters of any offering
have the right to limit the number of Ordinary Shares included in such
registration.
<PAGE>
Borrowings from Affiliates. As of December 31, 1999, the balance of the
Company's indebtedness to Bank Hapoalim was approximately NIS 2,432 million.

Of the above mentioned indebted amount, approximately NIS 1,460 million were
borrowed by Koor from Bank Hapoalim on market terms, in connection with the
acquisition of ECI and Tadiran shares in 1998.

Consulting Agreements. On October 3, 1995, Koor entered into separate
consulting agreements with each of Shamrock Capital Advisors, Inc.
("Shamrock Capital") and Poalim Capital Markets and Investments Ltd.
("PCMI"), a wholly owned subsidiary of Bank Hapoalim. In connection with
the Claridge Acquisition, Koor and Claridge entered into an agreement in
similar terms to the consulting agreement from October 1995. Pursuant to
these consulting agreements, each of PCMI and Claridge agreed to provide
consulting services to Koor, relating to, among other things, strategic
investments, financial policies, properties, international activities,
strategic partnership and corporate organization. For such services, each
of PCMI and Claridge is entitled to receive an annual fee of up to $400,000
depending upon the amount of services rendered. Each agreement has a term
of one year and is automatically renewed for successive one-year periods,
unless earlier terminated by either party. The consulting agreement
contains customary indemnification provisions.

Purchase of ECI shares from the Claridge Group. On April 9, 1998, Koor
purchased from the Claridge Group an 8.6% interest in ECI for a total cash
consideration of NIS 735 million. The transaction was approved on April 8,
1998 by more than 99% of the shareholders, who were not interested parties,
at an Extraordinary General Shareholders Meeting of Koor.

Other Transactions. On May 11, 1999 Koor signed a memorandum with Hapoalim
Properties (Shares) Ltd., according to which on October 11, 1999, it acquired
from Koor a 20% interest in the Sheraton Moriah for approximately $13 million.


                                     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, CHANGES IN SECURITY FOR REGISTERED SECURITIES
          AND USE OF PROCEEDS

Not applicable.
<PAGE>
                                     PART IV

ITEM 17.  FINANCIAL STATEMENTS

See Item 19(a).


ITEM 18.  FINANCIAL STATEMENTS

Not applicable.


ITEM 19.  FINANCIAL STATEMENTS AND EXHIBITS

(a) The following consolidated financial statements and related schedule,
together with the reports of Somekh Chaikin Certified Public Accountants
(Israel), Koor's Auditors and auditors' reports of certain subsidiaries, are
filed as part of this Annual Report:

<TABLE>
<CAPTION>
                                                                                                           Page

<S>                                                                                                        <C>
Index to Consolidated Financial Statements...............................................................  F-1
Report of Independent Auditors...........................................................................  F-2
Consolidated Balance Sheets at December 31, 1998 and 1999................................................  F-3
Company Balance Sheets at December 31, 1998 and 1999.....................................................  F-4
Consolidated Statements of Income for the three years ended December 31, 1999............................  F-5
Company Statements of Income for the three years ended December 31, 1999.................................  F-6
Consolidated Statements of Changes in Shareholders' Equity for the three years ended December 31, 1999...  F-7
Consolidated Statements of Cash Flows for the three years ended December 31, 1999........................  F-11
Company  Statements of Cash Flows for the three years ended December 31, 1999............................  F-16
Notes to Consolidated Financial Statements...............................................................  F-18
ECI's Consolidated Financial Statements .................................................................  F-109
Auditors' Reports of Certain Subsidiaries................................................................  F-190
</TABLE>

All other  schedules for which  provision is made in the  applicable  accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.

(b)      Exhibits

Exhibit No.         Exhibit

1.1                 Agreement dated December 5, 1999 between Koor and Clal
                    Industries and Investments Ltd. for the sale of Koor's
                    holdings in Mashav.
1.2                 Agreement dated November 10, 1999 between Tadiran and the
                    Shamrock Group for the sale of Tadiran's interest in Tadiran
                    Com.
<PAGE>
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 the annual report to be signed on its behalf by
the undersigned, thereunto duly authorized.

                                        KOOR INDUSTRIES LTD.

                                        By:  /s/ Jonathan Kolber
                                             -----------------------------------
                                             Jonathan Kolber
                                             Chief Executive Officer and
                                               Vice Chairman of the
                                               Board of Directors



Date:  June 20, 2000
<PAGE>

               Koor Industries Ltd. (an Israeli Corporation)

Financial Statements as at 31 December, 1999
-----------------------------------------------------------------------------


Contents

                                                                         Page

Auditors' Report                                                         F-2


Financial Statements

Consolidated Balance Sheets                                              F-3

Company Balance Sheets                                                   F-4

Consolidated Statements of Operations                                    F-5

Company Statements of Operations                                         F-6

Statement of Shareholders' Equity                                        F-7

Consolidated Statements of Cash Flows                                    F-11

Company Statements of Cash Flows                                         F-16

Notes to the Financial Statements                                        F-18
<PAGE>


March 23, 2000

Auditors' Report to the Shareholders of
Koor Industries Ltd.

We have audited the accompanying balance sheets of Koor Industries Ltd.
(the "Company") as at December 31, 1999 and 1998, and the consolidated
balance sheets of the Company and its subsidiaries as at such dates, and
the related statements of operations, shareholders' equity, and cash flows,
for each of the three years, the last of which ended December 31, 1999.
These financial statements are the responsibility of the Company's Board of
Directors and of its Management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We did not audit the financial statements of certain subsidiaries,
including those consolidated by the proportionate consolidation method,
whose assets constitute 18% and 30% of the total consolidated assets as at
December 31, 1999 and 1998 respectively, and whose revenues constitute 16%,
31% and 48% of the total consolidated revenues for the years ended December
31, 1999, 1998, and 1997 respectively. The financial statements of those
subsidiaries were audited by other auditors whose reports thereon were
furnished to us. Our opinion, insofar as it relates to amounts emanating
from the financial statements of such subsidiaries, is based solely on the
said reports of the other auditors. Furthermore, the data included in the
financial statements relating to the net asset value of the Company's
investments in affiliates and to its share in their operating results is
based on the financial statements of such affiliates, some of which were
audited by other auditors.

We conducted our audits in accordance with Israeli generally accepted
auditing standards, including those prescribed by the Israeli Auditors'
Regulations (Manner of Auditors Performance), 1973, which do not differ, in
any significant respect, from U.S. generally accepted auditing standards.
Such standards require that we plan and perform the audit to obtain
reasonable assurance that 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 Board of Directors and Management, as
well as evaluating the overall financial statement presentation. We believe
that our audits, and reports of the other auditors, provide a reasonable
basis for our opinion.

In our opinion, based on our audits and on the reports of the
above-mentioned other auditors, the financial statements referred to above
present fairly, in all material respects, the financial position of the
Company and the consolidated financial position of the Company and its
subsidiaries as at December 31, 1999 and 1998 and the results of their
operations, the changes in shareholders' equity and cash flows for each of
the three years, the last of which ended December 31, 1999, in conformity
with generally accepted accounting principles in Israel, which differ in
certain respects from those followed in the United States (see Note 28 to
the consolidated financial statements). Furthermore, these statements have,
in our opinion, been prepared in accordance with the Securities Regulations
(Preparation of Annual Financial Statements), 1993.

As explained in Note 2B, the above-mentioned financial statements are
stated in values adjusted for the changes in the general purchasing power
of the Israeli currency, in accordance with opinions of the Institute of
Certified Public Accountants in Israel.

Without qualifying our above opinion we call attention to Note 18A(1) to
the financial statements, relating to an investigation by the Restrictive
Trade Practices Authority, concerning the alleged coordination of prices in
the Koor Group with respect to the products of its subsidiaries, Tadiran
Ltd. and Telrad Networks Ltd. (formerly - "Telrad Industries and
Telecommunications Ltd.").

Certified Public Accountants (Isr.)
<PAGE>
<TABLE>
                                                                                                                        F-3
<CAPTION>
Consolidated Balance Sheets as at December 31
---------------------------------------------------------------------------------------------------------------------------
In terms of shekels of December 1999

                                                                                                               Convenience
                                                                                                               translation
                                                                                                                (Note 2B)
                                                                                                               ------------
                                                                                December 31                     December 31
                                                                          1999              1998                       1999
                                                                        -------            ------               -----------
                                                              Note             NIS thousands                 US $ thousands
                                                             --------------------------------------------------------------
Assets

Current assets

<S>                                                            <C>         <C>               <C>                  <C>
Cash and cash equivalents                                                  1,448,706         1,491,373            348,834
Short-term deposits and investments                              4           472,335         1,587,346            113,733
Trade receivables                                                5         3,213,207         3,629,163            773,707
Other receivables                                                6           660,608           683,944            159,068
Inventories and work in process,
 net of customer advances                                        7         2,123,687         2,810,513            511,362
                                                                          -----------       ----------          ---------
Total current assets                                                       7,918,543        10,202,339          1,906,704
                                                                          -----------       ----------          ---------

Investments and long-term
 receivables
Investments in affiliates                                        8         3,495,772         1,623,060            841,746
Other investments and receivables                                9           757,747           581,936            182,458
                                                                          ----------        ----------          ---------
                                                                           4,253,519         2,204,996          1,024,204
                                                                          ----------        ----------          ---------

Fixed assets                                                    10
Cost                                                                      10,662,967        10,841,579          2,567,533
Less - accumulated depreciation                                            6,091,693         6,325,688          1,466,817
                                                                          ----------        ----------          ---------
                                                                           4,571,274         4,515,891          1,100,716
                                                                          ----------        ----------          ---------

Intangible assets and deferred expenses                                   ----------        ----------          ----------
 after amortisation                                             11           627,264           862,322            151,039
                                                                          ----------        ----------           --------


                                                                          ----------        ----------          ----------
                                                                          17,370,600        17,785,548          4,182,663
                                                                          ==========        ==========          ==========

<PAGE>

Liabilities and Shareholders Equity

Current liabilities

Credits from banks and others                                   12         3,559,014         2,730,806            856,975
Trade payables                                                  13         1,512,037         1,545,269            364,083
Other payables and accruals                                     14         1,733,912         2,106,802            417,508
Customer advances, net of work in process                        7           203,449           332,420             48,988
                                                                           ---------        ----------          ---------
Total current liabilities                                                  7,008,412         6,715,297          1,687,554
                                                                           ---------        ----------          ---------

Long-term liabilities

Net of current maturities:                                   15,21
  Bank loans                                                               3,691,887         4,297,966            888,969
  Other loans                                                                133,060           106,760             32,039
  Debentures                                                                  65,228            96,486             15,706
  Convertible debentures                                                     180,159           194,589             43,380
Customer advances                                                             45,583           180,834             10,976
Deferred taxes                                                 16F           236,895           219,514             57,042
Liability for employee severance benefits                       17           304,891           264,048             73,415
                                                                          ----------         ---------          ---------
Total long-term liabilities                                                4,657,703         5,360,197          1,121,527
                                                                          ----------         ---------          ---------

Contingent liabilities and commitments                          18

Minority Interest                                                          1,319,771         1,634,136            317,787
                                                                          ----------         ---------          ---------
Shareholders' Equity                                            20         4,384,714         4,075,918          1,055,795
                                                                          ----------         ---------          ---------




                                                                          ----------        ----------          ---------
                                                                          17,370,600        17,785,548          4,182,663
                                                                          ==========        ==========          =========



                                     -----------------------                      --------------------------------
March 23, 2000                          Jonathan Kolber                                    Avraham Harel
                                     CEO and Vice Chairman                        Member of the Board of Directors
                                   of the Board of Directors


The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
                                                                                                                       F-4
<CAPTION>
Company Balance Sheets as at December 31
--------------------------------------------------------------------------------------------------------------------------
In terms of shekels of December 1999

                                                                                                               Convenience
                                                                                                               translation
                                                                                                                 (Note 2B)
                                                                                                               -----------
                                                                                    December 31               December 31
                                                                              1999             1998                  1999
                                                             Note                    NIS thousands            US $ thousands
                                                           --------           --------------------------      --------------
Assets

Current assets

<S>                                                        <C>               <C>               <C>                <C>
Cash and cash equivalents                                                    725,354           315,453            174,658
Short-term deposits and investments                              4           279,097           171,584             67,204
Current maturities of loans to investees                                       1,699                 -                409
Receivables :
  Investees                                                 6, 16E            94,905           442,302             22,852
  Deferred taxes                                                             129,000                 -             31,062
  Others                                                         6            26,176            15,181              6,303
                                                                           ---------        ----------          ---------
Total current assets                                                       1,256,231           944,520            302,488
                                                                           ---------        ----------          ---------

Investments and long-term receivables

Investments in investees                                         8         6,400,868         6,398,708          1,541,264
Other investments and receivables                                9           383,377            98,897             92,313
                                                                          ----------        ----------          ---------
                                                                           6,784,245         6,497,605          1,633,577
                                                                          ----------        ----------          ---------

Fixed assets                                                    10
Cost                                                                          40,383            31,286              9,724
Less - accumulated depreciation                                               (1,983)           (3,091)              (478)
                                                                           ----------        ----------         ----------
                                                                              38,400            28,195              9,246
                                                                           ----------        ----------         ----------

Cost of raising of capital, net of
 amortisation                                                   11             1,564             2,773                376
                                                                           ---------          --------           ---------


                                                                           ---------         ---------          ---------
                                                                           8,080,440         7,473,093          1,945,687
                                                                           =========         =========          =========
<PAGE>

Liabilities and Shareholders' Equity

Current liabilities

Credit from banks and others                                    12           977,516            72,027            235,376
Trade payables                                                                 1,657             7,187                399
Payables and accruals:
  Investees                                                                   79,849           107,779             19,227
  Interim dividend                                                           166,962            87,299             40,203
  Others                                                        14           134,210            79,433             32,316
                                                                           ---------          --------            -------
Total current liabilities                                                  1,360,194           353,725            327,521
                                                                           ---------          --------            -------

Long-term liabilities

Net of current maturities:                                  15, 21
  Bank loans                                                               2,128,779         2,829,509            512,588
  Convertible debentures                                                     170,897           165,918             41,150
  Investees                                                                   29,342            30,956              7,065
Liability for employee severance
 benefits, net                                                  17             6,514            17,067              1,569
                                                                           ---------         ---------            -------
Total long-term liabilities                                                2,335,532         3,043,450            562,372
                                                                           ---------         ---------            -------

Contingent liabilities and commitments                          18

Total Shareholders' Equity                                      20         4,384,714         4,075,918          1,055,794
                                                                           ---------         ---------          ---------




                                                                           ---------         ---------          ---------
                                                                           8,080,440         7,473,093          1,945,687
                                                                           =========         =========          =========


                                     ---------------------                        -----------------------
March 23, 2000                          Jonathan Kolber                                    Avraham Harel
                                     CEO and Vice Chairman                        Member of the Board of Directors
                                   of the Board of Directors

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



The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
                                                                                                                        F-5
<CAPTION>
Consolidated Statements of Operations*
---------------------------------------------------------------------------------------------------------------------------

In terms of shekels of December 1999

                                                                                                               Convenience
                                                                                                               translation
                                                                                                                 (Note 2B)
                                                                                                               -----------
                                                                                                                Year ended
                                                                 Year ended December 31                        December 31
                                                           1999               1998            1997                    1999
                                           Note                      NIS thousands                          US $ thousands
                                          -------      -----------------------------------------------      ---------------

<S>                                        <C>         <C>                <C>               <C>                 <C>
Income from sales
 and services                              23A         10,675,301         12,792,316        12,925,375          2,570,503
Cost of sales and services                 23B          8,129,866        * 9,867,024       * 9,890,029          1,957,588
                                                      -----------        -----------       -----------         ----------
Gross profit                                            2,545,435        * 2,925,292       * 3,035,346            612,915
Selling and marketing
 expenses                                  23C            978,056        * 1,202,457       * 1,125,264            235,506
General and
 administrative expenses                   23D            729,509          1,010,885           874,488            175,658
                                                       ----------        -----------       -----------         ----------
Operating earnings                                        837,870            711,950         1,035,594            201,751
Financing expenses, net                    23E            358,289            251,015           151,843             86,273
                                                       ----------        -----------       -----------          ---------
                                                          479,581            460,935           883,751            115,478
Other income (expenses),
 net                                       23F            107,228            (71,270)          117,399             25,820
                                                        ---------         -----------       ----------           --------
Earnings before income
 tax                                                      586,809            389,665         1,001,150            141,298
Income tax                                 16G            161,887            233,985           235,847             38,981
                                                         --------         ----------        ----------           --------
                                                          424,922            155,680           765,303            102,317

Group's equity in the
 operating results of
 affiliates, net                           23G            121,725             61,985            10,635             29,310
                                                         --------          ---------         ---------            -------
                                                          546,647            217,665           775,938            131,627

Minority interest in
 subsidiaries, net                                          2,472           (239,964)         (254,530)               595
                                                         --------          ----------        ----------           --------

Net earnings (loss) from
 continuing activities                                    549,119            (22,299)          521,408            132,222
Result of discontinued
activities, net                            24H                  -             69,420            15,929                  -
                                                         --------           --------          --------            --------
Net earnings for the year                                 549,119             47,121           537,337            132,222
                                                         ========           ========          ========            ========
                                                              NIS                NIS               NIS                US$
                                                         --------           --------          --------            --------

Basic earnings (loss) per
 NIS 1 par value
 of ordinary shares:                        26
Continuing activities                                      34,892             (1,347)           34,014              8,402
Discontinued activities                                         -              4,414             1,032                  -
                                                         --------           ---------         --------             -------
                                                           34,892              3,067            35,046              8,402
                                                         ========           =========         ========             =======

Diluted earnings per
 NIS 1 par value of
 ordinary shares:                           26
Continuing activities                                      34,559             (1,347)           33,038              8,321
Discontinued activities                                         -              4,414             1,015                  -
                                                         ---------           -------          --------             -------
                                                           34,559              3,067            34,053              8,321
                                                         =========           =======          ========             ======

*  Reclassified.

The accompanying notes are an integral part of the financial statements
</TABLE>
<PAGE>
<TABLE>
                                                                                                                         F-6
<CAPTION>
Company Statements of Operations
----------------------------------------------------------------------------------------------------------------------------

In terms of shekels of December 1999

                                                                                                               Convenience
                                                                                                               translation
                                                                                                                 (Note 2B)
                                                                                                                Year ended
                                                                    Year ended December 31                     December 31
                                                              1999             1998            1997                   1999
                                           Note                      NIS thousands                          US $ thousands
                                          ------          -------------------------------------------     ----------------

<S>                                        <C>             <C>                <C>              <C>                 <C>
Income
Management services                        23A             65,121             62,752           101,516             15,680
Others, net                                23F                  -                  -            95,858                  -
Financing, net                             23E                  -                  -             8,639                  -
                                                         ---------           -------          --------            -------
Total income                                               65,121             62,752           206,013             15,680
                                                         ---------           -------          --------            -------

Expenses
Administrative                            23D              66,170            116,643           102,888             15,933
Others, net                               23F             107,505              6,729                 -             25,886
Financing, net                            23E             160,475             84,568                 -             38,641
                                                         --------            -------          --------            -------
Total expenses                                            334,150            207,940           102,888             80,460
                                                         --------            -------          --------            -------

Earnings (loss) before
 income tax                                              (269,029)          (145,188)          103,125            (64,780)
Income tax                                                101,500                  -                 -             24,440
                                                         ---------          ---------         --------            --------
                                                         (167,529)          (145,188)          103,125            (40,340)

Koor's equity in the
 operating results of
 investees, net                            23G            716,648            122,889           418,283            172,562
                                                         ---------          --------          --------           --------

Net earnings (loss) from
 continuing activities                                    549,119            (22,299)          521,408            132,222

Results of discontinued
 activities, net                           24H                  -             69,420            15,929                  -
                                                        ----------          ---------         --------           --------
Net earnings for the year                                 549,119             47,121           537,337            132,222
                                                        ==========          =========         ========            =======
                                                              NIS                NIS               NIS                NIS
                                                        ----------          ---------         --------            -------

Basic earnings (loss )
 per NIS 1 par value of
  ordinary shares :                         26
Continuing activities                                      34,892             (1,347)           34,014              8,402
Discontinued activities                                         -              4,414             1,032                  -
                                                        ---------            -------           -------            --------
                                                           34,892              3,067            35,046              8,402
                                                         ========            =======           =======            =======

Diluted earnings
 (losses) per NIS 1 par
 value of ordinary shares                   26
Continuing activities                                      34,559             (1,347)           33,038              8,321
Discontinued activities                                         -              4,414             1,015                  -
                                                          -------            -------           -------            -------
                                                           34,559              3,067            34,053              8,321
                                                          =======            =======           =======            ========


The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
                                                                                                                             F-7
<CAPTION>
Statement of Shareholders' Equity
--------------------------------------------------------------------------------------------------------------------------------

In terms of shekels of December 1999

                                                   Number      Share     Capital  Company      Cumulative     Retained   Total
                                                     of       capital   reserves   shares       foreign       earnings
                                                 ordinary                          held by      currency
                                                 shares (1)                      subsidiaries  translation
                                                                                               adjustments
                                                 ----------   -------   -------  ------------  -----------    ---------   -----
                                                                                       NIS thousands
                                                              ------------------------------------------------------------------

<S>                                             <C>           <C>       <C>          <C>       <C>         <C>         <C>
Balance at January 1, 1997                      15,079,830    532,746  2,176,402     (7,007)   (738,856)   2,077,186   4,040,471

Changes during 1997:

Net income                                               -          -          -          -           -      537,337     537,337
Exercise of stock options granted
 to Israeli banks                                                   1      1,855                                   -       1,856
Interim dividend                                         -          -          -          -           -      (57,902)    (57,902)
Interim dividend                                         -          -          -          -           -      (29,817)    (29,817)
Interim dividend                                         -          -          -          -           -      (30,668)    (30,668)
Erosion of dividend proposed in 1996                     -          -          -          -           -        2,717       2,717
Cumulative foreign currency translation
 adjustments                                             -          -          -          -      18,228            -      18,228
Purchase of Company shares by subsidiaries,
 net, and dividend received therefrom             (132,924)                         (46,634)          -        2,016     (44,618)
Exercise of stock options (series 2)               233,157        * -     94,602          -           -            -      94,602
Exercise of stock options granted to
 senior employees (2)                              127,506        * -          -          -           -            -           -
                                                ----------    -------  ---------   --------    --------    ---------   ---------
Balance at 31 December, 1997                    15,307,569    532,747  2,272,859    (53,641)   (720,628)   2,500,869   4,532,206
                                                ==========    =======  =========   =========   =========   =========   =========

* Represents an amount lower than NIS 1,000.

(1)      Net of subsidiaries' holdings.

(2)      See also Note 20(c).


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

<PAGE>


Balance at January 1, 1998                      15,307,569    532,747  2,272,859    (53,641)   (720,628)   2,500,869   4,532,206

Changes during 1997:

Net income                                               -          -          -          -           -       47,121      47,121
Exercise of stock options granted
 to Israeli banks                                        -        * -        619          -           -            -         619
Interim dividend                                         -          -          -          -           -      (68,870)    (68,870)
Interim dividend                                         -          -          -          -           -      (66,352)    (66,352)
Interim dividend                                         -          -          -          -           -      (87,299)    (87,299)
Erosion of dividend proposed in 1996                     -          -          -          -           -          724         724
Cumulative foreign currency translation
   adjustments                                           -          -          -          -     163,068            -     163,068
Dividend from company shares held by
  subsidiaries                                           -          -          -          -           -        2,074       2,074
Conversion of debentures into shares               315,658          1    141,163          -           -            -     141,164
Employee benefit from options granted by a
 controlling shareholder (2)                             -          -      6,080          -           -            -       6,080
Adjustment of consideration in respect
 of purchase of investment from
 controlling shareholder (3)                             -          -     (6,080)         -           -     (588,904)   (594,984)
Exercise of stock options granted
 to senior employees (2)                            100,100        *-          -          -           -            -           -
Other adjustments                                        -          -        367          -           -            -         367
                                                -----------   -------  ---------    -------   ---------    ---------   ---------
Balance at 31 December, 1998                    15,723,327    532,748  2,415,008    (53,641)   (557,560)   1,739,363   4,075,918
                                                ==========    =======  =========    =======   =========    =========   =========

*   Represents an amount lower than NIS 1,000.
(1) Net of subsidiaries' holdings.
(2) See also Note 20C.
(3) See Note 3A.

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

<PAGE>

Balances at January 1, 1999                     15,723,327    532,748  2,415,008    (53,641)   (557,560)   1,739,363   4,075,918
Changes during 1999:

Net income                                               -          -          -          -           -      549,119     549,119
Exercise of stock options granted
 to Israeli banks                                        -        * -        414          -           -            -         414
Interim dividend                                         -          -          -          -           -      (58,228)    (58,228)
Interim dividend                                         -          -          -          -           -      (42,934)    (42,934)
Interim dividend                                         -          -          -          -           -     (124,028)   (124,028)
Erosion of dividend proposed in 1998                     -          -          -          -           -         (442)       (442)
Cumulative foreign currency translation
  adjustments                                            -          -          -          -     (19,350)           -     (19,350)
Dividend from company shares held
  by subsidiaries                                        -          -          -          -           -        2,412       2,412
Conversion of debentures into shares                 2,171        * -      1,020          -           -            -       1,020
Employee benefit from options granted
  by a controlling shareholder (2)                       -          -        774          -           -            -         774
Exercise of stock options granted to
 senior employees (2)                                5,473        * -          -                      -            -           -
Other adjustments                                        -          -         39          -           -            -          39

                                                ----------    -------  ---------    -------    --------    ---------   ---------
Balance at 31 December, 1999                    15,730,971    532,748  2,417,255    (53,641)   (576,910)   2,065,262   4,384,714
                                                ==========    =======  =========    ========   ========    =========   =========

*        Represents an amount lower than NIS 1,000.
(1)      Net of subsidiaries' holdings.
(2)      See also Note 20C.






The accompanying notes are an integral part of the financial statements.
<PAGE>


Convenience translation into US dollars (Note 2B)


Balance at  January 1, 1999                     15,723,327    128,280    581,509    (12,916)   (134,255)     418,821     981,439

Changes during 1999:

Net income                                               -          -          -          -           -      132,222     132,222
Exercise of stock options granted
 to Israeli banks                                        -        * -        100          -           -            -         100
Interim dividend                                         -          -          -          -           -      (14,021)    (14,021)
Interim dividend                                         -          -          -          -           -      (10,338)    (10,338)
Interim dividend                                         -          -          -          -           -      (29,865)    (29,865)
Erosion of dividend proposed in 1998                     -          -          -          -           -         (106)       (106)
Cumulative foreign currency
  translation adjustments                                -          -          -          -      (4,659)           -      (4,659)
Dividend from company shares held
  by subsidiaries                                        -          -          -          -           -          581         581
Conversion of debentures into shares                 2,171        * -        246          -           -            -         246
Employee benefit from options granted
  by a controlling shareholder (2)                       -          -        186          -           -            -         186
Exercise of stock options granted
  to senior employees (2)                            5,473        * -          -          -           -            -           -
Other adjustments                                        -          -          9          -           -            -           9
                                                ----------    -------    -------   --------    --------      -------   ---------
Balance at 31 December, 1999                    15,730,971    128,280    582,050    (12,916)   (138,914)     497,294   1,055,794
                                                ==========    =======    =======    ========   ========      =======   =========

(1)   Net of subsidiaries' holdings.
(2)   See also Note 20C.
*     Represents an amount lower than $1,000.



The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
                                                                                                                        F-11
<CAPTION>
Consolidated Statement of Cash Flows
----------------------------------------------------------------------------------------------------------------------------
In terms of shekels of December 1999

                                                                                                               Convenience
                                                                                                               translation
                                                                                                                 (Note 2B)
                                                                                                                Year ended
                                                                      Year ended December 31                   December 31
                                                             1999             1998              1997                  1999
                                                                     NIS thousands                          US $ thousands
                                                         --------------------------------------------      ----------------
Cash flows generated by operating
 activities:
<S>                                                       <C>                 <C>              <C>                <C>
Net earnings                                              549,119             47,121           537,337            132,222
Adjustments to reconcile net earnings to
 cash flows generated by
 operating activities (A)                                 171,509            632,419           285,503             41,298
                                                         --------          ---------          --------          ---------
Net cash inflow generated by operating
 activities                                               720,628            679,540           822,840            173,520
                                                         --------          ---------          --------          ---------

Cash flows generated by investing
 activities:
Purchase of fixed assets                                 (654,694)        (1,056,788)         (991,967)          (157,646)
Investment grants in respect of fixed assets               45,050             16,015            54,860             10,849
Amounts charged to intangible assets and
 deferred expenses                                       (107,293)           (92,092)          (58,337)           (25,835)
Additional investments in subsidiaries                   (118,869)        (1,255,337)          (94,414)           (28,622)
Acquisition of initially-consolidated
 subsidiaries (B)                                        (234,432)          (231,504)          (18,902)           (56,449)
Investments in affiliates                                (886,984)        (1,897,053)          (40,451)          (213,577)
Investments in loans to affiliates                         (5,911)            (8,265)          (10,874)            (1,423)
Repayment of long-term loans to affiliates                    105             27,007             4,966                 25
Proceeds from realisation of investments in
 formerly consolidated subsidiaries, net of
 cash in those subsidiaries at the time they
 ceased being consolidated (C)                            508,144            540,513           168,914            122,357
Purchase of consolidated companies' shares
 by their consolidated companies                         (116,497)                  -                 -           (28,051)
Investment in restricted bank deposit                           -           (746,194)                -                  -
Proceeds from disposal of investments
 in investees                                             140,277            314,401           241,660             33,777
Proceeds from sale of fixed assets                        185,893             71,493            81,589             44,761
Decrease (increase) in other
 investments                                             (347,184)           184,082          (210,607)           (83,598)
Changes in short-term deposits and
 investments, net                                        (150,962)          (161,955)         (193,615)           (36,351)
                                                       -----------        -----------       ----------           --------
Net cash outflow generated by investing
 activities                                            (1,743,357)        (4,295,677)       (1,067,178)          (419,783)
                                                       -----------        -----------       -----------          ---------




The accompanying notes are an integral part of the financial statements
<PAGE>


Cash flows generated by financing
 activities:

Proceeds from exercise of stock options                       414                619            96,458                100
Purchase of Company shares by
 subsidiaries, net                                              -                  -           (46,634)                 -
Dividend paid                                            (144,411)          (193,176)         (127,274)           (34,773)
Issuance of shares to minority in
 subsidiaries                                              13,552            299,638           182,147              3,263
Dividend paid to minority in
 subsidiaries                                             (12,894)           (25,859)          (30,555)            (3,105)
Payment of suppliers credit received
 for the purchase of fixed assets                          (1,232)            (1,917)           (5,150)              (297)
Issuance of convertible debentures                         62,220            746,194                 -             14,982
Proceeds from principal of long-term
 loans and other long-term liabilities                    763,930          3,394,867           836,116            183,947
Repayment of long-term loans, debentures
 and other long-term liabilities                         (606,496)          (684,889)         (683,921)          (146,038)
Credit from banks and others, net                         913,907            172,504           362,992            220,060
                                                        ---------          ---------          --------           --------
Net cash inflow generated by financing
 activities                                               988,990          3,707,981           584,179            238,139
                                                        ---------          ---------          --------           --------

Translation differences in respect of cash
balances of autonomous foreign investees                   (8,928)            64,746             4,091             (2,149)
                                                        ---------          ---------           -------            --------

Increase (decrease) in cash and cash
 equivalents                                              (42,667)           156,590           343,932            (10,273)

Balance of cash and cash equivalents
 at beginning of year                                   1,491,373          1,334,783           990,851            359,107
                                                       ----------          ---------         ---------           --------

Balance of cash and cash equivalents
 at end of year                                         1,448,706          1,491,373         1,334,783            348,834
                                                        =========          =========         =========           =========


The accompanying notes are an integral part of the financial statements

<PAGE>

A.  Adjustments to reconcile net
      earnings to cash flows generated
      by operating activities:

Income and expenses not involving cash flows:

  Minority interest in subsidiaries, net                   (2,472)           247,052           266,784               (595)
  Dividend received from affiliates net
   of equity in the operating results
   (equity in operating results of
   affiliates net of dividend received
   therefrom)                                             (74,696)           (34,240)            3,325            (17,986)
  Depreciation and amortisation                           570,070            683,095           672,359            137,267
  Deferred taxes                                         (155,683)          (117,068)           15,815            (37,487)
  Increase in liabilities in respect of
   employee severance benefits, net                        60,061             82,604             7,608             14,462
  Capital losses (gains), net:
  Fixed assets                                              2,993              7,339           (15,413)               721
  Investments in formerly consolidated
   subsidiaries                                          (401,880)          (147,902)          (70,791)           (96,769)
  Investments in investees                                (47,560)          (249,716)         (108,855)           (11,452)
Inflationary adjustment of principal of
 long-term loans and other liabilities                    (43,814)            53,510            26,664            (10,550)
Inflationary erosion of principal of
 credit from banks and others                                   -             16,204                 -                  -
Adjustment of value of investments,
 deposits and loans receivable                             (2,619)           (54,425)           (5,321)              (631)
Write-down in value of assets and
 investments                                              262,232            227,398            47,052             63,144
Liquidating dividend                                            -                  -           (20,327)                 -
Employee benefits granted by a
 controlling shareholder                                      774              6,080                 -                186
                                                        ---------            -------          --------            -------
                                                          167,406            719,931           818,900             40,310
                                                        ---------            -------          --------            -------




The accompanying notes are an integral part of the financial statements

Changes in operating asset and
 liability items:

Increase in trade receivables and other
 receivables (after taking into
 account non-current amounts)                            (363,926)          (639,503)         (426,242)           (87,630)
Decrease (increase) in inventory, work
 in process and customer advances
(including long-term customer
 advances and deposits)                                   (31,029)           (10,777)           56,010             (7,471)
Increase (decrease) in trade payables
 and other payables and accruals                          399,058            562,768          (163,165)            96,089
                                                        ---------           --------          ---------           -------
                                                            4,103            (87,512)         (533,397)               988
                                                        ---------           --------          ---------           -------
                                                          171,509            632,419           285,503             41,298
                                                        =========           ========          =========           =======

B.  Acquisition of initially
      consolidated subsidiaries

Assets and liabilities of the
subsidiaries at date of acquisition:

  Working capital deficit (surplus),
   excluding cash and cash equivalents                    137,360           (150,468)           (1,070)            33,075
  Fixed assets and investments                           (808,959)           (43,830)          (85,186)          (194,789)
  Long-term liabilities                                   192,422              4,675            75,859             46,333
  Minority interest in subsidiaries                        61,938              2,437            22,241             14,914
  Excess of cost over net asset value
   upon acquisition                                       (37,921)           (48,328)          (48,470)            (9,131)
  Equity in net assets                                    108,597              4,010            (2,603)            26,149
  Liquidating dividend                                          -                  -            20,327                  -
  Liability for acquisition of subsidiaries               112,131                  -                 -             27,000
                                                        ----------          --------          ---------           --------
                                                         (234,432)          (231,504)          (18,902)           (56,449)
                                                        ==========          =========         =========           ========



The accompanying notes are an integral part of the financial statements

<PAGE>

C.  Proceeds from realisation of
    investments in formerly
    consolidated subsidiaries, net of cash
    in those subsidiaries at the time
    they ceased being consolidated:

Assets and liabilities of the formerly
  consolidated subsidiaries at the time
  they ceased being consolidated:

 Working capital surplus, excluding
  cash and cash equivalents                               610,811             94,836            38,282            147,077
Fixed assets and investments                              994,450            793,540           260,452            239,453
 Long-term liabilities                                   (233,786)          (249,922)         (168,786)           (56,293)
 Minority interest in the subsidiaries as at
  the date of sale                                       (243,164)          (206,326)          (25,551)           (58,551)
 Investments in affiliated companies, net              (1,022,047)                  -                 -          (246,098)
Consideration not yet received from
   consolidation of companies                                   -            (39,517)           (6,274)                 -
 Capital gain on sale of  investments
  in the subsidiaries                                     401,880            147,902            70,791             96,768
                                                       ----------           --------          --------           --------
                                                          508,144            540,513           168,914            122,356
                                                       ==========           ========          ========           ========

D.  Non-cash transactions:
Purchase of fixed assets                                    5,897              6,673            20,637              1,420
                                                       ==========           ========          ========           ========
Investment grant receivable                                     -                  -               234                  -
                                                       ==========           ========          ========           ========
Purchase of other assets                                    8,306             29,426            24,911              2,000
                                                       ==========           ========          ========           ========
Purchase of switching division                              3,945                  -                 -                950
                                                       ==========           ========          ========           ========
Proceeds from sale of fixed assets and
investees                                                       -             44,874            17,384                  -
                                                       ==========           ========          ========           ========
Investment in initially consolidated
 subsidiaries                                             112,131                  -                 -             27,000
                                                       ==========           ========          ========           ========
Proposed dividend to minority shareholders                      -              8,793            12,963                  -
                                                       ==========           ========          ========           ========
Interim dividend                                          165,172             86,363            59,820             39,772
                                                       ==========           ========          ========           ========
Conversion of convertible debentures into
 shares of the Company and of subsidiaries                  1,020            141,492                 -                246
                                                       ==========           ========          ========           ========
Conversion of current trade receivables
 into long-term loans receivable                                -                  -             8,508                  -
                                                       ===========           ========         ========           ========



The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Company Statements of Cash Flows
----------------------------------------------------------------------------------------------------------------------------
In terms of shekels of December 1999

                                                                                                               Convenience
                                                                                                               translation
                                                                                                                 (Note 2B)
                                                                                                                Year ended
                                                                      Year ended December 31                   December 31
                                                             1999             1998              1997                  1999
                                                                     NIS thousands                          US $ thousands
                                                         --------------------------------------------      ----------------
Cash flows generated by operating
 activities:
<S>                                                       <C>                 <C>              <C>                <C>
Net earnings                                              549,119             47,121           537,337            132,222
Adjustments to reconcile net earnings
 to cash flows generated by
 operating activities (A)                                (322,620)           175,337          (367,197)           (78,875)
                                                         ---------          --------         ----------           --------

Net cash inflow generated by operating
 activities                                               226,499            222,458           170,140             53,347
                                                         ---------          --------          --------            -------

Cash flows generated by investing
   activities:
  Investees - acquisition of shares, payments
   on account of shares, loans granted, and
   non-current accounts                                (1,098,942)        (3,633,853)         (113,341)          (259,010)
  Purchase of fixed assets                                (14,052)           (26,320)             (776)            (3,384)
  Increase in investments and other
   receivables, net                                      (355,461)           (39,464)          (62,194)           (85,591)
  Proceeds from sale of fixed assets                          949              1,707               440                229
  Proceeds from realisation of investments
   in investees, net                                      178,379            409,463           257,800             41,946
  Dividend received from an investees                   1,448,145            542,761                 -            345,292
  Investment in short-term deposits and
   investments, net                                       (86,748)            (2,553)          (30,820)           (20,888)
                                                       -----------        -----------         ---------          ---------
Net cash inflow (outflow) generated by
 investing activities                                      72,270         (2,748,259)           51,109             18,594
                                                       ----------         -----------         ---------          --------

Cash flows generated by financing
  activities:

  Proceeds from exercise of stock options                     414                619            96,458                100
  Dividend paid                                          (145,969)          (194,979)         (128,626)           (35,148)
  Receipt of long-term loans and other
   long-term liabilities                                  107,062          2,779,618            10,594             25,779
  Payments of long-term loans and
   other long-term liabilities                            (90,819)           (86,358)          (68,910)           (21,868)
  Credit from banks and others, net                       240,444             (6,137)             (968)            57,896
                                                        ----------         ----------         ---------           -------
Net cash inflow (outflow) generated by
 financing activities                                     111,132          2,492,763           (91,452)            26,759
                                                        ---------          ----------         ---------           -------

Increase (decrease) in cash and cash
 equivalents                                              409,901            (33,038)          129,797             98,700
Balance of cash and cash equivalents at
 beginning of year                                        315,453            348,491           218,694             75,958
                                                         --------          ---------         ---------            -------
Balance of cash and cash equivalents at
 end of year                                              725,354            315,453           348,491            174,658
                                                         ========           ========         =========            =======

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

<PAGE>


(A) Adjustments to reconcile net earnings
       to cash flows generated by
       operating activities:

Income and expenses not involving cash flows:

  Dividend received from investees net of equity
   in their operating results (equity in
   operating results of investees, net of
   dividend received therefrom)                          (206,403)           141,275          (299,014)           (46,294)
  Depreciation and amortisation                             2,433              3,143             4,608                587
  Deferred taxes                                         (129,000)                  -                 -           (31,062)
  Increase (decrease) in liability in respect
   of employee severance benefits, net                    (10,553)           (22,508)           12,425             (2,541)
  Capital losses (gains), net:
  Fixed assets                                              1,661              1,121                86                400
  Investment in investees                                 (44,699)          (113,159)          (93,088)           (10,763)
  Decrease (increase) in value of deposits
   and other erosions, net                                  1,202                435            (3,834)               289
  Exchange rate differences and erosion of
   principal of long-term loans and other
   liabilities                                            (19,327)            13,059             5,171             (4,654)
  Erosion of principal of credit from banks
   and others                                                   -              6,678                 -                  -
  Employee benefits from option
   granted by a controlling shareholder                       774              6,080                 -                186
  Write down in value of investments                      153,989            131,090                 -             37,079
                                                        ----------          ---------        ----------           -------
                                                         (249,923)           167,214          (373,646)           (56,773)
                                                        ----------          ---------        ----------           --------

Changes in operating assets and liability items:
  Decrease (increase) in current accounts of
   investees, net                                         (88,911)            26,003            (5,531)           (26,007)
  Decrease (increase) in receivables                      (11,007)            (2,520)            1,743             (2,650)
  Increase (decrease) in payables and
   accruals                                                27,221            (15,360)           10,237              6,555
                                                         --------           ---------         --------            -------
                                                          (72,697)             8,123             6,449            (22,102)
                                                         ---------           --------         ---------           --------

                                                         (322,620)           175,337          (367,197)           (78,875)
                                                         =========           =======          =========           ========

(B) Significant non-cash transactions:

Interim dividend                                          166,962             87,299            60,484             40,203
                                                         ========            =======           =======            ========

The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
                                                                           F-18

Notes to the Financial Statements
-------------------------------------------------------------------------------
Note 1 - General

         A.    Koor Industries Ltd. is a diversified holding company, which
               operates in the fields of telecommunication, defence
               electronics, agro-chemicals and other chemicals and building
               and infrastructure materials, through its subsidiaries,
               proportionately consolidated companies and affiliates
               (hereinafter - the "Koor Group" or the "Group").

               The Company's shares are traded both on the Tel-Aviv Stock
               Exchange and on the New York Stock Exchange.

Note 2 - Significant Accounting Policies

         The financial statements have been prepared in accordance with
         generally accepted accounting principles ("GAAP") in Israel, which
         differ in certain respects from those followed in the United
         States, as described in Note 28.

         The significant accounting policies, which were applied on a
         consistent basis, are as follows: In these financial Statements:

         A.    Definitions:

         1.    The Company - Koor Industries Ltd. (hereinafter - "Koor" or
               the "Company").

         2.    Subsidiaries - companies in which more than 50% of the
               equity is held by Koor.

         3.    Proportionately consolidated companies - jointly controlled
               companies, which are consolidated by the proportionate
               consolidation method in Koor's financial statements.

         4.    Affiliates - companies, in which Koor has voting or equity
               rights which give it significant influence over the
               operating and financial policies of these companies, and
               which are not fully or proportionately consolidated. Such
               companies are included on the equity basis.

         5.    Investees - subsidiaries, proportionately consolidated
               companies and affiliates.

         6.    Related parties - as defined in the Israeli Securities
               Regulations (Preparation of Annual Financial Statements),
               1993, including related parties as defined by the Institute
               of Certified Public Accountants in Israel - (hereinafter -
               "ICPAI").

         B.    Adjusted financial statements:

         1.    a)    All NIS figures in the financial statements are stated
                     in terms of NIS of a identical purchasing power (NIS
                     of December 1999), the required adjustments are based
                     upon the changes in the Israeli Consumer Price Index
                     (hereinafter - "CPI")

               b)    The adjustments of the financial statements of the
                     Koor Group's is in accordance with the opinions of the
                     ICPAI and is based on the accounting records which are
                     kept in historical NIS, or in other functional
                     currencies.

               c)    The adjusted amounts of non-monetary assets do not
                     necessarily represent their realisable or current
                     economic value, but rather the original historical
                     cost of those assets in terms of adjusted NIS. The
                     term "cost" in these financial statements means cost
                     in adjusted NIS.
<PAGE>
         B.    Adjusted financial statements: (cont'd)

         2.    The adjusted financial statements as at 31 December, 1999
               and for the year then ended have been translated into
               dollars using the representative exchange rate as at that
               date ($1 = NIS 4.153). The translation was made solely for
               the convenience of the reader. The dollar amounts so
               presented in these financial statements should not be
               construed as representing amounts receivable or payable in
               dollars or convertible into dollars, unless otherwise
               indicated.

         3.    The following principles of adjustment relate to those
               companies of the Koor Group whose financial statements were
               adjusted on the basis of the CPI:

               a)    Non-monetary items (mainly fixed assets, inventory,
                     work in process and related customer advances,
                     intangible assets and deferred expenses), have been
                     adjusted on the basis of the CPI at the time when the
                     related transactions were carried out. The components
                     of the statement of operations relating to
                     non-monetary items (mainly changes in inventory and
                     work in progress, depreciation and amortisation) have
                     been adjusted on the same basis used for the
                     adjustment of the related balance sheet items.

               b)    Investments in investees and the equity in their
                     results of operations for the current year, as well as
                     the minority interest in subsidiaries and their share
                     in the results of their operations for the current
                     year, are based on the adjusted financial statements
                     of those companies.

               c)    Monetary items (items whose amounts in the balance
                     sheet reflect current or realisable values) are
                     presented in the balance sheet as at 31 December,
                     1999, at their historical amounts (comparative figures
                     are also stated in terms of shekels of December 1999).

               d)    The components of the statement of operations (except
                     for financing), relating to transactions carried out
                     during the year - sales, purchases, labour costs,
                     etc., have been adjusted according to the CPI at the
                     time the related transactions were effected. The
                     erosion of monetary balances relating to the aforesaid
                     transactions has been included in the financing item.

               e)    The components of the statement of operations relating
                     to provisions included in the balance sheet, such as:
                     liability in respect of employee severance benefits,
                     provision for vacation pay, etc., are based on the
                     changes in the balances of the related balance sheet
                     items after their related cash flows were taken into
                     account.

               f)    The financing item which is derived from the other
                     items of the statement of operations reflects real
                     financing income and expenses, as well as the erosion
                     of monetary balances during the year, the earnings and
                     losses from the realisation and pledging of marketable
                     securities and the earnings and losses from derivative
                     financial instruments.

               g)    Current income expense includes also the expense
                     resulting from the erosion in value of payments on
                     account of income tax from payment date to the end of
                     the year.
<PAGE>
         B.    Adjusted financial statements: (cont'd)

         4.    Adjustment of financial statements on the basis of the
               exchange rate of the dollar:

               The financial statements of certain subsidiaries and
               affiliates are adjusted on the basis of the exchange rate of
               the dollar. For the purpose of consolidation or inclusion
               according to the equity method, of the above-mentioned
               companies, the amounts (in terms of foreign currency),
               stated in the financial statements of those companies, have
               been treated, as autonomous foreign investees.

               According to Interpretation No. 8 to Opinion 36 of the
               ICPAI, at each balance sheet date, the figures of the
               balance sheet and the statements of operations for the year
               then ended are translated into shekels at the exchange rate
               prevailing at the end of the year, of the foreign currency
               in which the financial statements of those companies were
               prepared. Balance sheet items as at the beginning of the
               year, and changes in capital during the year, were
               translated according to the exchange rate at the beginning
               of the year or at the date of the change, respectively, and
               were then adjusted for the changes in the CPI until December
               1999. This treatment is relevant both to the autonomous
               foreign investees as well as to the Israeli companies whose
               functional currency is the dollar.

               Differences arising from the translation were included in a
               separate item of shareholders' equity under "Cumulative
               foreign currency translation adjustments".

         C.    Principles of consolidation:

         1.    The consolidated financial statements include the accounts
               of Koor, all its subsidiaries and proportionately
               consolidated companies.

               The Group's share in the equity of subsidiaries and
               proportionately consolidated companies is computed on the
               basis of their issued share capital. To the extent that sale
               and/or exercise of convertible securities issued by investee
               is probable, in accordance with the criteria set forth in
               Opinions 48 and 53 of the ICPAI, and if the percentage of
               Koor's holdings of such subsidiaries is expected to decrease
               upon their conversion or exercise, following which Koor will
               incur a loss, an appropriate provision is included for such
               an anticipated loss.
<PAGE>
         2.    Consolidation of financial statements of proportionately
               consolidated companies

               In accordance with generally accepted accounting principles
               in Israel, the financial statements of companies that are
               jointly controlled, mainly Mashav Initiating and Development
               Ltd. and its subsidiaries, are included in Koor's
               consolidated financial statements according to the
               proportionate consolidation method.

         3.    Goodwill deriving from the acquisition of an investment,
               which represents the excess of acquisition cost or the
               investment in subsidiaries over the fair value of
               identifiable assets less the fair value of identifiable
               liabilities upon acquisition, is amortised at equal annual
               rates over 10 years commencing from the acquisition date.

               Differences resulting from changes in holding rates are
               charged to the statement of operations, as incurred.

         4.    Significant inter-company transactions and balances are
               eliminated upon consolidation.

         5.    Koor's shares which were purchased by subsidiaries are
               accounted for as treasury stock.

         D.    Use of estimates:

         The financial statements, which were prepared in accordance with
         generally accepted accounting principles, include amounts based on
         estimates and assumptions of the Management which take the factor
         of materiality into consideration. Actual results may differ from
         such estimates.

         E.    Cash equivalents:

         Cash equivalents are considered by the Company to be highly liquid
         investments which include short-term bank deposits with an
         original maturity of three months or less and which are not
         encumbered by a lien.

         F.    Marketable securities:

         Investments in marketable securities designated for sale in the
         short term, which can be sold immediately ("current investments"),
         are stated at market value. Investments in marketable securities
         not designated for sale in the short term ("permanent investment")
         are stated at cost (debentures - including accrued interest), as
         long as there has not been a decline in value which is not of a
         temporary nature.
<PAGE>
         G.    Allowance for doubtful debts:

         The allowance is partly determined in respect of specific debts
         whose collection is doubtful, and partly as a percentage of the
         balance of trade receivables.

         H.    Inventory:

         Inventory is stated at the lower of cost or market value. Cost is
         determined as follows:

         Raw materials, auxiliary materials and spare parts - at average
         cost or by the "first-in, first-out" method.

         Finished goods and goods in process - mainly on the basis of
         direct manufacturing costs and, in part, on the basis of average
         manufacturing costs with the addition of indirect manufacturing
         costs.

         Merchandise - by the first-in, first-out method or by the moving
         average method.

         I.    Work in process:

         Work in process is valued at direct production cost, plus
         allocated indirect expenses, all of which are on an average basis.
         The cost of work in process under long-term contracts also
         includes allocation of general expenses, as well as interest at an
         average rate for external financing.

         Interest is calculated in respect of the excess of the cost of
         work in process over customer advances received for each order or
         in respect of the excess of customer advances received for each
         order over the cost of work in process.

         The excess of the investment in inventory and work in process,
         over related advances received, is included in current assets,
         while the excess of advances received over investment is included
         in current liabilities.

         J.    Investments in investees companies:

         The investments in investees (consolidated - investments in
         affiliates) are stated by the equity method. Goodwill, arising
         from the acquisition of investments, is amortised at equal annual
         rates over a 10 year period, commencing from acquisition date.
<PAGE>
         K.    Long-term receivables and liabilities:

         Long-term receivables and liabilities, with below-market interest
         rates at date of inception, were recorded at their present values.

         L.    Fixed assets:

         1.    The assets are stated at cost, net of related investment
               grants.

         2.    Cost includes interest capitalised during the period of
               construction of the assets, calculated according to the
               specific interest rates applicable to the sources used to
               finance the investment.

         3.    Depreciation is computed by the straight-line method, on the
               basis of the estimated useful lives of the assets.

               The annual depreciation rates used are as follows:

                                                         _________%

               Buildings and leasehold rights               1-10  (mainly 2%)


               Machinery, equipment and installations       5-20  (mainly 10%)


               Vehicles and forklifts                      10-20  (mainly 15%)


               Office furniture and equipment               6-33  (mainly 6%
                                                                   and 25%)

         M.    Debentures convertible into shares:

         1.    Debentures, conversion of which is not expected in the
               foreseeable future, are stated at their liability value as
               at balance sheet date, in accordance with the provision, of
               Opinion 53 of the ICPAI, and are stated as long-term
               liabilities.

         2.    In accordance with Opinions 48 and 53 of the ICPAI, the
               provision for anticipated loss on the reduction in the
               percentage of holdings of investees is included in the item
               "Minority interest in subsidiaries", in the balance sheet.

         N.    Intangible assets and deferred expenses:

         1.    Intangible assets - know-how, software and patents purchased
               and payments for licensing of products abroad - are stated
               at cost and are amortised in 5 to 10 annual installments
               beginning with the commencement of the utilisation thereof.

         2.    Deferred expenses - debenture issuance costs:

               These costs are amortised over the life of the debentures.

         O.    Deferred taxes:

         1.    Deferred taxes are computed in respect of differences
               between the amounts stated in the financial statements and
               those to be considered for tax purposes. As for the main
               components in respect of which deferred taxes have been
               created - see Note 16F.

         2.    Deferred tax balances are computed at the tax rate expected
               to be in effect at the time these taxes will be charged to
               the statement of operations. The amount stated in the
               statement of operations represents the changes in the said
               balances during the current year.

         3.    Koor has not recorded deferred taxes in respect of the
               possible sale of investments in investees that management
               intends to retain. Similarly, deferred taxes have not been
               provided for future taxable distributions from investees
               since it is the Group's policy not to distribute taxable
               dividends in the foreseeable future.

         P.    Revenue recognition:

         1.    Work in process:

               Revenue and costs related to work in process under long-term
               contracts are recognised under the percentage of completion
               method, once accumulated costs have become significant.

               As for contracts involving technological uncertainties,
               revenue is recognised on the basis of the completed
               contracts method.

               Income and costs relating to contracts on a "cost plus"
               basis (i.e. cost with the addition of profit at a fixed
               rate) are recognised when the costs are incurred.

               Full provision is made for anticipated losses.

         2.    Sale of products and rendering of services:

               Sales are recognised upon delivery of the products or
               performance of the services.

               In special contracts, the sales are recognised after
               performing the work and passing acceptance tests, as defined
               in the product delivery contract.

         Q.    Adjustments of computer systems to Year 2000

         The costs required to adjust and convert the existing programs of
         the Group, so that they can differentiate between years belonging
         to the 20th century and years belonging to the 21st century (year
         2000 capability), are recorded as current expenses as incurred.

         R.    Presentation of transactions between the Company and the
               controlling shareholder

         Transactions between the Company and the controlling shareholder
         of the Company are presented in accordance with the Securities
         Regulations (Presenting transactions between a company and its
         controlling shareholder in the financial statements) - 1996.
         Accordingly, the difference between the price paid to the
         controlling shareholder in 1998, regarding the sale of an asset,
         and the book value of the asset in the books of the controlling
         shareholder is included in the item Shareholders' equity of the
         Company.

         S.    Research and development:

         Research and development costs, net of participations (mainly from
         the Government of Israel), are charged to the statement of
         operations, as incurred. Research and development costs financed
         by the customer are charged to the cost of work in process, and
         are included in the statement of operations, as part of the
         recognition of revenue from such work in process.

         T.    Derivative financial instruments:

         Koor and its subsidiaries enter into option contracts and forward
         transactions that are designated to reduce the specific risks
         (i.e., commitments for the import of raw materials, export of
         goods, liabilities linked to the CPI or foreign currency) involved
         in the exposure to fluctuations in the exchange rates of foreign
         currency and changes in the CPI.

         The results of option contracts and forward transactions for the
         purchase or sale of foreign currency, which are designated to
         hedge the proceeds from export and the cost of imports against
         changes in foreign currency (hedging transactions), are recorded
         in the statement of operations, concurrently with the recording of
         the related import and export results.

         The results of option contracts and forward transactions for the
         purchase or sale of foreign currency intended to hedge certain net
         assets, but not classified as hedging transactions, are recorded
         in the statement of operations, as financing expenses in the
         period of the change in the exchange rate of the hedged balances
         (see also Note 21). The fair value of derivative financial
         instruments is established according to their market values, and
         when such does not exist, according to a valuation model.

         U.    Earnings per share:

         Earnings per share data is computed in accordance with Opinion 55
         of the ICPAI (see also Note 26).

         V.    Data regarding the CPI and the exchange rate of foreign
               currency:

         1.    Below is data regarding the CPI and the US dollar exchange
               rate:

                                                   Israeli     Exchange rate
                                                      CPI*     of one U.S.$
                                                 ---------    --------------
                                                   Points               NIS
                                                 ---------    --------------

               For the year ended:

               December 1999                        168.53        4.153
               December 1998                        166.3         4.160
               December 1997                        153.1         3.536

                                                  ________%      ______%

               Changes during:

               1999                                   1.3          (0.2)
               1998                                   8.6          17.6
               1997                                   7.0           8.8


                                                                ______%
               Real increase (decrease)
               in the CPI relative
               to the exchange rate
               of the dollar during the year:

                1999                                                1.5
                1998                                               (8.3)
                1997                                               (1.7)


         (*)   According to the index in respect of the month (1993 average
               basis) ended on balance sheet date.

         2.    Assets and liabilities in foreign currency or linked thereto
               are included in the financial statements according to the
               representative exchange rate, as published by Bank of Israel
               as at balance sheet date.

         3.    Assets and liabilities linked to the CPI are included in the
               financial statements according to the latest index published
               prior to balance sheet.


Note 3 - Information Regarding Certain Investee Companies

         A.    ECI Telecom Ltd. - An Affiliated Company

         1.    Merger of ECI and Tadiran Telecommunications

         a.    On 16 March, 1999 ECI Telecom Ltd. (hereinafter: "ECI") and
               Tadiran Telecommunications Ltd. (hereinafter: "TTL")
               announced the completion of the merger between them,
               effective 1 January, 1999.

         b.    The merger was recorded in Koor's financial statements at
               book value, based on the accounting principles applying to
               transactions in which assets of similar nature are
               exchanged. This treatment is different from accepted
               accounting treatment in the United States (GAAP), where the
               transaction would have been recorded at market value. See
               also Note 28A(2).

         c.    Following the merger and before the purchase by Koor of
               additional shares in ECI as described in Section 2 below,
               the direct holdings of Koor and Tadiran Ltd. (hereinafter:
               "Tadiran") in ECI were 16.6% and 12.6% respectively. As a
               result of the merger the balance of goodwill of both Koor
               and Tadiran in ECI increased by some NIS 179 million.

         d.    As a result of the merger, effective 1 January, 1999, Koor
               no longer consolidates TTL's operations in its financial
               statements.

               The details of TTL which are included in the consolidated
               financial statements of the company for 1998 and 1997:

                                                   Year ended December 31
                                                   -----------------------
                                                   1998             1997
                                                   ----             ----
                                                         NIS millions
                                                         ------------

         Sales revenues                             1,761           1,728
         Operating income                             179             114
         Net profit as reported by TTL                169              93
         Total assets                               2,355               -


         2.    On 31 January, 1999 Koor notified Clal Electronics
               Industries Ltd. (hereinafter: "Clal") of exercise of the
               call option for the purchase from Clal of 3,830,000 ordinary
               shares of ECI at $37 per share. The transaction was
               concluded on 8 February, 1999.

               As at the balance sheet date, after purchase by Koor of
               additional shares on the stock exchange and the purchase by
               a consolidated company of ECI of treasury stock, Koor's
               direct and indirect holdings in ECI reached 34.1%.

         3.    In October 1999 a subsidiary of ECI, whose principal
               business is the development, production and marketing of
               fraud detection systems in communications networks and
               improvement of traffic quality in communications networks,
               completed an initial public offering on NASDAQ. This
               offering caused ECI to register a capital gain of
               approximately $30 million. As a result of the offering
               ECI's holding in its subsidiary declined to approximately
               75%.

         4.    During the fourth quarter of 1999 ECI registered a loss of
               approximately $37 million as a result of the termination of
               four different operations. In addition, in 1999 the current
               loss from the terminated operations amounted to
               approximately $26 million.

         5.    In September 1999, Telegate Ltd., an affiliated company of
               ECI, signed an agreement of principles whereby the shares
               and capital notes held by its shareholders, including those
               of ECI, would be exchanged for shares of Trion
               Communications Systems Ltd., a company whose shares are
               listed for trading in the United States. The share exchange
               enabled ECI to post a capital gain of $25.5 million, which
               was registered upon completion of the transaction in the
               fourth quarter of 1999.

         6.    Below is an adjustment of the profits of ECI based on the
               profit reported by ECI pursuant to the United States
               accounting regulations, to the profit pursuant to Israeli
               accounting regulations:

                                                                Year ended
                                                               December 31,
                                                                      1999
                                                               -------------
                                                                $ thousands
                                                                -----------

       Net profit of ECI based on its reported profit            102,519

       Adjustments:
       Finance income - marketable securities, see Note 28A(6)    11,171
       Tax income - deferred taxes, see Note 28A(4)                2,000
                                                                 --------
       Net profit of ECI based on net profit
         pursuant to Israeli accounting
         regulations                                             115,690
                                                                 ========


         B.    Tadiran Ltd. - consolidated company

         1.    Completion of purchase offer

               On 31 December, 1998 Koor held 97.4% of the issued capital
               of Tadiran. Pursuant to the purchase offer documents, in
               January 1999 Koor transferred the consideration for the
               balance of Tadiran shares amounting to NIS 79 million and
               achieved 100% ownership of Tadiran's shares.

         2.    Reorganisation

               During the accounting period decisions were taken in
               connection with personnel and activities downsizing plan in
               respect of Tadiran's consolidated companies. The managements
               of said companies estimate that implementation of the above
               plan will cost NIS 30 million.

         3.    Divestitures

               a.    Within the framework of the merger agreement between
                     ECI and TTL, Tadiran purchased the assets and
                     liabilities of TTL's Switching Division (hereinafter:
                     "Switching") in consideration of approximately $29
                     million. On 21 March, 1999 an agreement was signed by
                     Tadiran and a third party for the sale of most of the
                     assets and liabilities of Switching in consideration
                     of approximately $24 million without accrual of a
                     capital gain or loss as a result thereof.

               b.    On 8 March, 1999 an agreement was signed whereunder
                     Tadiran will sell all its holdings (86.9%) of its
                     shares in Contahal Ltd. (hereinafter: "Contahal") for
                     a total consideration of $24 million. The capital gain
                     after tax to Koor from this sale amounts to some NIS
                     45 million.

               c.    On 16 May, 1999 Tadiran signed an agreement of
                     principles for the sale of all its holdings (87%) in
                     Advanced Technology Ltd. in consideration of $64
                     million. The capital gain before tax to Koor was
                     approximately NIS 142 million.

               d.    On 10 June, 1999 an agreement was signed by Tadiran
                     for the sale of all its holdings (49%) in Tadiran
                     Information Systems Ltd., an affiliated company, to IBM
                     Israel Ltd. which prior to the transaction held 51% of
                     Tadiran Information Systems Ltd. for a consideration
                     (including dividend) of NIS 105 million. The capital
                     gain before tax amounted to some NIS 57 million.

               e.    On November 10, 1999 a final agreement was signed by
                     the Shamrock Group and others for the sale of all
                     Tadiran's holdings (100%) in Tadiran Com. Ltd.
                     (hereinafter: "Com.") for a total consideration of $149
                     million, of which $5 million was distributed as a
                     dividend and $35 million was paid by Com. for use of
                     the Tadiran logo and a non-competition agreement. The
                     after tax capital gain to Koor amounted to NIS 164
                     million. See Note 18A(12).

               f.    In August 1999 Tadiran signed an agreement to sell all
                     its holdings (100%) in Tadiran Batteries Ltd. in
                     consideration of approximately $19.5 million.
                     Completion of the transaction was contingent on
                     compliance with certain terms determined in the
                     agreement, but since not all the required approvals
                     were received by the date set by the parties, the
                     agreement was cancelled. On 15 March, 2000 an
                     agreement was signed by Tadiran for the transfer of
                     its holdings in Tadiran Batteries. See Note 27F

               g.    On 25 November, 1999 Tadiran signed an agreement to
                     sell all its holdings in Tadiran Telematics Ltd. in
                     consideration of approximately $7.5 million after
                     distribution of a dividend amounting to approximately
                     $1 million. In the financial statements a provision
                     was recorded for a loss of NIS 8 million which
                     reflects the loss from the realisation of the holding.
                     The agreement was concluded on 15 February, 2000.

               h.    On 30 December, 1999 Tadiran signed a final agreement
                     for the sale of all its holdings (56.6%) in Tadiran
                     Appliances. The consideration amounted to
                     approximately NIS 133 million. Implementation of the
                     transaction was contingent on receipt from the
                     relevant authorities of the approvals required for
                     completion of the transaction. In the financial
                     statements a provision was recorded for a loss of NIS
                     13 million which reflects the loss from realisation of
                     the holding.

         C.    M-A Industries Ltd. - Consolidated Company

         1.    On 26 December, 1999 the Board of Directors of M-A
               Industries Ltd. (hereinafter: "M-A Industries") decided on a
               plan to reorganise the group in light of the continuing
               crisis in the global agro-chemicals industry, which will be
               applied in the group and its investee companies overseas and
               in Israel, and which will include mainly a focus on the
               company's key areas of business, closing and relocating
               production installations, cutting fixed costs, as well as
               employee retirement. The total cost of the plan, which was
               included in the 1999 financial statements, is estimated to
               be approximately $36 million (before tax on income) and it
               is scheduled for implementation in 2000.

         2.    As at the balance sheet date Koor's holdings in M-A
               Industries are approximately 59.7%.

         3.    Acquiring operations -

               In July 1999 M-A Industries purchased from the shareholders
               of Luxembourg Pharmaceuticals Ltd. (a pharmaceuticals and
               medical instruments company, hereinafter: "Luxembourg")
               42.86% of its issued and paid-up share capital and in
               addition, Luxembourg issued to M-A Industries shares
               constituting 7.14% of its share capital in a total
               consideration of $7.1 million. Concurrently with the
               issuance, M-A Industries sold to Luxembourg its holdings
               (100% ownership and control) in Koor Medica Ltd. in
               consideration of $1 million. Following the above
               transactions M-A Industries holds 50% of the shares of
               Luxembourg.

               In addition M-A Industries has an option to purchase the
               remaining shares of Luxembourg and the shareholders of
               Luxembourg have a sale option, which enables them to
               obligate M-A Industries to purchase their shares by 31
               December, 2001, in consideration of $7 million. To secure
               the option M-A Industries has deposited $4 million with a
               trustee.

         4.    During 1999 the local currency in Brazil was devalued in
               relation to the dollar by approximately 48%, and the
               currency rate was extremely volatile during this period.

               Until the third quarter of 1999 most of the customer debts
               of the consolidated company in Brazil were linked to the
               exchange rate of the dollar. During the third quarter, owing
               to the sharp cumulative rise in the exchange rate of the
               local currency against the dollar, the customer market in
               Brazil no longer accepts linkage to the dollar and
               therefore, customer balances of the consolidated company in
               Brazil, as at 31 December, 1999, amounting to a total of
               $149 million, are not linked to the dollar.

               As a result of the change in the accounting method in the
               third quarter, relating to the linkage of customer balances,
               a customer debt from the previous period was adjusted to the
               new accounting method, and this led to inclusion of expenses
               amounting to $12.6 million deriving from the adjustment of
               customer balances and from the granting of discounts due to
               the devaluation.

               Financing expenses, net, include expenses for translation
               differentials amounting to approximately $8 million, which
               stemmed mainly from the devaluation of the local currency in
               Brazil in the first quarter of the year.

         D.    Mashav Initiation and Development Ltd. - a proportionately
               consolidated investee

               On 5 December, 1999 an agreement was signed by Koor and Clal
               Industries and Investments Ltd. (hereinafter: "Clal")
               whereby Koor will sell to Clal all its holdings (50%) in
               Mashav Initiation and Development (hereinafter: "Mashav").
               This agreement replaces the previous agreement between Koor
               and Clal concerning Mashav.

               During December 1999, before conclusion of the transaction,
               Mashav distributed a dividend to Koor and Clal in the total
               amount of NIS 710 million.

               Upon conclusion of the transaction, on 6 January, 2000 NIS
               889 million were paid to Koor. In addition Koor received
               47.5% of the share capital of Mashael Alumina Industries
               Ltd. The expected gain to Koor from the sale is
               approximately NIS 357 million and after allocation of
               deferred taxes is approximately NIS 228 million. This gain
               will be recorded in the first quarter of 2000. See also Note
               16E(1).

               As at the date of the balance sheet Mashav is still
               proportionately consolidated in Koor's financial statements
               (50%).

               Below are data (on the basis of relative consolidation) from
               Mashav's financial statements for 1999.

                                                            For the year
                                                                   ended
                                                             31 December
                                                                    1999
                                                            ------------
                                                            NIS millions
                                                            ------------
                Total assets                                     1,300

                Shareholders' equity                               544

                Revenues from sales                                876
                Operating earnings                                 134
                Net profit                                          97


         E.    Telrad Networks Ltd. - consolidated company

               In 1998 the Board of Directors of Telrad Networks Ltd.
               (formerly "Telrad Telecommunications and Electronics
               Industries Ltd., hereinafter: "Telrad") decided on a
               reorganisation plan which includes employee retirement at a
               total cost of approximately NIS 223,000 thousand (NIS
               152,000 thousand after tax on income). In 1999 and after the
               balance sheet date the company's Board of Directors approved
               two additional reorganisation plans containing further
               employee retirement at a total cost of some NIS 85,000
               thousand (NIS 57,800 thousand after tax on income). The
               estimated cost of the retirement plan is calculated in
               accordance with tables broken down by age and seniority of
               the retiring employees. Pension payments for these employees
               are presented at the present value at a computation using a
               discount rate of 3.6% per year.

         F.    Sheraton Moriah (Israel) Ltd. - consolidated company

               During April 1999, pursuant to a memorandum of understanding
               dated 27 January, 1999, Koor purchased 75% of the ownership
               of the Radisson-Moriah hotel chain at a value of
               approximately $81.5 million (before distribution of a
               dividend). The name of the company was changed to Sheraton
               Moriah (Israel) Ltd. (hereinafter: "Sheraton Moriah").
               Sheraton Moriah was consolidated in Koor's financial
               statements starting in the second quarter of 1999. During
               October 1999 Koor concluded the sale of 20% of the ownership
               of Sheraton Moriah in consideration of $13 million (after
               distribution of a dividend) to Hapoalim Assets (Shares) Ltd.
               of the Bank Hapoalim Group.

               In December 1999 Koor sold its hotels and also the Sheraton
               management company of which it owned 49% to Sheraton Moriah.
               Prior to the sale of the hotels owned by Koor to Sheraton
               Moriah, Koor recorded a provision for a write-off in value
               of the hotels in the amount of NIS 38 million.

               Sheraton Moriah is in the process of preparing a prospectus
               for a public offering on the Tel Aviv Stock Exchange.

         G.    BVR Systems (1998) Ltd. - an affiliated company

               During 1999 Koor purchased shares on NASDAQ in BVR Systems
               (1998) Ltd. (hereinafter: "BVR"). The total cost of the
               purchases amounts to approximately $20 million. On 5
               August, 1999 Koor signed an agreement with a number of BVR's
               shareholders for the purchase of additional BVR shares (part
               by way of private placement and part in purchase from the
               other shareholders) in consideration of approximately $14
               million. The transaction was closed on 22 September, 1999 by
               means of Elisra Electronic Systems Ltd.

               The agreement determined that the other shareholders of BVR,
               together with Koor, will exercise their voting power so that
               three directors of BVR will be recommended by Koor and the
               other four directors will be recommended by the other
               shareholders. As of 1 October, 1999 Koor recorded its
               investment in BVR according to the equity method, and the
               original differential allocated to goodwill at approximately
               NIS 120 million, was calculated accordingly. As at the
               balance sheet date Koor's holdings are approximately 28.6%
               of BVR's share capital.

         H.    Divestiture of additional holdings

         1.    On 3 March, 1999 an agreement was signed with Menorah
               Holdings and B. Gaon Holdings Ltd. (hereinafter: the
               "Buyers") for the sale of most of Koor's shares in Koor
               Finance Ltd., (hereinafter: "Koor Finance") which controls,
               among others, Koor Capital Markets and Netivot Pension under
               terms whose principal points are listed below:

               Under the agreement, Koor sold to the Buyers 80% of its
               rights in Koor Finance (share capital and capital note) for
               a total consideration (including a dividend of NIS 8
               million) of NIS 44 million, subject to certain adjustments.

               On 31 May, 1999 the transaction was concluded after the
               receipt of approvals from various authorities and the
               consideration was paid. The capital gain after tax to Koor
               from this sale amounted to some NIS 10 million and was
               recorded in the second quarter of 1999.

               Koor and the Buyers granted one another put and call options
               for purchase of the remainder in Koor's interest in Koor
               Finance. The put option is exercisable starting from the end
               of one year after the date of signature of the agreement
               until the end of two years from that date. The call option
               is exercisable within 90 days of the expiry date of the put
               option. The exercise price of the options is NIS 12 million,
               linked to the dollar and bearing interest.

               After the balance sheet date in March 2000, Koor announced
               its intention to exercise the put option. A capital gain of
               some NIS 2 million is expected to accrue to Koor as a result
               of the exercise.

               On 14 June, 1999 Tadiran sold its holdings (20%) in Koor
               Investment House (H.A.L. Ltd.) to a subsidiary in the Koor
               Finance Group, in consideration of NIS 5 million.

         2.    On 21 June, 1999 a transaction was completed for the sale of
               all the holdings (76.37%) of Koor Investments Ltd. (a wholly
               owned subsidiary of Koor) in Merhav Building Materials and
               Ceramics Center Ltd. (hereinafter: "Merhav") in total
               consideration of NIS 35 million. As part of the transaction
               the buyers purchased from Koor the capital note which Merhav
               had issued in favour of Koor in the amount of approximately
               NIS 4 million, and Koor was released from its guarantees in
               favour of Merhav and its subsidiaries.

               After deduction of provisions for decreased value which were
               included in 1998 for this investment, the capital gain after
               tax arising from the sale amounted to approximately NIS 7
               million which was included in the second quarter of 1999.

         3.    On 21 July, 1999 an agreement was finalised for the sale of
               Koor's holdings (100%) in Yonah Fishing and Industry Ltd.
               (hereinafter: "Yonah") and its subsidiary. Under the
               agreement Koor was released from the guarantees which it
               gave in respect of Yonah to banking institutions and other
               parties in a total amount of approximately NIS 55 million.
               After provisions for a decline in value of NIS 9 million,
               recorded up to the end of the second quarter of 1999, no
               capital gain or loss accrued to Koor from the transaction.
               See Note 24H.

         4.    On 28 July, 1999 Koor signed an agreement for the sale of
               all its holdings (about 75%) in Phoenicia Glass Works Ltd.
               (hereinafter: "Phoenicia") in consideration of NIS 6 million
               and the release of Koor from its guarantees in favour of
               Phoenicia towards other parties in the amount of
               approximately NIS 36 million. On 20 October, 1999 the
               transaction was completed, the consideration was paid and
               the shares transferred. The net gain after tax after
               cancellation of the provisions recorded for decreased value
               amounted to approximately NIS 9 million. See Note 24H.

         5.    On 4 August, 1999 Koor sold all of its holdings (100%) in
               the subsidiary Koor Metals Ltd. (hereinafter: "Koor Metals")
               for a total consideration of approximately NIS 11 million
               and released Koor from its guarantees in favour of Koor
               Metals and its subsidiary to banks and third parties in
               consideration of approximately NIS 34 million. In addition,
               the loans between Koor and the company were repaid. After
               provisions for decreased value in the approximate amount of
               NIS 10 million which were recorded during 1998, no capital
               gain or loss was recorded from the transaction.

         6.    On 25 November, 1999 a contract was signed by Koor and ISSTA
               Lines Student Travel Company Israel Ltd. (hereinafter:
               "ISSTA") whereby Koor undertook to transfer all its share
               capital in the subsidiary Histour Eltiv Ltd. (hereinafter:
               "Histour") to ISSTA. In return ISSTA undertook to release
               Koor from all its guarantees for the liabilities of Histour.
               Furthermore, Koor undertook to invest in Histour
               approximately NIS 13.5 million and in return Histour
               undertook to allocate to Koor preferred shares which will
               confer upon it the right to appoint one director in Histour
               and the preferential right to receive dividends over a
               period of ten years, after which the preferred shares will
               be deferred. The transaction was approved by the
               Commissioner of Restrictive Trade Practices and it was
               concluded on 21 February, 2000. Koor is not expected to
               incure a loss or profit from the transaction.

         7.    On 7 December, 1999 Koor signed an agreement to sell all its
               holdings (51%) in Merkavim Metal Works Ltd. for a total
               consideration of approximately NIS 17.5 million. The
               transaction was concluded in January 2000. The capital gain
               after tax and after cancellation of the provision recorded
               for decreased value, will be recorded in the first quarter
               of 2000 in the amount of approximately NIS 4 million.

         8.    On 23 December, 1999 Koor signed an agreement to sell all
               its holdings (approximately 76%) in Middle East Tubes Ltd.
               in consideration of some NIS 84 million. After recording a
               provision for decreased value in the approximate amount of
               some NIS 8 million during 1999, no gain or loss is expected
               from the transaction.
<PAGE>
<TABLE>
<CAPTION>
NOTES TO THE FINANCIAL STATEMENTS
--------------------------------------------------------------------------------------------------------

Note 4 - Short-Term Deposits and Investments

                                                       Consolidated                     Company
                                                  ------------------------       -----------------------
                                                        December 31                   December 31
                                                  ------------------------       -----------------------
                                                       1999           1998            1999          1998
                                                  ---------      ---------       ---------     ---------
                                                      NIS thousands                NIS thousands
                                                  ------------------------       ----------------------
<S>                                                 <C>            <C>             <C>            <C>
         Marketable securities (1):
           Debentures                               219,657        109,912         192,614        37,754
           Short-term Treasury notes                 35,368         58,581          29,122        10,461
           Shares and options                        84,678        120,593          36,596        35,958
           Convertible securities                     1,496          2,537               -             -
           Mutual fund participation
            certificates                             13,102         14,168               -             -
                                                  ---------      ---------       ---------     ---------
                                                    354,301        305,791         258,332        84,173
         Deposits in banks and financial
          institutions                               96,177        533,537               -        87,411
         Deposit in bank per merger
          agreement (2)                                   -        746,194               -             -
         Loans                                       21,857          1,824          20,765             -
                                                  ---------      ---------       ---------     ---------

                                                    472,335      1,587,346         279,097       171,584
                                                  =========      =========       =========     =========
</TABLE>

         (1)    Stated at market value.

         (2)    Bank deposit in accordance with the ECI - TTL merger
         agreement. Within the framework of the merger agreement between
         TTL and ECI, as aforesaid in Note 3A(1), in December 1998 TTL
         issued debentures convertible to shares, in consideration of $177
         million.



Note 5 - Trade Receivables

         Consolidated:

<TABLE>
<CAPTION>
                                                                            December 31
                                                                   --------------------------
                                                                        1999             1998
                                                                   ---------        ---------
                                                                          NIS thousands
                                                                   --------------------------
<S>                                                                <C>              <C>
         On open account                                           2,936,846        3,291,169
         Post dated checks receivable and credit card
          companies                                                  224,222          272,743
         Current maturities of long-term trade receivables            52,139           65,251
                                                                   ---------        ---------
                                                                   3,213,207        3,629,163
                                                                   =========        =========
         Including:
         Affiliates                                                       11              108
                                                                   =========        =========

         Proportionately consolidated companies                          173              255
                                                                   =========        =========

         Net of allowance for doubtful accounts                       46,024          114,981
                                                                   =========        =========
</TABLE>

<PAGE>



Note 6 - Other Receivables

<TABLE>
<CAPTION>
                                                        Consolidated                    Company
                                                    ---------------------        ---------------------
                                                         December 31                  December 31
                                                    ---------------------        ---------------------
                                                       1999          1998          1999           1998
                                                    -------       -------        -------       -------
                                                        NIS thousands                  NIS thousands
                                                    ---------------------        ---------------------
<S>                                                 <C>           <C>              <C>           <C>
         Government agencies                        112,644       162,184          8,837         3,995
         Deferred taxes, see Note 16F               271,492       160,001        129,000             -
         Accrued income (including
          from a subsidiary)                         53,571        90,377          5,193         2,545
         Prepaid expenses                            76,003        84,477            658           632
         Employees                                   17,591        20,545             15             8
         Receivables from the sale
          of investments and fixed assets                 -        24,086              -             -
         Affiliates - current accounts                5,631         3,986            394             -
         Proportionately consolidated
          companies                                  21,418         3,567          3,035             -
         Others                                     102,258       134,721          8,044         8,001
                                                    -------       -------        -------       -------

                                                    660,608       683,944        155,176        15,181
                                                    =======       =======        =======       =======
</TABLE>


Note 7 - Inventories and Work in Process

         Consolidated:

<TABLE>
<CAPTION>
                                                                          December 31
                                                                --------------------------
                                                                     1999             1998
                                                                ---------        ---------
                                                                        NIS thousands
                                                                --------------------------
<S>                                                               <C>              <C>
         A.  Inventories and work in process, net of
               customer advances - stated as
               current assets:
              Industrial inventory:
              Raw and auxiliary materials                         759,274          982,958
              Goods and work in process (1)(2)                    341,272          515,136
              Finished goods                                      925,209        1,145,509
              Advances in respect of materials                     10,160           40,015
              Inventories for trading operations -
                merchandise (including advance payments)          161,482          174,248
                                                                ---------        ---------

                                                                2,197,397        2,857,866

         Less - customer advances                                  73,710           47,353
                                                                ---------        ---------

                                                                2,123,687        2,810,513
                                                                =========        =========
</TABLE>

<PAGE>



Note 7 - Inventories and Work in Process (cont'd)

<TABLE>
<CAPTION>
                                                                                      December 31
                                                                                ---------------------
                                                                                   1999          1998
                                                                                -------       -------
                                                                                     NIS thousands
                                                                                ---------------------
<S>                                                                             <C>           <C>
         B.  Customer advances, net of work in process - stated as
               current liabilities:
             Customer advances in respect of work in process(1)(3)(4)           242,510       449,487
             Less - inventory and work in process                                39,061       117,067
                                                                                -------       -------

                                                                                203,449       332,420
                                                                                =======       =======
         (1)      Net of provision for loss in
                   respect of work in process                                    15,917         1,703
                                                                                =======       =======

         (2)      Including long-term contracts, net:                            64,247         65,872
                                                                                =======       =======

         (3)      Not including long-term advances.

         (4)      See Note 22 regarding guarantees provided for securing
                  the gross amounts of customer advances (including
                  long-term advances).
</TABLE>





Note 8 - Investments in Investee companies

<TABLE>
<CAPTION>
                                                                                         December 31
                                                                                ----------------------------
                                                                                      1999             1998
                                                                                -----------      -----------
                                                                                        NIS thousands
                                                                                ----------------------------
<S>                                                                            <C>                <C>
         A.     Consolidated balance sheet - affiliates

         Net asset value of the investments (1)(2)                               1,957,207          848,692
                                                                                -----------      -----------
         Goodwill (2):
         Original amount, net                                                    1,739,625          806,586
         Accumulated amortisation, net                                            (230,418)         (77,051)
                                                                                -----------      -----------

                                                                                 1,509,207          729,535
                                                                                -----------      -----------
         Long-term loans (3)                                                        29,358           44,833
                                                                                -----------      -----------
                                                                                 3,495,772        1,623,060
                                                                                ===========      ===========

         (1)    As follows:
                Net asset value of investments as at 31 December, 1991             261,563          261,563
                Changes from January 1, 1992:
                Cost of shares acquired or received                              1,071,477          754,220
                Accumulated net earnings                                           441,233          194,383
                Changes in capital reserves and
                  foreign currency translation adjustments                         (12,336)          10,719
                Initially consolidated subsidiaries, net                          (233,838)        (176,220)
                Disposals, net                                                     429,108         (195,973)
                                                                                -----------      -----------

                                                                                 1,957,207          848,692
                                                                                ===========      ===========
         (2)    Including investments in companies traded on the Stock
                  Exchange in Tel-Aviv or abroad, in millions of NIS:
                Carrying value                                                       3,370            1,469
                                                                                ===========      ===========

                Market value                                                         4,517            2,511
                                                                                ===========      ===========

         (3)    Linkage terms and interest rates relating to
                  long-term loans:
                Linked to the CPI - in part bearing
                  interest at the rate of 5%, and in part bearing
                  no interest                                                       19,693           32,197
                Linked to foreign currency (mainly to the
                  the dollar) - in part bearing interest up to
                  the rate of Libor + 2%, and in part bearing
                  no interest                                                        7,411           12,636
                Without linkage                                                      2,254                -
                                                                                -----------      -----------

                                                                                    29,358           44,833
                                                                                ===========      ===========


<PAGE>



<CAPTION>
Note 8 - Investment in Investee Companies (cont'd)

         B.     Company balance sheet - investees

                                                                                         December 31
                                                                                ----------------------------
                                                                                      1999             1998
                                                                                -----------      -----------
                                                                                        NIS thousands
                                                                                ----------------------------
<S>                                                                              <C>              <C>
         Shares:
         Net asset value of the investments                                      4,429,303        4,257,908
                                                                                -----------      -----------

         Goodwill:
         Original amount, net                                                    1,273,568        1,135,356
         Accumulated amortisation                                                 (155,817)         (45,829)
                                                                                -----------      -----------

                                                                                 1,117,751        1,089,527
                                                                                -----------      -----------

         Book value (1)                                                          5,547,054        5,347,435
         Payments on account of shares (1)                                          60,250          122,464
         Long-term loans and capital notes (2)                                     822,058          895,245
         Non-current inter-company accounts (3)                                     25,147           87,205
                                                                                -----------      -----------

                                                                                 6,454,509        6,452,349

         Less - Company shares held by subsidiaries                                 53,641           53,641
                                                                                -----------      -----------

                                                                                 6,400,868        6,398,708
                                                                                ===========      ===========

         (1)    As follows:
                Cost of shares including accumulated
                  earnings as at 31 December, 1991                               1,918,301        1,918,301
                Changes from January 1, 1992:
                Cost of acquired shares                                          5,380,513        4,289,635
                Accumulated net earnings                                           138,903        1,082,319
                Changes in capital reserves, net                                  (442,379)        (389,943)
                Disposals                                                       (1,388,034)      (1,430,413)
                                                                                -----------      -----------

                Book value, including payments on
                  account of shares (4)                                          5,607,304        5,469,899
                                                                                ===========      ===========

         Net of investment in Koor Trusts (1995) Ltd. See Note 20C.





<CAPTION>
Note 8 - Investment in Investee Companies (cont'd)

         B.     Company balance sheet - investees (cont'd)

                                                                                         December 31
                                                                                ----------------------------
                                                                                      1999             1998
                                                                                -----------      -----------
                                                                                        NIS thousands
                                                                                ----------------------------
<S>                                                                                <C>              <C>
         (2)    Long-term loans and capital notes:
                Long-term loans (a)                                                254,965          250,266
                Capital notes - unlinked and not bearing
                  interest (b)                                                     568,792          644,979
                                                                                -----------      -----------

                                                                                   823,757          895,245
                Less - current maturities of long-term
                  loans                                                              1,699                -
                                                                                -----------      -----------

                                                                                   822,058          895,245
                                                                                ===========      ===========
</TABLE>
<PAGE>
                (a)    Loans classified by linkage terms and interest rates:

<TABLE>
<CAPTION>
                                                          Interest rate
                                                          at December 31      December 31        December 31
                                                          --------------      -----------       ------------
                                                               1998              1999               1998
                                                          --------------      -----------       ------------
                                                                %                     NIS thousands
                                                          --------------      ------------------------------
<S>                                                           <C>                <C>                <C>
                Linked to the CPI                             2-2.75             69,858             68,488
                Linked to the CPI                               4.5              54,318              1,697
                Linked to the CPI                               5.5              46,393                  -
                Linked to the CPI                               6.5              30,472             29,195
                Linked to the CPI                                -               53,924            150,886
                                                                              -----------       ------------

                                                                                254,965            250,266
                                                                              ===========       ============
</TABLE>


                (b)    Capital notes are not stated at their present value,
                       since their repayment date has not yet been fixed by
                       the parties.

         (3)    Non-current inter-company accounts:

<TABLE>
<CAPTION>
                                                                         December 31
                                                                ----------------------------
                                                                      1999             1998
                                                                -----------      -----------
                                                                        NIS thousands
                                                                ----------------------------
<S>                                                                <C>               <C>
                Linked to the dollar exchange rate                     125                -
                Unlinked-bears interest at the rate of
                  the increase in the CPI                           25,022           87,205

                                                                    25,147           87,205
</TABLE>





Note 8 - Investment in Investee Companies (cont'd)


         B.     Company balance sheet - investees (cont'd)

<TABLE>
<CAPTION>
                                                                         December 31
                                                                ----------------------------
                                                                      1999             1998
                                                                -----------      -----------
                                                                        NIS millions
                                                                ----------------------------
<S>                                                                  <C>              <C>
         (4)    Including investments in marketable
                  shares traded on the Tel-Aviv Stock
                  Exchange or abroad in NIS millions:

                Carrying value                                       2,288          * 3,484
                                                                ===========      ===========

                Market value                                         3,051            5,559
                                                                ===========      ===========

         *      Net of a dividend receivable from a subsidiary of NIS 422
                million which is included in current assets.
</TABLE>
<PAGE>


Note 9 - Other Investments and Receivables

         A.       Composition:

<TABLE>
<CAPTION>
                                                               Consolidated                      Company
                                                         -----------------------        --------------------
                                                                December 31                    December 31
                                                         -----------------------        --------------------
                                                            1999            1998           1999         1998
                                                         -------         -------        -------      -------
                                                                NIS thousands                NIS thousands
                                                         -----------------------        --------------------
<S>                                                      <C>             <C>            <C>          <C>
         Deposits in banks and in
          financial institutions                         391,459         111,308        365,000            -
         Non-current trade receivables (1)               141,284         157,791              -            -
         Long-term loans receivable
          from others (2)                                129,143         109,285         15,464        8,131
                                                         -------         -------        -------      -------
                                                         661,886         378,384        380,464        8,131
         Marketable securities -
           mainly fixed investments (2), (3)               3,469          75,833              -            -
                                                         -------         -------        -------      -------

         Investment in a hotel under
          construction                                         -          50,214              -       50,214

         Non-marketable shares                            65,597          48,807          2,812       40,552

         Others                                           26,795          28,648            101            -
                                                         -------         -------        -------      -------

                                                         757,747         581,936        383,377       98,897
                                                         =======         =======        =======      =======
         (1)      Including a reserve for the
                   renewal of equipment
                   and for the construction
                   and expansion of plants
                   in a proportionately
                   consolidated company                        -          79,435
                                                         =======         =======

         (2)      Including loans to
                   proportionately
                   consolidated companies                 34,527          44,020
                                                         =======         =======
</TABLE>

<PAGE>



Note 9 - Other Investments and Receivables (cont'd)

         A.       Composition (cont'd):

         (3)      As at 31 December, 1998, includes NIS 42 million of
                  debentures of a subsidiary, pledged to secure long-term
                  loans received from banks, in order to invest in
                  marketable government bonds. An additional amount of NIS
                  172 million in debentures, which is the sole security for
                  the repayment of the maximum amount of the loans received
                  for the purchase of those debentures, was deducted from
                  the balance of the loans.

         B.       Classification by linkage terms and interest rates of
                  other investments and receivables (not including
                  marketable and other securities):

         Consolidated:

<TABLE>
<CAPTION>
                                                    Average
                                          interest rates at             December 31
                                                December 31      -----------------------
                                                       1998         1999            1998
                                          -----------------      -------         -------
                                                          %            NIS thousands
                                          -----------------      -----------------------
<S>                                               <C>            <C>             <C>
         Linked to CPI                                  4-7      425,506         154,852
         Linked to  the dollar                          4-7      228,618         198,528
         Unlinked                                 Mainly 15        7,762          25,004
                                                                 -------         -------

                                                                 661,886         378,384
                                                                 =======         =======
<CAPTION>
         Company:

                                                                        December 31
                                                                 -----------------------
                                                                    1999            1998
                                                                 -------         -------
                                                                       NIS thousands
                                                                 -----------------------
<S>                                                     <C>      <C>               <C>
         Linked to CPI                                  6.6      367,827           2,832
         Linked to foreign currency
          (mainly to the dollar)                        6.2       12,637           5,299
                                                                 -------         -------

                                                                 380,464           8,131
                                                                 =======         =======
</TABLE>

<PAGE>



Note 9 - Other Investments and Receivables (cont'd)

         C.       Repayment schedule of deposits, non-current customers
                  balances and long-term loans from others, in the
                  consolidated balance sheet:

<TABLE>
<CAPTION>
                                                       Consolidated                     Company
                                               ------------------------        ---------------------
                                                        December 31                   December 31
                                               ------------------------        ---------------------
                                                  1999             1998           1999          1998
                                               -------          -------        -------       -------
                                                      NIS thousands                  NIS thousands
                                               ------------------------        ----------------------
<S>                                            <C>              <C>            <C>            <C>
         Amounts collectible in the:
         First year (1)                         34,527           58,365              -             -
         Second year                           124,279          139,673          7,267             -
         Third year                             60,628           59,013              -             -
         Fourth year                           395,634           54,667        365,000             -
         Fifth year                             17,093           14,875              -             -
         Thereafter and without a
          specific maturity date                29,725           51,791          8,197         8,131
                                               -------          -------        -------       -------

                                               661,886          378,384        380,464         8,131
                                               =======          =======        =======       =======
         (1)      Management of a proportionately consolidated company is
                  of the opinion that these amounts are primarily
                  designated for investment in fixed assets, See also A(2)
                  above
</TABLE>

<PAGE>



Note 10 - Fixed Assets

         A.       Consolidated

<TABLE>
<CAPTION>
                                Land         Buildings   Machinery,               Office      Tools     Installations     Total
                                (including               equipment    Vehicles    furniture   and       under cons-
                                leasehold                and          and         and         instru-   truction and
                                land)                    installa-    forklifts   equipment   ments     payments on
                                                         tions                                          account of
                                                                                                        acquisition
                                                                                                        of assets
                                ----------   ----------  ----------   ---------   ---------   -------   ------------- ------------
                                                                             NIS thousands
                                --------------------------------------------------------------------------------------------------
<S>                               <C>        <C>          <C>           <C>         <C>        <C>          <C>        <C>
Cost as at January 1, 1998        377,795    2,424,284    7,348,027     520,700     323,858    17,920       353,856    11,366,440
Additions during the year          39,446      170,893      528,105      98,866      38,319       (16)      182,125     1,057,738
Disposals during the year          10,572       57,346      196,189      15,575       4,000         -        18,272       301,954
Adjustments resulting from
  foreign currency
  translation differences*         (6,200)    (526,082)    (995,538)    (48,194)    (29,300)   (3,187)      (31,541)   (1,640,042)
Formerly consolidated
  subsidiaries, net                76,680     (64,361)    (135,278)   (106,110)    (15,478)       (1)           37      (244,511)
                                ----------   ----------   ----------   ---------   ---------   -------    ----------   -----------
Balance as at
  31 December, 1998               498,293    2,062,080    6,941,505     480,837     321,399     14,716      522,749    10,841,579
                                ----------   ----------   ----------   ---------   ---------   -------    ----------   -----------

Additions during the year          11,663      131,175      780,833      99,547      29,812       (260)    (437,229)      615,541
Other changes during the
  year, net                        (5,580)     (26,804)     (38,962)       (823)       (485)         -       (2,886)      (75,540)
Adjustments resulting from
  foreign currency
  translation differences*        (31,055)     739,195     (532,760)   (114,966)    (96,340)     1,993       32,150        (1,783)
Formerly consolidated
  subsidiaries, net                (1,239)    (206,942)    (392,617)    (92,893)    (23,139)         -            -      (716,830)
                                ----------   ----------   ----------   ---------   ---------   -------    ----------   -----------

Balance as at
  31 December, 1999               472,082    2,698,704    6,757,999     371,702     231,247     16,449      114,784    10,662,967
                                ----------   ----------   ----------   ---------   ---------   -------    ----------   -----------

* See Note 2B(3).
<PAGE>




<CAPTION>
Note 10 - Fixed Assets (cont'd)

         A.       Consolidated (cont'd)

                                Land         Buildings   Machinery,               Office      Tools     Installations     Total
                                (including               equipment    Vehicles    furniture   and       under cons-
                                leasehold                and          and         and         instru-   truction and
                                land)                    installa-    forklifts   equipment   ments     payments on
                                                         tions                                          account of
                                                                                                        acquisition
                                                                                                        of assets
                                ----------   ----------  ----------   ---------   ---------   -------   ------------- ------------
                                                                             NIS thousands
                                --------------------------------------------------------------------------------------------------
<S>                               <C>        <C>          <C>           <C>         <C>        <C>          <C>        <C>
Brought forward                   472,082    2,698,704    6,757,999     371,702     231,247    16,449       114,784    10,662,967
                                ----------   ----------   ----------   ---------   ---------   -------    ----------   -----------
Accumulated depreciation
  as at January 1, 1998             3,012    1,266,661    5,002,700     281,133     196,208         -             -     6,749,714
Additions during the year           3,089       66,814      464,158      59,709      29,165         -             -       622,935
Other changes during the
  year, net                            51       35,130      104,767       6,726      (1,187)        -             -       145,487
Adjustments resulting from
  foreign currency
  translation differences*           (102)    (267,245)    (768,243)    (30,174)    (17,194)        -             -    (1,082,958)
Formerly consolidated
  subsidiaries, net                    (1)     (20,469)     (21,984)    (57,661)     (9,375)        -             -      (109,490)
                                ----------   ----------   ----------   ---------   ---------   -------    ----------   -----------
Balance as at
  31 December, 1998                 6,049    1,080,891    4,781,398     259,733     197,617         -             -     6,325,688

Additions during the year             161       70,084      344,025      43,847      23,214         -             -       481,331
Adjustments resulting from
  foreign currency
  translation differences*            (11)     (14,275)     (18,030)        (90)       (503)        -             -       (32,909)
Formerly consolidated
  subsidiaries, net                 1,998      266,066     (463,830)    (51,559)    (53,356)        -             -      (300,681)
Other changes, net                      -     (100,595)    (220,733)    (44,555)    (15,853)        -             -      (381,736)
                                ----------   ----------   ----------   ---------   ---------   -------    ----------   -----------
Balance as at
  31 December, 1999                 8,197    1,302,171    4,422,830     207,376     151,119         -             -     6,091,693
                                ----------   ----------   ----------   ---------   ---------   -------    ----------   -----------
Net book value as at
  31 December, 1999               463,885    1,396,533    2,335,169     164,326      80,128    16,449       114,784     4,571,274
                                ==========   ==========   ==========   =========   =========   =======    ==========   ===========
Net book value as at
  31 December, 1998               492,244       98,189    2,160,107     221,104     123,782    14,716       522,749     4,515,891
                                ==========   ==========   ==========   =========   =========   =======    ==========   ===========

*   See Note 2B(3)
</TABLE>

<PAGE>




Note 10 - Fixed Assets (cont'd)

         A.       Consolidated (cont'd)

                  Supplementary data on consolidated fixed assets :

         (1)      Some of the properties have not yet been registered in
                  the Land Registry Office in the name of the subsidiaries,
                  in some cases because of the absence of formal
                  parcelisation of the area.

                  Leasehold rights are for a period of 49 years, ending in
                  the year 2000 and thereafter. Certain leases provide an
                  option for extension for another 49 years.

                  The cost of leasehold real estate as at 31 December,
                  1999, is NIS 1,267 million, of which NIS 776 million is
                  under a capitalized lease.

         (2)      After deduction of investment grants, net of
                  depreciation, which have been received from the State of
                  Israel by certain subsidiaries under the terms of the Law
                  for the Encouragement of Capital Investments, 1959,
                  amounting to NIS 130 million, adjusted, and NIS 191
                  million, adjusted, as at 31 December, 1999 and 1998,
                  respectively (see also Note 16A).

                  If the subsidiaries will not comply with the conditions
                  related to the grants, they may be required to refund the
                  grants, in whole or in part, plus interest and linkage
                  increments, from the date of receipt. Most of the
                  companies have complied with the conditions of these
                  grants through 31 December, 1999, and they believe that
                  they will continue to comply with the terms of the
                  grants.

                  As security for the implementation of the approved
                  projects and compliance with the conditions of the
                  approval, a charge has been registered on the above
                  subsidiaries' assets in favor of the State of Israel.

         (3)      Includes capitalized interest amounting to NIS 73,404
                  thousand, adjusted, and NIS 98,572 thousand, adjusted to
                  31 December, 1999 and 1998, respectively.

         (4)      As for amounts charged to cost of fixed assets, see Note
                  23B. and E.

         (5)      Including fully depreciated assets amounting to NIS 2,896
                  million, adjusted to 31 December, 1999.

         (6)      See Note 22 regarding liens.





Note 10 - Fixed Assets (cont'd)

         B.       Company

         Composition of the assets and accumulated depreciation, according
         to major groups, and changes therein during the current year, are
         as follows:

<TABLE>
<CAPTION>
                                              Balance at          Changes during the year
                                               beginning        ---------------------------      Balance at
                                                 of year        Additions         Disposals     end of year
                                              ----------        ---------         ---------     -----------
                                                                              NIS thousands
                                                                -------------------------------------------
<S>                                              <C>              <C>               <C>             <C>
         Cost:
         Offices and land *                      23,465           10,159                 -          33,624
         Vehicles                                 2,986              257            (1,847)          1,396
         Office equipment                         4,835            3,636            (3,108)          5,363
                                               --------         --------           --------       --------

                                                 31,286           14,052            (4,955)         40,383
                                               --------         --------           --------       --------

         Accumulated depreciation:
         Land and offices premises                    -              336                 -             336
         Vehicles                                 1,000              326              (892)            434
         Office equipment                         2,091              575            (1,453)          1,213
                                               --------         --------           --------       --------

                                                  3,091            1,237            (2,345)          1,983
                                               --------         --------           --------       --------

         Net book value:
         Land and offices premises               23,465                                             33,288
         Vehicles                                 1,985                                                962
         Office equipment                         2,745                                              4,150
                                               --------         --------           --------       --------

                                                 28,195                                             38,400
                                               ========         ========           ========       ========

         (*)      Represents the ownership of two stories in an office
                  building in Tel Aviv and leasehold rights to land in
                  Dimona, in an area of 27 dunams, not yet registered in
                  the Company's name. These premises have not as yet been
                  registered in the name of the Company at the Land
                  Registry Office. The premises are on land leased under a
                  capital lease for a period of 49 years ending in 2044.
</TABLE>

<PAGE>



Note 11 - Other Assets, Net of Amortisation

<TABLE>
<CAPTION>
                                                                  Consolidated                Company
                                                          -----------------------      ---------------------
                                                                   December 31               December 31
                                                          -----------------------      ---------------------
                                                             1999            1998         1999          1998
                                                          -------         -------      -------       -------
                                                                 NIS thousands              NIS thousands
                                                          -----------------------      ---------------------
<S>                                                       <C>             <C>           <C>           <C>
         Intangible assets:
         Goodwill
         Original amounts                                 443,135         690,383            -             -
         Accumulated amortisation                          84,993          61,510            -             -
                                                          -------         -------      -------       -------

                                                          358,142         628,873
                                                          -------         -------      -------       -------
         Licensing of products abroad:
         Original amounts                                 392,903         323,186            -             -
         Accumulated amortisation                         189,502         150,596            -             -
                                                          -------         -------      -------       -------

                                                          203,401         172,590            -             -
                                                          -------         -------      -------       -------
         Know-how, software, patents and others:
         Original amounts                                  94,599          97,277
         Accumulated amortisation                          30,892          41,786            -             -
                                                          -------         -------      -------       -------

                                                           63,707          55,491            -             -
                                                          -------         -------      -------       -------
         Deferred expenses:
         Debentures issuance costs:
         Original amount                                   41,854          72,852       25,004        25,004
         Accumulated amortisation                          39,840          67,484       23,440        22,231
                                                          -------         -------      -------       -------

                                                            2,014           5,368        1,564         2,773
                                                          -------         -------      -------       -------

                                                          627,264         862,322        1,564         2,773
                                                          =======         =======      =======       =======
</TABLE>

<PAGE>




Note 12 - Credit from Banks and Others

         A.       Composition:

<TABLE>
<CAPTION>
                                                                Consolidated                Company
                                                        -------------------------      ---------------------
                                                                 December 31               December 31
                                                        -------------------------      ---------------------
                                                             1999            1998         1999          1998
                                                        ---------       ---------      -------       -------
                                                               NIS thousands              NIS thousands
                                                        -------------------------      ---------------------
<S>                                                     <C>             <C>            <C>           <C>
         From banks                                     2,479,869       1,603,223      241,410           966
         From others                                          386             160            -             -
                                                        ---------       ---------      -------       -------
                                                        2,480,255       1,603,383      241,410           966

         Debentures convertible into
           shares of a subsidiary (1)                           -         746,194            -             -
                                                        ---------       ---------      -------       -------
                                                        2,480,255       2,349,577      241,410           966

         Current maturities of long-term
           loans and debentures
           (see Note 15)                                1,078,759         381,229      736,106        71,061
                                                        ---------       ---------      -------       -------

                                                        3,559,014       2,730,806      977,516        72,027
                                                        =========       =========      =======       =======
         (1)      See Note 4(2).
</TABLE>

         B.       Classification by linkage terms and average interest rates:

<TABLE>
<CAPTION>
                                                                                  Consolidated
                                                         Average        ----------------------------
                                               interest rates at                   December 31
                                                     December 31        ----------------------------
                                                            1999              1999              1998
                                               -----------------        ----------------------------
                                                               %             NIS thousands
                                               -----------------        ----------------------------
<S>                                                    <C>              <C>                <C>
         Linked to foreign currency
          (mainly to the dollar)                       L+0.3-1.8        1,737,078          1,758,748
         Linked to the CPI                                   4-6           79,019             82,784
         Unlinked                                           7-14          664,158            508,045

                                                                        2,480,255          2,349,577




<CAPTION>
                                                                                     Company
                                                         Average        ----------------------------
                                               interest rates at                   December 31
                                                     December 31        ----------------------------
                                                            1999              1999              1998
                                               -----------------        ----------------------------
                                                               %             NIS thousands
                                               -----------------        ----------------------------
<S>                                                         <C>           <C>                    <C>
                                                             6.6          240,961                  -
         Linked to the dollar                               11.5              449                  -
         Unlinked                                                         241,410                966
</TABLE>


         C.       See Note 22 regarding liens to secure credit.





Note 13 - Trade Payables

                                                       Consolidated
                                                 -------------------------
                                                        December 31
                                                 -------------------------
                                                    1999              1998
                                                 -------           -------
                                                      NIS thousands

         Including notes payable                  28,681            36,726



Note 14 - Other Payables and Accruals

<TABLE>
<CAPTION>
                                                             Consolidated                         Company
                                                      ---------------------------      -------------------------
                                                             December 31                        December 31
                                                      ---------------------------      -------------------------
                                                           1999              1998           1999            1998
                                                      ---------         ---------      ---------       ---------
                                                          NIS thousands                      NIS thousands
                                                      ---------------------------      -------------------------
<S>                                                     <C>               <C>              <C>             <C>
         Employees and withholdings
           remittable                                   194,633           296,947          5,834           8,379
         Provision for vacation pay and
           vacation expense allowance                   159,043           275,895          1,445           1,610
         Accrued expenses                               238,756           380,886         27,267          25,552
         Government agencies
           (including taxes)                            202,188           170,583         38,142          10,389
         Provision for warranty and
           repairs                                       64,636           141,389              -               -
         Payables for purchase of
           investments                                  112,597               894              -               -
         Severance pay payable and
           current portion of early
           retirement pensions
           (see Note 17)                                187,488           250,625            300             709
         Reserve for internal insurance                  30,122            34,363         14,150          19,136
         Interim dividend to Koor
           shareholders                                 165,172            86,363              -               -
         Dividend to minority in
           subsidiaries                                       -             8,797              -               -
         Deferred income                                 49,950            61,811            654             851
         Affiliates and proportionately
           consolidated companies -
           current accounts                                  20             7,950              -           2,762
         Provision for loss for consolidated
           company                                       33,837                 -         24,709               -
         Others                                         295,470           390,299         21,709          10,045
                                                      ---------         ---------      ---------       ---------
                                                      1,733,912         2,106,802        134,210          79,433
                                                      =========         =========      =========       =========

         Includes interested parties                                                         830           1,331
                                                                                       =========       =========
</TABLE>

<PAGE>


<TABLE>
<CAPTION>
Note 15 - Long Term Liabilities

         A.       Loans

                                                             Consolidated                            Company
                                                             December 31                           December 31
                                                   --------------------------------     --------------------------------
                                                       1999               1998               1999              1998
                                                   NIS thousands      NIS thousands     NIS thousands      NIS thousands

----------------------------------------------------------------------------------------------------------------------------------
<S>      <C>                                            <C>                <C>               <C>                <C>
         1.       Loans from banks                      4,644,001          4,539,938         2,795,670          2,843,650
                  Less - current
                   maturities                             952,114            241,972           666,891             14,141
                                                   --------------     --------------    --------------     --------------
                                                        3,691,887          4,297,966         2,128,779          2,829,509
                                                   --------------     --------------    --------------     --------------
         2.       Loans from others
                  Shareholders in
                   subsidiaries
                   and in proportionately
                   consolidated companies                  58,350             52,211                 -                  -
                  Investees                                   400                811            42,027             31,159
                  Receipts from time-sharing
                   units                                   35,302                  -                 -                  -
                  Others and long-term
                   accrued expenses                        42,637             78,953                 -                  -
                                                   --------------     --------------    --------------     --------------
                                                          136,689            131,975            42,027             31,159
                  Less - current
                   maturities                               3,629             25,215            12,685                203
                                                   --------------     --------------    --------------     --------------
                                                          133,060            106,760            29,342             30,956
                                                   --------------     --------------    --------------     --------------
                  Total loans                           3,824,947          4,404,726         2,158,121          2,860,465
                                                   ==============     ==============    ==============     ==============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
         3.       Classification by linkage terms and interest rates:

         The consolidated balance sheet:

                                                                     Interest rate at
                                                                          December 31                          December 31
                                                                                 1999              1999               1998
                                                                                    %             NIS thousands
                                                                     -----------------      ------------------------------
         <S>                                                           <C>                  <C>                <C>
         Foreign currency (mainly US dollar)                            Libor+0.3-1.8        3,937,683          3,665,814
         Dollar exchange rate or CPI - the higher
          of the two                                                              4.9          216,850            219,755
         CPI                                                                  Up to 5          297,170            306,072
         CPI                                                                  Above 5          322,783            443,776
                                                                         (mainly 6.2)
         Unlinked                                                                0-15            6,204             36,495
                                                                                             ---------          ---------
                                                                                             4,780,690          4,671,912

         Less - current maturities                                                             955,743            267,186
                                                                                             ---------          ---------
                                                                                             3,824,947          4,404,726
                                                                                             =========          =========


         The Company balance sheet:

                                                                     Interest rate at
                                                                          December 31                          December 31
                                                                                 1999              1999               1998
                                                                                    %             NIS thousands
                                                                     -----------------       ------------------------------

         a.  From banks

         Dollar exchange rate or CPI - the higher of the two                      4.9          216,830            219,755
         CPI                                                                      6.3          397,329            410,609
         US dollar                                                                6.5        2,181,511          2,213,286
                                                                                            ----------         ----------
                                                                                             2,795,670          2,843,650
         Less - current maturities                                                             666,891             14,141
                                                                                            ----------         ----------
                                                                                             2,128,779          2,829,509
                                                                                            ==========         ==========


                                                                     Interest rate at
                                                                          December 31                          December 31
                                                                                 1999              1999               1998
                                                                                    %             NIS thousands
                                                                     ----------------         ----------------------------

         b.  From investees:

         CPI                                                                     4.8            41,227             30,348
         Unlinked -capital notes*                                                  -               800                811
                                                                                               -------             ------
                                                                                                42,027             31,159
         Less - current maturities                                                              12,685                203
                                                                                               -------             ------
                                                                                                29,342             30,956
                                                                                               =======             ======

         *        The repayment date of the capital note has not yet been set but it will not be before 31 December 2000.

</TABLE>
<PAGE>
<TABLE>
<CAPTION>

         B.       Debentures

                                                                         Consolidated                              Company
                                                                          December 31                          December 31
                                                              1999               1998              1999               1998
                                                     NIS thousands      NIS thousands     NIS thousands      NIS thousands
                                                     -------------      -------------     -------------      -------------

<S>      <C>                                            <C>                <C>               <C>                <C>
         1. Debentures                                     96,536            129,288                 -                  -
         Less - current maturities                         31,308             32,802                 -                  -
                                                      -----------         ----------         ----------          ---------
                                                           65,228             96,486                 -                  -
                                                      ===========         ==========         ==========          =========
         2. Debentures convertible into
              shares

         Issued by Koor
          Series E                                         20,329             40,633            20,329             40,633
          Series F                                        144,803            182,003           144,803            182,003
                                                      -----------         ----------         ----------          ---------
                                                          165,132            222,636           165,132            222,636

         Debentures convertible into shares of investee companies:

         Issued by Koor                                    62,295                  -            62,295                  -
         Issued by subsidiaries and
          proportionately consolidated
          companies                                        44,440             53,194                 -                  -
                                                      -----------         ----------         ----------          ---------

         Total debentures convertible

          into shares                                     271,867            275,830           227,427            222,636
         Less - current maturities                         91,708             81,241            56,530             56,722
                                                      -----------         ----------         ----------          ---------
                                                          180,159            194,589           170,897            165,918
                                                      ===========         ==========         ==========          =========

</TABLE>
<PAGE>
  3.       Debentures convertible into shares:

  (a)      NIS 11,340 thousand par value of debentures (Series E) are
           linked to the CPI of December 1992 and bear interest at an
           annual rate of 1.75%. The debentures were redeemed on 31
           January, 2000.

  (b)      NIS 93,740 thousand par value of debentures (Series F), traded
           on the Tel-Aviv Stock Exchange, are linked to the CPI of April
           1994 and bear interest at an annual rate of 2.75%. The
           debentures are redeemable, if not previously converted into
           shares, in the years 2000-2003. The debentures are convertible
           into registered ordinary shares of Koor of a par value of NIS
           0.001 at the conversion rate of NIS 330 par value of debentures
           for 1 ordinary share.

  (c)      The debentures are secured by a first degree fixed token charge
           on a NIS 1 coin deposited with a trustee. In addition, Koor
           undertook not to create any charges on its assets, whether fixed
           or floating, prior to receiving the trustee's explicit approval,
           and on the condition that a charge of the same degree will also
           be registered in favor of the trustee to secure the debentures,
           except for a token charge to secure additional series of
           debentures that will be issued by Koor.

           In the current period debentures of a par value of NIS 716 thousand
           (Series F) were converted into shares.

  (d)      According to the prospectuses of the issue of Koor's convertible
           debentures, Koor will refrain from any distribution of dividends
           out of capital reserves, or from profits deriving from capital
           reserves, either of the Company or of the subsidiaries.

<TABLE>
<CAPTION>
   4.       The debentures are classified by linkage basis and interest rate as follows:

   (1)      Convertible debentures issued by the company, subsidiaries and proportionately consolidated companies:


                                              Interest rate as at                                            Consolidated
                                                      December 31                                             December 31
                                                             1999                                  1999              1998
                                              -------------------    ---------------    ---------------   ---------------
                                                                %           Maturity      NIS thousands     NIS thousands

----------------------------------------------------------------------------------------------------------------------------------
                     <S>                                     <C>          <C>                 <C>                <C>
                      CPI (a)                                 3.0          2000-2001            44,440            53,194
                      US dollar (b)                           2.5               2002            62,295                 -
                                                                                       ---------------   ---------------
                                                                                               106,735            53,194
                                                                                       ===============   ===============

                  (a)      NIS 18,524 thousand were issued by United Steel
                           Mills Ltd., see also Note 27C.

                  (b)      Debentures convertible in to ECI shares held by
                           Koor at a minimum realisation price of $50 per share.

                  The convertible debentures are, for the most part,
                  secured by a subordinated floating charge on the entire
                  assets of the issuing companies and some by a token
                  charge.

         (2)      Debentures of Series 7 issued by "Koor issuers" bear
                  interest of 4.5% and are linked to the CPI, both as to
                  principal and interest, and are redeemable until 2002.

                  The debentures are secured by a floating charge on all
                  the said company's assets. Under the terms of the trust
                  deed the Company has guaranteed the full payment of all
                  principal, interest and linkage differences of the
                  debentures. The Company registered a "negative pledge" to
                  secure its guarantee.


</TABLE>
<PAGE>

<TABLE>
<CAPTION>
Note 15 - Long Term Liabilities (cont'd)

C.       Liabilities (net of current maturities) that will mature in the following years subsequent to balance sheet date,
are as follows:

1. Consolidated

                         Loans from banks            Loans from others               Debentures                 Total
                       --------------------        --------------------         --------------------      --------------------
                          December 31                   December 31                December 31                 December 31
                       --------------------        --------------------         --------------------      --------------------
                       1999        1998              1999        1998            1999        1998            1999         1998
                       ---------  ---------        ---------  ---------         ---------  ---------      ---------  ---------
                                                                   NIS thousands
--------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>       <C>                <C>         <C>            <C>         <C>             <C>       <C>
Second year             811,495   1,255,573          15,124      15,976         139,056     107,423         965,684   1,378,971
Third year              298,189     673,101          13,969      19,442          70,121      76,952         382,279     769,495
Fourth year           1,853,130     260,596           9,008      11,268          36,210      70,300       1,898,339     342,164
Fifth year              393,569   1,819,108          10,097       1,762               -      36,400         403,666   1,857,270
Sixth year              172,242      78,456          17,733      28,597               -           -         189,975     107,053
Subsequent years        163,262     211,132          67,129      29,715               -           -         230,391     240,847
                       ---------  ---------        ---------  ---------         ---------  ---------      ---------  ---------

                      3,691,887   4,297,966         133,060     106,760         245,387     291,075       4,070,334   4,695,801
                      ==========  =========        =========  =========         =========  =========      =========  ==========
2. The Company

                         Loans from banks          Loans from investees        Convertible debentures            Total
                       --------------------        --------------------         --------------------      --------------------
                          December 31                   December 31                December 31                 December 31
                       --------------------        --------------------         --------------------      --------------------
                       1999        1998              1999        1998            1999        1998            1999         1998
                       ---------  ---------        ---------  ---------         ---------  ---------      ---------  ---------
                                                                   NIS thousands
                       ---------------------------------------------------------------------------------------------------------
Second year             477,595     676,327          12,685         203          98,495      56,716         588,775     733,246
Third year                    -     484,814          15,857         203          36,201      36,401          52,058     521,418
Fourth year           1,651,184           -               -      29,740          36,201      36,401       1,687,385      66,141
Fifth year                    -   1,668,368               -           -               -      36,400               -   1,704,768
Sixth year                    -           -               -           -               -           -               -           -
Subsequent years              -           -             800         810               -           -             800         810

                      2,128,779   2,829,509          29,342      30,956         170,897     165,918       2,329,018   3,026,383
                      ==========  =========        =========  =========         =========  =========      =========  ==========

</TABLE>
<PAGE>
D.       See Note 22 for details of security pledged to secure loans.


Note 16 - Taxes on Income

A.  Tax benefits under the Law for Encouragement of Capital Investments, 1959:

    Under this law, by virtue of the "approved enterprise" status granted
    to certain enterprises of several investees, these companies are
    entitled to various tax benefits. The income derived from these
    enterprises during a period of up to 10 years, from the year in which
    these enterprises first had taxable income (limited to 12 years from
    commencement of production or 14 years from the date of the approval,
    whichever is earlier), is subject to a corporate tax rate of 0 - 25%.

    In the event that an investee distributes a dividend to shareholders
    out of income attributable to revenues from an approved enterprise
    which received a tax exemption, the company that distributes the
    dividend would be liable to tax at 25% of the earnings distributed.
    Deferred taxes in respect of income from approved enterprises were not
    provided, since it is the Group's policy not to initiate a distribution
    of dividend that involves an additional tax liability to the Group.

B.  Measurement of results for tax purposes in accordance with the Income
    Tax (Inflationary Adjustments) Law, 1985 (hereinafter - "the Adjustments
    Law"):

    In accordance with the Adjustments Law, the results for tax purposes
    are measured in real (non-inflationary) terms, based on the changes in
    the CPI.

C.  Law for the Encouragement of Industry (Taxation), 1969:

    Certain companies qualify as "industrial companies" under the above
    law. By virtue of this status and certain regulations published under
    the inflationary adjustments law, the companies are entitled to claim,
    and have in fact claimed, accelerated rates of depreciation.

D.  Tax rates applicable to income from other sources:

    Income not eligible to "approved enterprise" benefits, mentioned in A.
    above, is liable to tax at the regular rate of 36%.

E.  Losses for tax purposes carried forward to future years and tax
    assessments:

    1.       The consolidated balance of net operating tax loss
             carryforwards at 31 December, 1999, amounted to approximately
             NIS 1,050 million, out of which NIS 14 million relates to
             foreign subsidiaries and NIS 510 million relates to Koor.

             Tax loss carryforwards, for which deferred taxes were not created,
             amounted to NIS 780 million.

             The balance of the consolidated capital loss carryforward, as at
             31 December, 1999, is NIS 460 million (out of which NIS 370
             million relates to the Company), which can be offset mainly
             until 2003.

             In 1999 the utilization of capital losses and part of the
             business losses carried forward for the Company's tax purposes
             became feasible and in 1999 Koor accordingly recorded a tax
             asset of NIS 129 million against the income tax income.

             Under the inflationary adjustments law, carryforward tax losses
             are linked to the CPI.


Note 16 - Taxes on Income (cont'd)

E.  Losses carried forward to future years and tax assessments (cont'd.):

    2.       Final tax assessments have been received by the Company and by
             some of the subsidiaries through the 1998 tax year. Some of
             the Group companies have received final assessments through
             the 1993 tax year.

             The Company has received final assessments for the 1992 to 1998
             tax years, according to which the Company paid, after the
             balance date, some NIS 28 million for the aforementioned tax
             years. This amount is included in the tax expenses for
             previous years.
<PAGE>
<TABLE>
<CAPTION>
F.  Deferred taxes:

    1.       Deferred taxes are presented in the consolidated balance sheet as follows:

                                                                                                         December 31
                                                                                              --------------------------------
                                                                                                   1999               1998
                                                                                              -------------       ------------
                                                                                                        NIS thousands
                                                                                              --------------------------------

                  Within current assets in respect of:

<S>                                                                                            <C>                <C>
                  Provision for vacation pay and severance benefits                            (73,843)           (95,632)
                  Operating loss and capital loss carryforwards (1)                            (151,05)           (22,639)
                  Inventory, net of customer advances                                           (9,428)            (9,029)
                  Timing differences in respect of recognition of
                   income and expenses                                                         (37,165)           (32,701)
                                                                                             -------------      ----------
                  Total in current assets                                                     (271,492)          (160,001)
                                                                                             -------------      ----------
                  Within long-term liabilities in respect of:

                  Depreciation                                                                 391,212            386,809
                  Operating loss carryforwards                                                (450,066)          (352,561)
                  Capital loss carryforwards                                                   (37,500)          (117,251)
                  Liability in respect of employee severance benefits                          (90,459)           (79,638)
                  Other                                                                         17,339            (18,669)
                                                                                             -------------      ----------
                                                                                              (169,474)          (181,310)
                  Balance not expected to be realised (2)                                      406,369            400,824
                                                                                             -------------      ----------
                  Total in long-term liabilities                                               236,895            219,514
                                                                                             -------------      ----------
                  Net amount of deferred tax                                                   (34,597)            59,513
                                                                                             =============      ==========
                  (1)      Including in respect of the Company                                 129,000                  -
                                                                                             =============      ==========

                  (2)      The Company and certain  subsidiaries  have  deferred
                           tax assets,  that are not  expected  to be  realised,
                           because of  accumulated  tax loss  carryforwards  and
                           other  temporary   differences.   Company  Management
                           believes  that it is not likely  that these  balances
                           will be realised and, accordingly,  no deferred taxes
                           were created in respect thereof.
</TABLE>
<PAGE>


<TABLE>
<CAPTION>
Note 16 - Taxes on Income (cont'd)

F.       Deferred taxes (cont'd):

         2.       Balances and movement of deferred taxes in the consolidated balance sheet:

                                     Depreciable    Inventories    Provisions     Losses and     Timing`         Total
                                     fixed          net of         for            deductions     differences
                                     assets         customer       employee       carried        in respect of
                                                    advances       rights         forward        recognition of
                                                                                                 income and
                                                                                                 expenses
                                     -----------    -----------    -----------    -----------    -----------    -----------
                                                                      NIS thousands
----------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>             <C>            <C>             <C>            <C>            <C>
Balance as at
 January 1, 1998                     370,060         (13,271)       (110,898)       (29,864)       (48,735)       167,292
Translation differences
  in subsidiaries                     11,124          (1,469)         (5,681)          (564)        (2,315)         1,095
Amounts charged to
 statement of operations (1)          10,935           6,058         (63,502)       (76,183)         6,250       (116,442)
Other changes, net *                  (5,309)           (348)          4,812          9,963         (1,550)         7,568
                                     -----------    -----------    -----------    -----------    -----------    -----------

Balance as at
 31 December, 1998                   386,810          (9,030)       (175,269)       (96,648)       (46,350)        59,513
Translation differences
 in subsidiaries                      (2,464)            200           1,057            327            413           (467)
Amounts charged to
 statement of operations (2)          30,287         (15,783)          3,478        (98,365)       (75,300)      (155,683)
Other changes, net *                 (23,421)         15,185           6,432        (29,172)        93,016         62,040
                                     -----------    -----------    -----------    -----------    -----------    -----------

Balance as at
 31 December, 1999                   391,212          (9,428)       (164,302)      (223,858)       (28,221)       (34,597)
                                     ===========    ===========    ===========    ===========    ===========    ===========
(1)  Including discontinued
       operations
      In 1998                         (1,824)              -               -              -          1,198           (626)
                                     ===========    ===========    ===========    ===========    ===========    ===========
(2) Including taxes for
      previous years


         * Mainly companies whose consolidation was terminated, net.

       Deferred taxes were computed at tax rates of 25% - 36% (mainly 28%).
</TABLE>

<PAGE>


<TABLE>
<CAPTION>
Note 16 - Taxes on Income (cont'd)

G.       Taxes on income included in consolidated statements of operations:

         1.       Composition:
                                                   Year ended December 31
                                        -----------------------------------------------
                                            1999             1998              1997
                                        -------------    -------------    -------------
                                                       NIS thousands
                                        -----------------------------------------------
  Earnings before income tax:

<S>                                      <C>               <C>                <C>
  In Israel                              520,833           167,722            785,806
  Abroad                                  65,976           221,943            215,344
                                        -------------    -------------    -------------
                                         586,809           389,665          1,001,150
                                        =============    =============    =============

  For the current year:

  Current taxes:
  In Israel                              284,821           287,246            161,031
  Abroad                                  19,696            62,357             61,607

  Deferred taxes:
  In Israel                             (135,472)         (110,635)            25,297
  Abroad                                  14,371            (5,807)            (5,330)
                                        -------------    -------------    -------------
                                         183,416           233,161            242,605

  In respect of previous years:

  In Israel                            * (15,356)            2,353             (6,979)
  Abroad                                  (6,173)           (1,529)               221
                                        -------------    -------------    -------------
                                         161,887           233,985            235,847
                                        =============    =============    =============

  *  Including deferred taxes in the amount of NIS 34,582 thousand.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Note 16 - Taxes on Income (cont'd)

G.       Taxes on income included in the consolidated statements of operations (cont'd):

         2.       Below is a reconciliation between the theoretical tax expense,
                  if all the income of Koor and the  subsidiaries  were taxed at
                  the  regular  rate  of 36%,  and the  actual  tax  expense  as
                  reported in the statement of operations:

                                                                                        Year ended December 31
                                                                          ---------------------------------------------------
                                                                               1999              1998               1997
                                                                          --------------    --------------     --------------
                                                                                            NIS thousands
                                                                          ---------------------------------------------------
<S>                                                                          <C>               <C>              <C>
                  Earnings before taxes on income, as
                    reported in the statement of operations                  586,809           389,665          1,001,150
                                                                          ==============    ==============    ==============
                  Statutory tax rate                                             36%               36%                36%
                                                                          ==============    ==============    ==============
                  Theoretical tax expenses in respect of
                    these earnings                                           211,251           140,279            360,414
                  Increase (decrease) in taxes resulting from
                    the following factors - the tax effect:
                  Tax benefits under various
                    encouragement laws                                       (46,523)          (72,272)           (85,336)
                  Non-deductible expenses for tax
                    purposes (including depreciation)                         38,509            29,159             27,670
                  Losses for which deferred taxes
                    were not recorded                                         29,303            36,900             58,148
                  Capital gains from sale of investments
                    and assets, net                                          (27,104)           (7,002)           (45,665)
                  Provisions for anticipated

                    losses from the sale of assets, net                       64,032            68,157                  -
                  Tax loss carryforwards from prior years
                    for which deferred taxes were not
                    created and which were utilised during
                    the current year                                        (102,980)          (16,212)           (60,803)
                  Inflationary erosion of tax advances                           (50)            5,499              1,709
                  Effect of the Inflationary Adjustments Law
                   in respect of companies

                    whose functional currency is the
                    U.S. dollar                                                7,302            65,890              6,319
                  Taxes in respect of prior years                            (21,529)              824             (6,758)
                  Effect of foreign subsidiaries                              10,316           (23,349)           (21,366)
                  Others                                                        (640)            6,112              1,515
                                                                          --------------    --------------    --------------
                  Total taxes on income                                      161,887           233,985            235,847
                                                                          ==============    ==============    ==============
                  Effective tax rate                                           27.6%             60.0%              23.6%
                                                                          ==============    ==============    ==============
</TABLE>
<PAGE>


Note 17 - Liabilities for Employee Severance Benefits, Net

A.      Pension, severance pay and retirement grants:

        Under current labour laws and existing labour agreements, the
        companies in the Group are required to make severance payments, to
        employees who are dismissed or who retire. In respect of these
        liabilities, regular deposits are made by Group companies with
        pension and severance pay funds. The balance sheet amount
        represents the unfunded balance of the liabilities. Where the funds
        deposited are not under the control and management of the Group
        companies, the funded amounts are not reflected in the balance
        sheets. These deposits and the amount stated in the balance sheet
        fully cover the Company's liability for employee severance
        benefits.

        Employees dismissed before reaching retirement age are entitled to
        severance pay, computed on the basis of their latest salary. Where
        amounts accumulated in the pension funds are insufficient to cover
        such severance pay, the Company and its subsidiaries will make up
        the amount of the shortfall at the time of payment. In Management's
        opinion, an appropriate provision, based on the salary components
        used in the computation of severance pay, has been included in the
        financial statements to fully cover this liability.

        Regarding companies in which enhanced severance pay has been
        planned or agreed upon for the employees, appropriate provisions
        have been made for the supplementary amounts.

        B.       Early retirement pension:

        Under agreements with certain employees who retired from service,
        Koor Group companies have undertaken to make pension payments until
        they reach retirement age. The entire liability for such pensions
        is included in the accounts on the basis of the present value of
        future pension payments, computed at a monthly discount rate of
        0.3% (3.7% per year).

        C.       Compensation for unutilised sick leave:

        A provision for this liability, according to agreements, is
        included in the accounts in respect of those employees who have
        reached the age of 55, due to the uncertainty as to whether
        employees who have not reached that age will be entitled to such
        compensation (as a result of utilization of sick leave or early
        retirement). The provision is computed on the basis of the latest
        salary for 8 working days in respect of each year during which the
        sick leave was not utilised.

<TABLE>
<CAPTION>
        D.       Liabilities for severance benefits, which are presented in the balance sheet, and the amount funded
                 in severance pay funds, are as follows:

                                                             Consolidated                            Company
                                                        ------------------------------    ------------------------------
                                                             December 31                           December 31
                                                        ------------------------------    ------------------------------
                                                             1999             1998            1999             1998
                                                        -------------    -------------    -------------    -------------
                                                                NIS thousands                     NIS thousands
                                                        ------------------------------    ------------------------------
<S>                                                        <C>              <C>                <C>             <C>
         Severance pay and retirement
          grants                                           518,168          860,302            7,051           11,955
         Amount accrued for early
          retirement                                       144,367          121,882            1,611            7,017
         Amount accrued in respect of
          unutilised sick leave                             24,329           27,442                -                -
                                                        -------------    -------------    -------------    -------------
                                                           686,864        1,009,626            8,662           18,972
         Less - amount funded *                            381,973          745,578            2,148            1,905
                                                        -------------    -------------    -------------    -------------
                                                           304,891          264,048            6,514           17,067
                                                        =============    =============    =============    =============

         *  The amounts  funded can be withdrawn,  subject to the  fulfillment of
            the provisions of the Severance Pay law.
</TABLE>
<PAGE>

Note 18 - Contingent Liabilities and Commitments

   A.       Contingent liabilities

   1.       Commissioner of Restrictive Trade Practices:

   a)       During October 1997, proximate to the date of the publication
            of a newspaper article containing details about alleged
            violations of the Law for Restrictive Trade Practices, 1988
            (hereinafter - the "Law") regarding price coordination and lack
            of competition between TTL and Telrad, the Commissioner of
            Restrictive Trade Practices (hereinafter - the "Commissioner")
            conducted an examination at the offices of TTL, Telrad and
            Koor, during which certain documents were confiscated, certain
            employees were questioned and additional information was
            submitted as requested.

            On December 13, 1998, the Commissioner issued a press release, in
            which he announced that the Investigations Department of the
            Restrictive Trade Practices Authority (hereinafter - the
            Authority) has concluded the investigation regarding suspicions
            about restrictive arrangements between Koor, TTL, Telrad, Bezeq
            and Bezeqcall, in the field of the supply of switchboards for
            the commercial market and in the field of N.S.R.

            According to a press release by the Commissioner, the investigators
            of the Investigations Department of the Authority recommend
            submitting a bill of indictment against some of the examinees
            regarding some of the suspicions investigated, and that the
            Legal Department of the Authority is to decide if offenses were
            in fact committed and if there is a sufficient evidential basis
            for trial. In this press release, nothing was mentioned
            regarding details about the findings of the Legal Department of
            the Authority.

            Under the Law, penalties may be imposed against an entity which
            has violated the Law. There is also the possibility of
            repercussions at the civil level, if damage should be proven as
            a result of a violation of the law. The Management of the
            Company and the subsidiaries, after consultation with their
            legal counsel, are of the opinion that, at this stage, as long
            as the results of the Commissioner's examinations have not yet
            been published, it is not possible to assess the possible
            developments in this matter, nor to evaluate if a significant
            loss is expected to result - if at all. Accordingly, it was not
            considered appropriate to make any provision in the financial
            statements in respect of this matter.

   b)       Pursuant to the directives of the Commissioner, in the
            conditions of the permit to merge Claridge Group with the
            Company and the amendments thereto, various restrictions were
            imposed on the Claridge Group, on Koor and on companies in its
            Group. With the completion of the sale of Koor's holding in
            Mashav Initiation and Development Ltd. the restrictions imposed
            were cancelled. (See Note 3D).

   2.       Within the framework of the merger agreement as aforesaid
            in Note 3(A)1 Tadiran undertook to indemnify ECI for any
            damage it incurred as a result of the matters listed below:

            (a)     Taxes imposed on TTL and its consolidated companies
                    over and above the provisions included in the financial
                    statement.
            (b)     Errors, omissions, and inaccuracies detected in
                    representations made by TTL within the framework of
                    the agreement concerning matters linked to other
                    property, claims, and transactions with related
                    parties.
            (c)     Breach of the obligations of Tadiran and TTL in the
                    merger agreement concerning agreement with related
                    parties.
            (d)     Any subject connected with the matters being
                    investigated by the Commissioner (see Section 1 above).
            (e)     Non-receipt of the approvals and consent from third
                    parties required to transfer operations of the
                    Switching Division of TTL.

   The indemnity items will cover losses in excess of the deductible of
   between $1.5 million and $10 million (contingent upon each section
   separately) and/or are restricted to 81.67% of the loss incurred.

   For indemnity purposes only the representations made by TTL shall remain
   valid for one year from the date of the merger. Tadiran's indemnity in
   respect of the matters or facts being investigated by the Commissioner,
   shall remain valid for a period of seven years from the date of the
   merger and shall be extendible for an additional period as long as these
   matters are under investigation. Aside from this all the remaining
   representations made by the company shall not remain valid after the
   date of the merger.

   3.       Environmental issues

            The activities of M.A. Industries Ltd. are exposed to the risk
            of causing damage to the environment, since the Group
            manufactures, stores and sells chemicals. M.A. Industries
            invests significant amounts in order to comply with the
            provisions of the laws and of the environmental regulations,
            and in the opinion of management it does in fact comply
            therewith. M.A. Industries' insurance policies provide coverage
            in the event of a sudden unexpected crisis of environmental
            pollution in Israel and worldwide, subject to relevant terms of
            the policy. As at balance sheet date, M.A. Industries does not
            have insurance coverage for continuous environmental pollution.
            Such insurance is difficult to obtain, and in those cases where
            it is obtainable, M.A. Industries' management is of the
            opinion, that the terms of the policy, including the cost of
            the coverage, is, at present, not justified.

            One of M.A. Industries' plants is located in Ramat Hovav, along
            with other chemical plants, since the Government decided that
            the geological layers in that particular area are completely
            impenetrable to liquid or pollution. Recently, the Ministry of
            the Environment conducted examinations, which determined that
            there is data indicating subterranean pollution in Ramat Hovav.
            The examiners recommended the taking of measures to prevent the
            continuation of leakages from active and inactive plants, which
            are liable to constitute a source of pollution of the water
            table, in the area. At this stage, the subsidiary cannot
            estimate the costs involved, if, in the light of the research
            that will be carried out, a solution will be found, which it
            will be decided to implement. Furthermore, the local Municipality
            at Ramat Hovav is continuing to take rehabilitation steps relating
            to past incidents.

   4.       Claims against Telrad:

   a).      In October 1994, a claim was filed by the Union Engineers
            against Telrad, for an unspecified amount. The claim pertains
            to the recognition and applicability of the salary tables
            included in the general collective bargaining agreements, which
            were signed in 1994 and 1995 between the Engineers Union and
            the employers in the public service sector, to Telrad
            engineers. On January 31, 1996, a ruling was handed down by the
            Tel-Aviv District Labour Court completely rejecting the claims
            of the Engineers Union. The Engineers Union has appealed
            against the judgement. The appeal was heard in the National
            Labour Court, and a decision thereon has not yet been handed
            down.

            At the deliberation stage in the National Labour Court, the
            Engineers Union filed a motion that Koor be added as a "liable
            party" in the legal proceedings. The National Labour Court has
            not yet made a determination on this issue.

            In the opinion of the legal counsel which represents Koor in
            the above procedure, the arguments against the motion are
            substantial, and they believe that legally the motion is not
            acceptable. In the opinion of the legal counsel, at this stage
            of the proceedings, the issue of which is the status of the
            "Koor Agreement" as a collective agreement, the results of the
            deliberation should not impose any liabilities on Koor.

            In April 1996, a parallel claim was filed, by the Lod Workers'
            Council and the Workers Committee concerning the application of
            salary tables of the public service sector to employees of
            Telrad. To date, it was decided to abstain from deliberations
            in this claim until the National Labour Court decides in the
            appeal of the Engineers Union.

   b).      In 1999 a claim was filed against Telrad by company employees
            who are members of the company's workers' committee. They are
            suing for the accounts so that the plaintiffs can examine the
            calculation of the distribution of earnings to employees. They
            are also suing for a declaratory judgment which will determine
            that Telrad is obliged to draw up new accounts for the
            distribution of earnings. In addition an application was filed
            to recognise the plaintiffs and representatives of all Telrad's
            workers and employees. In response the company filed an
            application as agreed to extend the date for submission of
            their response on the grounds that another proceeding is
            pending between the parties in which the matter of a class
            action has also arisen. The application was accepted.

   5.       Claims filed against Tadiran and its subsidiaries:

   a)       In 1997, Qualcomm Inc. (hereinafter - Qualcomm), a U.S.
            corporation, filed a claim against Elisra Electronics Systems
            Ltd. (hereinafter - "Elisra"), a subsidiary of Tadiran, in
            response to a claim filed by Elisra pertaining to a transaction
            cancelled by Qualcomm in August 1996. The claim filed by Elisra
            is in the amount of $25 million, and the counter-claim is in
            the amount of $79 million, plus punitive damages. The claims
            were filed during an arbitration procedure in the United
            States. According to legal opinion received, Elisra has a
            well-founded cause for its claim against Qualcomm and valid
            arguments against the counter-claim. No provisions have been
            made in the financial statements in respect of either the claim
            or the counter-claim.

   5.       Claims filed against Tadiran and its subsidiaries (cont'd.):

   b)       Employees of a plant of Tadiran, which had been closed during
            1990, filed actions against the company, alleging that they
            sustained injuries and certain related illnesses had been
            caused by exposure to certain substances during their
            employment. Tadiran has insurance policies, which, relying on
            legal opinion, cover possible damages as a result of these
            claims, and, consequently, no provisions have been made in
            respect of those claims. Tadiran recorded provisions in respect
            of possible damages which had been covered by an insurance
            company currently in the process of liquidation.

   c)       In May 1999 an application was filed for arbitration against
            Tadiran by Adaptive Broadband Corporation (hereinafter - "ABC")
            (formerly California Microwave Inc.), pursuant to the
            arbitration clause in the agreement which was signed between
            those parties within the framework of the sale of the business
            division by ABC to Tadiran.

            The main thrust of the application is a declarative decision
            determining that Tadiran is required to indemnify ABC in
            connection with claims which were lodged at the arbitration
            institute against ABC by a customer of the business division
            which was sold as aforesaid. The claim lodged by the customer
            before the arbitration institution which conducted discussion
            in Switzerland and on January 31, 2000 a settlement was reached
            whereby the customer received $2 million. Half of this amount
            was for the account of Tadiran and half for ABC. The
            arbitration between Tadiran and ABC taking place in the United
            States is supposed to resolve the issue of which of the two
            parties shall incur the full amount of the payment to the
            customer.

            In June 1999 Tadiran submitted its response to the deed of
            arbitration and in addition it claimed financial restitution
            from ABC.

            The management of Tadiran believes, based on the opinion of its
            legal advisers, that it has appropriate defence arguments
            against the above indemnity demands, and accordingly, no
            provision was made in the financial statements for the
            arbitration results.

   d)       In October 1999, Bezeq, The Israel Telecommunication Corp. Ltd.
            (hereinafter - "Bezeq") lodged a claim against Tadiran Ltd.
            whose main cause is various losses incurred by Bezeq due to
            delays in the performance of works which were ordered under
            development and application contracts originally signed between
            Bezeq and TTL in the amount of some $6.7 million (hereinafter -
            "the Principal Claim").

            Alternatively, Bezeq is suing for the balance of arrearage
            penalties to which it alleges it is entitled pursuant to those
            contracts, and which were not paid in full, in the amount of
            approximately $1.7 million (hereinafter - "the Alternative
            Claim").

            In an arbitration judgment handed down on February 17, 2000 all
            Bezeq's arguments regarding the company's liability for the
            Principal Claim were dismissed. The arbitration judgment
            determines that pursuant to the engagement contracts between
            the parties Bezeq is entitled to compensation within the
            framework of arrearage penalties only. Since the period of time
            allocated to the arbitration has elapsed, Bezeq is obligated to
            lodge a new claim in respect of its Alternative Claim. At this
            stage negotiations for a settlement are in progress. The
            financial statements contain a provision, based on the opinion
            of its legal counsel, which the company's management believes
            reflects the possible outcome of the Alternative Claim.

   6.       Claims filed against M-A Industries and its foreign subsidiaries
            (cont'd)

   a)       A claim was filed against Makhteshim's subsidiary in Brazil and
            a former employee of the claimant, alleging that the subsidiary
            has copied and is employing a certain process, which is a
            protected trade secret that is owned by the claimant.
            Accordingly, the subsidiary is being sued to indemnify the
            claimant in respect of unfair competition, in the amount of $
            13 million (based on a calculation involving the amount of
            materials used). In addition, the claimant has requested that a
            fine of 100 thousand Brazilian reals per day be levied against
            the subsidiary in respect of the unlawful exploitation of trade
            secrets. Based on the opinion of its legal counsel, the
            subsidiary's management estimates that the claim has no
            validity and, therefore, no provision has been included in the
            financial statements in respect thereto.

   b)       A claim was filed against Makhteshim's subsidiary in Brazil and
            others, in the aggregate amount of $24 million, by a group
            that acquired the rights to two banks that had declared
            bankruptcy. The subsidiary is requested to repay a loan of $1
            million, out of the aforementioned amount, which the claimants
            maintain had been granted directly to the subsidiary. With
            respect to the balance of the claim, the subsidiary has been
            sued as the guarantor of debts of agricultural cooperatives,
            which were its former shareholders.

            Based on the opinion of its legal counsel, the subsidiary's
            management estimates that there is a reasonable likelihood that
            its defense against the claim will be accepted and, therefore,
            no provision has been included in the financial statements in
            respect thereto.

   c)       Claims and other monetary demands have been filed against
            Makhteshim's investee in Brazil, in the aggregate amount of $
            15 million. Based, inter alia, on the opinion of its legal
            counsel, the investee's management estimates that the
            provisions recorded in its financial statements are adequate to
            cover any possible damage, which may result in respect of these
            claims.

   7.       A number of claims have been filed against certain other
            companies concerning various matters pertaining to the normal
            course of business, including tax, customs and VAT liabilities,
            which are in various legal proceedings. The managements of said
            companies believe, based on the opinion of the legal counsel
            handling the claims, that appropriate provisions in light of
            the circumstances have been included in the financial
            statements.

   8.       Under certain conditions, Nortel has the right to sell its
            holding of shares (20%) in Telrad to a wholly-owned subsidiary
            of Koor in the years 2000 - 2005 at a price which is the
            greater of $45 million or the net asset value of the shares it
            sells at that date. Furthermore, Nortel has the "right of
            equalisation" until the year 2000, at specified terms - See
            also Note 18B3.

            After the balance sheet date, on 6 March, 2000, Nortel realised its
            right to sell its shares in Telrad to Koor. See Note 27D.

   9.       See Note 10A(2) regarding the matter of the fulfillment of the
            conditions attached to the receipt of investment grants.

   10.      The business activities of the Koor Group are characterised
            primarily by advanced technologies. The accelerated rate of
            technological developments and innovations in the Group's
            segments of operations, require the investment of substantial
            financial resources in research and development, in order to
            assure the Group's standing in its respective segments of
            operations, while facing the constant competition of both
            Israeli and worldwide entities. Consequently, the Group may be
            exposed to the loss of its position in certain segments, as
            well as to substantial research and development costs, which,
            in turn, may have an adverse effect on the Group's operating
            results.

   11.      In March 1999 a collective labour agreement was signed between
            Middle East Tubes Ltd. (METCO) and The New General Federation
            of Workers concerning the retirement terms of 35 workers at the
            Acre plant of METCO who it was agreed would retire from METCO
            and with regard to the retirement of additional workers. A
            provision was made in the 1998 financial statements for the
            retirement of the aforementioned 35 workers. Under the
            agreement, workers from the Akko plant who resign or who accept
            early retirement by 31.12.2000 are entitled to enlarged
            compensation, depending on the number of years of their
            employment at METCO.

            It was also decided that additional workers who retire during the
            term of the agreement will be entitled, upon reaching the age
            of 56 (or 54 for female workers), to early pension payments
            until they reach retirement age. In addition, these workers
            will be entitled to grants as stipulated in the agreement.
            Workers who are younger than 56 but more than 54 on the date of
            signing the agreement and whom the management of METCO has
            decided to dismiss, will also be entitled to early pension
            payments. Every retirement is subjected to the approval of the
            management of METCO.

            The term of the above agreement is until 31 December, 2000, but
            will remain in effect as long as no other agreement is signed.
            At this stage it is not possible to estimate how many workers,
            if any, will retire pursuant to the agreement, beyond the
            workers who have already been dismissed, and therefore no
            additional provision was made for them in the financial
            statements.

            In addition, in February 2000 a claim was filed against METCO in
            the Acre Labour Court by 45 employees from the plant regarding
            their entitlement to receive increased severance compensation.
            As at the date of publication of the financial statements METCO
            is unable to assess the chances and results of the claim and so
            no provision therefor has been made in METCO's books. See Note
            3H(8).

   12.      Tadiran Com. Was sold to the buying company in a transaction of
            representations. According to the terms of the transaction,
            should it transpire that the condition of Tadiran Com. Is
            materially different from the representation made, the buyer
            shall be entitled to compensation therefore from Tadiran.

            Koor Industries Ltd. Guarantees the liabilities of Tadiran in this
            transaction up the amount of the consideration received. This
            guarantee shall take effect if Tadiran's equity capital falls
            below $250 million.

   B.       Commitments

   1.       Certain subsidiaries have research and development contracts
            with the Government of Israel. Under these contracts, the
            subsidiaries are required to pay royalties (2% - 5% of proceeds
            of sales resulting from the research and development) to the
            Government of Israel, in amounts not exceeding 100% - 150% of
            the linked amounts of the grants received by the subsidiaries
            as participation in the research and development projects.

            Royalty  paid to the Government of Israel in respect of the
            aforementioned research and development contracts, are as
            follows:

            Year ended                                   NIS thousand
            -----------------                            ------------
            31 December, 1997                                 67,017
            31 December, 1998                                 75,732
            31 December, 1999                                 35,957

            Negotiations have been underway between a subsidiary and the Office
            of the Chief Scientist (hereinafter - "OCS") of the Government of
            Israel, to re-examine the royalties paid to the OCS during a
            period exceeding 10 years. The financial statements include a
            provision which, in the opinion of the management of the
            subsidiary, will be required to pay the royalties which will
            result from the negotiations.

   2.       Certain subsidiaries are required to pay royalties at the rate
            of 3% per year of the increase in export sales, not to exceed
            the amount financed by the Fund for the Encouragement of
            Marketing Abroad. Such amounts are linked to the exchange rate
            of the U.S. dollar

   3.       In an agreement dated January 1997, Telrad undertook to acquire
            know-how from Nortel over a 10 year period at a cost of $15
            million to be paid in four equal annual interest bearing
            installments, beginning in January 1998. By 31 December, 1999,
            Telrad had acquired know-how of a value of  6,406 thousand. In
            addition, Telrad paid $1,100 thousand on account of the said
            undertaking. Telrad is negotiating with Nortel in order to
            terminate the know-how agreement.

   4.       Commitments for the purchase of fixed assets are as follows: 31
            December, 1999 - NIS 60 million adjusted; 31 December, 1998 -
            NIS 130 million adjusted.

   5.       Koor has guaranteed, until the year 2004, the compliance of
            Elad Hotels Ltd. with the terms of the agreement regarding
            management of two hotels by a subsidiary. A subsidiary pays
            usage fees for hotel services, as defined in the agreement.
<PAGE>
   6.       Certain companies in the Group lease industrial and office
            premises under non-cancelable, long-term leases with, in most
            cases, renewal options. The rent expense of these companies was
            NIS 45 million in 1999, NIS 43 million in 1998 and NIS 53
            million in 1997.

            Future minimum payments under the non-cancelable operating leases,
            for the years subsequent to balance sheet date, are as follows:

                                                                   December 31
                                                                      1999
                                                               ---------------
                                                               (NIS thousands)
                                                               ---------------

            First year                                                41,010
            Second year                                               31,753
            Third year                                                25,329
            Fourth year                                               19,800
            Fifth year and thereafter                                 28,153
                                                                  -----------
                                                                     146,045
                                                                  ===========

   7.       On 30 November, 1999 Koor's Board of Directors committee,
            having been authorized for this purpose, passed a resolution to
            cooperate on an equal basis with the Israel Corporation Ltd.,
            in a joint venture with an equity capital of up to $100
            million. The joint venture will focus on investments in
            high-tech projects and companies in the fields of the Internet,
            telecommunications and operation of telecommunications in
            Israel and abroad.

Note 19 - Convertible Securities of Investee Companies

         A.       Option warrants to senior employees:

                  Certain investors issued options to senior employees
                  until 1999 inclusive. Employee entitlement to such
                  options is be determined over a number of years from
                  their date of issue, subject to continued employment. The
                  exercise term of the options varies according to the
                  terms of the different plans.

                  The exercise price was, in most cases, identical to the
                  market price of the shares of subsidiary companies on the
                  issuance date of the option warrants.

                  The rate of dilution in these subsidiaries, following the
                  exercise of options, will not exceed approximately 2%.

         B.       An affiliated company - ECI

                  ECI has outstanding convertible notes (hereinafter - "the
                  notes") which are convertible until December 2003 of a
                  par value of $85,000. The conversion rate is 1 share for
                  each $25 par value of notes. Assuming the conversion of
                  all the notes into shares, Koor's rate of holding in ECI
                  will decrease by 1.2%.

                  The Claridge Group, which is the controlling shareholder
                  of Koor, holds 47% of these outstanding convertible
                  notes.



<PAGE>

Note 20 - Share Capital, Stock Options and Warrants

         A.       Share capital is composed as follows:

<TABLE>
<CAPTION>

                                                              31 December, 1999                   31 December, 1998
                                                      --------------------------------    --------------------------------
                                                        Authorised         Issued and        Authorised         Issued and
                                                                          outstanding                          outstanding
                                                      -------------     --------------    -------------      -------------
         Number of shares:

<S>                                                       <C>                 <C>              <C>               <C>
         Ordinary shares of a
         par value of NIS 0.001 (1)(3)(4)              84,557,334         16,525,984        84,557,334         16,503,786
                                                      =============      =============    =============      =============

         Deferred shares of a
          par value of NIS 0.001(2)(3)(4)              15,167,666         14,461,481        15,167,666         14,391,637
                                                      =============      =============    =============      =============

         Amount in NIS:

         Ordinary shares of a par value
          of NIS 0.001                                     84,557             16,526            84,557             16,504
                                                      =============      =============    =============      =============

         Deferred shares of a par value
          of NIS 0.001                                     15,168             14,461            15,168             14,391
                                                      =============      =============    =============      =============
</TABLE>


         (1)      These shares are traded on the Tel-Aviv Stock Exchange.
                  As at 31 December, 1999, the per share market price was
                  NIS 415.

                  Traded on the New York Stock Exchange (NYSE). Each ADS
                  represents 0.2 of Koor's ordinary Shares of NIS 0.001 par
                  value. The market price in New York of the ADS as at 31
                  December, 1999 was $20.

         (2)      Holders of the deferred shares are only entitled to
                  receive the nominal paid-up value of the deferred shares
                  in the event of a winding up of Koor, subject to prior
                  payment of the nominal paid-up value of the ordinary
                  shares to the holders of ordinary shares. The holders of
                  the Deferred Shares do not have any voting rights, and
                  they are not entitled to participate in the distribution
                  of dividends of any kind.

         (3)      The classification of the authorised and outstanding
                  ordinary shares, and the authorised and outstanding
                  deferred shares changes as a result of any deferral of
                  ordinary shares occurring at the time of the exercise of
                  stock options issued by the Company to the Israeli banks
                  (see (b) below).

         (4)      As at balance sheet date 170,436 ordinary shares and
                  12,903,884 deferred shares are held by subsidiaries and,
                  accordingly, an amount of adjusted NIS 53,641 thousand
                  was deducted from shareholders' equity.

                  As for the rights and legal status of the additional 624,577
                  ordinary shares held by a subsidiary, Koor Trusts 1995
                  Ltd., see B below.

                  The shares held by Koor Trusts will only be used in future
                  for an issuance to company employees, subject to receipt
                  of the requisite approvals. If these shares are not
                  issued to the employees by June 2001 the company will
                  reduce its capital. Until June 2001 Koor Trusts will not
                  have the right to participate or vote in general meetings
                  of the company's shareholders, nor will it have the right
                  to receive a dividend for these shares.

         B.       Stock options:

                  Stock options issued to Israeli banks:

                  Within the framework of the comprehensive arrangement signed
                  in September 1991 between Koor and the Israeli banks, banks
                  were given options for the purchase of ordinary shares of
                  Koor. The stock options may be exercised at any time
                  through 2001. Upon exercise of a stock option by any of
                  the banks, an ordinary share held by Hevrat Ha'ovdim will
                  be converted automatically into a deferred share, so, for
                  all practical purposes, the total number of ordinary
                  shares does not change.

                  In 1999 and 1998, the Israeli banks exercised options for
                  the purchase of 69,844 and 97,933 ordinary shares
                  respectively.

                  As of 31 December, 1999 - 70,475 options were outstanding.

         C.       Key employee stock-based compensation plans:

         1.       The 1997 Stock-Based Compensation Plan:

                  On May 27, 1997, 134,547 options were issued (exercise price
                  - $90.989) and on November 6, 1997, an issuance of an
                  additional 54,421 options was completed (exercise price -
                  $98.747).

                  See Note 4 as to details of stock options that have not been
                  exercised and of exercise in the current year.

         2.       On August 28, 1997, Columbus Capital Corporation
                  ("Columbus"), a member of the Claridge Group, undertook
                  to grant put options to those senior employees of Koor,
                  including Koor's President and Chief Executive Officer
                  who retired in 1998 , who are eligible for options to
                  purchase Koor ordinary Shares by virtue of the 1995 Plan
                  and the 1997 Plan. These put options are exercisable
                  within 90 days from the first date upon which the
                  employees are eligible to exercise the options under the
                  above Plans. The put options confer to the employees the
                  right to sell to Columbus the outstanding shares granted
                  to them and the profits inherent in the exercise of the
                  options. Columbus will purchase these shares from the
                  employees, if they should desire, at a price identical to
                  that paid by the Claridge Group for the purchase of
                  Koor's shares held by the Shamrock group - $121.25 per
                  Common Share of NIS 0.001.

                  Each employee shall be eligible to sell his outstanding
                  shares, all or in part, to Columbus under the said terms
                  and according to his discretion.

                  In 1998 an expense of NIS 6,080 thousand was allocated for
                  the exercise of the aforementioned put options by all of
                  the employees, including the retired Chief Executive
                  Officer. In 1999 an expense of NIS 774 thousand was
                  allocated for the exercise of the aforementioned put
                  options.

         C.       Key employee stock-based compensation plans (cont'd.):

         3.       The 1998 Stock-Based Compensation Plan:

                  On August 30, 1998, an Extraordinary General Shareholders
                  Meeting approved a private placement, at no cost, of up
                  to 400,000 stock options to employees of the Company.
                  Each option may be exercised into one ordinary share of a
                  par value of NIS 0.001 each (hereinafter - "the Plan").

                  The Plan authorises the allotment of up to 313,596 stock
                  options, under specified terms, to 5 senior employees of
                  Koor, including 105,263 option warrants to Koor's Chief
                  Executive Officer who is also Vice Chairman of the Board
                  of Directors.

                  In 1999 40,000 options were allotted and a balance of 46,404
                  options has not yet been allotted.

                  The effective date for implementation of the Plan is 16
                  July 1998 (hereinafter: the "Effective Date" or
                  "Determining Date"). At the end of the first year from
                  the Determining Date and at the end of each of the first
                  two years thereafter each employee will be entitled to
                  exercise up to one third of the total number of options
                  in his allotment.

                  The employee is entitled to exercise all or part of the
                  stock options, pursuant to the conditions of the Plan,
                  from the date of entitlement to exercise of the stock
                  options on the dates set forth above and up to five years
                  from the Determining Date, in other words, up to 16 July,
                  2003 (with the exception of the CEO who will be entitled
                  to exercise the stock options until four years have
                  elapsed from the Determining Date).

                  Under the terms of the Plan, each option may be
                  theoretically exercised to purchase one ordinary share
                  (subject to adjustments). In practice, however, the
                  optionee will not be issued the total number of shares to
                  which he is entitled upon exercising such options, but
                  only the number of shares reflecting the monetary benefit
                  component of the option as at the exercise date. The
                  exercise price of the issued options set for the purpose
                  of calculating the benefit component when exercising the
                  option (excluding those issued to the trustee that do not
                  as yet have an exercise price) is $114.7 per share in
                  respect of each option, payable in NIS, (excluding
                  options issued to the Chief Executive Officer). The
                  exercise price of the options issued to the Chief
                  Executive Officer equals the NIS equivalent of $118.3 per
                  share in respect of each option, subject to adjustment of
                  exercise price for dividend distribution.

                  The exercise price of the options issued to a trustee for
                  those employees to be defined in the future shall be
                  determined based on the share's market price on the Tel
                  Aviv Stock Exchange at a date to be decided by the
                  Remuneration Committee.

                  The theoretical economic value of the option on August 5,
                  1998, according to the Black-Scholes options pricing
                  model was $38.8 per option issued to the optionees (other
                  than the CEO) and $31.92 per option issued to the Chief
                  Executive Officer.
<PAGE>
         C.       Key employee stock-based compensation plans: (cont'd)

         4.       Detail of options that have not yet been exercised as at 31
                  December, 1999 are as follows:

<TABLE>
<CAPTION>
                                                                      Exercise          Number of          Last exercise
                                                                         price            options                   date
                                                               ---------------     --------------       ----------------
                                                                             $
                                                               ---------------     --------------       ----------------
<S>               <C>                                          <C>                       <C>               <C>
                  1997 plan                                            90.989             66,518                May 2002
                  1997 plan                                            98.747             54,421           November 2002
                  1998 plan                                    110.90 - 111.60           248,333               July 2003
                  1999 plan                                    114.40 - 115.10           105,263               July 2002
                                                                                    -------------
                                                                                         474,535
                                                                                    =============
</TABLE>


                  Movement in options during the year was as follows:

<TABLE>
<CAPTION>
                                                         1995 plan         1997 plan         1998 plan             Total
                                                        -----------       -----------      ------------       ----------

<S>                                                        <C>              <C>               <C>               <C>
                  Balance as at
                  beginning of  year                       13,728           131,017           313,596           458,341
                  Exercised                                     -                 -            40,000            40,000
                  Granted                                 (13,728)           (6,299)                -           (20,027)
                  Expired                                       -            (3,779)                -            (3,779)
                                                        -----------       -----------      ------------       ----------

                  Balance as at end
                   of year                                      -           120,939           353,596           474,535
                                                        ===========       ===========      ============       ==========
                  Shares that were issued
                  to Koor Trusts (1995) Ltd.*               9,646             4,908                 -            14,554
                                                        ===========       ===========      ============       ==========
</TABLE>


                  *        In accordance with the exercise mechanism, the
                           allotment was not shown in the statement of
                           shareholders' equity.

<PAGE>
Note 21 - Financial Instruments and Linkage Terms of Monetary Balances

         A.       General:

         The Company and certain subsidiaries have entered into forward
         transactions and option contracts, in order to reduce the overall
         exposure of assets and liabilities denominated in foreign currency
         and commitments for the purchase of raw materials and the sale of
         goods, in currencies other than the US dollar. Those subsidiaries
         neither hold nor issue financial instruments for trading purposes.

         B.       Details of the open foreign exchange transactions made to
                  hedge subsidiaries' assets and liabilities in foreign
                  currency as at 31 December, 1999:

<TABLE>
<CAPTION>

                                                           Forward               Call               Put               Swap
                                                       transaction            options           options       transactions
                                                       ------------        -----------       -----------        -----------
                                                                               NIS thousands
                                                       -------------------------------------------------------------------

         Purchase of U.S. dollars in
          exchange for:
<S>                                                        <C>              <C>                 <C>                <C>
         NIS                                               417,486          1,949,604           999,336            588,173
         European currencies                                22,147             83,060            62,295                  -

         Purchase of European currencies
          in exchange for:

         NIS                                                     -             53,989            20,765                  -
                                                       ------------        -----------       -----------        -----------
                                                           683,993          2,016,653         1,082,396            588,173
                                                       ============        ===========       ===========        ===========
         Sale of U.S. dollars in
          exchange for:
         NIS                                                51,092             83,226           237,136            672,636
         European currencies                                78,907             33,224                 -             37,404

         Sale of European currencies in exchange for:

         NIS                                                     -                  -            20,765                  -
                                                       ------------        -----------       -----------        -----------
                                                           129,999            116,450           257,901            710,040
                                                       ============        ===========       ===========        ===========
</TABLE>

         The transactions are usually for a period of up to 12 months, with
         the exception of financial instruments for the purchase of US
         dollars in consideration of NIS 1,400, net, in Koor, which were
         terminated by the end of February 2000 and not renewed.

         The loss in respect of derivative financial instruments, as
         included in the consolidated financial statements for the year
         ended 31 December, 1999, amounts to NIS 26,064 thousand (for the
         year ended as at 31 December, 1998 the gain in respect of
         derivative financial instruments amounted to NIS 5,319 thousand).

         C.       Fair value of financial instruments:

         Condensed data of monetary assets and liabilities, whose fair
         value as at 31 December, 1999, based on their market value, is
         significantly different from those presented in the financial
         statements, is as follows:

<TABLE>
<CAPTION>

                                                                                               Carrying               Fair
                                                                                                 amount              value
                                                                                             -----------           ----------
                                                                                                   NIS millions
                                                                                             --------------------------------

<S>                                                                                              <C>                <C>
         Investments in affiliates                                                               3,370              4,517
         Debentures and convertible debentures                                                     281                268
</TABLE>

         The carrying amounts of cash and cash equivalents, short-term
         investment, trade receivables, other accounts receivable, credits
         from banks and others, trade payables and other accounts payable
         and accruals, and other financial instruments approximate at their
         fair value.
<PAGE>
         D.       Credit risk of trade receivables:
<TABLE>
<CAPTION>

                                                                                                              NIS millions
                                                                                                              ------------

<S>                                                                                                                 <C>
         Insured receivables                                                                                        1,103
         Receivables insured by foreign trade risk insurance                                                          290
         Receivables - Government authorities and Bezeq                                                               290
         Other receivables, including checks and credit
          card companies                                                                                            1,671
                                                                                                              ------------
         Total, including non-current receivables                                                                   3,354
                                                                                                              ============
</TABLE>

         In Management's estimation, the allowance for doubtful accounts
         adequately covers all anticipated losses in respect of
         concentration of credit risks of trade receivables.

         The exposure to credit risks relating to trade receivables is
         limited, due to the relatively large number of customers in the
         various segments.

         E.       Linkage terms of monetary balances:

         (1)      Consolidated

         -        31 December, 1999

<TABLE>
<CAPTION>

                                                        In foreign           Linked           Unlinked            Total
                                                          currency           to the
                                                         or linked              CPI
                                                           thereto
                                                      -------------       -----------      -----------      ------------
                                                                               NIS thousands
                                                      ------------------------------------------------------------------

         Assets
         Current assets:

<S>                                                       <C>                  <C>             <C>              <C>
         Cash and cash equivalents                        932,747              3,591           512,368          1,448,706
         Short-term deposits and
          investments                                     105,354            209,810           157,171            472,335
         Trade receivables                              2,258,183            133,077           821,947          3,213,207
         Other accounts receivable                        133,016             25,126           154,882            313,024
         Investments and other
          long-term receivables                           259,485            448,122            11,066            718,673
                                                      -------------       -----------      -----------      ------------
                                                        3,688,785            819,726         1,657,434          6,165,945
                                                      =============       ===========      ===========      ============
         Liabilities
         Current liabilities:

         Credits from banks and others
          (not including current
          maturities of long-term
          liabilities)                                  1,737,077             79,019           664,159          2,480,255
         Trade payables                                 1,160,042             37,793           314,202          1,512,037
         Other accounts payable                           312,508             60,583         1,310,871          1,683,962
         Long-term loans and
          debentures (including current
          maturities)                                   3,999,978          1,142,911             6,204          5,149,093
                                                      -------------       -----------      -----------      ------------
                                                        7,209,605          1,320,306         2,295,436         10,825,347
                                                      =============       ===========      ===========      ============

<PAGE>

                                                        In foreign           Linked           Unlinked            Total
                                                          currency           to the
                                                         or linked              CPI
                                                           thereto
                                                      -------------       -----------      -----------      ------------
                                                                               NIS thousands
                                                      ------------------------------------------------------------------

         Assets
         Current assets:

         Cash and cash equivalents                        982,699              3,487           505,187          1,491,373
         Short-term deposits and
          investments                                   1,206,005            114,181           267,160          1,587,346
         Trade receivables                              2,568,814            144,562           915,788          3,629,164
         Other accounts receivable                        234,362             67,164           137,940            439,466
         Investments and other
          long-term receivables                           272,486            204,652            28,140            505,278
                                                      -------------       -----------      -----------      ------------
                                                        5,264,366            534,046         1,854,215          7,652,627
                                                      =============       ===========      ===========      ============
         Liabilities
         Current liabilities:

         Credits from banks and others
          (not including current
          maturities of long-term
          liabilities)                                  1,758,748             82,784           508,044          2,349,576
         Trade payables                                 1,109,019              3,194           433,056          1,545,269
         Other accounts payable                         1,139,310            160,447           745,234          2,044,991
         Long-term loans and
          debentures (including current
          maturities)                                   3,885,569          1,154,966            36,495          5,077,030
                                                      -------------       -----------      -----------      ------------
                                                        7,892,646          1,401,391         1,722,829         11,016,866
                                                      =============       ===========      ===========      ============

         (2)      Company

         Assets
         Current assets:

         Cash and cash equivalents                        346,114                  -           379,240            725,354
         Short-term deposits and
          investments                                      20,765            192,614            65,718            279,097
         Other investments, loans and
          receivables                                      12,738            367,827                 -            380,565
         Accounts receivable                                    -                  -            25,518             25,518
         Investments and other
          long-term receivables                               125            254,965           593,814            848,904
                                                      -------------       -----------      -----------      ------------
                                                          379,742            815,406         1,064,290          2,259,438
                                                      =============       ===========      ===========      ============

         Liabilities
         Current liabilities:

         Credits from banks and others
          (not including current
          maturities of long-term
          liabilities)                                    240,961                  -               449            241,410
         Trade payables                                         8                  -             1,649              1,657
         Other accounts payable                            27,261             29,857           243,400            300,518
         Long-term loans and
          debentures (including current
          maturities)                                   2,352,808            711,516               800          3,065,124
                                                      -------------       -----------      -----------      ------------
                                                        2,621,038            741,373           246,298          3,608,709
                                                      =============       ===========      ===========      ============

<PAGE>


                                                        In foreign           Linked           Unlinked            Total
                                                          currency           to the
                                                         or linked              CPI
                                                           thereto
                                                      -------------       -----------      -----------      ------------
                                                                               NIS thousands
                                                      ------------------------------------------------------------------

         Assets
         Current assets:

         Cash and cash equivalents                          4,185                  -           311,268            315,453
         Short-term deposits and
          investments                                      43,664             43,748            84,173            171,585
         Other investments, loans and
          receivables                                       5,299              2,832                 -              8,131
         Accounts receivable                                    -                  -            14,423             14,423
         Investments and other
          long-term receivables                                 -            250,266           732,184            982,450
                                                      -------------       -----------      -----------      ------------
                                                           53,148            296,846         1,142,048          1,492,042
                                                      =============       ===========      ===========      ============
         Liabilities
         Current liabilities:

         Credits from banks and others
          (not including current
          maturities of long-term
          liabilities)                                          -                  -               966                966
         Trade payables                                     1,685                  -             5,502              7,187
         Other accounts payable                            14,349             31,207           120,325            165,881
         Long-term loans and
          debentures (including current
          maturities)                                   2,652,795            443,839               811          3,097,445
                                                      -------------       -----------      -----------      ------------
                                                        2,668,829            475,046           127,604          3,271,479
                                                      =============       ===========      ===========      ============
</TABLE>
<PAGE>


Note 22 - Liens and Guarantees

         A.      In order to  secure  liabilities,  certain  subsidiaries  have
                 mortgaged  their real estate and have placed fixed  charges on
                 plant,  equipment  and  bank  deposits,  as well  as  floating
                 charges on all of their assets. They also pledged a portion of
                 their shares in investee companies.

                 Regarding the lien in respect to an investment grant - see
                 Note 10A(2).

         B.      The balances of secured liabilities are as follows:

<TABLE>
<CAPTION>
                                                                                                      Consolidated
                                                                                           --------------------------------
                                                                                                      December 31
                                                                                           --------------------------------
                                                                                               1999               1998
                                                                                           -------------      -------------
                                                                                                     NIS thousands
                                                                                           --------------------------------

<S>               <C>                                                                        <C>                <C>
                  Credit from banks                                                          1,083,166          1,374,876
                  Loans from banks and
                   others and debentures (including current
                   maturities) (see Note 15, and also C
                   and D below)                                                                820,226            668,147
                                                                                           -------------      -------------
                                                                                             1,903,392          2,043,023

                  Others - mainly customer advances                                            153,262            306,378
                                                                                           -------------      -------------
                                                                                             2,056,654          2,349,401
                                                                                           =============      =============
</TABLE>


                  See Note 9 regarding bank loans which were taken to invest in
                  debentures, which have been pledged as securities for the
                  loans which were offset against the investment therein.

         C.       For the purpose of securing debentures convertible into
                  Koor shares, Koor has undertaken not to pledge its assets
                  in future, except in accordance with the terms stipulated
                  by the trust deeds. See also Note 15B.

         D.       Debentures issued by Koor Issuance Ltd. a subsidiary, are
                  secured by a floating charge on all the assets of the
                  above company. Under the terms of the deed of trust, Koor
                  has guaranteed the full repayment of all the amounts of
                  the principal, interest and linkage differences of the
                  debentures. Koor registered a "negative pledge" to secure
                  its guarantee.

         E.       Guarantees to banks and others for loans and for assuring
                  credit lines and other guarantees in favor of:

<TABLE>
<CAPTION>

                                                               Consolidated                             Company
                                                       -------------------------------       -----------------------------
                                                                December 31                           December 31
                                                       -------------------------------       -----------------------------
                                                             1999              1998              1999              1998
                                                       -------------     -------------       -------------     -----------
                                                            NIS thousands                         NIS thousands
                                                       -------------------------------       -----------------------------

<S>                                                        <C>                 <C>               <C>              <C>
                  Subsidiaries                                  -                  -            91,628                  -
                  Affiliates                               19,652             20,353            19,652              9,033
                  Others                                    9,114             23,529             1,622             33,086
                                                       -------------     -------------       -------------     -----------
                                                           28,766             43,882           112,902             42,119
                                                       =============     =============       =============     ===========
</TABLE>


                  1)       In certain cases when advances from customers
                           are received, a subsidiary provides its
                           customers with bank guarantees to secure the
                           advances. Guarantees in excess of the amount of
                           advance payments stated as liabilities in the
                           balance sheet, amounted to NIS 307,035 thousand
                           as at 31 December, 1999, and NIS 223,049 as at
                           31 December, 1998.

                  2)       In connection with the Bezeq agreement to
                           transfer ownership of public switching Bezeq
                           received from Koor a guarantee in the amount of
                           NIS 104 million. See also Note 18A5.

                  3)       There are also guarantees, in an unlimited
                           amount, to ensure due performance of work,
                           customer agreements, product warranty, advance
                           payments received, and liabilities to customs
                           and excise authorities.


Note 23 - Data concerning Items in Statements of Operations

         A.       Revenues from sales and services - net (1) (3) (4):

         1.       Consolidated

<TABLE>
<CAPTION>

                                                                                    Year ended December 31
                                                                         --------------------------------------------------
                                                                                 1999              1998               1997
                                                                         ------------    ---------------    ---------------
                                                                                        NIS thousands
                                                                         --------------------------------------------------

         Local:
<S>                                                                        <C>               <C>                <C>
         Industrial operations (2)                                         3,425,703         4,631,273          5,451,809
         Trading operations                                                1,064,315           945,412          1,052,089

         Abroad:
         Industrial operations - export and
          international operations                                         5,591,566         6,591,239          5,800,158
         Trading operations                                                  593,717           624,392            621,319
                                                                         ------------    ---------------    ---------------
                                                                          10,675,301        12,792,316         12,925,375
                                                                         ============    ===============    ===============
         (1)      Not including agency sales                                 555,633           367,653            499,270
                                                                         ============    ===============    ===============
         (2)      Including sales to major customer                                -           532,037            829,074
                                                                         ============    ===============    ===============
         (3)      Including sales under long-term credit
                   arrangements (see also Note 2K)                               510            78,004             67,175
                                                                         ============    ===============    ===============
         (4)      Revenues and expenses relating
                   to work performed under long-term
                   contracts:
                  Revenues                                                   830,637           869,969            836,619
                  Costs                                                     (617,547)         (696,080)          (712,705)
                  Decrease (increase) in provision
                   for losses                                                  1,150            12,474             (3,223)
                                                                         ------------    ---------------    ---------------
                                                                             214,240           186,363            120,691
                                                                         ============    ===============    ===============

         2.       Company

         Income from management fees :
         From subsidiaries                                                    45,589            42,181             73,348
         From proportionately consolidated
          investees                                                           18,776            20,571             28,168
         From affiliated companies                                               756                 -                  -
                                                                         ------------    ---------------    ---------------
                                                                              65,121            62,752            101,516
                                                                         ============    ===============    ===============

</TABLE>
<PAGE>
         B.       Cost of sales and services - consolidated :
<TABLE>
<CAPTION>

                                                                                    Year ended December 31
                                                                         --------------------------------------------------
                                                                                 1999              1998               1997
                                                                         ------------    ---------------    ---------------
                                                                                        NIS thousands
                                                                         --------------------------------------------------

         Industrial operations:

<S>                                                                        <C>               <C>                <C>
         Materials                                                         3,522,270         4,660,519          4,595,995
         Labour                                                            1,542,802         2,293,136          2,146,711
         Subcontracted work                                                  127,930           177,767            158,291
         Depreciation and amortisation                                       397,591           511,250            490,306
         Research and development expenses, net (*)                          427,722           527,928            506,597
         Other manufacturing expenses                                        609,489           762,012            799,255
                                                                         ------------    ---------------    ---------------
                                                                           6,627,804         8,932,612          8,697,155

         Less - expenses charged to cost of fixed assets                      12,659            33,600             25,813
                                                                         ------------    ---------------    ---------------
                                                                           6,615,145         8,899,012          8,671,342

         Decrease (increase) in inventory of goods
          and work in process                                                214,223           (17,223)            37,600
                                                                         ------------    ---------------    ---------------
                                                                           6,829,368         8,881,789          8,708,942

         Increase in inventory of finished goods                             137,487          (162,766)           (61,733)
                                                                         ------------    ---------------    ---------------
                                                                           6,966,855         8,719,023          8,647,209
                                                                         ------------    ---------------    ---------------
         Trading operations:
         Merchandise                                                         839,499           923,767          1,011,410
         Labour                                                              145,194           101,209            104,932
         Depreciation                                                         43,680            33,022             35,428
         Others                                                              134,638            90,003             91,050
                                                                         ------------    ---------------    ---------------
                                                                           1,163,011         1,148,001          1,242,820
                                                                         ------------    ---------------    ---------------
                                                                           8,129,866         9,867,024          9,890,029
                                                                         ===========     ===============    ===============
         (*)      Net of grants and participations, net                       15,645            56,180             45,665
                                                                         ===========     ===============    ===============
</TABLE>


         C.       Selling and marketing expenses - consolidated :
<TABLE>
<CAPTION>

                                                                                    Year ended December 31
                                                                         --------------------------------------------------
                                                                                 1999              1998               1997
                                                                         ------------    ---------------    ---------------
                                                                                        NIS thousands
                                                                         --------------------------------------------------

<S>                                                                          <C>               <C>                <C>
         Salaries                                                            337,646           422,873            375,111
         Commissions                                                         139,712           168,418            168,262
         Advertising expenses                                                 62,280            81,919             85,997
         Depreciation and amortisation                                        44,350            47,001             39,187
         Other                                                               394,068           482,246            456,706
                                                                         ------------    ---------------    ---------------
                                                                             978,056         1,202,457          1,125,264
                                                                         ============    ===============    ===============
</TABLE>
<PAGE>



Note 23 - Data to Items in Statements of Operations (cont'd)
--------------------------------------------------------------------------------

D.       General and administrative expenses:

<TABLE>
<CAPTION>
                                                 Consolidated                                    Company
                                     -----------------------------------------   ------------------------------------------
                                            Year ended December 31                       Year ended December 31
                                     -----------------------------------------   ------------------------------------------
                                          1999           1998            1997           1999           1998           1997
                                     ----------    -----------    ------------   -----------    -----------    ------------
                                                NIS thousands                                 NIS thousands
                                     -----------------------------------------   ------------------------------------------

<S>                                   <C>            <C>             <C>             <C>            <C>            <C>
         Salaries                     384,613        557,363         489,168         26,402         81,316         70,447
         Bad and
          doubtful debts               27,463         58,783          14,866              -              -              -
         Depreciation and

          amortisation                 32,190         35,976          32,751          1,237          1,240          1,305
         Other                        285,243        358,763         337,703         38,531         34,087         31,136
                                    ----------    -----------    -------------   -----------    -----------    ------------
                                      729,509      1,010,885         874,488         66,170        116,643        102,888
                                    ==========    ===========    =============   ===========    ===========    ============
</TABLE>


E.       Financing expenses (income), net:
<TABLE>
<CAPTION>

                                                 Consolidated                                    Company
                                     -----------------------------------------   ------------------------------------------
                                            Year ended December 31                       Year ended December 31
                                     -----------------------------------------   ------------------------------------------
                                          1999           1998            1997           1999           1998           1997
                                     -----------   -----------   -------------   -----------    -----------    ------------
                                                NIS thousands                                 NIS thousands
                                     -----------------------------------------   ------------------------------------------

In respect of
<S>                                    <C>             <C>           <C>             <C>            <C>           <C>
 convertible debentures                7,598           9,876         19,880          6,079          7,653         16,240
In respect of debentures               5,102           6,458         11,347              -              -              -
In respect of

long-term loans                      218,430         257,017        147,697        126,188        107,010            469
In respect of short-term
 loans and credit                    181,136         159,896        128,072         26,687              -            497
Amortisation of
 capital raising

 expenses                              2,546           5,663          5,982          1,196          1,902          2,327
Losses (gains) from
 marketable securities, net          (67,707)        (59,804)       (49,436)       (27,229)        11,757        (25,415)
Interest capitalized to
 fixed assets and

 work in process*                     32,829         (48,892)       (20,259)        28,257        (36,981)             -
Revenue (expenses)
from investees, net                        -               -              -         (3,397)         1,694         (2,375)
Revenue from deposits

 and others, net                     (21,645)        (79,199)       (91,440)         2,694         (8,467)          (382)
                                    ----------    -----------    -------------   -----------    -----------    ------------
                                     358,289         251,015        151,843        160,475         84,568         (8,639)
                                    ==========    ===========    =============   ===========    ===========    ============
</TABLE>

* Including  amounts recorded  directly to  shareholders'  equity as "cumulative
foreign currency adjustments."

<PAGE>
         F.       Other income (expenses), net

         1.       Consolidated
<TABLE>
<CAPTION>

                                                                                    Year ended December 31
                                                                         ---------------------------------------------------
                                                                                 1999              1998               1997
                                                                         -------------     -------------     ---------------
                                                                                        NIS thousands
                                                                         ---------------------------------------------------

         Sale of investments in investees (including
<S>                                                                          <C>               <C>                <C>
          changes in rates of holding)                                       641,974           433,582            179,645
         Liquidating dividend                                                      -                 -             20,327
         Income in respect of settlement agreements                                -                 -                  -
         Expenses relating to the termination
          and/or sale of activities and
           sale and write down of assets, net                               (319,312)         (231,974)           (70,166)
         Supplemental severance pay and pensions                            (205,599)         (269,061)           (27,323)
         Management services and participation in
          selling general and administrative expenses:
            Proportionately consolidated companies                             9,567             9,812             14,142
            Affiliates                                                         2,765             3,413             10,707
         Rent from buildings and equipment
          (net of related depreciation) (1)                                    4,231             2,739              3,881
         Joint ventures, net                                                     415             1,181              1,327
         Compensation for damages                                                560               368              4,680
         Sale of know-how                                                          -            12,203                  -
         Earnings on severance pay fundings                                        -                 -                854
         Amortisation of goodwill                                            (48,838)          (27,170)           (19,227)
         Miscellaneous, net                                                   21,465            (6,363)            (1,448)
                                                                         -------------     -------------     ---------------
                                                                             107,228           (71,270)           117,399
                                                                         -------------     -------------     ---------------
         (1)      Including depreciation                                         745             1,427              4,227
                                                                         =============     =============     ===============
</TABLE>


         2.       Company
<TABLE>
<CAPTION>

                                                                                    Year ended December 31
                                                                         ---------------------------------------------------
                                                                                 1999              1998               1997
                                                                         -------------     -------------     ---------------
                                                                                        NIS thousands
                                                                         ---------------------------------------------------

         Capital gain on sale of investments in investee
<S>                                                                           <C>              <C>                 <C>
          companies                                                           44,699           113,159             73,810
         Liquidating dividend                                                      -                 -             19,279
         Joint venture                                                           610             1,231              1,496
         Write-down of investments                                          (157,099)         (131,091)                 -
         Capital loss from sale of fixed assets                               (1,661)           (1,122)               (86)
         Sale of know-how                                                          -            12,203                  -
         Miscellaneous, net                                                    5,946            (1,109)             1,359
                                                                         -------------     -------------     ---------------
                                                                            (107,505)           (6,729)            95,858
                                                                         =============     =============     ===============
</TABLE>
<PAGE>

         G.       Equity of the Koor Group in the operating
                  results of affiliates, net

         1.       Consolidated
<TABLE>
<CAPTION>

                                                                                    Year ended December 31
                                                                         ---------------------------------------------------
                                                                                 1999              1998               1997
                                                                         -------------     -------------     ---------------
                                                                                        NIS thousands
                                                                         ---------------------------------------------------

<S>                                                                         <C>               <C>                 <C>
         Affiliates companies, net (1)                                       284,197           105,713             28,900
         Amortisation of goodwill (2)                                       (162,472)          (43,728)           (18,265)
                                                                         -------------     -------------     ---------------
                                                                             121,725            61,985             10,635
                                                                         =============     =============     ===============
         Dividend received                                                    49,742            29,315             11,095
                                                                         =============     =============     ===============
         (1)      Including discontinued operations in an
                   affiliate                                                 (86,773)                -                  -
                                                                         =============     =============     ===============
         (2)      Including write-off of goodwill balance
                   in an affiliate                                                 -                 -              8,852
                                                                         =============     =============     ===============
</TABLE>

         2.       Company
<TABLE>
<CAPTION>

                                                                                    Year ended December 31
                                                                         ---------------------------------------------------
                                                                                 1999              1998               1997
                                                                         -------------     -------------     ---------------
                                                                                        NIS thousands
                                                                         ---------------------------------------------------

<S>                                                                          <C>               <C>                <C>
         Equity of Koor in operating results for the year (1)                836,845           160,396            423,548
         Amortisation of goodwill (2)                                       (120,197)          (37,507)            (5,265)
                                                                         -------------     -------------     ---------------
                                                                             716,648           122,889            418,283
                                                                         =============     =============     ===============
         Dividend received                                                 1,539,910         1,297,923            135,197
                                                                         =============     =============     ===============
         (1)      Including discontinued operation in
                   an affiliate                                              (86,773)                -                  -
                                                                         =============     =============     ===============
         (2)      Including write-off of goodwill in
                   investee companies                                         (1,849)                -              4,913
                                                                         =============     =============     ===============


</TABLE>

<PAGE>
<TABLE>
<CAPTION>
         H.       Income (expenses) from investee companies and their participation in expenses

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

                                         Year ended December 31
                                         ------------------------------------------   --------------------------------------------
                                         1999                                         1998
                                                        Consolidated                                  Consolidated
                                                        companies by                                  companies by
                                         Consolidated   proportional    Affiliated    Consolidated    proportional    Affiliated
                                           companies    consolidation    companies      companies    consolidation     companies
                                         ------------   -------------   ----------    ------------   -------------    ----------
                                                        NIS thousands                                NIS thousands
                                         ------------------------------------------   --------------------------------------------

   Income:

<S>                                            <C>            <C>               <C>           <C>           <C>            <C>
   Management services                         45,589         18,776            756              -          42,181         20,571

                                         ============   =============   ===========   ============   =============    ===========

   Administrative expenses
    (in respect of salaries of plant
    managers paid by Koor)                          -              -              -              -          26,949              -
                                         ============   =============   ===========   ============   =============    ===========
   Financing income (expenses),
   net                                          4,443            (14)        (1,032)             -          (2,324)           705
                                         ============   =============   ===========   ============   =============    ===========
</TABLE>

<TABLE>
<CAPTION>

                                         Year ended December 31
                                         -----------------------------------------
                                         1997
                                         -----------------------------------------
                                                        Consolidated
                                                        companies by
                                         Consolidated   proportional    Affiliated
                                           companies    consolidation    companies
                                         ------------   -------------   -----------
                                                        NIS thousands
                                         ------------------------------------------
   Income:

<S>                                               <C>            <C>            <C>
   Management services                              -         73,348         28,168
                                         ============   ============    ===========

   Administrative expenses
    (in respect of salaries of plant
    managers paid by Koor)
                                                    -         41,242         22,499
   Financing income (expenses),          ============   ============    ============
   net
                                                    -          3,489         (1,393)
                                         ============   ============    ============
</TABLE>
<PAGE>

                                Koor Industries Ltd. (An Israeli Corporation)

Notes to the Financial Statements

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

Note 24 - Business Segments

         A.       The Koor Group operates in the following segments:

                  Following a change by the company's management in the
                  definition of Koor's segments of operation, the
                  operations of the telecommunications and electronics
                  segments which had been reported in 1998 in the
                  telecommunications segment were divided retroactively
                  into the telecommunications, military electronics and
                  "others" segments. Pursuant thereto the comparison
                  numbers were classified accordingly.

                  Following are Koor's segments after this reclassification:

                  Telecommunications
                  Defence electronics

                  Agro-chemicals and other chemicals Building and
                  infrastructure materials The "others" segment includes
                  mainly tourism, consumer products, software and trade.

         B.       Segment sales include products sold and services rendered
                  to unrelated customers. Inter-industry segment sales are
                  immaterial and are based primarily on prices determined
                  in the ordinary course of business. Accordingly, these
                  sales are not presented separately.

                  Segment operating earnings include all costs and expenses
                  directly related to the relevant segment and an
                  allocation of expenses from which more than one segment
                  may benefit. Expenses and revenue presented in the
                  statements of operations after operating earnings are not
                  taken in account in the determination of operating
                  earnings or loss. Identifiable assets by industry
                  segments are those assets that are used by Koor in its
                  activities in each segment.

         C.       See Note 24H for details of the discontinuation of the
                  activities of the energy segment.

         D.       Data regarding business segments of the Koor Group:*

<TABLE>
<CAPTION>

                                                                   Year ended December 31
                                  ---------------------------------------------------------------------------------------
                                               1999                         1998                         1997
                                  ----------------------------  ----------------------------  ----------------------------
                                   NIS thousands             %  NIS thousands              %  NIS thousands              %
                                  --------------      --------  -------------       --------  -------------      ---------
         Revenues
          from sales
          and services:

         Segments:

<S>                                   <C>                <C>       <C>                <C>       <C>                <C>
         Telecommunication            2,199,702          20.61     3,419,501          26.73     3,408,168          26.37
         Defence electronics          1,333,690          12.49     1,572,584          12.29     1,458,576          11.28
         Agro-chemicals
         and other chemicals          3,540,922          33.17     3,376,893          26.40     2,881,212          22.29
         Building and
          infrastructure materials    1,445,878          13.54     1,645,089          12.86     1,964,115          15.20
         Others                       2,155,109          20.19     2,778,249          21.72     3,213,304          24.86
                                  --------------      --------  -------------       --------  -------------      ---------
         Total segments              10,675,301         100.00    12,792,316         100.00    12,925,375         100.00
                                  ==============      ========  =============       ========  =============      =========
         *        Reclassified
</TABLE>


<TABLE>
<CAPTION>
                                                                   Year ended December 31
                                  ---------------------------------------------------------------------------------------
                                               1999                         1998                         1997
                                  ----------------------------  ----------------------------  ----------------------------
                                   NIS thousands             %  NIS thousands              %  NIS thousands              %
                                  --------------      --------  -------------       --------  -------------      ---------

Pre-tax earnings

Operating earnings
 according to segments:

<S>                                     <C>             <C>           <C>             <C>         <C>             <C>
Telecommunication                       260,662         27.67         46,406          5.28        299,429         25.59
Defence electronics                      69,060          7.33        167,684         19.07        138,126         11.81
Agro-chemicals and
 other chemicals                        390,503         41.45        428,441         48.74        359,271          30.7
Building and                                                                              .
infrastructure materials                127,210         13.50         76,251          8.67        202,857         17.34
Others                                   94,685         10.05        160,293         18.24        170,317         14.56
                                  --------------      --------  -------------       --------  -------------      ---------
Total segments                          942,120        100.00        879,075        100.00      1,170,000        100.00
                                                      ========                      ========                     =========

 Joint general expenses                (104,250)                    (167,125)                    (134,406)
                                  --------------                -------------                 -------------
Total operating earnings                837,870                      711,950                    1,035,594
Financing expenses, net                 358,289                     (251,015)                    (151,843)
Other income (expenses), net            107,228                      (71,270)                     117,399

Pre-tax earnings                        586,809                      389,665                    1,001,150
                                  =============                 =============                 =============
</TABLE>
<PAGE>

The Koor  Group's  equity in the excess of earnings  over losses of  affiliates,
net, is as follows:
<TABLE>
<CAPTION>

                                                                   Year ended December 31
                                  ---------------------------------------------------------------------------------------
                                               1999                         1998                         1997
                                  ----------------------------  ----------------------------  ----------------------------
                                   NIS thousands             %  NIS thousands              %  NIS thousands              %
                                  --------------      --------  -------------       --------  -------------      ---------
<S>                                     <C>             <C>           <C>             <C>          <C>            <C>
Telecommunications                      137,018         112.56        37,504          60.51        (4,177)        (39.28)
Defence electronics                      (8,018)         (6.58)            -              -             -              -
Agro-chemicals and
 other chemicals                              -              -             -              -         4,512          42.42
Building and

 infrastructure materials                 1,355           1.11           552           0.89        (9,392)        (88.31)
Others                                   (8,630)         (7.09)       23,929          38.60        19,692         185.17
                                  --------------      --------  -------------       --------  -------------      ---------
                                        121,725         100.00        61,985         100.00        10,635         100.00
                                  ==============      ========  =============       ========  =============      =========

*        Reclassified
</TABLE>


<TABLE>
<CAPTION>

                                                                   Year ended December 31
                                  ---------------------------------------------------------------------------------------
                                               1999                         1998                         1997
                                  ----------------------------  ----------------------------  ----------------------------
                                   NIS thousands             %  NIS thousands              %  NIS thousands              %
                                  --------------      --------  -------------       --------  -------------      ---------
Capital investments:
Segments:

<S>                                      <C>              <C>        <C>              <C>         <C>              <C>
Telecommunication                        67,051           9.50       208,106          19.09       223,654          22.99
Defence electronics                      42,888           6.07        67,772           6.22        50,429           5.18
Agro-chemicals and
 other chemicals                        277,545          39.31       340,780          31.25       312,166          32.08
Building and
 infrastructure materials               119,455          16.93       289,308          26.53       165,007          16.96
Others                                  199,078          28.19       184,375          16.91       221,709          22.79
                                  --------------      --------  -------------       --------  -------------      ---------
Total segments                          706,017         100.00     1,090,341         100.00       972,965         100.00
                                                      ========                      ========                     =========
Discontinued activity                         -                       31,873                       64,053
Corporate assets                         14,052                       27,112                        1,870
                                  -------------                 -------------                 ------------
                                        720,069                    1,149,326                    1,038,888
                                  =============                 =============                 =============
Depreciation and
 amortisation:
Segments:
Telecommunication                        85,090          14.99       152,891          23.31       136,358          21.87
Defence electronics                      55,879           7.45        51,407           7.85        39,589           6.36
Agro-chemicals and
 other chemicals                        187,698          33.08       170,075          25.93       131,591          21.10
Building and
 infrastructure materials              123,697          21.80       144,021          21.96       179,504          28.79
Others                                  114,973          22.68       137,370          20.95       136,449          21.88
                                  --------------      --------  -------------       --------  -------------      ---------
Total segments                          567,337         100.00       655,764         100.00       623,491         100.00
                                                      ========                      ========                     =========
Discontinued activity                         -                       21,967                       42,128
Corporate assets                          2,733                        5,364                        6,740
                                  -------------                 -------------                 ------------
                                        570,070                      683,095                      672,359
                                  =============                 =============                 =============
*        Reclassified
</TABLE>
<PAGE>

<TABLE>
<CAPTION>


                                                                                December 31
                                                    ----------------------------------------------------------------------

                                                                 1999                                 1998
                                                    ---------------------------------     --------------------------------
                                                     NIS thousands                  %     NIS thousands                  %
                                                    -------------------  ------------     ---------------  ---------------

         Identifiable assets:

         Segments:

<S>                                                     <C>                    <C>           <C>                    <C>
         Telecommunication                              1,843,738              15.49         4,116,743              27.43
         Defence electronics                              681,360               5.73         1,330,708               8.89
         Agro-chemicals and other
          chemicals                                     5,277,603              44.35         5,221,023              34.79
         Building and infrastructure
          materials                                     1,752,011              14.72         2,177,670               14.5
         Others                                         2,345,877              19.71         2,159,999              14.39
                                                    -------------------  ------------     ---------------  ---------------
         Total segments                                11,900,589             100.00        15,006,143             100.00
                                                                         ============                      ===============
         Corporate assets                               1,974,239                            1,156,345
         Affiliates**                                   3,495,772                            1,623,060
                                                    -------------------                   --------------
                                                       17,370,600                           17,785,548
                                                    ===================                   ==============
         *        Reclassified

         **       Including an investment of NIS 3,067 million (31
                  December, 1998 - NIS 1,285 million) in ECI which operates
                  in the telecommunications segment.
</TABLE>


         E.       Industrial operations - export sales and foreign
                  industrial operations by geographical destination:

<TABLE>
<CAPTION>

                                                                                    Year ended December 31
                                                                           -----------------------------------------------
                                                                                 1999              1998               1997
                                                                           ----------       -----------        -----------
                                                                                         NIS thousands
                                                                           -----------------------------------------------
<S>                                                                        <C>               <C>                <C>
         North America                                                     1,608,174         1,907,365          1,785,455
         Europe                                                            1,710,133         2,032,650          1,588,563
         South America                                                     1,433,075         1,563,876          1,295,827
         Africa                                                              129,132           176,423             77,826
         Asia and Australia                                                  711,052           910,925          1,052,487
                                                                           5,591,566         6,591,239          5,800,158
</TABLE>


         F.       Assets by geographic location of manufacturing operation
<TABLE>
<CAPTION>

                                                                                             Year ended December 31
                                                                                        ----------------------------------
                                                                                                   1999               1998
                                                                                        ---------------    ---------------
                                                                                         NIS thousands     NIS thousands
                                                                                        ---------------    ---------------
<S>                                                                                         <C>                <C>
         Israel                                                                             15,724,883         16,197,462
         Brazil                                                                              1,457,906          1,344,797
         North America                                                                         192,811            243,289
                                                                                        ---------------    ---------------
                                                                                            17,375,600         17,785,548
                                                                                        ===============    ===============
</TABLE>
<PAGE>

         G.       Capital investments in assets by geographic location
<TABLE>
<CAPTION>

                                                                                                   1999               1998
                                                                                        ---------------    ---------------
                                                                                         NIS thousands     NIS thousands
                                                                                        ---------------    ---------------

<S>                                                                                            <C>              <C>
         Israel                                                                                688,678          1,069,316
         United States                                                                           5,972              5,767
         Brazil                                                                                 25,919             74,243
                                                                                        ---------------    ---------------
                                                                                               720,569          1,149,326
                                                                                        ===============    ===============
</TABLE>

         H.       Discontinued activity

         1.       In Koor's financial statements the companies Phoenicia
                  and Yonah constituted part of the food segment included
                  in the financial statements as at 31 December, 1998, in
                  the "Others" framework in the Note relating to segments.
                  After conclusion of the sale of the companies, operations
                  in Koor's food segment were terminated.

<TABLE>
<CAPTION>

                                                                                  The year ended 31 December
                                                                      ----------------------------------------------------
                                                                                 1999              1998               1997
                                                                      ---------------    --------------    ---------------
                                                                      NIS thousands      NIS thousands     NIS thousands
                                                                      ---------------    --------------    ---------------
<S>                                                                   <C>              <C>                <C>
         Revenues from sales and implementation of works                      96,009           376,701            830,220
                                                                      ===============    ==============    ===============
         Profit (loss) from operating earnings                                  (429)           18,939             41,483
                                                                      ===============    ==============    ===============
         Loss - Koor's share                                                   4,078             1,439              6,018
                                                                      ===============    ==============    ===============
         Total assets                                                                          109,412
                                                                                         ==============
</TABLE>

         2.       In the 1997 financial statements Granite Hacarmel
                  Investments Ltd. constituted all the operations in the
                  energy segment. As from the 1998 financial statements the
                  operation was retroactively represented in the energy
                  segment of the statement of operations as a sector in
                  which operations had been terminated.


         I.       Additional information on business segments of the Company*:

         The Company operates through subsidiaries, proportionately
         consolidated companies and affiliates in various sectors of the
         economy.

         Data according to business segments is as follows:

         Equity of the Company in earnings (losses) net, of investees:
<TABLE>
<CAPTION>

                                                                                    Year ended December 31
                                                                       ---------------------------------------------------
                                                                                 1999              1998               1997
                                                                       --------------     -------------    ---------------
                                                                                        NIS thousands
                                                                       ---------------------------------------------------
<S>                                                                          <C>              <C>                 <C>
         Telecommunications                                                  259,451          (162,928)           160,251
         Defence Electronics                                                  23,638            83,452             61,897
         Agro-chemicals and other chemicals                                   (1,281)          102,927            112,129
         Buildings and infrastructure materials                               75,500            (4,560)            76,929
         Others                                                              324,758            93,600              3,295
                                                                       --------------     -------------    ---------------
                                                                             682,066           112,491            414,501
         Provision for severance benefits                                          -            10,398              3,782
         Provision for taxes                                                  34,582                 -                  -
         Discontinued activities                                                   -            69,420             15,929
                                                                       --------------     -------------    ---------------
                                                                             716,648           192,309            434,212
                                                                       ==============     =============    ===============
</TABLE>
<PAGE>

         Investment of the Company in shares, loans and capital notes net,
         of investees:
<TABLE>
<CAPTION>

                                                                                                   December 31
                                                                                        ----------------------------------

                                                                                                   1999               1998
                                                                                        ---------------    ---------------
                                                                                                  NIS thousands
                                                                                        ----------------------------------
<S>                                                                                          <C>                <C>
         Telecommunications                                                                  3,743,766          2,784,023
         Defence Electronics                                                                   442,804            497,382
         Agro-chemicals and other chemicals                                                  1,259,651          1,251,383
         Buildings and infrastructure materials                                                609,618          1,015,824
         Others                                                                                346,728            884,678
                                                                                        ---------------    ---------------
                                                                                             6,402,567          6,433,290
         Provision for taxes                                                                         -            (34,582)
                                                                                                     -                  -
                                                                                        ---------------    ---------------
                                                                                             6,402,567          6,398,708
                                                                                        ===============    ===============

         *        Restated
</TABLE>



Note 25 - Transactions and Balances with Interested Parties

         A.       The following are details of interested parties in Koor
                  resulting from their holdings of Koor's ordinary shares:

                  1.       Claridge Group (Claridge).

                  2.       Bank Hapoalim B.M. group (Bank Hapoalim B.M.)

                  3.       Bank Leumi B.M. Group (Bank Leumi B.M.) - after
                           the balance sheet date Bank Leumi B.M. ceased to
                           be an interested party in Koor.


         B.       Koor and its subsidiaries undertake transactions with
                  interested parties as detailed below. These transactions,
                  which consist principally of the receipt of banking
                  services, are carried out in the normal course of
                  business and thus no separate records are kept of the
                  handling and recording of such transactions.

                  Consequently, and given the large number of the above
                  mentioned entities, it is not possible to accurately
                  determine the scope and scale of these transactions.

                  The Securities Authority, in a meeting on 10 February,
                  2000, decided to exempt the Company from disclosure of
                  transactions with Bank Hapoalim B.M., Bank Leumi B.M.,
                  Claridge and their investee companies, for purposes of
                  the financial statements as at 31 December, 1999, other
                  than for exceptional transactions.

         C.       The balance of liabilities owed to Bank Hapoalim B.M. as
                  at 31 December, 1999 and 1998 is NIS 2,396 million and
                  NIS 2,432 million respectively.


         D.       The balance of liabilities owed to Bank Leumi B.M. as at
                  31 December, 1999 and 1998 is NIS 1,849 million and NIS
                  2,171 million respectively.


         E.       See Note 20C(2) regarding the granting of put options to
                  senior employees of the Koor Group by the Claridge Group
                  for the purchase of shares in Koor.

<PAGE>
         F.       Benefits to interested parties

         1.       Directors*
<TABLE>
<CAPTION>

                                                                                          Year ended December 31
                                                                             ---------------------------------------------
                                                                                 1999              1998               1997
                                                                             --------         ---------           --------
                                                                                               NIS thousands
                                                                             ---------------------------------------------
         Directors employed by the Company:

<S>                                                                            <C>              <C>                <C>
         Salary and related costs (a) (b)                                      8,376            11,497             13,568
                                                                             =======           =========          ========
         Number of directors                                                       2                 3                  1
                                                                             =======           =========          ========
         Directors not employed by the Company:
         Annual compensation and participation
          in meetings:

         Claridge Group                                                          271               282                 66
                                                                             =======           =========          ========
         Number of directors                                                       6                 7                  7
                                                                             =======           =========          ========

         Poalim Assets (Shares ) Ltd.                                            173               206                187
                                                                             =======           =========          ========
         Number of directors                                                       3                 3                  3
                                                                             =======           =========          ========

         Shamrock Group                                                            -                 -                216
                                                                             =======           =========          ========
         Number of directors                                                       -                 -                  5
                                                                             =======           =========          ========

         Other directors                                                         235               280                237
                                                                             =======           =========          ========
         Number of directors                                                       3                 3                  5
                                                                             =======           =========          ========

         Consulting fee                                                        1,101               555              1,062
                                                                             =======           =========          ========
         Number of directors                                                       1                 1                  1
                                                                             =======           =========          ========

</TABLE>


         * Including directors who resigned or were appointed during the year.

         (a)

                  On July 1, 1998 Mr. B. Gaon resigned from his position as
                  General Manager of the Company. At the request of the
                  Board of Directors Mr. Gaon remained with the Company
                  until 31 December, 1998 and he undertook to continue to
                  render it services as a consultant in 1999 and 2000 for
                  an annual consulting fee of $125,000.

                  The 1998 and 1997 figures include the cost of the
                  retirement arrangement with the outgoing General Manager.

                  In 1998, 137,274 options were exercised by Mr. Gaon,
                  under the 1995 incentive plan.

                  The value of the benefit included in the exercise was NIS
                  23,334 thousand based on the market price at exercise
                  date. In respect of options granted by shareholders see
                  also Note 20C(2).

         (b)      See Note 20C(3) in respect of the issue of options to the
                  General Manager and the Company's President under the
                  1998 Incentive Plan.

         2.       Consultancy services
<TABLE>
<CAPTION>

                                                                                         Year ended December 31
                                                                          ------------------------------------------------
                                                                                 1999              1998               1997
                                                                          -----------       -----------        -----------
                                                                                               NIS thousands
                                                                          ------------------------------------------------
<S>                                                                          <C>               <C>                  <C>
                  Claridge                                                     1,683             1,734                382
                                                                          ==========        ===========        ===========
                  Poalim Capital Markets and

                   Investment Ltd.                                             1,683             1,734              1,536
                                                                          ==========        ===========        ===========
                  Shamrock*                                                        -                 -              1,384
                                                                          ==========        ===========        ===========
</TABLE>

                  *        Including expense reimbursement and special
                           consultancy.

                  The Company has agreements with interested parties -
                  Claridge and Poalim Capital Markets and Investments Ltd.
                  (Poalim) - for the receipt of consultancy services. These
                  services include, inter alia, advice in respect of
                  investment strategies, monetary policies, international
                  activities, strategic partnerships and company
                  structuring. The agreements include instructions
                  regarding the indemnification of the consultants
                  (Claridge/Poalim) in respect of claims connected to the
                  consultancy, except for cases of gross negligence and/or
                  intentional damage.

                  In consideration for the consultancy the Company has
                  agreed to pay an annual sum which will not exceed
                  US$400,000 to each of the consultants. The agreements are
                  for the period of one year and are automatically
                  renewable each year, unless one of the parties gives 60
                  days' prior notice of the termination of the agreement.

<PAGE>
 Note 26 - Earnings Per Share

         A.       Adjusted net earnings used in the computation of earnings
                  per NIS 1 par value of the share capital:

<TABLE>
<CAPTION>

                                                                                            Year ended December 31
                                                                          ------------------------------------------------
                                                                                 1999              1998               1997
                                                                          -----------       -----------        -----------
                                                                                             NIS thousands
                                                                          ------------------------------------------------
         Earnings used in the computation of basic
<S>                                                                        <C>                <C>               <C>
          earnings per NIS 1 par value of shares                             549,119            48,240            541,047

         Add - theoretical earnings resulting from:

           Conversion of convertible debentures:
           Series E                                                              490                 -              5,034
           Series F                                                            5,485                 -             13,232

           Effect of subsidiaries' convertible securities                          -                 -             (3,108)

         Net earnings used in the computation of fully
          diluted earnings per NIS 1 par value of shares                     555,094            48,240            556,205
</TABLE>

         B.       Weighted number of ordinary shares of NIS 0.001 used in
                  the computation of net earnings per NIS 1 par value of
                  the share capital:
<TABLE>
<CAPTION>

                                                                                       Number of ordinary shares
                                                                          ------------------------------------------------
                                                                                 1999              1998               1997
                                                                          -----------       -----------        -----------
<S>                                                                        <C>               <C>                <C>
         In the computation of basic earnings per share                    15,737,564        15,723,996         15,438,487

         Add - theoretical share capital resulting from:

         Conversion of convertible debentures:
         Series E                                                              40,500                 -            273,750
         Series F                                                             284,062                 -            620,690
                                                                          -----------       -----------        -----------
         Total share capital used in the computation of
          fully diluted earnings per share                                 16,062,126        15,723,996         16,332,927
                                                                          ===========       ===========        ===========
</TABLE>

         C.       To examine that the conversion or exercise of convertible
                  securities is reasonable, the present value of these
                  securities was computed according to a discount rate of
                  6% (31 December, 1998 - 6%, 31 December, 1997 - 4%) for
                  securities linked to the CPI.

<PAGE>
Note 27 - Subsequent Events

         A.       Following conclusion of the offer to purchase the
                  holdings of various shareholders in Q Group PLC
                  (hereinafter: - "Q Group"), in which Koor held, by means
                  of Koor Multimedia Ltd. (100%), approximately 23%, on 18
                  January, 2000 Koor sold its holdings in Q Group in
                  consideration of approximately NIS 42 million. The
                  capital gain before tax to Koor from this sale amounted
                  to NIS 30 million.

         B.       On 20 January, 2000 an agreement was signed by Tadiran,
                  Koor and Elisra Electronic Systems Ltd. (hereinafter:
                  "Elisra") whereby Tadiran will transfer all its holdings
                  in Elisra to Koor, at no consideration. Immediately after
                  the transfer of shares (effective 31 January, 2000)
                  Elisra will receive shares in Tadiran Spectralink and
                  Tadiran Electronic Systems Ltd. (fully owned companies by
                  Tadiran) at no consideration. The share transfer as set
                  forth above will be implemented after compliance with
                  prior terms stipulated in the agreement, including inter
                  alia the receipt of the requisite approvals for
                  conclusion of the transaction from the relevant
                  authorities.

                  On 23 January, 2000 Tadiran lodged an application in the
                  District Court for approval of a reduction in capital as
                  required following the transfer of the shares. The court
                  ordered that creditor meetings be held. The meetings were
                  held and the creditors approved the reduction. The court
                  has not yet approved the reduction.

         C.       On 2 March, 2000 United Steel Mills Ltd. (hereinafter:
                  "United Steel") (approximately 73%) announced that it had
                  not obtained an arrangement with the banks and other
                  credit providers concerning rescheduling of its long-term
                  and short-term debts, and that the negotiations between
                  United Steel and the banks had been terminated.

                  In Koor's 1999 financial statements a write-off was
                  recorded for the total investment in United-Steel's
                  shareholders' equity and the loans granted by Koor to
                  United Steel in the total amount of NIS 102 million. The
                  assets of United Steel consolidated in the financial
                  statements constitute approximately 2.2% of all Koor's
                  assets in its consolidated balance sheet.

                  Owing to the fact that Koor does not guarantee United
                  Steel's third party liabilities, Koor and its legal
                  counsel is in the opinion that Koor will not be obligated
                  to bear any financial cost whatsoever over and above said
                  provisions, for United Steel's third party debts.
                  Moreover, Koor's management does not intend to cover past
                  debts and the capital deficit in realisation values, if
                  any.

                  On 16 March, 2000 United Steel and its subsidiaries
                  applied to the Haifa District Court for a stay of
                  proceedings pursuant to Section 350 of the Companies law
                  - 1999, and for the appointment of a trustee. The
                  application was lodged by the applicants only, with the
                  consent of some of the secured creditors. On the same
                  date an order was given for a stay of proceedings against
                  the applicants, and each one of them, for 90 days, thus
                  rendering it impossible to continue or initiate any legal
                  proceedings against the applicants unless with the
                  approval of the court in order to formulate a
                  comprehensive recovery plan and creditor arrangement
                  proposal which will be submitted to the court within 45
                  days. Koor consents to the stay of proceedings and is
                  ready to grant a new loan to the special management of up
                  to a maximum of NIS 15 million so that the United Steel
                  can continue operating. Each new loan granted to the
                  applicants during the stay of proceedings at the request
                  of the trustee, including loans granted by Koor, will
                  receive preferential status over all the company's
                  creditors, including secured creditors, and the loans
                  will be repaid only from the considerations received by
                  the trustee while it is operating the plant, and will be
                  paid before any other payment within the framework of the
                  creditor arrangement.

         D.       On 2 March, 2000 Koor signed documents enabling it to
                  become a limited partner in the Polaris Venture Capital
                  Fund III L.P. which is a limited partnership registered
                  in Israel. Within the framework of its commitment Koor is
                  supposed to invest up to $35 million in the fund, and it
                  will be entitled to a permanent representative on the
                  committee advising the fund.

         E.       On 6 March, 2000 a binding memorandum of understanding
                  was signed by Nortel Networks, an international Canadian
                  company, the Company and Telrad. The said memorandum of
                  understanding stipulates that the Canadian Nortel and the
                  Koor Group will set up a new company in Israel ("Nortel
                  Israel") which will be controlled by Nortel, and the Koor
                  Group will hold 28% of its share capital.

                  Once it is set up Nortel Israel will acquire from Telrad
                  the Public Switching and TX1 systems businesses, together
                  with Telrad's operations in this field outside Israel, in
                  return for some $95 million which will be paid to the
                  Koor Group. The business operation which Telrad will sell
                  to Nortel Israel constitutes approximately 40% - 50% of
                  its business operation. The Koor Group is expected to
                  record a pre-tax capital gain from this transaction of
                  approximately $61 million.

                  At the same time, Nortel will sell to Koor all its
                  holdings (20%) in Telrad in consideration of $45
                  million, thereby turning Telrad into a fully owned
                  subsidiary of Koor, and in return the Koor Group will
                  invest some $49 million in Nortel in share capital and
                  shareholders' loans.

                  Nortel Israel will take over all the operations of the
                  Canadian Nortel currently being implemented in Israel
                  outside the Telrad framework, thereby obtaining direct
                  access to the use of the technologies of the global
                  Nortel, including future technologies.

                  Implementation of the transaction is contingent upon the
                  receipt of various approvals, including that of the
                  Commissioner of Restrictive Trade Practices.

         F.       On 15 March 2000, agreement was signed by Tadiran and the
                  Electric Fuel Corporation (hereinafter: "EFC"), a public
                  company registered in the American state of Delaware,
                  whose shares are traded on NASDAQ. According to the
                  agreement Tadiran will transfer all its holdings (100%)
                  in Tadiran Batteries Ltd., to EFC, and in return EFC will
                  issue to Tadiran 2,335,767 shares (subject to adjustments
                  in accordance with the market share price in the period
                  defined in the agreement). On the date of implementation
                  of the transaction Koor will invest $10.5 million in EFC,
                  and in return EFC will issue 613,139 shares to Koor.
                  After completion of these issues Koor will hold, directly
                  and indirectly, 14% of EFC's issued share capital and
                  will have the right to appoint one director to EFC's
                  Board of Directors. On March 14, 2000, EFC's share price
                  was $18.125, and pursuant thereto the consideration in
                  shares received by Tadiran for shares in Batteries equals
                  approximately $42.3 million. Implementation of the
                  transaction is contingent upon receipt of various
                  approvals, including approval from the Commissioner of
                  Restrictive Trade Practices.


Note 28 - Material Differences Between Israeli and U.S. GAAP and their Effect
          on the Financial Statements

         A.       The consolidated financial statements of Koor conform
                  with accounting principles generally accepted in Israel
                  ("Israeli GAAP"), which differ in certain respects from
                  those generally accepted in the United States ("U.S.
                  GAAP") as described below:

         1.       Effect of inflation

         In accordance with Israeli GAAP:
         The consolidated financial statements of Koor are expressed in
         terms of a uniform monetary unit - the inflation adjusted Israeli
         shekel - which is after adjustment respect of the changes in the
         Consumer Price Index. (See Note 2B for principles of the
         adjustment)

         In accordance with US GAAP:
         The financial statements are expressed in current nominal
         historical monetary terms.

         Measuring on the basis of the change in the CPI, which reflects
         the effect of changes in the general price level in the Israeli
         economy, provides a very valid picture of the financial position,
         results of operations and the cash flows of the Koor Group for
         both Israeli and US accounting purposes.

         In view of the above, no data on the effect of the differences
         between measurement on the basis of cost adjusted to the CPI or on
         the basis of historical cost, were included.

         2.       ECI and Tadiran Telecommunication - merger

         In accordance with Israeli GAAP:
         The merger described as aforesaid in Note 3A was recorded in
         Koor's financial statement at book values in accordance with the
         accepted rules governing similar asset exchange transactions.
         Pursuant to the merger agreement, shares of Tadiran
         Telecommunications held by Tadiran were exchanged for ECI shares
         at an exchange rate determined in the merger agreement.

         In accordance with U.S. GAAP:
         According to EITF 98-3 and EITF/D-81 the merger of ECI and TTL is
         not considered as an exchange of similar assets in respect of Koor
         and Tadiran and therefore a capital gain from the realisation of
         TTL is recorded and an original differentials is recorded and
         allocated to goodwill.

         The capital gain from this sale (after tax) amounted to NIS 64,473
         thousand and an increase in original differentials allocated to
         goodwill of NIS 190,954 thousand, amortised at equal annual rates
         over 10 years.

         3.       Debt arrangement within the framework of an overall
                  financial arrangement

         In accordance with Israeli GAAP :
         Koor reported an extraordinary gain in 1991 as a result of the
         restructuring of part of its debts.

         In accordance with US GAAP:
         In accordance with FAS No. 15 - "Accounting by Debtors and
         Creditors for Troubled Debt Restructuring" future interest
         payments must be deducted from the restructuring of an old debt.
         The recognition of non-realised earnings (which represents
         deferred interest) is affected by payments of interest over the
         period from the date of the restructuring of the debt up to its
         repayment date. The balance of deferred interest, net of the tax
         effect, (before minority interest), at 31 December, 1999 and
         1998,was NIS 48 million, and NIS 34 million, respectively.

         4.       Deferred taxes

         a)       Deferred taxes in respect to inflation adjustment
                  differences

                  In accordance with Israeli GAAP:
                  Koor does not provide deferred taxes in respect to
                  adjustment differences to the CPI for assets defined as
                  "immune assets" in the Law for Taxation Under
                  Inflationary Conditions and for which the depreciation
                  period is at least 20 years.

                  In accordance with US GAAP:

                  Under FAS No. 109, a provision for deferred taxes should
                  be made for all temporary differences, without relation
                  to the period of amortisation of the assets. The effect
                  on net earnings, as a result of the above provision for
                  deferred taxes, was a decrease in income tax in 1997,
                  1998 and 1999, by NIS 4,856 thousand, NIS 5,232 thousand
                  and NIS 12,300 thousand, respectively.

         b)       Deferred taxes in companies which adjust their financial
                  statements for inflation on the basis of changes in the
                  U.S. dollar exchange rate.

                  In accordance with Israeli GAAP:
                  Certain companies, which adjust their financial statements
                  on the basis of changes in the dollar exchange
                  rate, create deferred taxes in respect of all the
                  differences between the amounts of assets (mainly in
                  respect to fixed assets and inventory) as stated in the
                  financial statements and the amounts for tax purposes.

                  In accordance with U.S. GAAP:
                  According to paragraph 9(f) of FAS No. 109, deferred
                  taxes should not be provided in respect of differences,
                  the source of which is in the difference of assets and
                  liabilities for accounting purposes and their amounts for
                  tax purposes, where the source of the tax difference
                  stems from different measuring bases for accounting
                  purposes and for tax purposes. The ultimate effect of the
                  above write-off of deferred taxes on the statement of
                  operations is a reduction in income tax in the amount of
                  NIS 1,739 thousand and NIS 40,366 thousand, in 1997 and
                  1998, respectively, and an increase in income tax in 1999
                  in the amount of NIS 29,444 thousand.

         c)       Earnings from "Approved Enterprises"

                  Under the Israeli Law for Encouragement of Capital
                  Investments, 1959, a company which owns an "approved
                  enterprise" is subject tax at a rate of 25% of
                  attributable earnings during "the period of benefits".

                  Dividends paid to shareholders from the earnings of an
                  "approved enterprise" are subject to income tax at a rate
                  of 15%. A company that received such a dividend is
                  entitled to a 15% tax credit, if and when this dividend
                  is paid to its shareholders.

                  The owners of an "approved enterprise" who choose the
                  "alternative benefits" track are exempted from income tax
                  on undistributed profits.

                  In the event that a dividend is distributed out of tax
                  exempt earnings of the approved enterprise under on the
                  "alternative benefits" track, the distributing company
                  will be subject to tax on the distributed earnings at a
                  rate of 25%. Furthermore, the shareholders will be liable
                  to tax at the rate of 15%. However, if the shareholder is
                  a company, that shareholder will be entitled to a 15% tax
                  credit, if and when such dividend out of "approved
                  enterprise" earnings is distributed to its shareholders.

                  In accordance with Israeli GAAP:

                  Deferred tax should not be provided in respect to the
                  undistributed tax-exempt earnings of an "approved
                  enterprise" of subsidiaries, whose earnings have been
                  reinvested and will not be distributed to the company
                  shareholders.

                  Koor has not provided deferred tax in respect to
                  undistributed tax-exempt earnings attributed to the
                  "approved enterprise" of subsidiaries under the
                  "alternative benefits" track, which may be distributed,
                  since it is the Group's policy not to initiate such a
                  dividend distribution.

                  In accordance with US GAAP:
                  A reserve for deferred tax should be provided on the
                  undistributed tax-exempt earnings of local subsidiaries
                  established subsequent to December 15, 1992, as their
                  distribution results in additional tax.

                  The effect of providing a reserve for deferred tax on the
                  undistributed tax exempt earnings of an "approved
                  enterprise", assuming either the sale of the shares in
                  the subsidiary, a merger (change of structure), or its
                  liquidation, was an increase in income tax, in 1997, 1998
                  and 1999, amounting to NIS 25,714 thousand, NIS 34,980
                  thousand and NIS 3,270 thousand, respectively.

         5.       Handling of "benefit component" in respect of options
                  issued to employees

                  In accordance with Israeli GAAP:

                  The overall "benefit component", in respect to options
                  granted to employees of Koor, is not charged as an
                  expense in the statement of operations.

                  In accordance with US GAAP:

         a)       Fixed Option Plan:

                  Under U.S. GAAP (APB-25), the "benefit component" is
                  measured as the difference between the share market price
                  and, the exercise price of the option, when measuring the
                  "benefit". The benefit is charged as a salary expense
                  during the period in which the employee performs the
                  services for which the benefit was granted.

         (b)      Variable Option Plans:

                  In the event that the options have been issued to
                  employees for the future performance of work or services,
                  the benefit is charged to salary expense in the statement
                  of operations. The "benefit component" is computed on the
                  basis of the full benefit valued as at that date, and,
                  the proportional part of the period which has passed from
                  the opening balance of that period.

                  For information regarding the effect of proforma data,
                  according to FAS No. 123 data, see subsection 3b below.

         6.       The accounting treatment of quoted securities:

                  In accordance with Israeli GAAP:
                  Quoted securities which constitute a short-term
                  investment (see note 2F) are stated at market value.
                  Quoted securities which constitute a permanent investment
                  are stated at cost (regarding debentures, including
                  accumulated interest), except where market value is
                  lower, and the decline in value is not considered to be
                  temporary.

                  In accordance with US GAAP:
                  FAS No. 115 divides quoted securities, into three types:
                  securities held for a short period and traded at a high
                  frequency (trading securities), available for sale
                  securities and held to maturity securities.

                  A change in the value of trading securities, including
                  unrealised earnings, is charged to the statement of
                  operations, while unrealised earnings after tax of the
                  available for sale type is reported as a separate item
                  within shareholders' equity.

         7.       Attribution of proceeds from an issuance to debentures,
                  when securities are issued as a package:

                  According to the accounting policy of Koor:

                  According to the accounting policy of Koor, the proceeds
                  from an issuance of debentures and stock options, as a
                  package, are attributed to debentures according to their
                  par value while the remainder of the proceeds is
                  attributed to the share options.

                  According to Israeli GAAP:

                  The proceeds from an issuance of share options and
                  convertible debentures, as a package, are split based on
                  the relative market prices of these securities at the
                  date of issuance. This will sometimes result in the
                  recording of a discount in respect of the convertible
                  debentures, that is to be amortised over the term of
                  debentures.

         8.       Dividends

                  According to Israeli GAAP:

                  A dividend proposed prior to the date of approval of the
                  financial statements is included in the balance sheet as
                  a current liability.

                  According to US GAAP:

                  Such a dividend is reflected only in the notes and is not
                  recorded in the balance sheet as a liability until
                  declared.

         9.       Convertible securities of investees

                  According to Israeli GAAP:

                  According to the provisions of Opinion Nos. 48 and 53 of
                  the ICPAI, a parent company is required to create a
                  provision for losses which it may incur from the dilution
                  of its holdings in investees, when it is probable that
                  the share options will be exercised or the debentures
                  will be converted.

                  According to US GAAP:

                  A loss in the parent company resulting from the dilution
                  of its holdings, because of share options being exercised
                  or debentures being converted, is recorded only at the
                  time of exercise or conversion.

         10.      Employee severance benefits as a part of an efficiency
                  program

                  According to Israeli GAAP:

                  Employee severance benefits as part of future anticipated
                  dismissals are recorded when Management decides on the
                  dismissals.

                  According to US GAAP:

                  According to the provisions of EITF 94-3, employee
                  severance benefits, as part of a program for promoting
                  efficiency, are charged as an expense in the financial
                  statements only when all the following conditions exist:

                  a)       Management has the appropriate authority to
                           dismiss employees and the efficiency program
                           includes all employee severance benefits.
                  b)       Management notified employees of its intention
                           to dismiss them, while supplying them with full
                           details regarding employee severance benefits.
                  c)       The plan for dismissals states specifically the
                           names of the dismissed employees, their
                           positions and their duties.
                  d)       The period of time for completion of the program
                           of dismissals indicates that a significant
                           change in the plan is not likely to occur.

         11.      Earnings per share

                  According to Israeli GAAP:

                  Opinion No. 55 - the dilutive effect of share options and
                  convertible debentures is included in the computation of
                  basic earnings per share only if their exercise or
                  conversion is considered to be probable. Calculation of
                  the probability is based on the ratio between the market
                  price of the shares and the present value of the price of
                  exercising the stock options into shares or the present
                  value of the payments for conversion of the debentures
                  into shares.

                  According to U.S. GAAP:

                  In accordance with FAS 128. Basic earnings per share is
                  computed on the basis of the weighted average number of
                  shares outstanding during the year. Diluted earnings per
                  share is computed on the basis of the weighted average
                  number of shares outstanding during the year, plus the
                  dilutive potential of ordinary shares considered
                  outstanding during the year.

         12.      Acquiring an Investment in stages

                  According to Israeli GAAP:

                  Opinion 68 determines that when acquiring an investment
                  in stages, on the date of which the holding constitutes
                  an initial material influence, it is necessary to
                  calculate the original differentials and record the
                  investment according to the equity method from this date
                  onwards.

                  According to U.S. GAAP:

                  When acquiring an investment in stages, on the date an
                  initial influence becomes material it is necessary to
                  calculate post factum for each acquisition the original
                  differentials created by the acquisition despite the fact
                  that on that date the company did not yet have a material
                  influence and to implement the equity method
                  retroactively.

         13.      FAS 133

                  During 1998, the FASB published a new statement, FAS 133,
                  dealing with the reporting of derivative financial
                  instruments. This publication requires that all
                  derivative financial instruments be recorded in the
                  financial statements at their fair value as at the date
                  of the financial statement. FAS 133 is to be applied
                  beginning with the financial statements of 2001.

                  The effect of the implementation of FAS 133 on the
                  financial statements is expected to be immaterial.

         B.       The effect of the material differences between Israeli
                  and U.S. GAAP on the financial statements

         1.       Statements of operations:

<TABLE>
<CAPTION>

                                                                                        Year ended December 31
                                                                          ------------------------------------------------
                                                                                1999               1998               1997
                                                                          ----------         ----------          ---------
                                                                                            NIS thousands
                                                                          ------------------------------------------------
<S>                                                                          <C>                <C>               <C>
         a)       Net earnings as reported, according
                   to Israeli GAAP                                           549,119            47,121            537,337
                                                                          ----------         ----------          ---------
                  Amortisation of deferred interest in
                   respect of the restructuring of debts                      11,924            17,236             22,166
                  Deferred taxes                                             (37,055)           10,619            (20,768)
                  Salary expenses in respect of
                   share options issued to employees                          (3,544)          (13,470)           (82,341)
                  Correction of capital gain included in
                   results of discontinued activities                              -             4,354                  -
                  Gain from marketable securities, net                       (43,566)           (1,304)            18,428
                  Provisions for anticipated losses from
                  realisation of convertible securities in
                   investees                                                   1,336            (2,492)            11,668
                  Amortisation of discount in respect of
                   convertible debentures                                     (1,874)           (2,543)            (4,754)
                  Severance pay, including that arising
                   from an efficiency program                                 12,459            (4,743)             4,379
                  Capital gain from a merger                                 190,954                 -                  -
                  Equity in an investee company purchased
                   in stages                                                  (4,967)                -                  -
                  Amortisation of goodwill in accordance with a
                   merger (see A2)                                           (21,004)                -                  -
                                                                          ----------         ----------          ---------
                                                                             104,663             7,657            (51,222)

                  Income taxes                                              (129,321)            2,312             (9,837)
                  Minority interests in respect of the above
                   differences                                                 7,963           (15,717)             1,820
                                                                          ----------         ----------          ---------
                                                                             (16,695)           (5,748)           (59,239)

                  Extraordinary item (1)                                       5,475             1,817              2,642
                                                                          ----------         ----------          ---------
                                                                             (11,220)           (3,931)           (56,597)
                                                                          ----------         ----------          ---------
                  Net income according to U.S. GAAP                          537,899            43,190            480,740
                                                                          ==========         ==========          =========

         (1)      Deferred gains were recognized in respect of early repayment of debts.
</TABLE>
<PAGE>


<TABLE>
<CAPTION>
                                                                                    Year ended December 31
                                                                          ------------------------------------------------
                                                                                1999               1998               1997
                                                                          ----------         -------------      ----------
                                                                                             NIS thousands
                                                                          ------------------------------------------------

         b)       Earnings per ordinary share

                  1.   Basic earnings per ordinary
                        share:

                       As reported, according to
<S>                                                                     <C>                <C>                <C>
                       Israeli GAAP                                            34.89              3.07              35.04
                                                                          ==========         ===========        ==========
                       As per U.S. GAAP:
                       Before extraordinary item                               33.85              2.65              31.86
                       Extraordinary item                                       0.35              0.12               0.17
                                                                          ----------         -----------        ----------
                       Total                                                   34.20              2.77              32.03
                                                                          ==========         ===========        ==========
                       Weighted average of number of
                       shares and share equivalents
                       under U.S. GAAP                                    15,727,144        15,569,840         15,030,867
                                                                          ==========         ===========        ==========
                  2.   Diluted earnings per ordinary
                        share:

                       As reported, according to Israeli

                       GAAP                                                    34.56              3.07              34.06
                                                                          ==========         ===========        ==========
                          Before extraordinary item                            33.52              2.64              30.76
                          Extraordinary item                                    0.34              0.12               0.17
                                                                          ----------         -----------        ----------
                          Total                                                33.86              2.76              30.93
                                                                          ==========         ===========        ==========
                       Weighted average of number of
                        shares and share equivalents
                        under U.S. GAAP                                   16,061,493        15,618,776         16,127,878
                                                                          ==========         ===========        ==========
</TABLE>
<PAGE>
         2.       Balance sheet:

<TABLE>
<CAPTION>

                                                                      December 31
                             -----------------------------------------------------------------------------------------------
                                                  1999                                            1998
                             ----------------------------------------------  -----------------------------------------------
                                         As     Adjustments          As per              As      Adjustment          As per
                                   reported                       U.S. GAAP        reported                       U.S. GAAP
                             --------------- --------------- --------------- --------------- --------------- ---------------
                                                                     NIS thousands
----------------------------------------------------------------------------------------------------------------------------
       Investments in
<S>                            <C>               <C>           <C>             <C>            <C>                <C>
        affiliates (10)          3,495,772         165,626       3,661,398       1,623,060               -       1,623,060
       Other investments
        and receivables (1)        757,747               -         757,747         581,934     (9) 174,158         756,092
       Intangible assets -
        net of
        amortisation (10)          627,264          24,467         651,731         628,873          27,186         656,059

       Total assets             17,370,600         190,093      17,560,693      17,785,548         201,343      17,986,891

       Payables and

        accruals (7)(8)          1,733,912        (135,161)      1,598,751       2,106,802         (86,363)      2,020,440
       Long-term bank
        loans                    3,691,887               -       3,691,887       4,297,966     (9) 174,158       4,472,123
       Deferred
        interest  (3)                    -          20,022          20,022               -          37,912          37,912
       Convertible
        debentures (4)             180,159          (3,408)        176,751         194,589          (5,282)        189,307
       Deferred taxes(2)           236,895         295,676         532,571         219,514         129,275         348,788
       Minority
        interests (6)            1,319,771         (24,580)      1,295,191       1,634,136         (15,695)      1,618,441
       Capital reserve
        for "available for
        sale" securities
        (1)                              -          33,276          33,276               -          (8,416)         (8,416)
       Capital reserves

        (4)(5)                   2,417,255         137,948       2,555,203       2,415,008         134,404       2,549,412
       Retained
        earnings (6)             2,065,262        (133,680)      1,931,582       1,739,365        (158,649)      1,580,716

       Total
        shareholders'
        equity                   4,384,714          37,544       4,422,258       4,075,919         (32,661)      4,043,258

         (1)      Adjustment of value of investment securities to market value.
         (2)      Change in deferred taxes.
         (3)      Deferred gain on debt restructuring.
         (4)      Debentures issued with stock options.
         (5)      Share options issued to employees.
         (6)      Effects of the reconciliation to US GAAP.
         (7)      Proposed dividend.
         (8)      Provision for employee severance benefits resulting from an
                   efficiency program.
         (9)      The effect of presenting investment in marketable securities
                   before deduction of long-term loans (see Note 9A(3).
         (10)     Original differentials arising from the exchange of shares
                   in the merger, acquiring an investment in stages and
                   increasing the holdings in a consolidated company.
</TABLE>
<PAGE>

         B.       The effect of the material differences between Israeli
                  and U.S. GAAP on the financial statements (cont'd)


         3.       Additional information according to US GAAP

         The effect of proforma data calculated according to FAS 123 :

         a)       Under the provisions of FAS 123, all option plans are
                  recorded in the statement of operations, based on the
                  fair value of the option at the grant date.

         b)       The Company applies the Black-Scholes model to estimate
                  fair value of the options, utilizing the following
                  assumptions:

                  Risk free interest rate                       6%
                  Expected life of stock options                5 years
                  Anticipated weekly standard deviation         45.14%
                  Expected dividend per share                   1.2%

                  See Note 20C relating to the fair value of share options
                  at the time they were granted, (according to the
                  prevailing conditions at the grant date).

                  For proforma disclosure, the fair value of the share
                  options, as estimated, is amortised over the period of
                  the benefit.

         c)       If the cost of the benefit in respect of share options
                  issued to employees under this plan (including plans of
                  certain subsidiaries) had been computed on the basis of
                  the fair value at date of grant in accordance with FAS
                  123, the Company's net earnings and earnings per share in
                  accordance with U.S. GAAP would have been as follows:

<TABLE>
<CAPTION>
                                                                                    Year ended December 31
                                                                            ----------------------------------------------
                                                                                1999               1998               1997
                                                                            --------           --------          ---------
                  Proforma net earnings
<S>                                                                          <C>                <C>               <C>
                   (NIS thousands)                                           497,703            21,654            508,102
                                                                            --------           --------          ---------
                  Proforma basic earnings
                   per share (NIS)                                             31.65              1.38               33.8
                                                                            ========           ========          =========
                  Proforma diluted earnings
                   per share (NIS)                                             31.36              1.38              32.64
                                                                            ========           ========          =========
</TABLE>
<PAGE>
         7.       Comprehensive earnings

                  "Comprehensive earnings" consists of the change, during
                  the current period, in Company's shareholder equity that
                  does not derive from shareholders' investments or from
                  the distribution of earnings to shareholders.

         A.       Comprehensive earnings includes two components - net
                  earnings and other comprehensive earnings. Net earnings
                  are the earnings stated in the statement of operations
                  and other comprehensive earnings includes the amounts
                  that are recorded directly in shareholders' equity and
                  that do not derive from transactions with shareholders.
<TABLE>
<CAPTION>

                                                                                          Year ended December 31
                                                                             ------------------------------------------
                                                                                1999               1998            1997
                                                                             -----------     ----------     -----------
                                                                                          NIS thousands
                                                                             ------------------------------------------

<S>                                                                         <C>             <C>            <C>
                  Net earnings according to US GAAP                              537,899         43,190         480,740
                  Other comprehensive earnings, after tax:
                  Adjustments from translation of
                   financial statements of investees                             (19,492)       162,710          18,069
                  Unrealised gains from securities                                41,685          2,668           5,829
                                                                             -----------     ----------     -----------
                  Total other comprehensive earnings*                             22,193        165,378          23,898
                                                                             -----------     ----------     -----------

                  Total comprehensive earnings                                   560,092        208,568         504,638
                                                                             ===========     ==========     ===========
                  *Tax component included in the item                             (1,881)         2,333          (6,718)
                                                                             ===========     ==========     ===========

         B.       The effect of taxes on the other comprehensive earnings:

                                                                             Before tax       Tax effect      After tax
                                                                             -----------     ----------     -----------
                                                                                          NIS thousands
                                                                             ------------------------------------------

                  Adjustments from translation of
                   investees                                                     (19,492)             -         (19,492)
                                                                             -----------     ----------     -----------

                  Unrealised gains from securities:

                  Gains which arose in current year                                7,345         (1,332)          6,013
                  Less realised gains credited to net
                   earnings                                                       36,221           (549)         35,672
                                                                             -----------     ----------     -----------
                                                                                  43,566         (1,881)         41,685
                                                                             -----------     ----------     -----------
                  Net unrealised gains                                            24,134         (1,881)         22,193
                                                                             ===========     ==========     ===========
</TABLE>
<PAGE>

ECI Telecom Ltd.

Consolidated Financial Statements as at December 31, 1999
------------------------------------------------------------------------------


Contents                                                                  Page

Report of Independent Accountants                                            1


Consolidated Balance sheets as of

 December 31, 1999 and 1998                                                  2


Consolidated Statements of Income for the Years

 Ended December 31, 1999, 1998 and 1997                                      4


Statements of Other Comprehensive Income

 for the Years Ended December 31, 1999, 1998 and 1997                        5


Statements of Changes in Shareholders' Equity

 for the Years ended December 31, 1999, 1998 and 1997                        6


Consolidated Statements of Cash Flows for the

 Years Ended December 31, 1999, 1998 and 1997                                9


Notes to the Consolidated Financial Statements                              11




February 7, 2000



Report of Independent Accountants
To the Shareholders of ECI Telecom Ltd.

We have audited the accompanying consolidated financial statements of ECI
Telecom Ltd. ("the Company") and its subsidiaries, consolidated balance
sheets as of December 31, 1999 and 1998, consolidated statements of income,
statements of other comprehensive income, statements of changes in
shareholders' equity and consolidated cash flows for each of the three
years the last of which ended December 31, 1999. These consolidated
financial statements are the responsibility of the Company's Board of
Directors and management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We did not audit the financial statements of certain consolidated
subsidiaries, whose assets constitute approximately 15.2% and 18% of total
consolidated assets at December 31, 1999 and 1998 respectively and whose
revenues constitute approximately 7.6%, 4.3% and 19.1% of consolidated
revenues for the years ended December 31, 1999, 1998 and 1997,
respectively. Those financial statements were audited by other certified
public accountants whose reports thereon have been furnished to us. Our
opinion expressed herein, insofar as it relates to the amounts included for
the abovementioned subsidiaries, is based solely upon the reports of the
other accountants. Furthermore, the data included in the financial
statements relating to the net asset value of the Company's investments in
affiliates and to its equity in their operating results, and the results of
Discontinued Business, in the income statement is based on the financial
statements of such affiliates, some of which were audited by other
auditors.

We conducted our audits in accordance with generally accepted auditing
standards in the Untied States. Those standards require that we plan and
perform the audits 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 the Board of
Directors and management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of the
other accountants provide a fair basis for our opinion.

In our opinion, based upon our audits and the reports of the other
accountants referred to above, the aforementioned financial statements
present fairly, in all material respects, the consolidated financial
position of the Company and its subsidiaries at December 31, 1999 and 1998,
and the results of their operations, statements of comprehensive income,
changes in shareholder's equity and their cash flows for each of the three
years the last of which ended December 31, 1999, in conformity with
generally accepted accounting principles (GAAP) in the United States.

Somekh Chaikin

Certified Public Accountants (Israel)



<TABLE>
<CAPTION>

Consolidated Balance Sheet as at December 31

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



                                                                                       1999              1998
                                                                                       --------------    --------------
                                                                    Note               $ in thousands    $ in thousands
                                                                    ----------         --------------    --------------
<S>                                                                 <C>               <C>               <C>
Assets                                                              13; 14; 16

Current assets

Cash and cash equivalents                                           1C; 17A               232,144           141,848
Short-term investments                                              1D; 2; 17B            227,619           299,679
Receivables:
 Trade                                                              1H; 17C               435,706           251,303
 Other                                                                                     97,797            26,037
Prepaid expenses                                                                            6,889             4,458
Recoverable costs and estimated
 earnings - not yet billed                                          1L5                    13,082             9,843
Inventories                                                         1E; 3                 185,754           162,664
                                                                                       --------------    --------------
Total current assets                                                                    1,198,991           895,832
                                                                                       --------------    --------------

Long-term bank deposits and

 receivables, net of current maturities                             1L2; 4                105,568            82,658
                                                                                       --------------    --------------
Investments                                                         1D; 5; 19               4,982             6,913
                                                                                       --------------    --------------

Properties, plant and equipment                                     1F; 6

Cost                                                                                      333,943           234,688
Less - Accumulated depreciation
 and amortisation                                                                         148,920           103,797
                                                                                       --------------    --------------
                                                                                          185,023           130,891
                                                                                       --------------    --------------
Software development costs, net                                     1I; 7                  13,559            23,374
                                                                                       --------------    --------------
Other assets                                                        1J; 8                 149,143            11,265
                                                                                       --------------    --------------
Total assets                                                                            1,657,266         1,150,933
                                                                                       ==============    ==============

The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>


<TABLE>
<CAPTION>

ECI Telecom Ltd.


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



                                                                                       1999              1998
                                                                                       --------------    --------------
                                                                    Note               $ in thousands    $ in thousands
                                                                    ----------         --------------    --------------

<S>                                                                 <C>               <C>               <C>
Liabilities and shareholders' equity                                13; 14; 16

Current liabilities                                                 13; 16
Short-term credits and current maturities of
 long-term debt                                                     17D                     137               121,140
Trade payables                                                                          115,382                53,788
Other payables and accrued liabilities                              17E                 175,309                98,401
Excess of liabilities over assets relating to discontinued
 operations                                                         20                    1,011                     -
                                                                                     ----------            -----------
Total current liabilities                                                               291,839               273,329
                                                                                     ----------            -----------
Long-term liabilities

Convertible notes                                                   9A                   85,000               100,000
Other liabilities and loans                                         9B; 19                7,770                 5,559

Liability for employee severance benefits, net                      10                   24,559                 2,511
                                                                                     ----------            -----------
Total long-term liabilities                                                             117,329               108,070
                                                                                     ----------            -----------
Total liabilities                                                                       409,168               381,399
                                                                                     ----------            -----------
Minority interests                                                                       23,778                 6,442
                                                                                     ----------            -----------
Commitments and contingencies                                       11

Shareholders' equity                                                12
Share capital                                                                             5,762                 5,317
Capital surplus                                                                         587,639               156,559
Accumulated other comprehensive income                              1R                   11,171                   648
Retained earnings                                                                       691,188               606,890
                                                                                     ----------            -----------
                                                                                      1,295,760               769,414
Company's stock held by a
 consolidated subsidiary                                            1K                  (71,440)               (6,322)
                                                                                     ----------            -----------
Total shareholders' equity                                                            1,224,320               763,092

            Jonathan B. Kolber
_________________________________________________
Chairman of the Board of Directors


               Doron Inbar
_________________________________________________

President, Chief Executive Officer

Petah Tikva, February 7, 2000

                                                                                     ----------            -----------
Total liabilities and shareholders' equity                                            1,657,266             1,150,933
                                                                                     ==========            ===========
</TABLE>


<TABLE>
<CAPTION>

ECI Telecom Ltd.

Consolidated Statement of Income for the Year Ended December 31
--------------------------------------------------------------------------------------------------------------------

                                                                    1999               1998              1997
                                                                    ------------       -----------       -----------
                                                 Note                      $ in thousands, except per share amounts
                                                 -------------      ------------------------------------------------
<S>                                               <C>              <C>                <C>               <C>
Revenue                                           1L; 16; 17F        1,114,595          744,370           582,899

Cost of revenues                                  16; 17G              519,735          316,591           273,143
                                                                    ------------       -----------       -----------
Gross profit                                                           594,860          427,779           309,756

Research and development costs, net               1M; 17H              125,147           78,647            51,326
Selling and marketing expenses                    16; 17I              180,413          107,589            79,379
General and administrative expenses               16; 17J               64,022           38,750            28,240
Amortization of acquisition-related
 intangible assets                                                      16,294            1,492               540
Restructuring expenses                            19C                   14,947                -                 -
Purchase of in process research and
 development                                      1N; 19A               87,327           14,371                 -
                                                                    ------------       -----------       -----------
Operating income                                                       106,710          186,930           150,271
Financial expenses                                16; 17K               (9,622)          (8,007)           (7,591)
Financial income                                  16; 17K               28,375           16,542            13,127
Other income (expenses) - net                     17L                   50,892              (53)           (2,367)
                                                                    ------------       -----------       -----------
Income from continuing operations before
 taxes on income                                                       176,355          195,412           153,440
Taxes on income                                   15                     7,109           12,855             7,554

Income from continuing operations after
 taxes on income                                                       169,246          182,557           145,886

Company's equity in results of
 investee companies, net                                                (2,022)          (2,952)           (2,174)
Minority interest in income of a subsidiary                             (1,703)          (5,793)                -
                                                                    ------------       -----------       -----------
Income from continuing operations                                      165,521          173,812           143,712

Discontinued operations
Loss from discontinued operation,
 net of income tax                               1A3;  20             (25,593)          (17,650)          (11,272)

Loss from disposal of discontinued
 operation, net of income tax                    1A3;  20             (37,409)                -                 -
                                                                    ------------       -----------       -----------
Net income                                                            102,519           156,162           132,440
                                                                    ============       ===========       ===========

Earnings per share                                12; 17N
Basic earnings per share
Continuing operations                                                    1.82              2.26              1.88
Discontinued operations                                                 (0.70)            (0.23)            (0.15)
                                                                    ------------       -----------       -----------
Net income                                                               1.12              2.03              1.73
                                                                    ============       ===========       ===========
Diluted earnings per share
Continuing operations                                                    1.77              2.19              1.84
Discontinued operations                                                 (0.66)            (0.22)            (0.14)
                                                                    ------------       -----------       -----------
Net income                                                               1.11              1.97              1.70
                                                                    ============       ===========       ===========
</TABLE>

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

<PAGE>


ECI Telecom Ltd.

Consolidated Statement of Comprehensive Income for the Year Ended December 31

<TABLE>
<CAPTION>

                                                                    1999               1998              1997
                                                                    --------------     --------------    --------------
                                                 Note               $ in thousands     $ in thousands    $ in thousands
                                                 ------------       --------------     --------------    --------------

<S>                                             <C>                 <C>                <C>               <C>
Net income                                                           102,519            156,162           132,440
Other comprehensive income:                      1R
Realisation of gain on available for
 sale securities                                                        (648)                 -                 -
Unrealised holding gains (losses) on
 available for sale securities arising
 during the period                               1D2                  11,171              1,056              (408)

Total other comprehensive income                                      10,523              1,056              (408)

Comprehensive income                                                 113,042            157,218           132,032

</TABLE>
<PAGE>


ECI Telecom Ltd.

Statement of Changes in shareholders' Equity

<TABLE>
<CAPTION>


                                              Number         Share     Capital  Accumulated    Retained      Company's     Total
                                              of shares*     capital   surplus  other          earnings      stock held    share-
                                                                                comprehensive  (Note 15A1)   by a          holders'
                                                                                income (loss)                consolidated  equity
                                                                                                             subsidiary
                                              -----------   --------   -------  -------------  -----------   ------------  --------
                                                                $ in thousands, except share amounts and dividends per share
                                              -------------------------------------------------------------------------------------
<S>                                          <C>           <C>       <C>        <C>           <C>          <C>           <C>
Balance at January 1, 1997                     76,001,487    5,287     137,545       -          348,956      (7,282)       484,506

Changes during 1997 -

Net income for the year                                 -        -           -       -          132,440           -        132,440

Employee stock options exercised and
 paid, net (Note 12C)                             579,632       21       9,409       -                -           -          9,430

Net unrealised loss on available for
 sale securities                                        -        -           -    (408)               -           -           (408)

Amortization of deferred compensation
 expenses                                               -        -       1,485       -                -           -          1,485

Sale of the Company's stock held by a
 consolidated subsidiary, net of taxes             75,000        -         626       -                -         960          1,586

Dividend**                                              -        -           -       -          (15,301)          -        (15,301)

Balance at December 31, 1997
 carried forward                               76,656,119    5,308     149,065    (408)         466,095      (6,322)       613,738

                                              -----------   -------   ---------  --------    -----------   ---------     ----------
Balance at December 31, 1997
 brought forward                               76,656,119    5,308     149,065    (408)         466,095      (6,322)        613,738
                                              ===========   =======   =========  ========    ===========   =========     ==========
Changes during 1998 -

Net income for the year                                 -        -           -       -          156,162          -         156,162

Employee stock options exercised and
 paid, net (Note 12C)                             304,300        9       4,624       -               -           -           4,633

Amortization of deferred compensation
 expenses                                               -        -       2,870       -               -           -           2,870

Net unrealised gain on available for sale
 securities                                             -        -           -   1,056               -           -           1,056

Dividend**                                              -        -           -       -         (15,367)          -         (15,367)
                                              -----------   -------   ---------  --------    -----------   ---------     ----------
Balance at December 31, 1998
 carried forward                               76,960,419    5,317     156,559     648         606,890      (6,322)        763,092
                                              ===========   =======   =========  ========    ===========   =========     ==========

Balance at December 31, 1998 brought forward   76,960,419    5,317     156,559     648         606,890      (6,322)        763,092

Changes during 1999 -

Net income for the year                                 -        -           -       -         102,519           -         102,519
Employee stock options exercised and paid,        815,102       24      18,028       -               -           -          18,052
 net (Note 12C) Share issuance                 13,966,480      403     394,379       -               -           -         394,782
Conversion of convertible note
 into share capital                               600,000       18      14,982       -               -           -          15,000
Realisation of gain on available for
 sale securities                                        -        -           -    (648)              -           -            (648)
Net unrealised gain on available for
 sale securities                                        -        -           -  11,171               -           -          11,171
Amortization of deferred compensation
expenses                                                -        -       3,691       -               -           -           3,691
Acquisition of company's stock held by
 a subsidiary                                  (2,240,000)       -           -       -               -     (65,118)        (65,118)
Dividend**                                              -        -           -       -         (18,221)          -         (18,221)
                                              -----------   --------   -------  -------------  -----------  ------------  ---------
Balance at December 31, 1999                   90,102,001    5,762     587,639  11,171         691,188     (71,440)       1,224,320
                                              ===========   ========   =======  =============  ===========  ============  =========
*________Issued and outstanding

**_______Dividend per share as follows:

<PAGE>

                                                 For the year ended December 31
                                              ------------------------------------
                                              1999            1998        1997
                                              ----------      ----------  --------
                                              $               $           $
                                              ----------      ----------  --------
         Interim dividend                      0.15            0.15        0.15
         Proposed dividend                     0.05            0.05        0.05
                                              ----------      ----------  --------
                                               0.20            0.20         0.20
                                              ==========      ==========  ========




</TABLE>
<PAGE>
ECI Telecom Ltd.

Consolidated Statement of Cash Flows for the Year Ended December 31
--------------------------------------------------------------------------------



<TABLE>
<CAPTION>
                                                                    1999               1998              1997
                                                                    --------------     --------------    --------------
                                                                    $ in thousands     $ in thousands    $ in thousands
                                                                    --------------     --------------    --------------

Cash flows from operating activities
<S>                                                                  <C>                <C>               <C>
Net income                                                           102,519              156,162           132,440

Adjustments to reconcile net income to cash
provided by operating activities:

Depreciation and amortization                                        91,122                45,571            36,079
Loss (gain) on sale of property and equipment                           162                     9               (71)
Capital gains, net                                                  (52,383)                    -                 -
Other - net (mainly long-term deferred taxes)                         2,777                (1,262)           (2,647)
Purchase of in-process research and development                      87,327                14,371                 -
Company's equity in results of investee companies                     2,378                 2,952             2,174
Minority interest in income from subsidiaries                         1,703                 5,793                 -
Decrease (increase) in marketable securities                          8,826               (36,411)          (12,552)
Increase in trade receivables (including non-current
 maturities of bank deposits and trade receivables)                (124,028)               (2,576)          (90,858)
Decrease (increase) in other receivables                            (28,264)              (12,132)            5,641
Decrease (increase) in prepaid expenses                              (2,321)                  347                86
Decrease (increase) in recoverable costs and estimated
 earnings - not yet billed                                           (4,026)                9,976           (19,819)
Decrease (increase) in inventories                                   23,125               (29,609)           46,164
Increase (decrease) in trade payables                                33,825                (2,236)            8,519
Increase (decrease) in other payables and accrued liabilities        (5,394)                7,252            21,937
Increase (decrease) in other long-term liabilities                     (856)                4,223               614
Increase (decrease) in liability for employee
 severance benefits, net                                              1,196                  (395)              818
                                                                    --------------     --------------    --------------
Net cash provided by operating activities                           137,688               162,035           128,525
                                                                    --------------     --------------    --------------

Cash flows from investing activities
Software development costs capitalized                              (15,444)              (12,905)          (13,962)
Investment in property, plant and equipment                         (54,375)              (44,039)          (31,540)
Proceeds from sale of property, plant and equipment                   1,365                   996               313
Purchase of technology                                               (1,000)              (16,371)                -
Acquisition of investee companies                                      (500)               (1,741)             (880)
Repayment of long-term receivables                                        -                     -               132
Long-term loans granted to investee companies                        (4,850)               (2,546)           (1,596)
Acquisition of available for sale securities                              -                (5,864)                -
Proceeds from sale of available for sale securities                   1,905                 7,891                 -
Acquisition of newly consolidated subsidiaries                       47,038                  (624)                -
Acquisition of additional rights in consolidated subsidiary         (12,500)                    -            (2,649)
Payments in respect of other assets                                  (7,252)                 (385)                -
Decrease (increase) in short-term investments                       123,911                20,022           (92,277)
Repayment of due from related party                                  25,000                     -                 -
Investment in convertible bond                                            -              (177,000)                -
                                                                    --------------     --------------    --------------
Net cash provided by (used in) investing activities                 103,298              (232,566)         (142,459)
                                                                    --------------     --------------    --------------

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

Cash flows from financing activities
Exercise of employee stock options
 (net of share issue expenses)                                       18,052                 4,633             9,430
Repayment of long-term debt                                          (5,779)                 (187)             (189)
Increase (decrease) in short-term credit, net                      (122,707)              119,953            (4,853)
Public share issuance in consolidated company                        43,199                     -                 -
Dividend                                                            (17,564)              (15,352)          (15,268)
Acquisition of Company's stock by a subsidiary                      (65,118)                    -             1,780
                                                                    --------------     --------------    --------------
Net cash provided by (used in) financing activities                (149,917)              109,047            (9,100)
                                                                    --------------     --------------    --------------
Effect of change in exchange rate on cash                              (773)               (1,459)             (544)
                                                                    --------------     --------------    --------------
Net increase (decrease) in cash and cash equivalents                 90,296                37,057           (23,578)

Cash and cash equivalents at beginning of year                      141,848               104,791           128,369
                                                                    --------------     --------------    --------------
Cash and cash equivalents at end of year                            232,144               141,848           104,791
                                                                    ==============     ==============    ==============
Supplemental disclosures:

Income taxes paid, net of tax returns                                 5,029                10,125             1,059
                                                                    ==============     ==============    ==============
Interest (received) paid, net                                       (15,789)                4,787             4,833
                                                                    ==============     ==============    ==============
<PAGE>

A.       Acquisition of newly consolidated subsidiaries (Note 19)

Working capital (other than cash)                                  (256,937)                  133                 -
Long-term receivables, net of current maturities                    (10,284)                    -                 -
Investment in investee companies                                    171,923                     -                 -
Property, plant and equipment, net                                  (52,114)                 (653)                -
Other assets (mainly - deferred taxes)                               (2,431)                    -                 -
Goodwill                                                           (144,646)                 (104)                -
In process research and development                                 (87,327)                    -                 -
Long-term liabilities                                                31,996                     -                 -
Minority interest                                                     2,076                     -                 -
Share issuance                                                      394,782                     -                 -

                                                                     47,038                  (624)                -
                                                                    ==============     ==============    ==============

B.       Non-cash activities

Conversion of convertible note into share capital                    15,000                     -                 -
Conversion of convertible debentures into share
 capital of an investee company                                     177,000                     -                 -
Sale of production activity on credit                                16,689                     -                 -
Sale of investment in investee company for
 available for sale securities                                       29,266                     -                 -
</TABLE>

The accompanying notes are an integral part of the financial statements.
<PAGE>



Note 1 - Significant Accounting Policies

         Significant accounting policies, applied on a consistent basis,
         are as follows:

         A.       General

         1.       The Company is an Israeli corporation which operates in
                  the telecommunication industries. The Company designs,
                  develops and manufactures telecommunications equipment,
                  including hardware and software, - partly to buyers'
                  specifications - and markets and services such equipment.

         2.       At the beginning of 1999 Tadiran Telecommunication Ltd.
                  (hereinafter "TTL) merged with ECI by share issuance of
                  ECI ordinary shares (which consisted approximately of 15%
                  of the issued and outstanding shares of ECI on the merger
                  date) to TTL shareholders (mainly Tadiran Ltd.,
                  hereinafter - "Tadiran"). The merger is accounted for
                  under the "purchase" method of accounting. The excess of
                  cost is mainly allocated to goodwill and intangible
                  assets amounting to $230 million of which $87 million was
                  written-off immediately as in process research and
                  development costs. (For more details - see Note 19).

         3.       On February 7, 2000 the Board of Directors approved a
                  decision made by company management to discontinue
                  operation of certain activities (for more details see
                  Note 20), accordingly the results of discontinued
                  operations for all periods reported were reclassified in
                  one line on the income statement after the result from
                  continued operations. The assets regarding the
                  discontinued operations are classified in one line on
                  current liabilities.

         4.       The financial statements have been prepared in conformity
                  with generally accepted accounting principles (GAAP) in
                  the United States.

         5.       The currency of the primary economic environment in which
                  the operations of the Company and its subsidiaries are
                  conducted is the U.S. dollar ("dollar").

                  Most of the Company's sales are made outside of Israel
                  (see Note 17F regarding geographical distribution) -
                  mainly in dollars and other non-dollar currencies.
                  Arrangements are made to ensure that the dollar value of
                  sales made in non-dollar currencies is maintained (see
                  Note 11E). Most purchase of materials and components, as
                  well as most selling and other expenses incurred outside
                  Israel, are in dollars. In view of the foregoing, the
                  dollar has been determined to be the Company's functional
                  currency.

                  Transactions and balances denominated in dollars are
                  presented at their original amounts.

                  Non-dollar transactions and balances have been remeasured
                  into dollars in accordance with the principles set forth
                  in Statement No. 52 of the Financial Accounting Standards
                  Board (FASB) of the United States.

                  All exchange gains and losses from remeasurement of
                  monetary balance sheet items denominated in non-dollar
                  currencies are reflected in the income statement when
                  they arise. Such exchange gains and losses are included
                  in the same income statement items in which the related
                  transactions are included.

                  The financial statements have been prepared in accordance
                  with the historical cost convention.

         6.       The preparation of financial statements in conformity
                  with generally accepted accounting principles requires
                  management to make estimates and assumptions that affect
                  the reported amounts of assets and liabilities and
                  disclosure of contingent assets and liabilities at the
                  date of the financial statements and the reported amounts
                  of revenues and expenses during the reporting period.
                  These are management's best estimates based on experience
                  and historical data, however, actual results could differ
                  from these estimates.

         B.       Principles of consolidation

         The consolidated financial statements include the accounts of the
         Company and all of its subsidiaries. All significant intercompany
         accounts and transactions have been eliminated in consolidation.

         C.       Cash and cash equivalents

         The Company considers all highly liquid investments with a
         maturity of three months or less at date of purchase, to be cash
         equivalents.

         D.       Investments

         1.       Investee companies

                  Investments in investee companies, in which the Company
                  has significant influence (affiliated companies) are
                  stated by the equity method, that is, at cost plus the
                  Company's share of the post-acquisition gains or losses.

                  Goodwill - as stated in "J" hereunder.

                  Investment in shares of companies in which the Company
                  does not have significant influence (hereinafter - "other
                  companies"), are stated as follows:

                  -        Marketable securities - as stated in 2 hereunder.

                  -        Non-marketable securities - at cost.

         2.       Marketable securities

                  These securities are classified as "trading" or as
                  "available for sale" and stated at market value. Gains or
                  losses arising from the realisation of marketable
                  securities which are classified as "trading" are included
                  in financial income in accordance with the principles set
                  forth in Statement No. 115 of the FASB. The changes in
                  the market value during the current year related to those
                  classified as "available for sale" are included in other
                  comprehensive income, and are attributed to income
                  statement on realisation.

         E.       Inventories

         Inventories are stated at the lower of cost or market. Cost is
         determined as follows:

         Raw materials (including components) - on the moving average basis.

         Work in process and finished products:

         Raw materials and components - on the moving average basis. Labor
         and overhead components - on the basis of actual manufacturing
         costs.

         F.       Property, plant and equipment

         1.       These assets are stated at cost.

         2.       Depreciation is computed using the straight-line method,
                  over the estimated useful life of the assets as estimated
                  by the Company.

                  Annual rates of depreciation are as follows:
<TABLE>
<CAPTION>

<S>                                                                 <C>
                  Buildings                                         2.5%
                  Machinery, equipment and furniture                6%-33% (principally 10%)
                  Motor vehicles                                    15%-20% (principally 15%)
</TABLE>

                  Leasehold improvements are amortized by the straight-line
                  method over the term of the lease.

         3.       Major renewals and improvements are capitalized, while
                  repairs and maintenance are expensed as incurred.

         4.       Upon the sale or retirement of equipment and leasehold
                  improvements, the cost and related accumulated
                  depreciation and amortization are eliminated from the
                  respective accounts and the resulting gain or loss is
                  reflected in the consolidated statements of income.

         5.       In 1996, the Company adopted FAS 121, Accounting for the
                  Impairment of Long-lived Assets and for Long-Lived Assets
                  to be Disposed of. FAS 121 requires that long-lived
                  assets and certain identifiable intangibles be reviewed
                  for impairment whenever events or changes in
                  circumstances indicate that the carrying amount of an
                  asset may not be recoverable based on estimated future
                  cash flows expected to result from the use of the asset
                  and its eventual disposition. Impairment losses are
                  required to be recorded to reduce such asset to fair
                  value if such asset is not considered to be recoverable
                  based on estimated future cash flows.

         G.       Accrued warranty costs

         Accrued warranty costs are calculated in respect of products sold
         and work performed (for periods subsequent to performance of the
         work or delivery of the products) based on the Company's prior
         experience and in accordance with management's estimation.

         H.       Allowance for doubtful debts

         The financial statements include an allowance which Management
         believes reflects adequately the loss inherent in specific
         receivables for which collection is in doubt. In determining the
         fairness of the allowance Management based itself, inter alia, on
         information at hand about debtors financial situation, the volume
         of their operations, aging of the balance and evaluation of the
         security received from them.

         I.       Software development costs

         The Company capitalizes certain software development costs in
         accordance with Statement of Financial Accounting Standards (SFAS)
         No. 86 "Accounting for Costs of Computer software to be sold,
         Leased or Otherwise Marketed". Capitalization of software
         development costs begins upon the establishment of technological
         feasibility as defined in the Statement and continues up to the
         time the software is available for general release to customers,
         at which time capitalized software costs are amortized to product
         development expenses on a straight-line basis over the expected
         life of the related product, generally two to three years.

         Software development costs include costs which relate principally
         to projects which have recently been released or are not yet
         available for release to customers. Management believes that
         future revenues related to these projects will be sufficient to
         realise the amounts capitalized at December 31, 1999, and as such
         these amounts will be recovered over the lives of the related
         projects. It is possible, however, that those estimates of future
         revenues could be adversely impacted if these projects are not
         finally completed and released during 2000 or if market acceptance
         of related technology is not as anticipated by Management. As a
         result, the recoveries of these capitalized software development
         costs through future revenues could be reduced materially. In such
         an event, related capitalized software development costs will be
         written-off in the following accounting period.

         As to Management's estimates and assumptions - see Note 1A6 above.

         J.       Amortization of goodwill and other intangible assets

         Goodwill and other intangible assets, excluding software
         development costs, are included in other assets and are being
         amortized over a period of 2-25 years, mainly 10 years, based on
         the estimated life of the assets.

         The Company continually assesses the carrying value of goodwill in
         order to determine whether an impairment has occurred, taking into
         accounts both historical and forecasted results of operations.

         K.       Company's stock held by a consolidated subsidiary

         Holdings of Company shares by a consolidated subsidiary are
         presented as Treasury Stock (cost to the Company).

         L.       Revenue recognition

         1.       The Company generally recognizes revenue from sales of
                  systems when products are shipped, economic risk of loss
                  has passed to the customer, collection is probable and
                  any future obligations of the Company regarding the
                  product are insignificant.

         2.       Revenues from sales involving long-term credit
                  arrangements at less than accepted interest rates are
                  recorded at the present value of the related future cash
                  flows. The difference between the amounts receivable and
                  their present value is to be recognized as interest
                  income over the period of the debt.

         3.       Software license revenue is generally recognized at the
                  time the software is delivered to the customer, if
                  collection is probable and the Company has no significant
                  obligations remaining under the sales or licensing
                  agreement and no significant customer acceptance
                  requirements exist subsequent to software delivery.

         4.       Service revenues from product maintenance contracts and
                  separately priced extended warranty contracts are
                  generally recognized ratable over the contract period,
                  while revenue from software services generally is
                  recognized as the services are performed or, if no
                  pattern of performance is evident, ratably over the
                  period during which they are performed.

         5.       The estimated sales value of performance on long-term
                  contracts is recognized using the percentage of
                  completion method, which is in accordance with statement
                  of position (SOP81-1). The percentage of completion is
                  determined as a ratio of accumulated costs incurred
                  (including materials, labor and overhead) to total
                  estimated costs of the contract.

                  In the event that Management anticipates a loss on a
                  particular contract, such anticipated loss is provided
                  for in full. As to Management's evaluation and
                  assumptions, see Note 1A6 above.

         M.       Research and development

         Research and development costs, net of related royalty bearing
         participations, are charged to income statement as incurred. As to
         software development costs see I above.

         N.       Purchase of in process research and development costs (IPR&D)

         The Company writes down to the operating costs in the income
         statement, the excess of costs related to the process of research
         and development of acquired companies according to FIN No. 4 of
         SFAS No. 2 (see Note 19).

         O.       Reclassification

         Certain amounts in the prior years' financial statements have been
         reclassified to conform to the current year's presentation.

         P.       Income taxes

         1.       The Company accounts for income taxes under Statement of
                  Financial Accounting Standards (SFAS) No. 109 "Accounting
                  for Income taxes".

                  Under SFAS 109 deferred tax assets or liabilities are
                  recognized in respect of temporary differences between
                  the tax bases of assets and liabilities and their
                  financial reporting amounts as well as in respect of tax
                  losses and other deductions which may be deductible for
                  tax purposes in future years, based on tax rates
                  applicable to the periods in which such deferred taxes
                  will be realized. Deferred tax assets for future tax
                  benefits from realization are not included when their
                  realization is more likely than not. Valuation allowances
                  are established when necessary to reduce deferred tax
                  assets to the amount expected to be realized. Deferred
                  tax assets and liabilities are presented as current or
                  long-term items in accordance with the nature of assets
                  or liabilities to which they relate, according to the
                  date of their realization.

                  Deferred taxes were not recorded in respect of the
                  following matters -

                  o        Taxes which may apply upon the realization of
                           investments in consolidated subsidiaries and
                           affiliated companies, as no intention to realize
                           such investments exists (see 2 hereunder).

                  o        Certain undistributed earnings of foreign
                           consolidated subsidiaries which are taxable upon
                           distribution by way of dividend, as no such
                           dividend distribution intention exists (for
                           domestic consolidated subsidiaries, see 2
                           hereunder).

                  o        Differences between the rate of change in the
                           Israeli Consumer Price Index (which serves as a
                           basis for measurement for tax purposes) and the
                           rate of change in the NIS/US dollar exchange
                           rate, this in accordance with paragraph 9 (f) of
                           SFAS 109. The said differences are not material.

         2.       In accordance with paragraph 33 of SFAS 109, deferred
                  taxes have not been provided for the Parent Company's
                  temporary difference relating to earnings in both its
                  domestic subsidiaries and domestic "approved enterprises"
                  as the tax laws provide methods whereby the reported
                  amounts of these investments can be recovered tax-free
                  and the parent company expects that it will ultimately
                  use these methods.

         -        Earnings distributed by domestic subsidiaries relating to
                  "approved enterprises" can be transferred to the Parent
                  Company by way of a tax-free merger.

         -        Earnings distributed related to the Parent Company's
                  "approved enterprises" are not taxable to the Parent
                  Company in a liquidation as such taxes would be due from
                  the shareholders.

         -        Earnings distributed by domestic subsidiaries which are
                  not generated by an "approved enterprise" are not
                  taxable.

         Income tax expense represents the tax payable for the period and
         the change during the period in deferred tax assets and
         liabilities.

         Q.       Derivative financial instruments

         The Company enters into foreign currency future contracts, put and
         call option contracts to reduce the impact of fluctuations of
         certain currencies against the U.S. dollar resulting from existing
         trade receivables or from firm commitments not denominated in U.S.
         dollars and in relation with anticipated transactions. Gains or
         losses resulting from qualified hedges of firm commitments are
         deferred and recognized when the hedged transactions occur, while
         results of transactions which do not meet all the criteria
         specified in SFAS No. 52 are recorded as financial income or
         expense.

         R.       Comprehensive income

         The Company adopted SFAS No. 130, Reporting Comprehensive income.
         SFAS No. 130 establishes standards for reporting and presentation
         of comprehensive income and its components in a full set of
         financial statements. Comprehensive income consists of net income
         and net unrealized gains (losses) on securities and is presented
         in the statements of stockholder's equity and comprehensive
         income. The SFAS requires only additional disclosures in the
         consolidated financial statements; it does not affect the
         Company's financial position or results of operations.

         S.       Stock option plan

         The Company applies the intrinsic value-based method of accounting
         prescribed by Accounting Principles Board ("APB") Opinion No. 25
         Accounting for Stock Issued to Employees, and related
         interpretations, in accounting for its fixed plan stock options.
         As such, compensation expense would be recorded on the date of
         grant only if the current market price of the underlying stock
         exceeded the exercise price.

         T.       Segment reporting

         In 1998, the Company adopted SFAS No.131, "Disclosures about
         Segments of an Enterprise and Related Information". According to
         Management's approach, disclosure is made using the internal
         information used by Management for making operating decisions and
         assessing the performance of the organization, as the source of
         the Company's reportable segments (see Note 17F).
<PAGE>
Note 2 - Short-Term Investments
<TABLE>
<CAPTION>

                                                                                       December 31       December 31
                                                                                       1999              1998
                                                                                       --------------     -------------
                                                                                       $ in thousands    $ in thousands
                                                                                       --------------     -------------
<S>                            <C>                                                       <C>               <C>
         Marketable securities (1)                                                       50,456            49,138
         Available for sale securities (2)                                               40,437                 -
         Short-term deposits                                                            136,726            73,541
         Convertible debentures                                                               -           177,000
                                                                                       --------------     -------------
                                                                                        227,619           299,679
                                                                                       ==============     =============
</TABLE>


         (1)      Classified as "trading". As at December 31, 1999,
                  includes unrealized holding loss of $11,343 thousand
                  (December 31, 1998 - $1,302 thousand unrealized holding
                  loss).

         (2)      See Note 5A(3). Net unrealized holding gain in amount of
                  $11,171 thousand credited as a comprehensive income
                  directly to the statement of changes in shareholders'
                  equity.




Note 3 - Inventories
<TABLE>
<CAPTION>

         Consist of the following:

                                                                                       December 31       December 31
                                                                                       1999              1998
                                                                                       --------------     -------------
                                                                                       $ in thousands    $ in thousands
                                                                                       --------------     -------------
<S>                                                                                     <C>               <C>
         Raw materials and components                                                    94,077            65,764
         Work in process                                                                 46,256            53,013
         Finished products                                                               45,421            43,887
                                                                                       --------------     -------------
                                                                                        185,754           162,664
                                                                                       ==============     =============
</TABLE>




Note 4 - Long-Term Bank Deposits and Receivables, Net of Current Maturities

         A.       Consist of the following:
<TABLE>
<CAPTION>

                                                                    Weighted
                                                                    average interest
                                                                    rate as of
                                                                    December 31        December 31       December 31
                                                                    1999               1999              1998
                                                                    ----------------   --------------    --------------
                                                                    %                  $ in thousands    $ in thousands
                                                                    ----------------   --------------    --------------

<S>                                                                <C>                 <C>               <C>
         Long-term trade receivables (1)                             7.3%                84,544            40,564
         Long-term pledged deposits (2)                              5%                  62,658            63,903
         Others                                                                               -               341
                                                                                       --------------     -------------
                                                                                        147,202           104,808
         Less deferred interest income*                                                   5,118             3,128
                                                                                       --------------     -------------
         Total (3)                                                                      142,084           101,680
         Less - doubtful accounts                                                         8,150             6,400
         Less - current maturities                                                       28,366            12,622
                                                                                       --------------     -------------
                                                                                        105,568            82,658
                                                                                       ==============     =============
</TABLE>
<PAGE>

         The deposits and trade receivables are denominated in U.S. dollars.

         *        The deferred interest income derived from the difference
                  between the original amount of the receivables and their
                  net present value computed, at the transaction date, by
                  the relevant interest rate.

         (1)      Long-term trade receivables consist mainly of
                  receivables, resulting from sales of the Company's
                  products, providing from 3 to 10 years credit commencing
                  on the date of signing of the sales contract or the
                  finance agreement related thereto. Such receivables are
                  interest bearing. Principal and interest are payable in
                  between quarterly to semi-annually payments. These
                  receivables are partially secured by trade risk insurance
                  policies.

         (2)      The deposits are deposited with and pledged to a
                  commercial bank and are mainly released simultaneously
                  with, and in amounts equal to, payments on account of the
                  loan extended by the commercial bank to a foreign
                  commercial bank (hereinafter "the customer bank"). The
                  commercial bank served the customer bank as source of
                  financing for the purpose of the sale transaction with
                  the Company.

         (3)      December 31, 1999 - includes two customers in the
                  Philippines accounting for $30 and $27 million each and
                  11 other customers whose indebtedness does not exceed $10
                  million per customer.

         (4)      In the opinion of the Company's management, due to the
                  nature of the customers and their activities, their
                  financial performance and, updated financial and business
                  data, previous business relations and existing trade
                  insurance as stated above, as well as provision for
                  doubtful debts, the Company has limited risk exposure in
                  relation to the long-term receivables as well as the
                  long-term pledged deposits.

         B.       Aggregate maturities are as follows:
<TABLE>
<CAPTION>

                                                                                                         December 31
                                                                                                         1999
                                                                                                         --------------
                                                                                                         $ in thousands
                                                                                                         --------------
<S>                                                                                                       <C>
         First year (current maturities)                                                                  28,366
         Second year                                                                                      25,803
         Third year                                                                                       21,107
         Fourth year                                                                                      18,064
         Fifth year                                                                                       17,531
         Thereafter                                                                                       31,213
                                                                                                         --------------
                                                                                                          142,084
                                                                                                         ==============
</TABLE>
<PAGE>



Note 5 - Investments
<TABLE>
<CAPTION>

         Consist of the following:
                                                                                       December 31       December 31
                                                                                       1999              1998
                                                                                       --------------    --------------
                                                                                       $ in thousands    $ in thousands
                                                                                       --------------    --------------

<S>                                                                                     <C>               <C>
         Affiliated companies (A)                                                       3,919             3,202
         Available for sale and other companies                                         1,063             3,711
                                                                                       --------------    --------------
                                                                                        4,982             6,913
                                                                                       ==============    ==============
         A.1.     Investment in affiliated companies comprises:
                                                                                       December 31       December 31
                                                                                       1999              1998
                                                                                       --------------    --------------
                                                                                       $ in thousands    $ in thousands
                                                                                       --------------    --------------

         Cost of shares                                                                   945             4,868
         Accumulated losses                                                              (651)           (5,807)
                                                                                       --------------    --------------
                                                                                          294              (939)

         Loans                                                                          3,625             4,141
                                                                                       --------------    --------------
                                                                                        3,919             3,202
                                                                                       ==============    ==============

         A.2.     Goodwill

                                                                                       December 31       December 31
                                                                                       1999              1998
                                                                                       --------------    --------------
                                                                                       $ in thousands    $ in thousands
                                                                                       --------------    --------------

         Cost                                                                           -                 3,705
         Less - Accumulated amortization                                                -                 2,103
                                                                                       --------------    --------------
                                                                                        -                 1,602
                                                                                       ==============    ==============
</TABLE>
<PAGE>

         A.3.     Affiliated companies

         On October 14, 1999, Telegate Ltd., an affiliated company and its
         shareholders signed an agreement according to which its shares and
         convertible notes that are held by its shareholders, including by
         the Company, will be replaced by shares of another Company, shares
         which are registered for trading on NASDAQ. Capital gain on amount
         of $25,572 thousands was recorded according to accounting
         treatment for non similar assets transactions in accordance with
         APB No. 29 "Accounting for non-monetary transactions" (See Note
         17L for capital gain). The investment in the shares, which
         represents 3% of the acquired company, is accounted as available
         for sale securities.




Note 6 - Property, Plant and Equipment

         Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>

                             Freehold        Machinery      Motor           Office          Leasehold       Total
                             land and        and            vehicles        furniture and   improvements
                             buildings       equipment                      equipment
                             -----------     -----------    -----------     -------------   -------------   -----------
                             $ thousands     $ thousands    $ thousands     $ thousands     $ thousands     $ thousands
                             -----------     -----------    -----------     -------------   -------------   -----------
         Cost
         Balance at
          beginning of
<S>                           <C>             <C>            <C>             <C>              <C>             <C>
          year                34,374          169,044        12,668          10,793           7,809           234,688
         Additions from
          acquired
          companies*          6,497            63,532         5,933           8,766           6,868            91,596
         Additions            3,996            41,145         4,044           3,100           2,090            54,375
         Disposals**              -           (35,908)       (2,037)         (2,122)           (855)          (40,922)
         Discontinued
          operations
          adjustment ***          -           (4,950)          (131)           (599)           (114)           (5,794)
         Balance at end      -----------    -----------    -----------     -------------   -------------   -----------
          of year            44,867          232,863         20,477          19,938          15,798           333,943
                             -----------    -----------    -----------     -------------   -------------   -----------
         Accumulated
          depreciation
          and
          amortization
         Balance at
          beginning of
          year                3,160          87,832          3,586            6,186           3,033           103,797
         Additions from
          acquired
          companies*            227          30,504          2,208            4,119           2,424            39,482
         Additions              754          36,109          2,938            1,517           1,726            43,044
         Disposals**              -         (28,994)        (1,409)          (1,637)           (794)          (32,834)
         Discontinued
          operations
          adjustment***           -          (3,993)           (93)            (403)            (80)            (4,569)
         Balance at end      -----------    -----------    -----------     -------------   -------------   -----------
          of year             4,141         121,458          7,230            9,782           6,309            148,920
                             -----------    -----------    -----------     -------------   -------------   -----------
         Undepreciated
          balance at
          December 31,
          1999                40,726        111,405         13,247           10,156           9,489            185,023
                             ===========    ===========    ===========     =============   =============   ===========
         Undepreciated
          balance at
          December 31,
          1998                31,214         81,212          9,082            4,607           4,776            130,891
                             ===========    ===========    ===========     =============   =============   ===========

         *        Including additions from acquired company.  (See Note 19).
         **       Including discontinued operation write-off.  (See Note 20).
         ***      See Note 1A3 and Note 20.
</TABLE>
<PAGE>



Note 7 - Software Development Costs

         Capitalization and amortization of software development costs
         during the years ended December 31, 1999, 1998 and 1997 is
         comprised as follows:
<TABLE>
<CAPTION>

                                                                    December 31        December 31       December 31
                                                                    1999               1998              1997
                                                                    --------------     --------------    --------------
                                                                    $ in thousands     $ in thousands    $ in thousands
                                                                    --------------     --------------    --------------

<S>                                                                  <C>                <C>               <C>
         Balance at beginning of year                                23,374             25,040            20,670
         Capitalization of software development
          costs during the year                                      15,444             12,905            13,962
         Amortization and write-off during the year                 (25,259)           (14,571)           (9,592)
                                                                    --------------     --------------    --------------
                                                                     13,559             23,374            25,040
                                                                    ==============     ==============    ==============
</TABLE>




Note 8 - Other Assets

         Consists of the following:
<TABLE>
<CAPTION>

                                                                                       December 31       December 31
                                                                                       1999              1998
                                                                                       --------------    --------------
                                                                                       $ in thousands    $ in thousands
                                                                                       --------------    --------------
<S>                                                                                      <C>                <C>
         Goodwill, net*                                                                  80,010             1,286
         Intangible assets related to  TTL's acquisition, net*                           60,462                -
         Other assets**                                                                   8,671             9,979
                                                                                       --------------    --------------
                                                                                        149,143            11,265
                                                                                       ==============    ==============
         *        Original amount                                                       162,841             7,373
                  Less - accumulated amortization                                        22,369             6,087
                                                                                       --------------    --------------
                                                                                        140,472             1,286
                                                                                       --------------    --------------
         **       Including deferred taxes                                                6,578             7,166
                                                                                       ==============    ==============
</TABLE>
<PAGE>


Note 9 - Long-Term Liabilities

         A.       Convertible notes

         On December 30, 1996 (the "Closing Date"), the Company completed a
         private placement of an aggregate amount of $100,000 thousand of
         convertible subordinated notes (the "Notes") to three purchasers
         who are related parties of the Company (the "Purchasers"). During
         the current year $15 million was converted to ordinary shares by
         one of the purchaser.

         The Notes bear interest at the rate of 4.5% per year, payable
         semi-annually, and mature on December 31, 2003.

         The Purchasers have the right to convert the Notes into Ordinary
         shares of the Company at the rate of one Ordinary Share for each
         US$25 of the principal amount of the Notes subject to adjustments
         as set forth in the Note Purchase Agreement (the "Agreement")
         entered into by the Company and the Purchasers.

         In case of certain events occurring as set forth in the Agreement,
         the Company has the right to demand the conversion of the
         outstanding principal amount of the Notes into Company Ordinary
         Shares. In such case, each holder of the Notes has the right to
         demand repayment in full of the principal amount of the Notes plus
         interest accrued and unpaid thereon.

         B.       Other long-term liabilities
<TABLE>
<CAPTION>

                                                                                       December 31       December 31
                                                                                       1999              1998
                                                                                       --------------    --------------
                                                                                       $ in thousands    $ in thousands
                                                                                       --------------    --------------
<S>                                                                                     <C>
         Liability for claims(*)                                                        6,000                     -
         Liability for monetary incentive plan (**)                                     1,691                 3,343
         Liability in respect of other assets                                               -                 1,000
         Deferred income taxes                                                              -                   816
         Loans                                                                              -                   348
         Others                                                                            79                    52
                                                                                       --------------    --------------
                                                                                        7,770                 5,559

         *        See Note 11B(2)
         **       See Note 12C(5)
</TABLE>
<PAGE>



Note 10 - Liability for Employee Severance Benefits, Net

         A.       Employees of the Company and of its consolidated
                  subsidiaries in Israel (Israeli companies)

         Under Israeli law and labor agreements, the Israeli companies are
         required to make severance and pension payments to their retired
         or dismissed employees and to employees leaving employment in
         certain other circumstances.

         1.A.     The liability in respect of most of its non-senior
                  employees is discharged by participating in a defined
                  contribution pension plan and making regular deposits
                  with a pension fund. The liability deposits with the
                  pension fund is based on the components prescribed in the
                  existing labor agreement. The custody and management of
                  the amounts so deposited are independent of the companies
                  and accordingly such amounts funded (included in expenses
                  on an accrual basis) and related liabilities are not
                  reflected in the balance sheet.

         B.       As to certain employees of TTL (see Note 19) who are
                  subject to a labor agreement, the provision for severance
                  benefits was calculated in accordance with the wage
                  component as defined in the employment contract.

         2.       In respect of the liability to other employees,
                  individual insurance policies are purchased and deposits
                  are made with recognized severance pay funds.

                  The liability for severance pay is calculated on the
                  basis of the latest salary paid to each employee
                  multiplied by the number of years of employment. The
                  liability is covered by the amounts deposited including
                  accumulated income thereon as well as by the unfunded
                  provision.

         3.       The liability for severance pay includes provision for the
                  former TTL employees which are entitled to the retirement
                  plan. This plan gives the employees the right for early
                  retirement under unconditional terms. The main right of
                  this plan is to retire and get, until the formal
                  retirement date, the same conditions as if they were
                  continuously working.

         4.       The expenses in respect of severance and pension pay for
                  the years ended December 31, 1999, 1998 and 1997 are $
                  4,477 thousand, $5,301 thousand, and $5,715 thousand
                  respectively.

         Details of the provision and amounts funded relating to other
         employees:

<TABLE>
<CAPTION>

                                                                        December 31       December 31
                                                                        1999              1998
                                                                        --------------    --------------
                                                                        $ in thousands    $ in thousands
                                                                        --------------    --------------
<S>                                                                      <C>               <C>
         Provision for severance pay                                     71,626            13,274
         Amounts funded including accumulated income                     47,067            10,763
                                                                        --------------    --------------
                                                                         24,559            2,511
                                                                        ==============    ==============
</TABLE>
<PAGE>

         Withdrawals from the funds may be made only for the purpose of
         disbursement of severance pay.

         B.       Employees of U.S. consolidated subsidiaries (U.S. companies)

         The subsidiaries sponsor a section 401(K) defined contribution
         plan or 401(A) plan which permits their employees to invest up to
         certain amounts of their compensation (subject to limitation by
         Internal Revenue Service Regulations) on a pretax basis in certain
         self-directed investment programs. The subsidiaries may, at the
         discretion of the Board of Directors, make contributions to the
         plan. Company contribution with respect to this plan were $977
         thousand, $743 thousand and $741 thousand in 1999, 1998 and 1997,
         respectively.

         C.       Employees of the rest of the world

         The provision for severance pay includes amounts related to
         employees in countries other than Israel and the U.S. and are
         calculated in accordance with their locals' rules, if any, in the
         country that operates.

Note 11 - Commitments and Contingencies

         A.       Claims and potential claims

         1.       The Company is in discussions with an international
                  technology company ("technology company") regarding
                  allegations that the Company is using certain patents
                  owned by the technology company in its products. The
                  Company is unable to determine at this time with any
                  certainty the ultimate outcome of these allegations or
                  their effect, if any, on the Company's financial
                  position, operating results and business. However, the
                  Company believes it has meritorious defenses and hopes to
                  reach a favorable settlement with the technology company,
                  although there can be no assurance that it will be able
                  to do so.

         2.       The Company has been in contact with another
                  international technology company in which that company
                  has raised the possibility that the Company is utilizing
                  certain of that company's patents in its products. This
                  allegation relates to industry standards commonly used,
                  which, according to such company's claim, rely on such
                  patents. The Company cannot at this stage assess whether
                  there is any merit to this allegation. The Company
                  estimates that such allegation, even if found justified,
                  will not have a material adverse affect on the Company's
                  financial position.

         3.       Several claims have been submitted against the Company
                  and against consolidated subsidiaries, resulting from
                  ordinary business operations. Management of the
                  companies, based mainly on opinions of their legal
                  advisors, believe that the effect, if any, of the results
                  of such claims on the financial position of the Company
                  and the results of its operations will be insignificant
                  and therefore the provisions which are included in the
                  financial statements in respect thereof are appropriate
                  and sufficient.

         B.       TTL acquisition

         1.       For certain commitments including contingencies that the
                  Company had burden in the TTL acquisition - see Note 19.

         2.       In October 1997, an investigation was commenced by the
                  Israeli Comptroller of Restrictive Trade Practices
                  (hereinafter - "comptroller") regarding alleged price
                  fixing and non-competitive practices among TTL, Tadiran
                  and Telrad Telecommunications and Electronics Industries
                  Ltd., a subsidiary of Koor (Koor is a significant
                  shareholder of the company and Tadiran). Pursuant to the
                  Restrictive Trade Practices Law - 1988, criminal charges
                  may be commenced and a fine may be levied against an
                  entity or person which has violated the law. In addition,
                  violators may be liable for damages that are proven as a
                  result of their violation.

                  The Department of the Restrictive Trade Practice
                  authority investigators recommended filing criminal
                  charges against certain of the entities or persons
                  investigated in connection with such suspicions. The
                  legal department of the Authority is currently reviewing
                  the investigation material and the recommendation of the
                  investigators. This review may take months and at this
                  time the outcome cannot be predicted.

                  Tadiran has agreed to indemnify the company from damages
                  up to $6 million. The Company cannot estimate the
                  results of the investigation before the discussion of the
                  comptroller.

         C.       Lease commitments

         The Company and its consolidated subsidiaries have entered into
         several operating lease agreements in Israel and abroad. The
         agreements expire on various dates from 2000 to 2021 (some of
         which have renewal options) and are in local currencies or linked
         to the dollar or to the Israeli Consumer Prince Index.

         Future minimum annual rental payments which the Company and its
         subsidiaries are committed to pay under the above leases, at rates
         in effect at December 31, 1999, are as follows ($ in thousands).

         Year ending December 31                               $ in thousands
         -----------------------                               --------------
         2000                                                      11,709
         2001                                                      10,973
         2002                                                      3,897
         2003                                                      2,822
         2004 and thereafter                                       5,012

         As to rent expense under the Company's leases, see Note 17J.

         D.       Royalty commitments

         1.       The Company is committed to pay royalties to the
                  Government of Israel on proceeds from sale of products in
                  the Research and Development of which the government
                  participated by way of grants. The royalties are computed
                  at the rates of 2%-4% of the aggregated proceeds from
                  sale of such products, up to the amount not exceeding
                  100% of such grants. As at December 31, 1999 such future
                  commitment is approximately $19.8 million. For the R&D
                  projects of which the government participated by way of
                  grants from 1999, the Company is committed to pay
                  royalties which bear interest.

         2.       The Company is committed to pay royalties to certain
                  parties who participated in the development of certain
                  components of its products. Such royalties are based on
                  sales of products which incorporated the component and
                  are paid based either on a fixed rate or price per unit
                  sold or as a rate of the until sale price.

         3.       The Company entered during the fourth quarter of 1999
                  into partnership, in which it would not have controlled,
                  to develop certain products. The Company is committed to
                  pay royalties to the Partnership up to 10% of its sales
                  originating in Partnership developments up to twice
                  R&D expenses actually invested in their new value. The
                  Company has the exclusive rights to sell the Partnership
                  products and an option to buy the other partners parts in
                  a price that was agreed on between the partners (subject to
                  the exercise date of the option by the Company).

         E.       Financial instruments

         1.       Off-balance sheet contracts

                  The geographical distribution of the Company's operations
                  gives rise to exposure to market risks mainly from
                  changes in foreign currency exchange rates against the
                  dollar. Financial instruments are utilized by the Company
                  to reduce these risks.

                  The Company enters into forward exchange contracts and
                  purchases currency options to hedge existing non-dollar
                  assets and liabilities, certain firm sale and purchase
                  commitments, as well as anticipated sale and purchase
                  transactions.

                  As at December 31, 1999, the Company has purchased
                  currency futures contracts and foreign exchange options,
                  for various lengths of time, ending 2001 as a hedge
                  against sales contracts receivable, firm commitments and
                  anticipated transactions as follows:

                  Forward exchange contracts

                  -        Obligation to sell Pounds Sterling 37,500
                           thousand for a total amount of $61,008 thousand.

                  -        Obligation to sell Euro currency 25,790 thousand
                           for a total amount of $26,480 thousand.

                  -        Obligation to sell Dollar Singapore 2,102
                           thousand for a total amount of $1,279 thousand.

                  In addition, the Company entered into certain put and
                  call options strategies for buying $74,752 thousand for
                  Euro currency 73,000 thousand.

                  The fair value and the carrying amount of the off-balance
                  sheet instrument are $1,342 thousand and $1,800 thousand
                  respectively (1998 - $2,387 thousand and $144 thousand,
                  respectively).

                  The fair value of foreign currency contracts is estimated
                  using quoted exchange rate futures and quoted market
                  prices (option).

         2.       Concentrations of credit risk

                  Financial instruments which potentially subject the
                  Company to significant concentrations of credit risk
                  consist principally of cash investments, currencies
                  futures contracts and trade accounts receivable.

                  The Company maintains cash and cash equivalents, short
                  and long-term investments, future contracts and certain
                  other financial instruments with various major financial
                  institutions.

                  These major financial institutions are located throughout
                  Israel, the U.S.A. and Europe, and the Company's policy is
                  designed to limit exposure to any one institution. The
                  Company performs periodic evaluations of the relative
                  credit standing of these financial institutions and the
                  value of business transacted with them.

                  With respect to trade accounts receivable, credit risk is
                  limited due to the large number and geographical
                  dispersion of the Company's customer base, as well as
                  allowance for doubtful accounts which provided. With
                  respect to long-term receivables (including deposits)
                  (see Note 4), the Company believes that there is limited
                  credit risk exposure since these customers are large
                  telecommunications providers which operate in countries
                  where the telecommunication market is anticipated to
                  grow.

         3.       Fair value of financial statements

                  In management's estimation, except for off-balance sheet
                  financial instruments (see E1 above) the estimated fair
                  value of the Company's financial instruments did not
                  materially differ from their respective carrying amount
                  as at December 31, 1999 and 1998.

                  Considerable judgment is required in determining the
                  estimates of fair value. The management used certain
                  estimates provided herein, that are not necessarily
                  indicative of amounts that could be realized in a current
                  market exchange.

                  -        Cash and cash equivalents, short-term
                           investments, trading account assets, other
                           accounts receivable, trade payables, other
                           payables, advances from customers:

                           The carrying amounts approximate the fair value
                           because of the short maturing of those
                           instruments.

                  -        Long-term receivables or debt: Book values
                           approximate fair value since the average
                           interest rate in relation to long-term
                           receivables or debt is not materially
                           different from those which are applicable
                           or offered at the balance sheet date.

         F.       Capital expenditure commitments

         The Company and its consolidated subsidiaries in Israel are
         incurring capital expenditures pursuant to "Approved Enterprise"
         programs. At December 31, 1999, the Companies are committed to
         invest approximately $38,589 thousand pursuant to these programs.
         Completion of such investment programs will provide tax benefits
         in the future (see Note 15A1).

         G.       Purchase commitments

         At December 31, 1999, commitments for purchase of materials and
         for acquisition of property, plant and equipment aggregated
         $107,097 thousand (December 31, 1998 - $82,531 thousand).

         H.       Guarantees

         1.       At December 31, 1999, the Company has granted guarantees
                  to third parties in the sum of $3,131 thousand mainly as
                  guarantees for tenders which the Company has attained or
                  in which it participates.

         2.       The Company also maintains certain third-party guarantees
                  (primarily with banks) to support its performance
                  obligations under customer contracts. These guarantees
                  approximated $31,859 thousand.




Note 12 - Shareholders' Equity

         A.       Authorized, issued and outstanding shares
<TABLE>
<CAPTION>

                                                                                                   Authorized
                                                                                       ------------------------------
                                                                                       December 31       December 31
                                                                                       1999              1998
                                                                                       --------------    ------------
                                                                                                Number of shares
                                                                                       ------------------------------

<S>                <C>                                                                  <C>               <C>
         (Each NIS 0.12 par value per share)                                            200,000,000       200,000,000
                                                                                        ===========       ===========
</TABLE>

         1.       The Company's shares (each NIS 0.12 par value) are traded
                  in the United States on the over the counter market and
                  are listed on the NASDAQ.

         2.       For details of the issued, paid up share capital and
                  shares held by subsidiary, see Statement of Changes in
                  shareholders' Equity.

         3.       At the beginning of 1999 the Company issued 13,966,480
                  ordinary shares to TTL shareholder (see Note 19), and
                  600,000 ordinary shares in connection with the conversion
                  of convertible notes (see Note 9), as well as 815,102
                  shares upon exercise of employee options.

         B.       Dividends

         Dividends may be paid by the Company only out of the retained
         earnings. There are no restrictions on the transfer of funds to
         foreign shareholders for the payment of dividends.

         C.       Share incentive and stock option plans

         1.a      ECI Plan

                  The Company's current Key Employee Share Incentive Plan
                  (the "ECI Plan") was adopted by the shareholders at the
                  Annual General Meeting held on August 29, 1991. The ECI
                  Plan will expire on December 31, 2001.

                  The ECI Plan provides that options may be granted to any
                  employee, consultant or contractor of the Company
                  pursuant to (a) one or more sub-plans designed to benefit
                  from the provisions of Section 102 of the Israeli Income
                  Tax Ordinance (New Version) 1961 and (b) any other share
                  incentive plan approved by the Board of Directors of the
                  Company.

                  Under the terms of the ECI Plan, the Company is
                  authorized to grant options for a total of 5,800,000
                  shares, subject to anti-dilution adjustment. The option
                  awards are personal and non-assignable and terminate
                  automatically upon termination of employment (except for
                  approved retirement or termination caused by death or
                  disability). Until the balance sheets date options were
                  given only to employees.

                  The exercise price per share under the option awards is
                  to be determined on the date of grant provided that such
                  price shall not be less than 80% of the fair market value
                  on such date.

<PAGE>

         1.b Stock options under the ECI Plan are as follows:

<TABLE>
<CAPTION>

                                                                    December 31        December 31       December 31
                                                                    1999               1998              1997
                                                                    ----------------   ----------------  ----------------
                                                                    Number of shares   Number of shares  Number of shares
                                                                    ----------------   ----------------  ----------------
<S>                                                                   <C>                <C>               <C>
                  Total number authorized                             5,800,000          5,800,000         3,800,000
                  Options unexercised at beginning of year           (2,387,750)        (1,911,650)       (1,450,050)
                  Exercised till beginning of year                   (1,466,582)        (1,176,532)         (621,900)
                  Granted                                            (1,251,000)          (872,650)       (1,200,000)
                  Cancelled                                             120,000            106,500           183,768
                                                                    ----------------   ----------------  ----------------
                  Authorized for future grant at end
                   of year                                              814,668          1,945,668           711,818
                                                                    ================   ================  ================
                  Exercised during the current year *                   328,900            290,050           554,632
                                                                    ================   ================  ================
                  * Average price of options exercised
                      during the year                               $     16.89         $    15.22        $    16.47
                                                                    ================   ================  ================
                  Options unexercised at end of year                  3,189,850          2,387,750         1,911,650
                                                                    ================   ================  ================

                  Options may be exercised as follows (1):

                  First year or thereafter                            1,364,100          1,061,100           548,900
                  Second year or thereafter                           1,130,750            709,900           862,250
                  Third year or thereafter                              695,000            541,750           341,750
                  Fourth year or thereafter                              -                  75,000           158,750
                                                                    ----------------   ----------------  ----------------
                                                                      3,189,850          2,387,750         1,911,650
                                                                    ================   ================  ================
</TABLE>

         (1)      To be paid in NIS based on the rate of exchange of the dollar
                  on the date of payment as follows:
<TABLE>
<CAPTION>

                                                                    December 31        December 31       December 31
                                                                    1999               1998              1997
                                                                    ----------------   ----------------  ----------------
                                                                    Number of shares   Number of shares  Number of shares
                                                                    ----------------   ----------------  ----------------
<S>               <C>                                                  <C>                <C>               <C>
                  $ 7.60 per share                                         8,000              8,000             16,000
                  $ 7.61 per share                                         5,600              6,800              8,800
                  $14.02 per share                                        17,000             22,000            108,750
                  $14.93 per share                                       214,750            264,750            366,000
                  $15.01 per share                                        31,200             92,800            117,600
                  $15.19 per share                                         4,000              5,000             15,000
                  $17.00 per share                                       263,900            444,500            531,500
                  $18.70 per share                                        29,250             51,750            113,000
                  $20.81 per share                                       571,000            635,000            635,000
                  $21.00 per share                                       445,000            470,000                 -
                  $24.25 per share                                        40,500             45,500                 -
                  $26.00 per share                                       150,000            150,000                 -
                  $26.38 per share                                        30,000                 -                  -
                  $29.53 per share                                     1,110,000                 -                  -
                  $30.00 per share                                       161,500             68,500                 -
                  $31.00 per share                                        11,000                                    -
                  $32.00 per share                                        97,150            123,150                 -
                                                                   ----------------   ----------------  ----------------
                                                                       3,189,850          2,387,750          1,911,650
                                                                   ================   ================  ================
</TABLE>
<PAGE>

                  Shares covered by unexercised options have no voting
                  rights or rights to cash dividends.

         2.a      ECI U.S. Plan

                  At the Annual General Meeting held on August 29, 1991,
                  the shareholders also approved a Key Employee Incentive
                  stock Option Plan for the Company's wholly-owned U.S.
                  subsidiary, ECI Telecom Inc. (the "ECI U.S. Plan). Under
                  the ECI U.S. Plan, any officer, management employee or
                  other key employee of ECI Telecom Inc. may participate in
                  the ECI U.S. Plan.

                  Under the terms of the ECI U.S. Plan, the Company is
                  authorized to grant options for a total of 400,000
                  shares, subject to the anti-dilution adjustments. The
                  exercise price per share under the option awards is to be
                  determined on the dates of grant, provided that (1) in
                  the case of options which qualify as "incentive stock
                  options" as defined in the Code, such price shall not be
                  less than the fair market value on such date, and (2) in
                  the case of options which do not qualify as incentive
                  stock options, such price shall not be less than 80% of
                  the fair market value on such date.

         2.b      Stock options under the ECI U.S. Plan are as follows:
<TABLE>
<CAPTION>

                                                                    December 31        December 31       December 31
                                                                    1999               1998              1997
                                                                    -----------        ----------------  -----------
                                                                                       Number of shares
                                                                    ------------------------------------------------
<S>                                                                <C>                <C>               <C>
                  Total number authorized                            400,000            400,000           200,000
                  Options unexercised at beginning of year          (119,500)          (101,500)          (44,500)
                  Exercised till beginning of year                   (58,250)           (44,000)          (24,000)
                  Granted during the year                            (78,000)           (60,000)          (83,000)
                  Cancelled during the year                            9,500             27,750             6,000

                  Available for future grants at end of year         153,750            222,250            54,500

                  Exercised during the current year *                 17,500             14,250            20,000

                  * Average price of options exercised
                      during the year                               $  17.24      $        18.7     $       16.14
                  Options unexercised at end of year                 170,500            119,500           101,500

                  Options may be exercised as follows (1):

                  First year or thereafter                            75,500             70,000            17,750
                  Second year or thereafter                           60,000             29,250            52,750
                  Third year or thereafter                            35,000             20,250            31,000

                                                                     170,500            119,500           101,500

                   (1)     To be paid as follows:
                                                                    December 31        December 31       December 31
                                                                    1999               1998              1997
                                                                    -----------        ----------------  -----------
                                                                                       Number of shares
                                                                    ------------------------------------------------
                           $17.00 per share                         56,000             74,000             77,000
                           $18.70 per share                          2,500              5,000             24,500
                           $23.88 per share                          6,000              -                    -
                           $26.37 per share                          7,000              -                    -
                           $27.96 per share                          2,000              -                    -
                           $28.12 per share                         15,000              -                    -
                           $29.12 per share                         17,000              -                    -
                           $31.00 per share                         30,000              -                    -
                           $32.00 per share                         34,000             40,500                -
                           $32.94 per share                          1,000              -                    -
                                                                   ------------       ----------------   -----------
                                                                   170,500            119,500            101,500
                                                                   ============       ================   ===========
</TABLE>

         3.a      TTL Plan

                  As a result of the Merger with TTL, the Company has
                  options outstanding which were granted before the Merger
                  under plans established by TTL as follows:

                  During 1996, TTL implemented the Tadiran
                  Telecommunications Ltd. 1996 Equity Incentive Plan ("the
                  1996 Plan") and granted options to certain employees of
                  TTL thereunder. In addition, during 1997, TTL adopted a
                  second employee option plan similar to the 1996 Plan
                  ("the 1997 Plan") and granted options to certain
                  employees of TTL thereunder.

                  Both plans ("the TTL Plan") provide that from the time an
                  optionee is entitled to exercise the options, he or she
                  shall have the right to exercise all or part of the
                  options under the expiration of the fifth anniversary of
                  the date on which the option was granted ("the Grant
                  Date"). All of the options expire on the fifth
                  anniversary of their respective Grant Dates.

                  Pursuant to the Agreement and Plan of Merger among the
                  Company and TTL options granted pursuant to the 1996 and
                  1997 Plans were converted into fully vested options to
                  purchase ordinary shares of the Company. The exchange
                  ratio for the options was the same as that for shares of
                  TTL held before the Merger; that is, immediately
                  following the Merger, optionees under the TTL Plans would
                  receive 0.55866 ordinary shares of ECI for each ordinary
                  share of TTL they would have received on exercise of
                  their options. As a result of the Merger, optionees under
                  the TTL Plans hold options for the purchase of 691,779
                  shares of the Company.

                  Before the closing of the Merger, optionees were given
                  the opportunity to participate in an arrangement called
                  an "Exchange Program". Optionees choosing to participate
                  in the Exchange Program exercised their options and were
                  given the option ("the Put Option") to sell those shares
                  to a trustee (the same trustee with which the options
                  were deposited in accordance with the terms of the Plans)
                  at a price of $39.35 per share ("the Put Price"). The Put
                  Option is exercisable during the three-month period
                  beginning March 16, 2000. In order to pay the Put Price,
                  the trustee is to sell the related shares to the Company
                  at the market price on the Nasdaq, but no less than
                  $32.90. To the extent that the net proceeds from such
                  sale are equal to or less than $38.35, Tadiran has agreed
                  to pay the trustee up to a maximum of $5.45 per share and
                  the Company has agreed to pay up to $1 per share.

                  In accordance with the terms of the Merger Agreement, any
                  shares of the Company acquired as a result of exercising
                  options received under the TTL Plans (whether or not
                  acquired pursuant to the Exchange Program), the proceeds
                  from the sale of such shares and the options themselves
                  may not be released to any optionee until March 16, 2000.

                  No additional options are authorized to be granted under
                  the TTL Plans.

         C.       Share incentive and stock option plans (cont'd)

         3.b      Stock Option under the TTL Plan are as follows:
<TABLE>
<CAPTION>

                                                                                            December 31
                                                                                            1999
                                                                                            ------------
                                                                                            Number of
                                                                                            shares
                                                                                            ------------

<S>                                                                                          <C>
                  Total number authorized and granted                                        691,779
                  Options exercised (under the exchange program)                            (468,702)
                                                                                            ------------
                  Options outstanding and exercisable at end of year                         223,077
                                                                                            ============
                  Price range of options outstanding at end of year                         $23.16-36.47
                                                                                            ============
                  Average price of options exercised during year                            $ 26.70
                                                                                            ============
</TABLE>

         4.a      Fair value method

                  The difference between the quoted market price of the
                  shares on the date of the grant of the options and the
                  exercise price of such options is charged to income over
                  the expected vesting period, generally over a period of 3
                  years, in accordance with the methods prescribed by APB
                  25 "Accounting for stocks Issued to Employees".

                  4.b In October 1995 the Financial Accounting Standards
                  Board (FASB) issued FAS 123 "Accounting for Stock-based
                  Compensation" which establishes financial accounting and
                  reporting standards for stock-based compensation plans.
                  The statement defines a fair value based method of
                  accounting for an employee stock option.

                  In 1997 the Company adopted the disclosure provisions of
                  FAS 123 but opted to remain under the expense recognition
                  provision of "Accounting for Stock Issued to Employees",
                  as described in 4.a above.

                  As required by SFAS 123, the Company has determined the
                  weighted average fair value of stock-based arrangements
                  grants during 1999 to be $9.03. The fair values of stock
                  based compensation awards granted were estimated using
                  the "Black - Scholes" option pricing model with the
                  following assumptions.



                                    Option      Expected    Risk free
                  Year of grant     term        volatility  interest rate
                  -------------     ----------  ----------  --------------
                  1999               5           58.3        6.00%
                  1998               5           52.5        5.25%
                  1997               5           47.0        6.00%

         C.       Share incentive and stock option plans (cont'd)

         4.b      (cont'd)

                  Had the compensation expenses for stock options granted
                  under the Company's stock option plans been determined
                  based on fair value at the grant dates consistent with
                  the method of FAS 123, the Company's net income and
                  earnings per share would have reduced to the pro forma
                  amount below:
<PAGE>
<TABLE>
<CAPTION>

                                                                                    Year ended December 31
                                                                    ------------------------------------------------
                                                                    1999               1998              1997
                                                                    ----------         ----------        -----------
                 <S>                                               <C>                 <C>               <C>
                  Net income ($ in thousands)
                  As reported                                        165,521            156,162           132,440
                  Pro forma                                          154,012            150,585           129,640

                  Basic earnings per share ($)
                  As reported                                        1.82               2.03              1.73
                  Pro forma                                          1.69               1.96              1.69

                  Diluted earnings per share ($)
                  As reported                                        1.77               1.97              1.70
                  Pro forma                                          1.65               1.90              1.67

                  The above pro forma amounts relate only to options
                  granted since the beginning of 1995.
</TABLE>

         5.       Other plans

                  During 1998 and 1997 the Board of Directors approved a
                  general monetary incentive plan, according to which
                  certain company employees, to be determined by
                  Management, will receive a certain number of incentive
                  units (Phantom shares).

                  Under this plan the holder of an incentive unit will be
                  entitled to a cash bonus, equal to the difference between
                  a base price of the Company shares and the market price
                  of the shares on the date of exercise.

                  Each such portion will be exercisable in three equal
                  parts, at the end of two, three and four years
                  respectively from date of grant of the relevant units.

                  As of December 31, 1999, a total of 1,096,350 incentive
                  units were held by employees. The cost of the incentive
                  unit plan is recognized by the Company over the period of
                  the plan.

                  A provision of $1,533 thousands related to short-term
                  grants and $1,691 thousand related to long-term (in 1998
                  $1,494 thousand and $3,309 thousand respectively).



<PAGE>
<TABLE>
<CAPTION>

Note 13 - Balances in Currencies Other Than the Dollar

                                         December 31, 1999                                           December 31, 1998
                    ---------------------------------------------------------------------     ------------------------------------
                    Israeli currency     Foreign currency                 Israeli currency       Foreign currency
                    -------------------  --------------------------       --------------------   ---------------------------------
                    Linked(*)  unlinked  EURO      Pounds    Others       Linked(*)    Unlinked  Deutsche      Pounds       Others
                                                   Sterling                                      marks         Sterling
                    --------  ---------  --------  --------  ------       --------     --------  --------      --------     ------
                                                                  $ in thousands
----------------------------------------------------------------------------------------------------------------------------------
 Assets

<S>                  <C>       <C>        <C>       <C>       <C>         <C>          <C>       <C>          <C>          <C>
 Trade receivables   8,721     22,004     24,895    21,468    11,826           -         5,910    14,652       21,471       9,995
 Other current
  assets            24,617     17,042     14,210     2,603     1,986       9,695        16,294    6,448         8,935       3,653
                    --------  ---------  --------  --------  --------     --------     --------  --------      --------     ------
                    33,338     39,046     39,105    24,071    13,812       9,695        22,204    21,100       30,406      13,648
                    ========  =========  ========  ========  ========     ========     ========  ========      ========     ======

 Liabilities

 Trade payables        709     66,679        646       782     2,836           -        30,444    1,634            651       4,343
 Other current
  liabilities            -     56,859      1,982     5,222     7,556           8        33,704    2,896          7,571       6,808

 Long-term
  liabilities

  (including current
  maturities)       22,839          -          -         -         -         522         2,413     98                -           -
                    --------  ---------  --------  --------  --------     --------     --------  --------      --------     ------
                    23,548    123,538      2,628     6,004     10,392        530        66,561    4,628          8,222      11,151
                    ========  =========  ========  ========  ========     ========     ========  ========      ========     ======


 *        Linked to the Israeli CPI.
</TABLE>
<PAGE>
Note 14 - Charges (Assets Pledged)

         Some of the Company's existing and future indebtedness to the
         certain Israeli banks are secured by Negative Pledges for
         unlimited amounts on all of the Company's assets. In accordance
         with the terms of the Negative Pledges, the Company is committed
         to maintain certain financial convenants with respect to
         shareholders' equity, the ratio of shareholders' equity to total
         assets, current ratio and operating income as a percentage of
         sales. As of December 31, 1999, the Company was in compliance with
         all such convenants.

         As to deposit pledged - see Note 4A.

         As to restricted short-term investments - see Note 17B.

Note 15 - Taxes on Income

         A.    Tax programs under various Israeli tax laws:

         1.    A.    Tax benefits under the Law for the Encouragement of
                     Capital Investments, 1959.

                     Pursuant to the above Law the Company and its Israeli
                     subsidiaries are entitled to tax benefits relating to
                     investments in "Approved Enterprises" in accordance
                     with letters of approval received.

                     A major part of the production facilities of the
                     Company and its Israeli subsidiaries has been granted
                     the status of an "Approved Enterprise" under the above
                     Law. According to the Law, the Company is entitled to
                     a tax benefit, which grants her a reduced tax rate of
                     20% for a specific period (Alternative A). The
                     Company's "Approved Enterprise" is subject to zero tax
                     rates under the "Alternative Benefit Method" and
                     reduced tax rates (currently - 20%) based on the level
                     of foreign ownership, for specified periods
                     (alternative B).  All of the approved enterprise which
                     currently entitles the Company to benefits is under
                     alternative B.

                     The period of benefits in respect of most of the
                     Company's production facilities will terminate in the
                     years 2000-2010. The Company's current investments in
                     development facilities are made under new approvals.

                     In 1999, approximately 70% of the cost of production
                     facilities of the Company represented approved
                     enterprise facilities (1998 - 62%).

                     In the event of distribution of cash dividends from
                     income taxed at zero rate, a reduced tax rate in
                     respect of the amount distributed would have to be
                     paid. As of December 31, 1999, a distribution of all
                     accumulated profits in excess of approximately 139
                     million from retained earnings as a cash dividend
                     would result in an additional tax expense which would
                     approximate 99 million as the tax rate which applies
                     to such distribution would be 20%. Effectively such
                     dividend distribution would be reduced by the amount
                     of the tax. The benefits are related to the "approved
                     Enterprise" according to the turnover growth from plan
                     to plan.

                     In 1999 the tax authority published instructions that
                     allowed R&D companies under some conditions to reduce
                     the base turnover (which entitled to 36% tax rate) by
                     10% for each year beginning 1996 till year 2001. Those
                     instructions are reducing the effective tax rate due
                     to reduced turnover under full tax rate.

               B.    According to the income tax ordinance in Israel, TTL
                     ceased to be an independent taxpayer, all its
                     activities are done with the framework of the Company.
                     The income tax rate applicable to TTL facilities
                     attributed income to the company is in the final stage
                     of discussion with the Israeli tax authorities'
                     opinion. In the financial statements, the income tax
                     rate is based on the Company's suggestion as submitted
                     to the tax authorities and represents management's
                     estimate of the effective tax rate will be agreed on with
                     the tax authorities.

         2.    Measurement of results for tax purposes under the Income Tax
               Law (Inflationary Adjustments), 1985.

               Under this law, operating results for tax purposes are
               measured in real terms, in accordance with the changes in
               the Israeli CPI, or in the exchange rate of the dollar - for
               a "Foreign Investors' Company", as defined by the Law for
               the Encouragement of Capital Investments, 1959. The Company
               and its Israeli subsidiaries elected to measure their
               operating results on the basis of the changes in the Israeli
               CPI. As a result the Company and its subsidiaries are
               entitled to deduct from their taxable income an "equity
               preservation deduction" (which partially compensates for the
               decrease in the value of shareholders' equity resulting from
               the annual rise in the Israel CPI).

         A.    Tax programs under various Israeli tax laws: (cont'd)

         3.    Tax benefits under the Law for the Encouragement of Industry
               (Taxation), 1969.

               The Company is an "Industrial Company" as defined by this
               Law, and as such is entitled, among other benefits, to claim
               accelerated depreciation of machinery and equipment as
               prescribed by regulations issued under the inflationary
               adjustments tax law.

         4.    Tax rates applicable to income from other sources in Israel.

               Income not eligible for "Approved Enterprise" benefits as
               mentioned above is taxed at the ordinary tax rate of 36%.

         B.    Non-Israeli subsidiaries

         Non Israeli subsidiaries are taxed based upon tax laws in their
         countries of residence.

         C.    Taxes on income from continuing operations

         Taxes on income included in the consolidated statement of income
         comprise the following:

<TABLE>
<CAPTION>

                                                                                Year ended December 31
                                                                  ---------------------------------------------------
                                                                  1999               1998              1997
                                                                  --------------     -------------     --------------
                                                                  $ in thousands     $ in thousands    $ in thousands
                                                                  --------------     --------------    --------------

<S>                                                                  <C>                <C>               <C>
         Current taxes relating to-
         The Company and its Israeli subsidiaries                    4,576               2,945            2,660
         Foreign subsidiaries                                        2,190              12,308            5,808
                                                                    ---------         ---------         --------
                                                                     6,766              15,253            8,468
                                                                    ---------         ---------         --------

         Deferred taxes relating to -
         The Company and its Israeli subsidiaries                      422                (612)              83
         Foreign subsidiaries                                          (79)             (1,786)            (997)
                                                                    ---------         ---------          -------
                                                                       343              (2,398)            (914)
                                                                    ---------         ---------          -------
                                                                     7,109              12,855            7,554
                                                                    =========         =========          =======
</TABLE>



         D.    Income from continuing operations before income tax
               provision

<TABLE>
<CAPTION>

                                                                                    Year ended December 31
                                                                   -----------------------------------------------------
                                                                    1999               1998              1997
                                                                   ---------------     --------------    ---------------
                                                                    $ in thousands     $ in thousands    $ in thousands
                                                                   ---------------     --------------    ---------------

<S>                                                                  <C>                 <C>               <C>
         The Company and its Israeli subsidiaries                    178,728             169,455           141,075
         Foreign subsidiaries                                         (2,373)             25,957            12,365
                                                                    ----------          ---------         ---------
                                                                     176,355             195,412           153,440
                                                                    ==========          =========         ==========

</TABLE>

         E.    Reconciliation of the statutory tax expense to actual tax
               expense

         A reconciliation of the statutory tax expense, assuming all income
         is taxed at the statutory rate (see A4 above) applicable to the
         income of companies in Israel, and the actual tax expense is as
         follows:

<TABLE>
<CAPTION>


                                                                                    Year ended December 31
                                                                    ---------------------------------------------------
                                                                    1999               1998              1997
                                                                    --------------     --------------    --------------
                                                                    $ in thousands     $ in thousands    $ in thousands
                                                                    --------------     --------------    --------------

<S>                                                                   <C>                <C>               <C>
         Income from continuing operations
         as reported in the consolidated statements
         of income                                                    176,355            195,412           153,440
                                                                     ==========        =========          ========
         Theoretical tax on the above amount (36%)                     63,488             70,348            55,238
         Tax effect of non-Israeli subsidiaries                         2,752              6,213             7,377
         Tax benefit arising from the "Approved
          Enterprise"                                                 (60,288)           (90,907)          (60,120)
         Increase in taxes resulting from permanent
         differences, (mainly goodwill) net                             4,386                531               522
         Adjustments arising from differences in the
         basis of measurement for tax purposes and
         for financial reporting purposes and other*                   (3,229)            26,670             4,537
                                                                     ---------         ----------          --------
         Taxes on income for the reported year                          7,109             12,855             7,554
                                                                     =========         ==========          ========

         *     Resulting from the difference between the changes in the
               Israeli CPI (the basis for computation of taxable income of
               the Company and its Israeli subsidiaries - (see A2 above)
               and the exchange rate of Israeli currency relative to the
               dollar.
</TABLE>

         F.    Components of deferred income tax

         (1)   At December 31, 1999 and December 31, 1998, deferred income
               tax consists of future tax assets (liabilities) attributable
               to the following:

<TABLE>
<CAPTION>

                                                                           December 31       December 31
                                                                           1999              1998
                                                                           --------------    -------------
                                                                           $ in thousands    $ in thousands
                                                                           --------------    --------------
<S>                                                                         <C>               <C>
               Deferred tax assets:
               Tax credit carryforwards                                         3,626            4,215
               Capital loss carrryforward                                      46,800            2,160
               Operating loss carryforward                                     18,033            9,497
               Vacation pay accruals and severance pay fund                     4,393            2,277
               Depreciation                                                     2,923            2,068
               Inventory obsolescence                                           5,187            2,312
               Eliminated inter company profits*                                1,628            1,813
               Loss on disposition of discontinued operations                  11,296                -
               Other                                                            4,115            1,636
                                                                              --------         --------
               Gross total deferred tax assets                                 98,001           25,978
               Valuation allowance for deferred tax assets**                  (78,249)         (10,513)
                                                                              --------         --------
               Net deferred tax assets                                         19,752           15,465
                                                                              --------         --------

               Deferred tax liabilities:
               Software development costs                                      (6,138)           (3,965)
               Depreciation                                                       -              (1,266)
               Amortization of intangibles                                       (955)           (1,018)
               Other                                                              -                 (79)
                                                                              ---------         ---------
               Net deferred tax liabilities                                    (7,093)           (6,328)
                                                                              ---------         --------
               Deferred income tax, net***                                     12,659             9,137
                                                                              =========         ========

               *     This deferred taxes relates to intercompany
                     transactions that have no impact on the consolidated
                     income statement.

               **    The valuation allowance is in respect of capital loss
                     carryforward, depreciation related to foreign property
                     and miscellaneous tax credits. Management believes
                     that it is more likely than not that a portion of the
                     deferred tax asset will not be realized and the net
                     deferred tax will be realized.

               ***   Including changes from acquired companies and
                     classification of balances related to discontinued
                     operations in the amount of $3,179 thousands.
</TABLE>

         (2)   At December 31, 1999, the Company had, for tax purposes,
               federal net operating loss carryforward, capital loss
               carryforward, general business and minimum alternative
               carryforwards of $50,550 thousand, $130,075 thousand, $2,740
               thousands and $886 thousand, respectively. The capital loss
               carryforwards expire in 2006 . The general business and
               other credit carryforwards expire over the period 2000
               through 2009.  The federal net operating loss carryforward
               expires over 15 years beginning in 2011 and the alternative
               minimum tax carryforward remains available indefinitely.

         G.    Tax assessment

         Final tax assessments have been received by some of the Israeli
         companies through the 1992 tax year.

Note 16 - Related Party transactions

         Related parties are comprised of principal shareholders (10% and
         up of the Company's share capital) and their subsidiaries and
         affiliates as well as affiliates of the Company. Transactions with
         related parties are mainly as follows:

         a.    Sales of certain of the Company's products and expenses
               related to such sales.

         b.    Interest payable on convertible capital notes and other
               credits.

         c.    Buildings and rentals.

         All transactions with related companies were in the ordinary
         course of business and at terms identical to those applied to
         transactions with other customers or suppliers.

         A.    Balance due to or from related parties:

<TABLE>
<CAPTION>

                                                                     December 31       December 31
                                                                     1999              1998
                                                                     --------------    -------------
                                                                     $ in thousands    $ in thousands
                                                                     --------------    --------------
         Assets:
<S>                                                                   <C>               <C>
         Trade receivables                                            9,700               9,495
         Other receivables                                            2,760               2,254
         Convertible debentures                                       -                 177,000
         Loans to affiliates (Note 5)                                 3,625               4,141

         Liabilities:

         Trade payables                                                  47                 686
         Other payables                                               2,173                 741
         Long-term loan, including current maturities                 -                     522
         Convertible note                                            85,000             100,000

</TABLE>


         B.    Income from, and expenses to, related parties:

<TABLE>
<CAPTION>

                                                                                  Year ended December 31
                                                                    ---------------------------------------------------
                                                                    1999               1998              1997
                                                                    --------------     --------------    --------------
                                                                    $ in thousands     $ in thousands    $ in thousands
                                                                    --------------     --------------    --------------

<S>                                                                    <C>                 <C>               <C>
         Sales                                                         16,950              22,957            7,048
         Cost of sales                                                 14,311              11,331              516
         Selling and marketing expenses                                 2,912               2,755            2,280
         General and administrative expenses                              141                  40              522
         Financial expenses                                             3,938               4,677            5,670
         Financial income                                                 412                 251              144

         C.    Purchase of equipment                                       35                  16              125

</TABLE>

         D.    The Company has arm's-length banking relationships with a
               number of Israeli Banks, one of which is a substantial
               shareholder of a significant shareholder. The amounts stated
               above do not include transactions with this bank.

Note 17 - Supplementary Financial Statement Information

         Balance sheet:

         A.    Cash and cash equivalents

         1.    Including deposits of $203,325 thousand at December 31, 1999
               (December 31, 1998 - $104,958 thousand).

         2.    As to concentration of risk - see Note 11E2.


         B.    Short-term investments

         Including restricted balances of $5,441 thousand at December 31,
         1999 (December 31, 1998 - $4,079 thousand).

         C.    Trade receivables

         1.    Net of provision for doubtful accounts of $11,861 thousand
               at December 31, 1999 (December 31, 1998 - $5,772 thousand).

         2.    Substantially all of the Company's sales are to large
               telecommunications service providers around the world.
               Historically, the Company's uncollectable accounts
               receivable have not been significant, and typically the
               Company does not require collateral for its receivables.

         D.    Short-term credits and current maturities of long-term debt

         Consist of the following:

<TABLE>
<CAPTION>

                                                             December 31       December 31
                                                             1999              1998
                                                             --------------    ---------------
                                                             $ in thousands    $ in thousands
                                                             --------------    ---------------

<S>                                                           <C>               <C>
         In U.S. dollars*                                     137               120,000
         In Chinese Yuan                                      -                     966
         In Israeli currency - non-linked                     -                 -
         Current maturities of long-term debt                 -                     174
                                                             --------------     --------------
                                                              137               121,140
                                                             ==============     ==============

         *     At December 30, 1998, the Company took a bank loan for
               financing the investment in convertible debentures of TTL.
</TABLE>


         E.    Other payables and accrued liabilities

         Consist of the following:

<TABLE>
<CAPTION>

                                                                          December 31       December 31
                                                                          1999              1998
                                                                          --------------    --------------
                                                                          $ in thousands    $ in thousands
                                                                          --------------    --------------

<S>                                                                        <C>               <C>
         Employees and social benefits                                     56,535            41,242
         Chief Scientist                                                   13,071             1,541
         Deferred revenue                                                  -                  6,893
         Tax authorities                                                   17,845             5,770
         Commissions payable                                               34,131            22,691
         Advances from customers                                            1,855             2,655
         Proposed dividend                                                  4,505             3,848
         Warranty accrual                                                   9,186             3,136
         Provisions related to TTL's acquisition (see Note 19)              9,312             -
         Other payables and accrued liabilities                            28,869            10,625
                                                                          ---------         --------
                                                                          175,309            98,401
                                                                          =========         ========
</TABLE>


         F.    Disclosures about segments and related information

         1.    The Company manages its business in one operating segment.

         2.    Information on income by products and services

               ECI's products provide integrated network solutions. ECI
               designs, develops, manufactures and markets products which
               provide capacity expansion and operational flexibility for
               transmission systems in new and existing communication
               networks.

               The Company is accustomed to distinguishing three types of
               products:

               Infrastructure products -

               These include those products designed to increase
               transmission capacity of satellite communications, fiber
               optic cable, microwave and other communications. Similarly,
               these products allow connectivity and various management
               functions through digital communication, mainly through
               fiber optic communication installations.

               Access products -

               These include those products which provide for cheap and
               effective subscriber connection to national telephone grids
               and transfer of a greater capacity of voice, data
               transmission and ISDN communications on existing networks
               and also the erection of new local communication networks in
               areas where there is no cheap or easily available existing
               infrastructure, using copper cable, fiber optics or radio.

               Multimedia products -

               These include switching equipment, wide inter-network access
               and transmission (wan) and the provision of integrated
               solutions for wide area communication networks, their
               installation and management. Similarly, this segment
               includes products used for transferring video of a high
               quality using public network dialing and others.

               Sales by the types of products (in US$ thousands):


<TABLE>
<CAPTION>

                                                                                 Year ended December 31
                                                                 ---------------------------------------------------
                                                                 1999               1998              1997
                                                                 $ in thousands     $ in thousands    $ in thousands
                                                                 --------------     --------------    --------------

<S>                                                               <C>                <C>               <C>
               Infrastructure                                     666,030            559,645           397,815
               Access                                             442,045            184,214           184,144
               Multimedia                                           6,520                511               940
                                                                ----------         ---------          --------
                                                                1,114,595            744,370           582,899
                                                                ==========         =========          =========

</TABLE>


         3.    Information on sales by geographic distribution (in US$
               thousands)

<TABLE>
<CAPTION>

                                                                    1999            1998            1997
                                                                 -----------    -----------     ----------

<S>                                                               <C>             <C>             <C>
               North America                                      237,500         168,600         176,300
               Europe                                             490,800         369,500         254,799
               Africa, Asia Pacific and Australia                 221,195         157,000         104,700
               Others                                             165,100          49,270          47,100
                                                                ---------         -------        --------
                                                                1,114,595         744,370         582,899
                                                                =========         ========       ========
</TABLE>

<PAGE>
         G.    Cost of revenues

<TABLE>
<CAPTION>

                                                                                 Year ended December 31
                                                                    ----------------------------------------------------
                                                                    1999               1998              1997
                                                                    $ in thousands     $ in thousands    $ in thousands
                                                                    --------------     --------------    ---------------

<S>                                                                  <C>                <C>               <C>
         Materials and components consumed                           367,345            278,203           183,506
         Salaries, wages and employed benefits                        97,089             50,461            47,915
         Depreciation and amortization                                28,891             10,713             8,214
         Other manufacturing and other service costs                  22,589             12,952             7,947
                                                                    --------           --------           -------
                                                                     515,914            352,329           247,582
         Decrease (increase) in inventories of work in
         process and finished products                                 3,821            (35,738)           25,561
                                                                   ----------         ----------         --------
                                                                     519,735            316,591           273,143
                                                                   ==========         ==========         ========
</TABLE>


         H.    Research and Development costs, net

<TABLE>
<CAPTION>

                                                                                    Year ended December 31
                                                                    ---------------------------------------------------
                                                                    1999               1998              1997
                                                                    $ in thousands     $ in thousands    $ in thousands
                                                                    --------------     --------------    --------------

<S>                                                                  <C>                <C>                <C>
         Expenses incurred                                           155,494            101,665            71,616
         Less - grant participations (see Note 11D)                   30,347             23,018            20,290
                                                                    ---------          --------          --------
                                                                     125,147             78,647            51,326
                                                                    =========          ========          ========
</TABLE>


         I.    Selling and marketing expenses

<TABLE>
<CAPTION>

                                                                                    Year ended December 31
                                                                    ---------------------------------------------------
                                                                    1999               1998              1997
                                                                    $ in thousands     $ in thousands    $ in thousands
                                                                    --------------     --------------    --------------

<S>                                                                  <C>                <C>               <C>
         Salaries and employee benefits                              63,603             46,309            27,545
         Agents' commissions                                         34,348             10,289            12,619
         Royalties to Chief Scientist and others                     20,437             14,856             9,696
         Advertising and exhibitions                                  6,041              3,076             2,503
         Foreign travel                                              16,166              6,273             5,928
         Marketing, selling and other expenses                       39,818             26,786            21,088
                                                                    --------           --------          --------
                                                                    180,413            107,589            79,379
                                                                    ========           ========          =======

</TABLE>
<PAGE>

         J.    General and administrative expenses

<TABLE>
<CAPTION>

                                                                                    Year ended December 31
                                                                    ----------------------------------------------------
                                                                    1999               1998              1997
                                                                    $ in thousands     $ in thousands    $ in thousands
                                                                    --------------     --------------    ---------------

<S>                                                                   <C>                <C>               <C>
         Salaries and employee benefits                               39,641             19,096            15,093
         Rent and maintenance of premises                              1,557              5,310             4,198
         Other administrative and general expenses                    22,824             14,344             8,949
                                                                     --------           -------            -------
                                                                      64,022             38,750            28,240
                                                                     ========           ========           =======
</TABLE>


         K.    Financial income, net

<TABLE>
<CAPTION>


                                                                                    Year ended December 31
                                                                    ---------------------------------------------------
                                                                    1999               1998              1997
                                                                    $ in thousands     $ in thousands    $ in thousands
                                                                    --------------     --------------    ---------------

         Financial expenses:

<S>                                                                  <C>                <C>               <C>
         On long-term debt                                           4,539              4,568             4,575
         Interest and bank charges                                   2,419              1,473             3,016
         Exchange rate differences (see Note 1A5)                    2,664              1,966             -
                                                                    -------           --------           --------
                                                                     9,622              8,007             7,591
                                                                    =======           ========           ========

         Financial income:

         Interest mainly on bank deposits and other
          receivables                                               17,167             14,516            12,376
         Exchange rate differences (see Note 1A5)                    7,032                202                59
         Gain on sale and revaluation of marketable
          securities                                                 4,176              1,824               692
                                                                   --------           -------           ---------
                                                                    28,375             16,542            13,127
                                                                   ========           =======           =========
</TABLE>
<PAGE>

         L.    Capital gain and other income, net

<TABLE>
<CAPTION>

                                                                                    Year ended December 31
                                                                    ---------------------------------------------------
                                                                    1999               1998              1997
                                                                    $ in thousands     $ in thousands    $ in thousands
                                                                    --------------     --------------    --------------

<S>                                                                 <C>              <C>                 <C>
         Gain from issuance of shares by subsidiary (1)              29,734              -                 -
         Gain from realization of an affiliated
          company (2)                                                25,572              -                 -
         Gain (loss) from sale of property and
          equipment, net (3)                                         (2,923)             27                341
         Other income (expenses), net (4)                            (1,491)            (80)            (2,708)
                                                                    --------           ------          --------
         Total other income (expenses), net                          50,892             (53)            (2,367)
                                                                    ========           ======          =========
</TABLE>


         (1)   In October 1999, ECtel Ltd., a wholly owned subsidiary,
               which mainly provides solutions for fraud detection, quality
               monitoring of networks and interconnect billing, completed
               an initial public offering in NASDAQ U.S. stock exchange, in
               which it raised a net sum of $43.2 million. As a result of
               the initial public offering, holdings in ECtel declined to
               75%.

         (2)   See Note 5A3.

         (3)   In December 1999, agreement was signed with SCI Systems Inc.
               (hereinafter - "SCI") to purchase TTL's Manufacturing Plant
               (named "Shemer"). SCI is one of the world's largest
               providers of electronics manufacturing services. The Shemer
               facility produces printed circuit board assemblies and other
               products for the Company and provided related services. The
               agreements also include a multi-year supply agreement in
               which the Company will subcontract part of its manufacturing
               activities to SCI according to cost plus method.

         (4)   Include expenses amounting to $651 thousand, deriving from
               selling certain trade account receivables, to an
               unaffiliated financial institute ("the Purchaser"). The
               Company will not be liable for any recourse, nevertheless,
               it will continue to service, administer and collect the
               receivables on behalf of the purchaser. In 1999, the impact
               of the above transaction reduced trade receivables in the
               consolidated balance sheets and increased cash flows from
               operating activities in the consolidated statement of cash
               flows by $44,612 thousand.

<PAGE>

         M.    Supplementary income statement information


<TABLE>
<CAPTION>

                                                                                    Year ended December 31
                                                                    ---------------------------------------------------
                                                                    1999               1998              1997
                                                                    $ in thousands     $ in thousands    $ in thousands
                                                                    --------------     --------------    ---------------

         Expenses:

<S>                                                                  <C>                <C>               <C>
         Maintenance and repairs                                     12,951              8,338             8,064
         Depreciation of property, plant and equipment               42,988             25,418            21,275
         Taxes (other than income taxes)                              2,747              3,003             2,125
         Rent                                                        12,542              8,685             8,220
         Advertising costs                                            6,144              4,968             3,192
         Royalties                                                   20,625             15,045            10,038

</TABLE>


         N.    Earnings per share ("EPS")

         Under SFAS No. 128 "Earnings per share" and "basic earnings per
         share", is calculated based upon the weighted average number of
         common shares actually outstanding, and "diluted earnings per
         share" is calculated based upon the weighted average number of
         common shares, common equivalent shares, and other convertible
         securities outstanding.

         Following are the details of the basic and diluted EPS:

         1.    EPS for continuing operations

<TABLE>
<CAPTION>
                                                1999                              1998                          1997
                                 --------------------------------   -----------------------------    ---------------------------
                                  Income       Number      Per      Income       Number    Per      Income     Number    Per
                                  from         of          share    from         of        share    from       of        share
                                  continuing   shares      amount   continuing   shares    amount   continuing shares    amount
                                  operations                        operations                      operations
                                  ----------   ----------  ------   ---------   ---------- -------  ---------  --------- -------
                                  $ in         in                   $ in         in                 in         in
                                  thousands    thousands   $        thousands    thousands $        thousands  thousands $
                                  ----------   ----------  ------   ---------   ---------- -------  ---------  --------- -------

<S>                               <C>          <C>         <C>      <C>         <C>         <C>      <C>       <C>        <C>
Basic EPS                         165,521      91,148      1.82     173,812     76,787      2.26     143,712   76,375     1.88
                                                           ====                             ====                          ====
Effect of dilutive securities:
Employee stock options                            893                   -          776                   -        415
Convertible notes                   3,822       3,466                 4,500      4,000                 4,500    4,000
                                  ---------   -------               -------     ------               --------  ------
Diluted EPS                        169,343     95,507      1.77     178,312     81,563      2.19     148,212   80,790     1.84
                                  =========   =======      ====     =======     ======      ====     ========  ======     ====
</TABLE>

         2.    EPS for discontinued operations

<TABLE>
<CAPTION>

                                               1999                             1998                          1997
                                 -----------------------------  ------------------------------  -------------------------------
                                 Loss from    Number    Per     Loss from     Number of  Per    Loss from     Number of   Per
                                 discontinued of        share   discontinued  shares     share  discontinued  shares      share
                                 operations   shares    amount  operations               amount operations                amount
                                 ----------   --------  ------  ------------  ---------  ------ ------------  ---------   ------
                                 $ in         in                $ in          in                $ in          in
                                 thousands    thousands $       thousands     thousands  $      thousands     thousands   $
                                 -----------  --------- ------  -----------   ---------  ------ ------------  ---------   ------

<S>                              <C>           <C>      <C>      <C>          <C>        <C>     <C>          <C>         <C>
Basic EPS                        (63,002)      91,148   (0.70)   (17,650)     76,787     (0.23)  (11,272)     76,375      (0.15)
                                                        ======                           ======                           ======
Effect of dilutive securities:
Employee stock options                            893                -           776                -            415
Convertible notes                   -           3,466                -         4,000                -          4,000
                                 ---------    -------            --------    -------             -------      -------
Diluted EPS                      (63,002)      95,507   (0.66)   (17,650)     81,563     (0.22)  (11,272)     80,790      (0.14)
                                 =========    =======   ======   ========    =======    =======  ========     ========    ======

</TABLE>
<PAGE>
         3.    EPS for Net income

<TABLE>
<CAPTION>

                                         1999                                  1998                            1997
                           -----------------------------------   ---------------------------------  ---------------------------
                           Net          Number of    Per share   Net         Number of   Per share  Net       Number of  Per
                           income       shares       amount      income      shares      amount     income    shares     share
                           ---------    ---------    ---------   ---------   ---------   --------   --------- ---------  ------
                           $ in         in                       $ in        in                     $ in      in         amount
                           thousands    thousands    $           thousands   thousands   $          thousands thousands  $
                           ---------    ---------    ---------   ---------   ---------   --------   --------- ---------  ------

<S>                        <C>          <C>          <C>         <C>         <C>         <C>        <C>       <C>        <C>
Basic EPS                  102,519      91,148       1.12        156,162     76,787      2.03       132,440   76,375     1.73
                                                     ====                                ====                            ====

Effect of dilutive
  securities:
Employee stock options                     893                      -           776                    -         415
Convertible notes            3,822       3,466                     4,500      4,000                   4,500    4,000
                           --------     -------                  -------     ------                 -------    -----
Diluted EPS                106,341      95,507       1.11        160,662     81,563      1.97       136,940   80,790     1.70
                           ========     =======      ====        =======     ======      ====       =======   ======     ====
</TABLE>


Note 18 - Recently Relevant Enacted Accounting Standards

         In June 1998, the FASB issued SFAS No. 133, Accounting for
         Derivative Instruments and Hedging Activities, which will require
         that all derivative financial instruments be recognized as either
         assets or liabilities in the balance sheet. In June 1999, the FASB
         issued SFAS No. 137, "Accounting for Derivative Instruments and
         Hedging Activities - Deferral of the Effective Date of SFAS No.
         133", which deferred the implementation of SFAS No. 133. SFAS No.
         133 will be effective for the Company's first quarter of fiscal
         2001. The Company is evaluating the effects of the new statement
         and how to implement the new requirements. The Company has not yet
         evaluated the impact of SFAS No 133.

<PAGE>
Note 19 - Acquisitions

         A.    The acquired companies

         Tadiran Telecommunications Ltd. (hereinafter "TTL")

         Effective the first quarter of 1999, ECI completed the merger with
         TTL (hereinafter "merger"), a subsidiary of Tadiran Ltd.
         (hereinafter "Tadiran"). TTL specialized in a variety of
         telecommunications fields, including: transport and access
         systems, wireless local loop, data communications, multiplexing
         equipment and business telecommunications systems. TTL provided
         innovative solutions to telecommunications operators and other
         businesses throughout the world.

         During the first quarter of 1999 the Board of Directors, the
         shareholders, and the authorities in Israel, confirmed the merger.
         The merger is accounted for under the "purchase" method of
         accounting. Consequently, the assets and liabilities of TTL were
         recorded on ECI's books at their fair market values.

         The purchase price for the TTL acquisition is $403.8 million. The
         purchase price is calculated based on the market price of the ECI
         Ordinary Shares at the time that the merger conditions including
         the Exchange Ratio were agreed upon in principle and publicly
         announced, according to EITF No. 95-19.

         The total excess of cost is $ 229.9 million, which was allocated
         as follows:

                                                           $ in thousands
                                                           --------------

         In process research and development                  87,327
         Goodwill and Intangible asset                       142,583
                                                             --------
                                                             229,910
                                                             ========

         *     The IPR&D considered according to the specific requirements
               of SFAS No. 2. Critical elements of SFAS No. 2 Valuation of
               IPR&D are that the product has not yet demonstrated
               technological feasibility and that it does not have an
               alternative future use.

         A.    The acquired companies (cont'd)

         The consideration of the IPR&D was modified by income approach
         according to the guidance provided by SEC using specific factors
         as follows:

         o     analysis of the stage of completion of each project,

         o     exclusion of value related to R & D yet-to-be completed as
               part of ongoing IPR&D project, and

         o     the contribution of existing products/technologies.

         In the merger agreement, the Company indemnify and hold harmless
         Tadiran from and against all losses and damages incurred by
         Tadiran arising out of (i) taxes imposed on ECI or certain of its
         subsidiaries which are not fully provided for in ECI's
         consolidated financial statements and (ii) any inaccuracy in the
         representations and warranties made by ECI pursuant to the Merger
         Agreement with respect to intangible assets and litigation. ECI's
         indemnification obligations are subject to deductibles of between
         $5 million and $22.5 million.

         Solely for purposes of indemnification by Tadiran, the
         representations and warranties made by TTL with respect to
         intangible assets, litigations and related party transactions and
         the representation and warranty made by Tadiran regarding related
         party transactions shall survive for 12 months following the
         Closing Date. Solely for purposes of ECI's indemnification of
         Tadiran, the representations and warranties made by ECI with
         respect to intangible assets and litigation shall survive for 12
         months following the Closing Date. Tadiran's indemnification
         obligations for any matter or allegation being reviewed by the
         Israeli Comptroller of Restrictive Trade Practices (see Note 11B2)
         shall survive the Closing Date by seven years, extended by any
         period that such matters continue to be under active investigation
         or review after the Closing Date.

         B.    Unaudited - Pro forma Summary

         The following unaudited pro forma summary presents the Company's
         consolidated results of operations as if the acquisitions occurred
         at the beginning of the respective periods, after giving effect to
         certain adjustments including amortization of goodwill and other
         intangibles acquired, business disposed of or to be disposed of,
         reclassification and related income tax effects. These pro forma
         results are not necessarily indicative of those that would have
         occurred had the merger taken place at the beginning of the
         respective periods.

                                                                 Year ended
                                                                 December 31
                                                                 1998
                                                                 -------------
         $ in millions (except per share amounts)                (Unaudited)
                                                                 -------------

         Revenues                                                     1,041

         Net income applicable to common stockholders                   180

         Net income applicable to common
           stockholders - per share:

         Basic                                                        1.98
         Diluted                                                      1.93

         C.    Restructuring cost

         Following the merger with TTL an analysis was performed of ECI's
         product lines to determine where products which were duplicative
         with products which were offered by TTL existed. Based on this
         analysis and a comparison of functionality and features of the
         respective products, the company recorded a charge of $14,947
         thousand regarding to assets and liabilities of ECI, as follows:

                                                             Year ended
                                                             December 31
                                                             1999
                                                             ----------------
                                                             ($ in thousands)
                                                             ----------------

         Inventory write-down                                 3,518
         Equipment write-down                                 2,352
         Capitalized software write-down                      2,414
         Severance pay                                        5,950
         Others                                                 713
                                                             ------
                                                             14,947
                                                             ======

Note 20 - Discontinued Operations

         Before the approval of the financial statements for the year ended
         December 31, 1999 the Management, after receiving the approval of
         the Board of Directors, had completed a formal plan for disposal
         certain segments, as defined at APB opinion No. 30, by method of
         sale or abandonment.

         The activities whose operations it was decided to discontinue
         were:

         1.    DNI (Data Networking/Internet) which operates in the field
               of developing and marketing software and certain hardware
               for data networking/internet, by way of abandonment until
               the last quarter of 2000. Therefore, a provision of $36
               million was recorded for anticipated losses from abandoning
               this operation, from which, in Management's estimation, no
               significant proceeds will be had.

         2.    TNN, Taditel and Tactel - three subsidiaries of TTL which
               merged with the Company at beginning of 1999. The
               subsidiaries are in the field of marketing equipment of
               Newbridge in Israel (TNN) and in the development,
               manufacturing and marketing of components to the Automotor
               Industries (Tactel and Taditel). The disposal of the
               subsidiaries intent to be by way of sales of their
               shares/activities to a non related parties.

         Summarized data for the discontinued operations is as follows:

         A.    Results of operations

<TABLE>
<CAPTION>

                                                                                   Year ended December 31,
                                                                    ----------------------------------------------
                                                                    1999               1998              1997
                                                                    --------          -------            -------
                                                                        (In thousands, except per share amounts)
                                                                    ---------------------------------------------

<S>                                                                  <C>                <C>               <C>
         Net sales                                                   67,753             61,834            94,842
                                                                     -------           --------           -------

         Loss from discontinued operations before taxes
          on income                                                  24,622             19,210            11,920
         Taxes on income (loss)                                         614             (1,560)             (648)
                                                                     ------            --------           -------

         Loss from discontinued operations after taxes on
          income                                                     25,236             17,650            11,272
         Company's equity in results of investee
          companies, net                                                357               -                 -
                                                                     ------            -------            -------

         Loss from discontinued operations (net of
          income tax)                                                25,593             17,650            11,272
                                                                     ------            -------            -------

         Loss from disposal of discontinued operations
          (net of income taxes)                                      37,409               -                 -
                                                                     ------            -------            -------

                                                                     63,002             17,650            11,272
                                                                     ======            ========           =======

         Loss per Common Share
          Basic                                                      (0.70)              (0.23)            (0.15)
                                                                     ======              ======            ======
          Diluted                                                    (0.66)              (0.22)            (0.14)
                                                                     ======              ======            ======
</TABLE>


         B.    Net assets and liabilities of discontinued operations,
               consist:

                                                               December 31,
                                                               1999
                                                               -------------
                                                               (In thousands)
                                                               -------------

         Current assets                                         16,934
         Investments in subsidiaries                             4,915
         Property, plant and equipment, net                      1,225
         Other assets                                               35
         Current liabilities                                   (23,726)
         Non-current liabilities                                  (394)
                                                               ---------
                                                                (1,011)
                                                               =========



                               AUDITOR REPORT
                           To the shareholders of
                            Koor Properties Ltd.

I have audited the financial statements of Koor Properties Ltd.
(hereinafter - the company) and the consolidated financial statements of
the company and its subsidiaries: balance sheets as of December 31, 1999
and 1998 and the related 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 board of directors and management. My responsibility is to
express an opinion on these financial statements based on my audit.

I did not audit the financial statements of consolidated subsidiaries,
whose assets at December 31, 1999 and 1998 constitute approximately 27% and
24%, respectively, of total consolidated assets, and whose revenues for
three years in the period ended December 31, 1999 constitute approximately
11%, 20% and 23%, respectively, of total consolidated revenues. The
financial statements of those companies were audited by other auditors,
whose reports have been furnished to me, and my opinion, insofar as it
relates to amounts included for the foregoing subsidiaries, is based solely
on the reports of the other auditors. Also, I did not audit the financial
statements of certain associated companies, the company's interest in which
as reflected in the balance sheets at December 31, 1999 and 1998 is
adjusted NIS 4,726,000 and adjusted NIS 4,405,000, respectively, and the
company's share in profits of which is a net amount of adjusted NIS 321,000
in 1999, adjusted NIS 1,263,000 in 1998 and adjusted NIS 514,000 in 1997.
The financial statements of those companies were audited by other auditors
whose reports have been furnished to me, and my opinion, insofar as it
relates to amounts included for those companies, is based solely on the
reports of the other auditors.

I conducted my audit in accordance with generally accepted auditing
standards, including those prescribed by the Auditors (Mode of Performance)
Regulations, 1973. Those standards require that I 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 the company's board of directors and
management, as well as evaluating the overall financial statements
presentation. I believe that my audits provide a fair basis for my opinion.

In my opinion, based on my audit and the reports of the other auditors
referred to above, the aforementioned consolidated financial statements
present fairly, in all material respects, the consolidated financial
position - of the company and consolidated - as of December 31, 1999 and
1998 and the results of operations, changes in shareholders' equity and
cash flows - of the company and consolidated - for each of the three years
in the period ended December 31, 1999, in conformity with generally
accepted accounting principles. Also, in my opinion, the abovementioned
financial statements have been prepared in accordance with the Securities
(Preparation of Annual Financial Statements) Regulations 1993.

As mentioned in note 2, these financial statements are presented in New
Israeli Shekels adjusted for the changes in the general purchasing power of
the Israeli currency, in accordance with pronouncements of the Institute of
Certified Public Accountants in Israel.


                               YOSEF SHIMONY
                    Certified Public Accountants (Isr.)

                              Kost Forer & Gabbay      Phone: 972-3-6232525
                              2 Kremenetski St.        Fax: 972-3-5622555
                              Tel-Aviv 67899, Israel

March  19, 2000.
ERNST & YOUNG


                       REPORT OF INDEPENDENT AUDITOR

                           To the Shareholders of

                              KOOR TRADE LTD.



    We have audited the accompanying balance sheets of Koor Trade Ltd.
("the Company") as of December 31, 1999 and 1998 and the related statements
of operations, changes in shareholders' deficiency 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 Board of Directors and
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 company, the investment
in which on the equity basis of accounting totaled NIS 43.2 million and NIS
50.5 million as of December 31, 1999 and 1998, respectively, and the
Company's share in the net income of which totaled NIS 0.2 million, NIS 1.5
million and NIS 1.2 million for the three years in the period ended
December 31, 1999, 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 certain company, is based solely on
the reports of the other auditors.

    We conducted our audit in accordance with generally accepted auditing
standards in Israel, including those prescribed by the Israeli Auditors'
Regulations (Mode of Performance), 1973. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement, an audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the Board of
Directors and management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.

    The financial statements audited by other auditors were not received,
the investments in affiliate was included at its adjusted book value as of
December 31, 1998. The statement does not include the equity in the results
of operations of the aforementioned affiliate for the year ended December
31, 1998.

    In our opinion, except for the matters described in the preceding
paragraph, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December
31, 1999 and 1998 and the results of its operations, changes in
shareholders' deficiency and cash flows for each of the three years in the
period ended December 31, 1999, in conformity with generally accepted
accounting principles in Israel.

    As applicable to the Company's financial statements, generally accepted
principles in the united states and in Israel are identical in all material
aspects.

      Tel-Aviv, Israel                       KOST FORER & GABBAY
      March 20, 2000                         A Member of Ernst & Young
                                                  International



                       REPORT OF INDEPENDENT AUDITOR

                           To the Shareholders of

                          UNITED STEEL MILLS LTD.
                        (Under stay of proceedings)


    We have audited the accompanying balance sheets of United Steel Mills
Ltd. (under stay of proceedings) ("the Company") as of December 31, 1999
and 1998 and the consolidated balance sheets for the same dates and the
statements of income, changes in shareholders' equity and cash flows - the
Company and the consolidated - for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility
of the Company's management and Board of Directors. 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, including those prescribed by the Israeli Auditors' Regulations
(Mode of Performance), 1973. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the Company's
management and Board of Directors, 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 financial statements referred to above present fairly, in all
material respects, the financial position of - the Company and the
consolidated - as of December 31, 1999 and 1998, and the results of
operations, changes in shareholders' equity and cash flows - the Company
and the consolidated - for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting
principles in Israel. Furthermore, in our opinion, the aforementioned
financial statements comply with the requirements of the Israeli Securities
Regulations (Preparation of Annual Financial Statements), 1993.

    As explained in Note 2, the aforementioned financial statements are
presented in adjusted values according to the changes in the general
purchasing power of Israeli currency, as required by Statements of the
Institute of Certified Public Accountants in Israel.

    Without qualifying our review report, we wish to draw attention to the
fact that the Company has suffered losses for the year ended December 31,
1999 in the amount of NIS 31 million and has a working capital deficiency
as of that date in the amount of NIS 95 million. In addition, in December
1999, the Company's Board of Directors gave notice that it is unable to
discharge the redemption of the principal of the debentures in January
2000, as described in Note 13. On March 16, 2000, the Haifa District Court
issued an order to stay the proceedings against the Company and its
subsidiaries, pursuant to section 350 to the Companies Law, 1999, and the
Court also appointed a special trustee-manager on behalf of the Court to
supervise the operations and businesses of the Company and its subsidiaries
and to act as a special manager for the Company and its subsidiaries. These
factors, along with additional factors set forth in Notes 1a (6), 13 and
14c raise significant doubts about the Company's ability to continue as a
going concern. As described in Note 1a(6), an order to stay the proceedings
against the Company and its subsidiaries was issued in order to enable the
formation of a comprehensive recovery plan and to propose a settlement for
the creditors.

    The financial statements do not include any adjustments with respect to
the value of the assets and the liabilities and their classification which
may be required should the Company not be able to continue to operate as a
going concern.

Tel-Aviv, Israel                                  KOST FORER & GABBAY
March 22, 2000                                    A Member of Ernst & Young
                                                       International



                              AUDITORS' REPORT
                           To the shareholders of
                       SHERATON MORIAH (ISRAEL) LTD.


We have audited the accompanying balance sheet of Sheraton Moriah (Israel)
Ltd. (hereinafter - the company) as at December 31, 1999 and the
consolidated balance sheet as at that date, and the related statements of
income (loss), changes in shareholders' equity and cash flows for the year
ended on that date. These financial statements are the responsibility of
the board of directors and company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We did not audit the financial statements of certain subsidiaries, whose
assets constitute approximately 10.36% of total consolidated assets as at
December 31, 1999 and whose revenues constitutes 0% of total consolidated
revenues for the year ended on that date. The financial statements of the
above subsidiaries were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to amounts included
for those companies, is based solely on the reports of the other auditors.

We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed by the Israeli Auditors (Mode of
Performance) Regulation, 1973. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the company's
board of directors and management, as well as evaluating the overall
financial statements presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, based on our audits and the reports of the other auditors,
the aforementioned financial statements present fairly, in all material
respects, the financial position - of the company and consolidated - as at
December 31, 1999 and the results of operations, changes in shareholders'
equity and cash flows - of the company and consolidated - for the year
ended on that date. Also, in our opinion, the aforementioned financial
statements have been prepared in accordance with the Israeli Securities
(Preparation of Annual Financial Statement) Regulations, 1993.

As explained in note 2, the aforementioned financial statements are
presented in values adjusted to reflect the changes in the general
purchasing power of the Israeli currency, in accordance with pronouncements
of the Institute of Certified Public Accountants in Israel.

This report is based on our opinion on the financial statements for said
year, which was given on March 15, 2000.

   LEVIN, DOV, ORLITZKY & CO.              BRIGHTMAN, ALMAGOR & CO.
   Certified Public Accountants (Isr.)     Certified Public Accountants (Isr.)


                                                   Ramat-Gan, June 19, 2000
<PAGE>
EXHIBIT INDEX
-------------

    Exhibit No.     Exhibit
    -----------     -------

        1.1         Agreement dated December 31, 1999 between Koor and Clal
                    Industries and Investments Ltd. for the sale of Koor's
                    holdings in Mashav.

        1.2         Agreement dated November 10, 1999 between Tadiran and
                    the Shamrock Group for the sale of Tadiran's interest in
                    Tadiran Com.