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|      |   | TABLE OF CONTENTS                                                            | Page No. |
|-----------|--------|------------------------------------------------------------------------------|----------|
|      |   |                                                                         |     |
| PART I    |   |                                                                         |     |
|      |   |                                                                         |     |
| Item 1.   |   | Identity of Directors, Senior Management and Advisers                        | 6        |
| Item 2.   |   | Offer Statistics and Expected Timetable                                      | 6        |
| Item 3.   |   | Key Information                                                              | 6        |
| Item 4.   |   | Information on the Company                                                   | 28       |
| Item 4A.  |   | Unresolved Staff Comments                                                    | 58       |
| Item 5.   |   | Operating and Financial Review and Prospects                                 | 59       |
| Item 6.   |   | Directors, Senior Management and Employees                                   | 87       |
| Item 7.   |   | Major Shareholders and Related Party Transactions                            | 109      |
| Item 8.   |   | Financial Information                                                        | 115      |
| Item 9.   |   | The Offer and Listing                                                        | 118      |
| Item 10.  |   | Additional Information                                                       | 119      |
| Item 11.  |   | Quantitative and Qualitative Disclosures About Market Risk                   | 146      |
| Item 12.  |   | Description of Securities Other than Equity Securities                       | 146      |
|      |   |                                                                         |     |
| PART II   |   |                                                                         |     |
| Item 13.  |   | Defaults, Dividend Arrearages and Delinquencies                              | 146      |
| Item 14.  |   | Material Modifications to the Rights of Security Holders and Use of Proceeds | 146      |
| Item 15.  |   | Controls and Procedures                                                      | 146      |
| Item 16.  |   | [Reserved]                                                                   | 147      |
| Item 16A. |   | Audit Committee Financial Expert                                             | 147      |
| Item 16B. |   | Code of Ethics                                                               | 147      |
| Item 16C. |   | Principal Accountant Fees and Services                                       | 148      |
| Item 16D. |   | Exemptions from the Listing Standards for Audit Committees                   | 148      |
| Item 16E. |   | Purchases of Equity Securities by the Issuer and Associate Purchasers        | 148      |
| Item 16F. |   | Change in Registrant's Certifying Accountant                                 | 148      |
| Item 16G. |   | Corporate Governance                                                         | 148      |
| Item 16H  |   | Mine Safety Disclosure                                                       | 148      |
|      |   |                                                                         |     |
| PART III  |   |                                                                              |     |
| Item 17.  |   | Financial Statements                                                         | 149      |
| Item 18.  |   | Financial Statements                                                         | 149      |
| Item 19.  |   | Exhibits                                                                     | 149      |

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|  | (1) | In February 2017, our holding in Coramaze increased to approximately 30% following an investment by us and other shareholders. See Item 4.A below for further details. |
|--|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (2) | In March 2017, our holding in Nitinotes increased to approximately 24% following the second installment in accordance with the investment agreement. See Item 4.A below for further details. |
|--|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (3) | In February 2017, our holding in Alcide decreased to approximately 26% following an investment by us, new investors, and other shareholders. See Item 4.A below for further details. |
|--|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (4) | We acquired our holding in AudioBurst Ltd., or AudioBurst, as part of our investment in PlyMedia (2006) Ltd., or Plymedia. |
|--|-----|----------------------------------------------------------------------------------------------------------------------------|

|  | (5) | In February 2017, RDC's holding in Secdo decreased to approximately 22% following the increase of its funding round by $2 million. See Item 4.A below for further details. |
|--|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (6) | In February 2017, RDC's holding in Open Legacy decreased to approximately 40% following the increase of its funding round by approximately $2.3 million. See Item 4.A below for further details. |
|--|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Item 1. | Identity of Directors, Senior Management and Advisers |
|---------|-------------------------------------------------------|

| Item 2. | Offer Statistics and Expected Timetable |
|---------|-----------------------------------------|

| Item 3. | Key Information |
|---------|-----------------|

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| Item 3. | Key Information (Cont.) |
|---------|-------------------------|

|                                                                                                      |   | 2012   |   |   | 2013   |   |    | 2014   |   |   | 2015    |   |   | 2016   |   |
|-----------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|--------|
| Income                                                                                                    |   |   |   |   |   |   |    |   |   |   |    |   |   |   |   |
| Income from sales                                       |   |   | -      |   |   |   | 97      |   |   |   | 374     |   |   |   | 889    |   |   |   | - |   |
| Gain (loss) from disposal and revaluation of investee companies and changes in holdings, net              |   |   | 39,426 |   |   |   | 8,416   |   |   |   | 176,095 |   |   |   | 40,590 |   |   |   | (2,062 | ) |
| Financial income                                        |   |   | 1,241  |   |   |   | 684     |   |   |   | 887     |   |   |   | 1,112  |   |   |   | 2,437 |   |
|                                                                                                      |   |   | 40,667 |   |   |   | 9,197   |   |   |   | 177,356 |   |   |   | 42,591 |   |   |   | 375 |   |
| Cost and Expenses:                                                                                        |   |   |   |   |   |   |    |   |   |   |    |   |   |   |   |   |   |   |   |   |
| Cost of sales                                           |   |   | -      |   |   |   | 59      |   |   |   | 124     |   |   |   | 267    |   |   |   | - |   |
| Research and development, net expenses, net                                                               |   |   | 6,869  |   |   |   | 3,929   |   |   |   | 2,113   |   |   |   | 13,129 |   |   |   | 6,468 |   |
| Selling and marketing expenses                          |   |   | 905    |   |   |   | 545     |   |   |   | 1,324   |   |   |   | 2,008  |   |   |   | 337 |   |
| General and administrative expenses                     |   |   | 7,190  |   |   |   | 7,193   |   |   |   | 7,057   |   |   |   | 7,556  |   |   |   | 7,035 |   |
| Equity in losses of associates, net                     |   |   | 8,357  |   |   |   | 11,868  |   |   |   | 15,840  |   |   |   | 8,566  |   |   |   | 13,443 |   |
| Financial expenses                                      |   |   | 2,052  |   |   |   | 561     |   |   |   | 3,393   |   |   |   | 650    |   |   |   | 383 |   |
| Other expenses (income), net                            |   |   | (282   | )      |   |   | (3,487  | )      |   |   | 793     |   |   |   | 22     |   |   |   | 2,244 |   |
|                                                                                                      |   |   | 25,091 |   |   |   | 20,668  |   |   |   | 30,644  |   |   |   | 32,198 |   |   |   | 29,910 |   |
| Income (loss) before taxes on income                                                                      |   |   | 15,576 |   |   |   | (11,471 | )      |   |   | 146,712 |   |   |   | 10,393 |   |   |   | (29,535 | ) |
| Taxes on income (tax benefit)                           |   |   | (262   | )      |   |   | (28,401 | )      |   |   | 45,326  |   |   |   | 3,348  |   |   |   | 1,236 |   |
| Net income (loss)                                       |   |   | 15,838 |   |   |   | 16,930  |   |   |   | 101,386 |   |   |   | 7,045  |   |   |   | (30,771 | ) |
| Net income (loss) attributable to Elron's shareholders                                                    |   |   | 4,357  |   |   |   | 17,935  |   |   |   | 85,494  |   |   |   | 2,451  |   |   |   | (26,814 | ) |
| Net income (loss) attributable to non-controlling interests                                               |   |   | 11,481 |   |   |   | (1,005  | )      |   |   | 15,892  |   |   |   | 4,594  |   |   |   | (3,957 | ) |
| Net income (loss)                                       |   |   | 15,838 |   |   |   | 16,930  |   |   |   | 101,386 |   |   |   | 7,045  |   |   |   | (30,771 | ) |
| Net income (loss) per share attributable to shareholders:                                                 |   |   |   |   |   |   |    |   |   |   |    |   |   |   |   |   |   |   |   |   |
| Basic gain (loss) per share                             |   |   | 0.09   |   |   |   | 0.54    |   |   |   | 2.87    |   |   |   | 0.08   |   |   |   | (0.90 | ) |
| Weighted average number of ordinary shares used in computing basic gain (loss) per share (in thousands)   |   |   | 29,664 |   |   |   | 29, 743 |   |   |   | 29,744  |   |   |   | 29,744 |   |   |   | 29,744 |   |
| Diluted gain (loss) per share                           |   |   | 0.09   |   |   |   | 0.54    |   |   |   | 2.87    |   |   |   | 0.08   |   |   |   | (0.90 | ) |
| Weighted average number of ordinary shares used in computing diluted gain (loss) per share (in thousands) |   |   | 29,664 |   |   |   | 29,744  |   |   |   | 29,744  |   |   |   | 29,744 |   |   |   | 29,744 |   |

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| Item 3. | Key Information (Cont.) Consolidated Statement of Financial Position |
|---------|----------------------------------------------------------------------|

|                                                                                  |   | 2012   |    |   | 2013   |   |    | 2014   |   |   | 2015    |   |   | 2016   |    |
|---------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|
| Cash, cash equivalents and short-term and long term investments                       |   |   | 47,541  |   |   |   | 32,291  |   |   |   | 159,914 |   |   |   | 150,184 |   |   |   | 96,380 |   |
| Assets held for sale                |   |   | -       |   |   |   | 108,735 |   |   |   | -       |   |   |   | -       |   |   |   | - |   |
| Investments in associate companies and in other companies and long term receivables   |   |   | 140,624 |   |   |   | 34,870  |   |   |   | 33,858  |   |   |   | 45,319  |   |   |   | 49,735 |   |
| Total assets                        |   |   | 197,082 |   |   |   | 212,902 |   |   |   | 197,728 |   |   |   | 214,869 |   |   |   | 170,684 |   |
| Total current liabilities           |   |   | 2,838   |   |   |   | 7,701   |   |   |   | 4,951   |   |   |   | 6,012   |   |   |   | 8,399 |   |
| Financial liabilities to banks and others                                             |   |   | 4,868   |   |   |   | -       |   |   |   | -       |   |   |   | 351     |   |   |   | 694 |   |
| Total equity                        |   |   | 184,919 |   |   |   | 199,815 |   |   |   | 192,777 |   |   |   | 206,402 |   |   |   | 161,591 |   |
| Equity attributable to Elron's shareholders                                           |   |   | 162,040 |   |   |   | 180,783 |   |   |   | 155,879 |   |   |   | 158,207 |   |   |   | 117,436 |   |
| Capital stock                       |   |   | 190,414 |   |   |   | 194,160 |   |   |   | 202,392 |   |   |   | 203,411 |   |   |   | 204,454 |   |

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|  | a. | According to the Concentration Law's provisions, "reporting corporations" (generally speaking, corporations whose securities are held by the public) structured as pyramids are restricted to two tiers of reporting corporations (while a company lacking a controlling shareholder will not count as a first-tier company). This means that as of the date of publication of this Annual Report, we are considered a third-tier company and a significant "real entity" as such term is defined under the Concentration Law. So long as we are considered a third-tier company according to the Concentration Law, we are entitled to continue controlling reporting companies that are under our control as of the Concentration Law's publication, for up to four years after the publication of the Concentration Law namely until December 11, 2017. As of the date of publication of this Annual Report, there are no reporting companies under our control. The above may adversely impact us, taking into account, among others, the restrictions on our holding structure, our ability to acquire control in public companies traded in Israel and our ability to take public in Israel companies which we control. Our controlling shareholder, DIC, is considered as of the publication of this Annual Report a second-tier company that is entitled to continue controlling us for up to six years after the Law's publication. In light of the above, the application of this law may impact on our control structure, including a change in the control structure and holding of DIC in Elron and/or a change in the control structure and holding in DIC and/or the identity of Elron's controlling shareholder. |
|--|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | b. | As long as we are considered at least a third-tier company according to the Concentration Law, our board of directors will be required to consist of a majority of independent directors, and the number of our external directors will be required to constitute at least half of our board members, less one (rounded up) and will include no less than two external directors. As of the date of publication of this Annual Report, our board of directors meets these requirements. |
|--|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|  | · | any slowdown of the global economic condition; |
|--|--------|------------------------------------------------|

|  | · | low trading volume of our ordinary shares, which decreased following our delisting from Nasdaq and may further decrease; |
|--|--------|--------------------------------------------------------------------------------------------------------------------------|

|  | · | announcements by our group companies (or by us regarding our group companies), their competitors or other third parties of technological innovations, new products, regulatory developments, new clinical data regarding current or future products or earnings or losses; |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | delays or failures in the development of products of our group companies; |
|--|--------|---------------------------------------------------------------------------|

|  | · | periodic variations in results of operations of our group companies; |
|--|--------|----------------------------------------------------------------------|

|  | · | factors that generally affect the market for stocks of medical device and other companies; |
|--|--------|--------------------------------------------------------------------------------------------|

|  | · | political, economic or other developments affecting Israel and its region; and |
|--|--------|--------------------------------------------------------------------------------|

|  | · | quarter-to-quarter fluctuations in our financial results. |
|--|--------|-----------------------------------------------------------|

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|  | · | Rafael does not cooperate with RDC in the realization of RDC's rights under the agreement; |
|--|--------|--------------------------------------------------------------------------------------------|

|  | · | Rafael or RDC does not identify existing technology, or Rafael does not develop new technology, that is identified suitable for being commercialized in non-military markets; |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | RDC does not reach agreement with Rafael on the terms of the use of technology for commercial purposes; or |
|--|--------|------------------------------------------------------------------------------------------------------------|

|  | · | RDC is unable to obtain continued financing from its shareholders or otherwise, if and when required. |
|--|--------|-------------------------------------------------------------------------------------------------------|

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|  | · | Some foreign countries may not protect their proprietary rights as fully as do the laws of the United States; |
|--|--------|---------------------------------------------------------------------------------------------------------------|

|  | · | Competitors of our group companies may be issued patents that will prevent our group companies from using technologies, designs or methods that our group companies would like to integrate into their products; |
|--|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | Enforcing their rights may be time consuming and costly, thereby diverting management’s attention and company resources; |
|--|--------|--------------------------------------------------------------------------------------------------------------------------------|

|  | · | Measures such as entering into non-disclosure agreements afford us and our group companies only limited protection; |
|--|--------|---------------------------------------------------------------------------------------------------------------------|

|  | · | Unauthorized parties may attempt to copy aspects of our group companies' products and develop similar products or to obtain and use information that they regard as proprietary; and |
|--|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | Competitors may independently develop products that are substantially equivalent or superior to our group companies' products or that circumvent their intellectual property rights. |
|--|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|  | · | Local Manufacturing Obligation: Products developed as a result of OCS funded R&D must, as a general matter, be manufactured in Israel. The transfer of manufacturing capacity outside of Israel, in whole or in part, is subject to the OCS's prior written approval (except for the transfer of less than 10% of the manufacturing capacity in the aggregate which requires merely a notice) and the payment of royalties at an increased rate (usually 1% in addition to the standard rate and increased royalties CAP (between 120% and 300% of the amount of the grant (depending on the manufacturing volume that is performed outside of Israel). A company also has the option of declaring in its OCS grant application an intention to exercise a portion of the manufacturing capacity abroad, thus avoiding the need to obtain additional approval and pay the increased royalties CAP. |
|--|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | Know-How transfer limitation: Approval of the transfer of OCS funded Know-How to another Israeli company may be granted only if the recipient abides by all the provisions of the Innovation Law and related regulations, including the restrictions on the transfer of know-how and manufacturing capacity outside of Israel (note that there will be an obligation to pay royalties to the OCS from the income of such sale transaction as part of the royalty payment obligation). In addition, the Innovation Law restricts the ability to transfer know-how funded by the OCS outside of Israel. Transfer of OCS funded know-how outside of Israel requires prior OCS approval and, in certain circumstances, is subject to certain payment to the OCS calculated according to formulae provided under the Innovation Law. The OCS approval to transfer know-how created, in whole or in part, in connection with an OCS-funded project to a third party outside Israel where the transferring company remains an operating Israeli entity is subject to payment of a redemption fee to the OCS calculated according to a formula provided under the Innovation Law that is based, in general, on the ratio between the aggregate OCS grants to the company’s aggregate investments in the project that was funded by these OCS grants, multiplied by the transaction consideration considering depreciation mechanism and less royalties already paid to the OCS. The transfer of such know-how to a party outside Israel where the transferring company ceases to exist as an Israeli entity is subject to a redemption fee formula that is based, in general, on the ratio between aggregate OCS grants received by the company and the company’s aggregate R&D expenses, multiplied by the transaction consideration considering depreciation mechanism and less royalties already paid to the OCS. The Innovation Law establishes a maximum payment of the redemption fee paid to the OCS under the above mentioned formulas and differentiates between two situations: (i) in the event that the company sells its OCS funded know-how, in whole or in part, or sells it as part of an M&A transaction, and subsequently significantly reduces its R&D activity in Israel, the maximum redemption fee under the above mentioned formulas shall be no more than 6 times the amount received (plus annual interest) for the applicable know-how being transferred, or the entire amount received from the OCS as applicable; (ii) in the event that following the transactions described above (i.e. asset sale of OCS funded know-how or transfer as part of an M&A transaction) the company continues to conduct its R&D activity in Israel (for at least three years following such transfer and keeps on staff at least 75% of the R&D employees it retained for the six months before the know-how was transferred and keeps the same scope of employment for such R&D staff), then the company is eligible for a reduced cap of the redemption fee of no more than 3 times the amounts received (plus annual interest) for the applicable know-how being transferred, or the entire amount received from the OCS, as applicable. |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|  | · | unexpected changes in regulatory requirements; |
|--|--------|------------------------------------------------|

|  | · | international geographical events; |
|--|--------|------------------------------------|

|  | · | fluctuation of the New Israeli Shekel / U.S. Dollar representative rate of exchange; |
|--|--------|--------------------------------------------------------------------------------------|

|  | · | inability of our group companies and their subcontractors to obtain export licenses; |
|--|--------|--------------------------------------------------------------------------------------|

|  | · | imposition of tariffs and other barriers and restrictions; |
|--|--------|------------------------------------------------------------|

|  | · | burdens of complying with a variety of foreign laws; |
|--|--------|------------------------------------------------------|

|  | · | political and economic instability; |
|--|--------|-------------------------------------|

|  | · | changes in diplomatic and trade relationships; and |
|--|--------|----------------------------------------------------|

|  | · | acts of terror. |
|--|--------|-----------------|

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|  | · | any major hostilities involving Israel; |
|--|--------|-----------------------------------------|

|  | · | increasing tension with Iran; |
|--|--------|-------------------------------|

|  | · | a full or partial mobilization of the reserve forces of the Israeli army; |
|--|--------|---------------------------------------------------------------------------|

|  | · | the interruption or curtailment of trade between Israel and its present trading partners; |
|--|--------|-------------------------------------------------------------------------------------------|

|  | · | a significant downturn in the economic or financial condition of Israel; |
|--|--------|--------------------------------------------------------------------------|

|  | · | a significant downgrading of Israel's international credit rating; |
|--|--------|--------------------------------------------------------------------|

|  | · | labor disputes and strike actions; and |
|--|--------|----------------------------------------|

|  | · | political instability. |
|--|--------|------------------------|

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|                                                                                                                                                                                                  | Risk Factor Influence on the Company |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------|
|                                                                                                                                                                                                  | Major  Influence                | Medium Influence | Minor Influence |
| Specific Risks Affecting Us                                                                                                                                                                           |                                 |   |   |
| Our financial results and our cash reserves are directly impacted by our ability to conclude "exit" transactions at significant values                                                                | a                                    |   |   |
| If our cash resources are insufficient to finance our operations, we may be unable to obtain alternative sources of financing and consequently may be unable to invest in existing and new companies. | a                                    |   |   |
| We may be deemed to be an investment company under the U.S. Investment Company Act of 1940.                                                                                                           |                                 |   | a |
| If we are characterized as a passive foreign investment company for U.S. federal income tax purposes, our U.S. shareholders may suffer adverse tax consequences.                                      |                                 | a |   |
| It may be difficult to serve process or to enforce a U.S. judgment against us, our directors and our officers.                                                                                        |                                 |   | a |
| Our principal shareholder, Discount Investment Corporation Ltd. or DIC, has the ability to direct our business and affairs.                                                                           |                                 |   | a |
| We voluntarily delisted from the Nasdaq Global Select Market and may in the future seek to terminate our Exchange Act registration.                                                                   |                                 |   | a |
| Risks Affecting Us and the Companies in Our Group                                                                                                                                                     |                                 |   |   |
| We compete with other entities for acquisition and investment opportunities.                                                                                                                          | a                                    |   |   |
| Global and local economic conditions has adversely affected and may continue to adversely affect our and our group companies' results and financial condition and could lead to impairment charges    | a                                    |   |   |

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|        | Risk Factor Influence on the Company |
|--------|--------------------------------------|
|   | Major  Influence                | Medium Influence | Minor Influence |

| Our financial results and financial condition are principally impacted by the results of operation of, and the value of our holdings in, our group companies.                    | a      |   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
| Our financial results significantly depend on the results of operations of our group companies, which continue to invest heavily in their development and have generated losses. | a      |   |   |
| We may face difficulties in our ability to dispose of our shares in companies in our group.                                                                                      | a      |   |   |
| Our ability to invest in companies or conclude exit transactions may be adversely affected and/or prevented by anti-trust regulations both in Israel and abroad.                 |   |   | a      |
|  The Israeli Promotion of Competition and the Reducing of Concentration Law may adversely affect our business                                                               | a      |   |   |
| We and our group companies are subject to regulatory requirements and restrictions in Israel and various other countries                                                         |   | a      |   |
| We have indemnification obligations which survive exit transactions and may not receive the entire proceeds due to us from exit transactions of our group companies.             |   |   | a      |
| The market price of our ordinary shares is subject to fluctuations.                                                                                                              |   | a      |   |
| Many of our group companies may face difficulties in obtaining future financing on favorable terms or at all.                                                                    | a      |   |   |
| Bank of Israel regulations limit our and our group companies' ability to borrow from Israeli banks.                                                                              |   |   | a      |
| Our results, and the value of our investments, are affected by volatility in the securities markets.                                                                             |   |   | a      |
| There is no assurance that our subsidiary, RDC, will be able to continue to develop technologies and/or new companies.                                                           |   |   | a      |
| Most of our group companies are dependent upon proprietary technology, which may be infringed by, or may infringe upon, the proprietary technology of others.                    | a      |   |   |
| The technological fields within which our group companies operate involve a high level of risk and uncertainty.                                                                  | a      |   |   |
| Many of our group companies experience intense competition.                                                                                                                      |   | a      |   |
| Israeli government programs in which certain of our group companies participate may be terminated or reduced in the future and may be restrictive in their terms.                |   |   | a      |
| We and our group companies may have difficulty retaining key employees.                                                                                                          | a      |   |   |
| Certain of our group companies depend on international operations.                                                                                                               |   |   | a      |

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|        | Risk Factor Influence on the Company |
|--------|--------------------------------------|
|   | Major  Influence                | Medium Influence | Minor Influence |

| Conditions in Israel may affect our operations and the operations of our group companies.                                                                                                                                                                                                           |   |   | a      |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
| Our and our group companies' operations could be disrupted as a result of the obligation of personnel in Israel to perform military service.                                                                                                                                                        |   |   | a      |
| The results of operations of our group companies may be harmed by foreign currency exchange rate fluctuations.                                                                                                                                                                                      |   |   | a      |
| Product liability claims could adversely affect the business results of our group companies, more particularly those operating in the medical device industry.                                                                                                                                      |   |   | a      |
| Product regulation may adversely affect the ability of our medical device group companies to bring new products to market or to continue to supply existing products to the market.                                                                                                                 | a      |   |   |
| Because the medical device industry is litigious, our medical device group companies are susceptible to intellectual property suits that could cause our medical device group companies to incur substantial costs or pay substantial damages or prohibit them from selling their products.         | a      |   |   |
| If our medical device group companies are unable to obtain reimbursement coverage from third-party healthcare payors for procedures using their products, or if reimbursement is insufficient to cover the costs of purchasing their products, demand for their products may be adversely affected. |   | a      |   |
| The development of products by our group companies in the medical device field is dependent upon the success of clinical trials.                                                                                                                                                                    | a      |   |   |
| Our medical device companies experience significant  uncertainty during the research and development stage                                                                                                                                                                                     | a      |   |   |

| Item 4. | Information on the Company |
|---------|----------------------------|

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| Group company name | Business                                                                                                                                              | Basis of presentation in the Financial Statements | Rights to appoint directors           | Percentage of shareholdings and voting rights | Fully diluted percentage of shareholding and voting rights | Amount Invested by Elron and in the Aggregate (in $ million, unless otherwise specified) |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------|---------------------------------------|-----------------------------------------------|------------------------------------------------------------|------------------------------------------------------------------------------------------|
| ALCIDE.IO LTD1     | Development of a security solution for emerging data center environments to enable visibility and security policy enforcement for hybrid data centers | Equity Method                                     | One director (out of three directors) | 29.88%                                        | 25.00%                                                     | Elron:1.5Total:1.5                                                                       |

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| Group company name | Business | Basis of presentation in the Financial Statements | Rights to appoint directors | Percentage of shareholdings and voting rights | Fully diluted percentage of shareholding and voting rights | Amount Invested by Elron and in the Aggregate (in $ million, unless otherwise specified) |
|--------------------|----------|---------------------------------------------------|-----------------------------|-----------------------------------------------|------------------------------------------------------------|------------------------------------------------------------------------------------------|

| AQWISE - WISE WATER TECHNOLOGIES LTD | Development, manufacturing and marketing of biological and waste water treatment solutions for industrial and municipal markets | Fair Value    | Two directors (out of eleven directors) | 19.81% | 17.94% | Elron: 4.9Total: 13 |
|--------------------------------------|---------------------------------------------------------------------------------------------------------------------------------|---------------|-----------------------------------------|--------|--------|---------------------|
| ATLANTIUM TECHNOLOGIES LTD           | Development, manufacturing and marketing of ultra violet based water disinfection solutions                                     | Fair Value    | One director (out of seven directors)   | 6.16%  | 5.49%  | Elron:13.7Total: 74 |
| AUDIOBURST LTD2                      | Development and marketing of a search site for radio, making audio content available for listening and sharing                  | Equity Method | One director (out of five directors)    | 10.88% | 9.25%  | Elron: 0Total: 6.6  |
| BRAINSGATE LTD                       | Development of a minimally invasive treatment platform for patients suffering from Central Nervous System diseases              | Equity Method | One director (out of five directors)    | 29.82% | 26.61% | Elron: 29Total: 97  |

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| Group company name | Business | Basis of presentation in the Financial Statements | Rights to appoint directors | Percentage of shareholdings and voting rights | Fully diluted percentage of shareholding and voting rights | Amount Invested by Elron and in the Aggregate (in $ million, unless otherwise specified) |
|--------------------|----------|---------------------------------------------------|-----------------------------|-----------------------------------------------|------------------------------------------------------------|------------------------------------------------------------------------------------------|

| CARTIHEAL (2009) LTD        | Development of an implant for repair of articular cartilage and osteochondral defects                                     | Equity Method | Two directors (out of nine directors- only one director actually appointed) | 34.85%                                                       | 28.21%                                                       | Elron: 12Total: 30                                |
|-----------------------------|---------------------------------------------------------------------------------------------------------------------------|---------------|-----------------------------------------------------------------------------|--------------------------------------------------------------|--------------------------------------------------------------|---------------------------------------------------|
| CLOUDYN SOFTWARE LTD        | Development and marketing of software-as-a-service (SaaS) solutions for cloud business management in global organizations | Equity Method | One director (out of five directors)                                        | 41.02% of voting rights and 39.53% of shareholdings (by RDC) | 34.75% of voting rights and 33.50% of shareholdings (by RDC) | RDC: 6Total: 18                                   |
| CORAMAZE TECHNOLOGIES GmbH3 | Development of a minimally invasive device to treat functional mitral valve regurgitation                                 | Equity Method | Two director (out of seven directors)                                       | 28%                                                          | 28%                                                          | Elron: €3.5 millionTotal: €6.8million |

----

----

| Group company name | Business | Basis of presentation in the Financial Statements | Rights to appoint directors | Percentage of shareholdings and voting rights | Fully diluted percentage of shareholding and voting rights | Amount Invested by Elron and in the Aggregate (in $ million, unless otherwise specified) |
|--------------------|----------|---------------------------------------------------|-----------------------------|-----------------------------------------------|------------------------------------------------------------|------------------------------------------------------------------------------------------|

| CYBER SECDO LTD4 | Automatic detection and investigation of cyber events in organizations through a platform that protects endpoints                        | Equity Method       | One director (out of five directors)  | 24.3% (by RDC)  | 21.05% (by RDC) | RDC:4Total:8.8     |
|------------------|------------------------------------------------------------------------------------------------------------------------------------------|---------------------|---------------------------------------|-----------------|-----------------|--------------------|
| IRONSCALES LTD   | Developing and providing a SaaS solution whose goal is to interactively teach employees how to detect and resist spear phishing attempts |  Equity Method | Two directors (out of five directors) | 27.03% (by RDC) | 30.00% (by RDC) | RDC: 1.5Total: 1.5 |
| NITINOTES LTD5   | Development of an endoscopic procedure that mimics gastric sleeve surgery for treatment of obesity                                       | Equity Method       | Two directors (out of six directors)  | 14.16%          | 12.44%          | Elron:0.8Total: 2  |

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| Group company name | Business | Basis of presentation in the Financial Statements | Rights to appoint directors | Percentage of shareholdings and voting rights | Fully diluted percentage of shareholding and voting rights | Amount Invested by Elron and in the Aggregate (in $ million, unless otherwise specified) |
|--------------------|----------|---------------------------------------------------|-----------------------------|-----------------------------------------------|------------------------------------------------------------|------------------------------------------------------------------------------------------|

| NOTAL VISION INC6              | Provides a system and services for remote monitoring from home of AMD patients at risk of vision loss, for the early detection of important visual changes | Fair Value    | One director (out of seven directors) | 21.16%          | 17.59%          | Elron: 12.6Total: 57 |
|--------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------|---------------------------------------|-----------------|-----------------|----------------------|
| OPEN LEGACY TECHNOLOGIES LTD 7 | Development and marketing of a platform allowing integration of information systems in organizations, based on API (Application Programming Interface)     | Equity Method | Two directors (out of six directors)  | 45.14% (by RDC) | 36.86% (by RDC) | RDC: 5.2Total: 8.5   |

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| Group company name | Business | Basis of presentation in the Financial Statements | Rights to appoint directors | Percentage of shareholdings and voting rights | Fully diluted percentage of shareholding and voting rights | Amount Invested by Elron and in the Aggregate (in $ million, unless otherwise specified) |
|--------------------|----------|---------------------------------------------------|-----------------------------|-----------------------------------------------|------------------------------------------------------------|------------------------------------------------------------------------------------------|

| PLYMEDIA ISRAEL (2006) LTD                     | Development and marketing of advertising exchange services                                                 | Equity Method | One director (out of five directors- as of the date of publication of this Annual Report there is no director appointed) | 23.33%                                          | 17.97%                                          | Elron: 2.5Total: 6          |
|------------------------------------------------|------------------------------------------------------------------------------------------------------------|---------------|--------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------|-------------------------------------------------|-----------------------------|
| POCARED DIAGNOSTICS LTD                        | Development of a real-time and automated system for infectious diseases diagnosis using optical technology | Consolidated  | Five directors (out of eight directors) -only three directors actually appointed)                                        | 66.76% held by Elron and RDC (RDC holds 11.65%) | 66.45% held by Elron and RDC (RDC holds 15.57%) | Elron and RDC: 64Total: 107 |
| RDC – RAFAEL DEVELOPMENT CORPORATION LTD | Incubation and development of companies based on or reliant on Rafael technology                           | Consolidated  | Five directors (out of Nine directors)                                                                                   | 50.10%                                          | 50.10%                                          | Not Relevant                |

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| Group company name | Business | Basis of presentation in the Financial Statements | Rights to appoint directors | Percentage of shareholdings and voting rights | Fully diluted percentage of shareholding and voting rights | Amount Invested by Elron and in the Aggregate (in $ million, unless otherwise specified) |
|--------------------|----------|---------------------------------------------------|-----------------------------|-----------------------------------------------|------------------------------------------------------------|------------------------------------------------------------------------------------------|

| SECURED TOUCH INC | Development and marketing of an application solution that enables the identification of an end user by building a personal biometric profile | Equity Method | Two directors (out of six directors) | 29.07% (by RDC) | 24.64% (by RDC) | RDC:2.2Total:3.3   |
|-------------------|----------------------------------------------------------------------------------------------------------------------------------------------|---------------|--------------------------------------|-----------------|-----------------|--------------------|
| SIXGILL LTD       | Development and marketing of an automated system for the identification and neutralization of cyber threats on "Dark Web" network.           | Equity Method | One director (out of five directors) | 21.99%          | 24.65%          | Elron:2.5Total:3.2 |

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|  | (i) | Proof of technological feasibility – at this stage, preliminary tests are performed, the purpose of which is to prove the effectiveness of the technology. |
|--|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (ii) | Prototype design – at this stage, ex-vivo experiments and other experiments are usually performed for the purpose of developing the device and determining its effectiveness. |
|--|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (iii) | Preclinical studies – at this stage, testing is usually performed on animals, the purpose of which is to examine the safety and effectiveness of the device before testing it on humans. Often these studies lead to changes in features of the device and to additional development activities. |
|--|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (iv) | Clinical trials – at this stage, trials are performed on humans. For every clinical trial, a detailed protocol is determined in advance including complete details relating to the clinical trial. The trial protocol defines the trial endpoints (primary and secondary), the target population of the trial (sample size and inclusion/exclusion criteria), trial design (controlled, randomized, open label or blinded), definition of trial success, the timing and method of outcome assessment, and other matters. (In a controlled trial, participants are assigned to one of at least two groups – one which receives the treatment under investigation (the trial group), and the other of which (the control group) receives either the standard treatment or a sham treatment. In a randomized study, participants are assigned to groups of a clinical trial by chance. In an open label trial, all parties involved with the trial know which participants have been assigned which arm. In a single-blinded trial, only the participants are unaware which group the participants have been assigned. In a double-blinded trial, neither party knows which participants have been assigned which group.) The trial protocol requires the pre-approval of a review board and the authorized regulatory authority in the relevant country or territory, as detailed below. The clinical trial stage includes several sub-stages: |
|--|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | a. | Trials for the purpose of completion of development of the device – at this stage trials are performed, whose purpose is to complete the device's development in terms of the device’s stability, the consistency of its features and others. At this stage, for the first time, feedback is received on the device from doctors and sample patients making use thereof. As a principle, these trials will be open-label and will include a limited number of subjects. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | Trials for the purpose of proving the safety and efficiency of the device – at this stage, and as part of the regulatory process, trials are performed for the purpose of proving the safety of the device. In accordance with the selected regulatory process and/or in order to ensure that the device will be adopted by the medical community, the company may be required to conduct trials in order to prove the efficiency of the device. As a principle, these trials will be randomized and will include a large number of medical centers and subjects. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c. | Trials for the purpose of proving cost-efficiency – often, in order to qualify for reimbursement for the cost of the device and/or in order to ensure that the device will be adopted by the medical community, the company may also be required to conduct trials, whose purpose is to establish the device's cost-efficiency. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (v) | The filing of an application for approval to market the device – after receiving positive results in the clinical trials proving the safety and effectiveness of the device (in accordance with the regulatory requirements), the company, at this stage, applies to the relevant regulatory body for approval to market the device, such as the U.S. Food and Drug Administration, or FDA, or the European Union, as described below. |
|--|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (vi) | Commercialization of the device – in the event that the regulatory body in a particular country approves the device for marketing, the company will be entitled to market it in such country. The extent of the reimbursement for the cost of the device by government bodies and/or insurance companies may, in some cases, affect the sales potential of the device. |
|--|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|  | 1. | CE Certification (“CE Mark”) for the marketing of a medical device in European Union countries – To the best of our knowledge and in reliance on publicly available information, commercialization of medical devices in member countries of the European Union is regulated by directives adopted by the European Union. The European Union presently requires that all medical products bear the CE mark, an international symbol of adherence to quality management system and demonstrated clinical safety and effectiveness. The extent of evidence that the manufacturer is required to provide in order to be permitted to affix the CE mark on its products is dependent upon the classification of the device. There are four classes, in accordance with the level of risk related to the use of the device. The determination of the level of risk is done in accordance with criteria, which include, inter alia: the duration of continued use of the device, the level of body contact of the device, whether the device impacts on biological or chemical makeup of the body liquids, whether the device contains a medicinal substance and other criteria. With respect to a CE Mark for low risk products (Class I), a declaration by the manufacture regarding compliance with the relevant directive requirements is sufficient. For higher risk products, compliance with the Medical Device Directive and the relevant standards, as certified by a recognized European Notified Body, permits the manufacturer to affix the CE mark on its products. |
|--|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|  | 2. | Procedure for receipt of FDA clearance for the marketing of a medical device in the United States – To the best of our knowledge and in reliance on publicly available information, the FDA is a federal agency in the United States whose role is to protect the American public’s health by establishing and enforcing a high product standard and by imposing various regulatory requirements, which will ensure the safety and effectiveness of products such as drugs which are intended for human and veterinary use, biological products and medical devices. FDA requirements include, inter alia, the manufacturing of the medical devices in accordance with quality system regulation (QSR), receipt of a scientifically based submission file on the medical device, the appointment of an American agent, and, if required, provision of an opportunity for FDA representatives to supervise the manufacturing procedure at the plant. The FDA classifies medical devices into three categories in accordance with the level of risk involved in their use. The classification level determines the extent of checks and reviews which the company is required to conduct in order to obtain approval to market the medical device. As a principle, the higher the risk, the more tests and regulations are added. |
|--|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | a. | Class I – devices which do not pose any risk or pose a low risk to the health of the public, and therefore, there is no requirement to submit an application to obtain a formal approval, but rather it is sufficient to follow the FDA's instructions (e.g. toothbrushes, band-aids). |
|--|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | b. | Class II – devices which present a risk to the health of the public, but are not life-threatening (such as an electronic thermometer or contact lenses). This category requires that an application be filed under a Premarket Notification 510(k) proceeding, or 510(k), which is a relatively short proceeding during which it is demonstrated to the FDA that the medical device for which the clearance is sought is substantially equivalent, with respect to intended use, safety and treatment efficiency, to an existing product or "predicate device" – a device that has already been through the approval process and which is not subject to a Premarket Approval, or PMA, proceeding. |
|--|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | c. | Class III – devices that are intended to help support or sustain life and pose a risk, innovative devices with respect to which the level of danger is unknown, or devices which are not equivalent to a predicate device. Requests for FDA approval of these sorts of devices are filed in a PMA process which is lengthier than the 510(k) process and includes a lengthy scientific review, significantly broader clinical trials and a compulsory examination of the manufacturing site. In the case that a device is classified as Class III device due to the absence of a predicate device and not due to a high level of risk, an application may be made to the FDA to classify the device as Class II through a de novo process and thereby avoid a PMA process. |
|--|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|  | 3. | Procedure for receipt of the approval of the Ministry of Health for the marketing of a medical device in Israel – To the best of our knowledge, in reliance on publicly available information, a medical device company requires the approval of Israel's Ministry of Health's Unit for Medical Means and Devices, or MOH Medical Devices Unit, to market its medical device in Israel. Medical devices are defined as a device, instrument, chemical substance, biological or technological product, which is used in medical treatment, or which is required for the action of a device or instrument which is used for treatment and which is not intended, in essence, to act as a medicinal measure. The MOH Medical Devices Unit is responsible for granting import permits of various types for medical devices and monitoring the marketing of medical devices in Israel. |
|--|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (a) | Quantitative criterion – a company in which the total investment in our Statement of Financial Position exceeds 10% of our equity in accordance with our consolidated financial reports. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b) | Qualitative criteria – significant investment commitments, significant risks and exposure in connection with our investment, the inherent potential in the investment from management’s perspective, or significant value (current or potential). |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Item 4A. | Unresolved Staff Comments |
|----------|---------------------------|

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| Item 5. | Operating and Financial Review and Prospects |
|---------|----------------------------------------------|

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|  | 1. | Identifying and exploiting investment opportunities in companies with an innovative technology basis with significant exit potential. |
|--|----|---------------------------------------------------------------------------------------------------------------------------------------|

|  | 2. | Investing over the long term in companies with innovative technologies focusing on investments which afford us influence and operational involvement. |
|--|----|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 3. | Actively enhancing our group companies' value by taking an active role in their management, by means of the following: active membership on their boards of directors; hands-on assistance to their management; assistance in the advancement of their technology; forming strategic relationships, providing access to capital; providing development and operational guidance; business plan preparation; strategic planning; marketing; planning investments and budgets; finance; manning senior management positions; and overall ongoing monitoring of our group companies' performance. |
|--|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 4. | Exploiting opportunities to exit group companies. |
|--|----|---------------------------------------------------|

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|  | · | Principles of accounting for holdings in group companies – basis of consolidation, equity method of accounting |
|--|--------|----------------------------------------------------------------------------------------------------------------------|

|  | · | Business combinations and fair value adjustments |
|--|--------|--------------------------------------------------|

|  | · | Impairment of investments in group companies and financial assets |
|--|--------|-------------------------------------------------------------------|

|  | · | Impairment of intangible assets |
|--|--------|---------------------------------|

|  | · | Accounting for income taxes |
|--|--------|-----------------------------|

|  | · | Provisions |
|--|--------|------------|

|  | · | Financial assets including financial assets measured at fair value |
|--|--------|--------------------------------------------------------------------|

|  | · | Fair value measurement of contingent consideration |
|--|--------|----------------------------------------------------|

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| Year ended December 31, |
|-------------------------|
| 2016                    |   | 2015 |   | 2014 |
| RDC                     |   | RDC |   | RDC |
| Pocared1                |   | Pocared1 |   | Cloudyn2 |
|                         |   |  |   | POSE3 |

| Year ended December 31, |
|-------------------------|
| 2016                    |   | 2015 |   | 2014 |
| BrainsGate              | IronScales3 |   | BrainsGate | Cloudyn2 |   | BrainsGate | PLYmedia |
| CartiHeal               | SixGill4 |   | CartiHeal | Open Legacy |   | Cartiheal | Kyma9 |
| Coramaze1               | Alcide5 |   | Coramaze1 | IronScales3 |   | Pocared8 | Open Legacy |
| PLYmedia                | SecuredTouch6 |   | PLYmedia | SinuSafe |   |   |   |
| AudioBurst              | Secdo7 |   |   |   |   |   |   |
| Cloudyn2                | Nitinotes7 |   |   |   |   |   |   |
| Open Legacy             | SinuSafe |   |   |   |   |   |   |

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| Year ended December 31, |
|-------------------------|
| 2016                    |   | 2015 |   | 2014 |
| Aqwise                  |   | Aqwise |   | Aqwise |
| Atlantium               |   | Atlantium |   | Atlantium |
| Notal Vision            |   | Notal Vision |   | Enablence1 |
|                    |   |   |   | Jordan Valley2 |
|                    |   |   |   | Notal Vision |

|                                                             |   | Year ended December 31,                |   |
|------------------------------------------------------------------|--------|----------------------------------------|--------|
|                                                             |   | 2016                                   |   |   | 2015 |   |   | 2014 |   |
|                                                             |   | (millions of $, except per share data) |   |
| Net income (loss) attributable to Elron's shareholders           |   |                                   | (26.8  | ) |   |   | 2.5 |   |   |   | 85.5 |   |
| Net income (loss) per share attributable to Elron's shareholders |   |                                   | (0.90  | ) |   |   | 0.08 |   |   |   | 2.87 |   |

|                                                                                         |   | Year ended December 31, |   |
|----------------------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                                         |   | 2016                    |   |   | 2015 |   |   | 2014 |   |
|                                                                                         |   | (millions of $)         |   |
| Losses in respect of group companies:                                                        |   |                    |   |   |   |   |   |   |   |
| Our share in net losses of group companies                                                   |   |                    | (17.6  | ) |   |   | (18.4 | ) |   |   | (15.5 | ) |
| Excess cost amortization                                                                     |   |                    | (0.1   | ) |   |   | * |   |   |   | * |   |
| Impairment of investments in group companies and financial assets, net                       |   |                    | -      |   |   |   | - |   |   |   | (0.2 | ) |
| Total                                                                                        |   |                    | (17.7  | ) |   |   | (18.4 | ) |   |   | (15.7 | ) |
| Gain (loss) from disposal and revaluation of investee companies and changes in holdings, net |   |                    | (2.3   | ) |   |   | 27.7 |   |   |   | 145.5 |   |
| Corporate operating expenses                                                                 |   |                    | (4.2   | ) |   |   | (4.6 | ) |   |   | (5.1 | ) |
| Taxes on income                                                                              |   |                    | (1.1   | ) |   |   | (1.7 | ) |   |   | (37.6 | ) |
| Other                                                                                        |   |                    | (1.5   | ) |   |   | (0.5 | ) |   |   | (1.6 | ) |
| Net Income (loss) attributable to Elron's shareholders                                       |   |                    | (26.8  | ) |   |   | 2.5 |   |   |   | 85.5 |   |

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|   | · | An approximately $3.2 million loss from the decrease in the fair value of the investment in Notal Vision, mainly since Notal Vision has not yet achieved significant sales growth, as anticipated in its business plan; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | An approximately $0.7 million gain from the increase in the value of contingent consideration asset from the sale of Jordan Valley (the sale was completed in October 2015), and an approximately $0.2 million gain (net of non-controlling interests) from the increase in the value of contingent consideration asset from the sale of Kyma (the sale was completed in September 2015). |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | An approximately $10.6 million gain (net of non-controlling interests) from the sale of Kyma ($9.0 million gain, net of tax); |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------|

|   | · | An approximately $10.1 million gain due to the initial consolidation of Pocared; |
|--------|--------|----------------------------------------------------------------------------------|

|   | · | An approximately $4.0 million gain from the increase in the fair value of the investment in Jordan Valley until its sale; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------|

|   | · | An approximately $2.4 million gain (net of non-controlling interests) due to the loss of control in Cloudyn. |
|--------|--------|--------------------------------------------------------------------------------------------------------------|

|   | · | An approximately $144.5 million gain (net of non-controlling interests) from the Given Merger (approximately $106.8 million gain, net of tax); |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | An approximately $1.9 million gain from the increase in the fair value of the investment in Notal Vision; |
|--------|--------|-----------------------------------------------------------------------------------------------------------|

|   | · | An approximately $1.4 million loss from the decrease in the fair value of the investment in Jordan Valley. |
|--------|--------|------------------------------------------------------------------------------------------------------------|

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|                                                                                        |   | Year ended December 31, |   |
|---------------------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                                        |   | 2016                    |   |   | 2015 |   |   | 2014 |   |
|                                                                                        |   | (millions of $)         |   |
| Income from sales                                                                           |   |                    | -      |   |   |   | 0.9 |   |   |   | 0.4 |   |
| Gain (loss) from disposal and revaluation of group companies, and changes in holdings, net  |   |                    | (2.1   | ) |   |   | 40.6 |   |   |   | 176.1 |   |
| Financial income                                                                            |   |                    | 2.4    |   |   |   | 1.1 |   |   |   | 0.9 |   |
| Total income                                                                                |   |                    | 0.3    |   |   |   | 42.6 |   |   |   | 177.4 |   |
| Cost of sales                                                                               |   |                    | -      |   |   |   | 0.3 |   |   |   | 0.1 |   |
| Research and development expenses, net                                                      |   |                    | 6.5    |   |   |   | 13.1 |   |   |   | 2.1 |   |
| Selling and marketing expenses                                                              |   |                    | 0.4    |   |   |   | 2.0 |   |   |   | 1.4 |   |
| General and administrative expenses                                                         |   |                    | 7.0    |   |   |   | 7.6 |   |   |   | 7.1 |   |
| Equity in losses of associates, net                                                         |   |                    | 13.4   |   |   |   | 8.5 |   |   |   | 15.8 |   |
| Financial expenses                                                                          |   |                    | 0.4    |   |   |   | 0.7 |   |   |   | 3.4 |   |
| Other expenses, net                                                                         |   |                    | 2.2    |   |   |   | - |   |   |   | 0.8 |   |
| Total expenses                                                                              |   |                    | 29.9   |   |   |   | 32.2 |   |   |   | 30.7 |   |
| Income (loss) before taxes on income                                                        |   |                    | (29.6  | ) |   |   | 10.4 |   |   |   | 146.7 |   |
| Taxes on income                                                                             |   |                    | (1.2   | ) |   |   | (3.4 | ) |   |   | (45.3 | ) |
| Net Income (loss)                                                                           |   |                    | (30.8  | )  |   |   | 7.0 |   |   |   | 101.4 |   |
| Net Income (loss) attributable to the Company's shareholders                                |   |                    | (26.8  | ) |   |   | 2.5 |   |   |   | 85.5 |   |
| Net Income (loss) attributable to non-controlling interests                                 |   |                    | (4.0   | ) |   |   | 4.5 |   |   |   | 15.9 |   |
| Basic and diluted income (loss) per share attributable to the Company's shareholders (in $) |   |                    | (0.90  | ) |   |   | 0.08 |   |   |   | 2.87 |   |

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|      |   | Year ended December 31, |   |
|-----------|--------|-------------------------|--------|
|      |   | 2016                    |   |   | 2015 |   |   | 2014 |   |
|      |   | (millions of $)         |   |
| Corporate |   |                    | 4.2    |   |   |   | 4.6 |   |   |   | 5.1 |   |
| RDC       |   |                    | 1.1    |   |   |   | 2.1 |   |   |   | 1.9 |   |
| Pocared   |   |                    | 8.5    |   |   |   | 12.5 |   |   |   | - |   |
| Other     |   |                    | -      |   |   |   | 3.5 |   |   |   | 3.5 |   |
|      |   |                    | 13.8   |   |   |   | 22.7 |   |   |   | 10.5 |   |

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|   |   | Year ended December 31, 2016 |   |   | Increase |   |   | Year ended December 31, 2015 |   |   | Increase |   |   | Year ended December 31, 2014 |   |
|--------|--------|------------------------------|--------|--------|----------|--------|--------|------------------------------|--------|--------|----------|--------|--------|------------------------------|--------|
|   |   | (millions of $)              |   |   | %        |   |   | (millions of $)              |   |   | %        |   |   | (millions of $)              |   |
| Loss   |   |                         | 7.1    |   |     |   | 14.1   |                         |   |   | 6.2      |   |   |                         | 3.5    |   |   |   | 6.0 |   |

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|          |   | Comprehensive income |   |   |                            |   |   | Interest        |   |
|---------------|--------|----------------------|--------|--------|---------------------------------|--------|--------|-----------------|--------|
|          |   | Loss                 |   |   | Other Comprehensive income |   |   | Dividend income |   |   | Interest income |   |   | Date received |   |
|          |   | (millions of $)      |   |   |                            |   |
| Subsidiaries: |   |                 |   |   |                            |   |   |            |   |   |   |   |   |   |   |
|          |   |                 |   |   |                            |   |   |            |   |   |   |   |   |   |   |
| RDC           |   |                 | (6.3   | )      |                            |   | -      |            |   |   | - |   |   |   | - |   |   |   | - |   |
| Pocared       |   |                 | (4.2   | )      |                            |   | -      |            |   |   | - |   |   |   | 0.1 |   |   | July, 2016 |   |
|          |   |                 |   |   |                            |   |   |            |   |   |   |   |   |   |   |   |   |   |   |   |
| Associates:   |   |                 |   |   |                            |   |   |            |   |   |   |   |   |   |   |   |   |   |   |   |
|          |   |                 |   |   |                            |   |   |            |   |   |   |   |   |   |   |   |   |   |   |   |
| BrainsGate    |   |                 | (7.1   | )      |                            |   | -      |            |   |   | - |   |   |   | - |   |   |   | - |   |
| Cartiheal     |   |                 | (6.0   | )      |                            |   | -      |            |   |   | - |   |   |   | - |   |   |   | - |   |
| Coramaze      |   |                 | (2.4   | )      |                            |   | -      |            |   |   | - |   |   |   | - |   |   |   | - |   |
| Plymedia      |   |                 | (3.5   | )      |                            |   | -      |            |   |   | - |   |   |   | - |   |   |   | - |   |
| AudioBurst    |   |                 | (2.4   | )      |                            |   | -      |            |   |   | - |   |   |   | - |   |   |   | - |   |
| SixGill (1)   |   |                 | (0.7   | )      |                            |   | -      |            |   |   | - |   |   |   | - |   |   |   | - |   |
| Alcide (2)    |   |                 | (0.4   | )      |                            |   | -      |            |   |   | - |   |   |   | - |   |   |   | - |   |

----

| (1) | In April 2016 we invested in SixGill for the first time. The data presented in the table is from the date of initial investment. |
|-----|----------------------------------------------------------------------------------------------------------------------------------|

| (2) | In June 2016 we invested in Alcide for the first time. The data presented in the table is from the date of initial investment. |
|-----|--------------------------------------------------------------------------------------------------------------------------------|

----

|             |   | Comprehensive income |   |   |                            |   |   | Interest        |   |
|------------------|--------|----------------------|--------|--------|---------------------------------|--------|--------|-----------------|--------|
|             |   | Loss                 |   |   | Other Comprehensive income |   |   | Dividend income |   |   | Interest income |   |   | Date received |   |
|             |   | (millions of $)      |   |   |                            |   |
|             |   |                 |   |   |                            |   |   |            |   |   |   |   |   |   |   |
| Associates:      |   |                 |   |   |                            |   |   |            |   |   |   |   |   |   |   |
|             |   |                 |   |   |                            |   |   |            |   |   |   |   |   |   |   |
| Cloudyn          |   |                 | (8.0   | )      |                            |   | -      |            |   |   | - |   |   |   | 0.1 |   |   | October, 2016 |   |
| Open Legacy      |   |                 | (1.7   | )      |                            |   | -      |            |   |   | - |   |   |   |   |   |   |   | - |   |
| IronScales       |   |                 | (1.6   | )      |                            |   | -      |            |   |   | - |   |   |   | - |   |   |   | - |   |
| SecuredTouch (1) |   |                 | (0.8   | )      |                            |   | -      |            |   |   | - |   |   |   | - |   |   |   | - |   |
| Secdo (2)        |   |                 | (1.5   | )      |                            |   | -      |            |   |   | - |   |   |   | - |   |   |   | - |   |

----

| (1) | In May 2016 we invested in SecuredTouch for the first time. The data presented in the table is from the date of initial investment. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------|

| (2) | In September 2016 we invested in Secdo for the first time. The data presented in the table is from the date of initial investment. |
|-----|------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                |   | Year ended                             |   |   | Three months ended |   |
|-----------------------------------------------------|--------|----------------------------------------|--------|--------|--------------------|--------|
|                                                |   | December 31, 2016                      |   |   | March 31, 2016     |   |   | June 30, 2016 |   |   | September 30, 2016 |   |   | December 31, 2016 |   |
|                                                |   | (millions of $, except per share data) |   |
|                                                |   | Audited                                |   |   | Unaudited          |   |
| Net loss attributable to our shareholders           |   |                                   | (26.8  | )      |               |   | (4.9 | ) |   |   | (4.3 | ) |   |   | (8.3 | ) |   |   | (9.3 | ) |
| Net loss per share attributable to our shareholders |   |                                   | (0.90  | )      |               |   | (0.17 | ) |   |   | (0.14 | ) |   |   | (0.28 | ) |   |   | (0.31 | ) |

|                                                     |   | Year ended                             |   |   | Three months ended |   |
|----------------------------------------------------------|--------|----------------------------------------|--------|--------|--------------------|--------|
|                                                     |   | December 31, 2015                      |   |   | March 31, 2015     |   |   | June 30, 2015 |   |   | September 30, 2015 |   |   | December 31, 2015 |   |
|                                                     |   | (millions of $, except per share data) |   |
|                                                     |   | Audited                                |   |   | Unaudited          |   |
| Income (loss) attributable to our shareholders           |   |                                   | 2.5    |   |               |   | 4.9 |   |   |   | (5.2 | ) |   |   | 6.3 |   |   |   | (3.5 | ) |
| Income (loss) per share attributable to our shareholders |   |                                   | 0.08   |   |               |   | 0.17 |   |   |   | (0.18 | ) |   |   | 0.21 |   |   |   | (0.12 | ) |

|                                                                                       |   | Three months ended |     |
|--------------------------------------------------------------------------------------------|--------|--------------------|----------|
|                                                                                       |   | March 31, 2016     |     |   | June 30, 2016 |   |   | September 30, 2016 |   |   | December 31, 2016 |   |
|                                                                                       |   | (millions of $)    |     |
|                                                                                       |   | Unaudited          |     |
| Losses in respect of group companies:                                                      |   |               |     |   |   |   |   |   |   |   |   |   |
| Our share in net losses of group companies, net                                            |   |               | (4.6     | ) |   |   | (3.7 | ) |   |   | (4.7 | ) |   |   | (4.6 | ) |
| Excess cost amortization                                                                   |   |               |  ** |   |   |   | ** |  |   |   | ** |   |   |   | (0.1 | ) |
| Total                                                                                      |   |               | (4.6     | ) |   |   | (3.7 | ) |   |   | (4.7 | ) |   |   | (4.7 | ) |
| Gain (loss) from disposal and revaluation of group companies, and changes in holdings, net |   |               | 0.3      |   |   |   | 0.3 |   |   |   | ** |  |   |   | (2.9 | ) |
| Corporate operating expenses                                                               |   |               | (0.8     | ) |   |   | (0.8 | ) |   |   | (1.0 | ) |   |   | (1.6 | ) |
| Tax benefit (taxes on income)                                                              |   |               | (0.1     | ) |   |   | (0.1 | ) |   |   | (1.0 | ) |   |   | 0.1 |   |
| Other                                                                                      |   |               | 0.3      |   |   |   | ** |   |   |   | (1.6 | ) |   |   | (0.2 | ) |
| Loss attributable to our shareholders                                                      |   |               | (4.9     | )  |   |   | (4.3 | ) |   |   | (8.3 | ) |   |   | (9.3 | ) |

----

|                                                                                |   | Three months ended |   |
|-------------------------------------------------------------------------------------|--------|--------------------|--------|
|                                                                                |   | March 31, 2015     |   |   | June 30, 2015 |   |   | September 30, 2015 |   |   | December 31, 2015 |   |
|                                                                                |   | (millions of $)    |   |
|                                                                                |   | Unaudited          |   |
| Losses in respect of group companies:                                               |   |               |   |   |   |   |   |   |   |   |   |   |
| Our share in net losses of group companies, net                                     |   |               | (4.0   | ) |   |   | (4.9 | ) |   |   | (4.9 | ) |   |   | (4.6 | ) |
| Excess cost amortization                                                            |   |               | **     |   |   |   | ** |   |   |   | ** |  |   |   | ** |  |
| Total                                                                               |   |               | (4.0   | ) |   |   | (4.9 | ) |   |   | (4.9 | ) |   |   | (4.6 | ) |
| Gain from disposal and revaluation of group companies, and changes in holdings, net |   |               | 10.1   |   |   |   | ** |   |   |   | 14.4 |   |   |   | 3.1 |   |
| Corporate operating expenses                                                        |   |               | (0.9   | ) |   |   | (0.8 | ) |   |   | (0.9 | ) |   |   | (2.0 | ) |
| Taxes on income                                                                     |   |               | -      |   |   |   | - |   |   |   | (1.6 | ) |   |   | (0.1 | ) |
| Other                                                                               |   |               | (0.3   | ) |   |   | 0.5 |   |   |   | (0.7 | ) |   |   | 0.1 |   |
| Income (loss) attributable to our shareholders                                      |   |               | 4.9    |   |   |   | (5.2 | ) |   |   | 6.3 |   |   |   | (3.5 | ) |

----

|                                                                                       |   | Year ended                             |   |   | Three months ended |   |
|--------------------------------------------------------------------------------------------|--------|----------------------------------------|--------|--------|--------------------|--------|
|                                                                                       |   | December 31, 2016                      |   |   | March 31, 2016     |   |   | June 30, 2016 |   |   | September 30, 2016 |   |   | December 31, 2016 |   |
|                                                                                       |   | Audited                                |   |   | Unaudited          |   |
|                                                                                       |   | (millions of $, except per share data) |   |
| Gain (loss) from disposal and revaluation of group companies, and changes in holdings, net |   |                                   | (2.1   | )      |               |   | 0.6 |   |   |   | 0.6 |   |   |   | * |   |   |   | (3.3 | ) |
| Financial income                                                                           |   |                                   | 2.4    |   |               |   | 1.4 |   |   |   | 0.6 |   |   |   | 1.2 |   |   |   | 0.4 |   |
| Total income                                                                               |   |                                   | 0.3    |   |               |   | 2.0 |   |   |   | 1.2 |   |   |   | 1.2 |   |   |   | (2.9 | ) |
| Research and development expenses, net                                                     |   |                                   | 6.5    |   |               |   | 2.3 |   |   |   | 1.4 |   |   |   | 1.3 |   |   |   | 1.5 |   |
| Selling and marketing expenses                                                             |   |                                   | 0.4    |   |               |   | 0.1 |   |   |   | 0.1 |   |   |   | 0.1 |   |   |   | 0.1 |   |
| General and administrative expenses                                                        |   |                                   | 7.0    |   |               |   | 1.4 |   |   |   | 1.5 |   |   |   | 1.7 |   |   |   | 2.4 |   |
| Equity in losses of associates, net                                                        |   |                                   | 13.4   |   |               |   | 3.0 |   |   |   | 2.1 |   |   |   | 4.7 |   |   |   | 3.6 |   |
| Financial expenses                                                                         |   |                                   | 0.4    |   |               |   | 0.3 |   |   |   | 0.6 |   |   |   | * |   |   |   | 0.6 |   |
| Other expenses, net                                                                        |   |                                   | 2.2    |   |               |   | * |   |   |   | * |   |   |   | 2.2 |   |   |   | 0.1 |   |
| Total costs and expenses                                                                   |   |                                   | 29.9   |   |               |   | 7.1 |   |   |   | 5.7 |   |   |   | 10.0 |   |   |   | 8.3 |   |
| Loss before taxes on income                                                                |   |                                   | (29.6  | )      |               |   | (5.1 | ) |   |   | (4.5 | ) |   |   | (8.8 | ) |   |   | (11.2 | ) |
| Tax benefit (tax expenses)                                                                 |   |                                   | (1.2   | )      |               |   | (0.1 | ) |   |   | (0.2 | ) |   |   | (1.1 | ) |   |   | 0.2 |   |
| Loss                                                                                       |   |                                   | (30.8  | )      |               |   | (5.2 | ) |   |   | (4.7 | ) |   |   | (9.9 | ) |   |   | (11.0 | ) |
| Loss attributable to our shareholders                                                      |   |                                   | (26.8  | )      |               |   | (4.9 | ) |   |   | (4.3 | ) |   |   | (8.3 | ) |   |   | (9.3 | ) |
| Loss attributable to non-controlling interests                                             |   |                                   | (4.0   | )      |               |   | (0.3 | ) |   |   | (0.4 | ) |   |   | (1.6 | ) |   |   | (1.7 | ) |
| Basic and diluted loss per share attributable to our shareholders                          |   |                                   | (0.90  | )      |               |   | (0.17 | ) |   |   | (0.14 | ) |   |   | (0.28 | ) |   |   | (0.31 | ) |

----

|                                                                                |   |                                   |   |   |               |   |   |          |   |   |               |   |   |
|-------------------------------------------------------------------------------------|--------|----------------------------------------|--------|--------|--------------------|--------|--------|---------------|--------|--------|--------------------|--------|--------|
|                                                                                |   | Year ended                             |   |   | Three months ended |   |
|                                                                                |   | December 31, 2015                      |   |   | March 31, 2015     |   |   | June 30, 2015 |   |   | September 30, 2015 |   |   | December 31, 2015 |   |
|                                                                                |   | Audited                                |   |   | Unaudited          |   |
|                                                                                |   | (millions of $, except per share data) |   |
| Income from sales                                                                   |   |                                   | 0.9    |   |               |   | 0.2    |          |   |   | 0.2                |   |   |   | 0.3 |   |   |   | 0.2 |   |
| Gain from disposal and revaluation of group companies, and changes in holdings, net |   |                                   | 40.6   |   |               |   | 10.1   |          |   |   | 0.1                |   |   |   | 24.6 |   |   |   | 5.8 |   |
| Financial income                                                                    |   |                                   | 1.1    |   |               |   | 0.4    |          |   |   | 1.6                |   |   |   | 0.3 |   |   |   | 0.4 |   |
| Total income                                                                        |   |                                   | 42.6   |   |               |   | 10.7   |          |   |   | 1.9                |   |   |   | 25.2 |   |   |   | 6.4 |   |
| Cost of sales                                                                       |   |                                   | 0.3    |   |               |   | *      |          |   |   | 0.1                |   |   |   | 0.1 |   |   |   | 0.1 |   |
| Research and development expenses, net                                              |   |                                   | 13.1   |   |               |   | 1.6    |          |   |   | 3.8                |   |   |   | 4.0 |   |   |   | 3.7 |   |
| Selling and marketing expenses                                                      |   |                                   | 2.0    |   |               |   | 0.4    |          |   |   | 0.6                |   |   |   | 0.5 |   |   |   | 0.5 |   |
| General and administrative expenses                                                 |   |                                   | 7.6    |   |               |   | 1.5    |          |   |   | 1.8                |   |   |   | 1.5 |   |   |   | 2.8 |   |
| Equity in losses of associates, net                                                 |   |                                   | 8.5    |   |               |   | 3.4    |          |   |   | 1.8                |   |   |   | 1.8 |   |   |   | 1.5 |   |
| Financial expenses                                                                  |   |                                   | 0.7    |   |               |   | 0.6    |          |   |   | *                  |   |   |   | 1.6 |   |   |   | 0.1 |   |
| Other expenses (income), net                                                        |   |                                   | *      |   |               |   | -      |          |   |   | *                  |   |   |   | * |   |   |   | * |   |
| Total costs and expenses                                                            |   |                                   | 32.2   |   |               |   | 7.5    |          |   |   | 8.1                |   |   |   | 9.5 |   |   |   | 8.7 |   |
| Income (loss) before taxes on income                                                |   |                                   | 10.4   |   |               |   | 3.2    |          |   |   | (6.2               | )      |   |   | 15.7 |   |   |   | (2.3 | ) |
| Tax expenses                                                                        |   |                                   | 3.3    |   |               |   | *      |          |   |   | *                  |   |   |   | 3.1 |   |   |   | 0.2 |   |
| Net income (loss)                                                                   |   |                                   | 7.1    |   |               |   | 3.2    |          |   |   | (6.2               | )      |   |   | 12.6 |   |   |   | (2.5 | ) |
| Income (loss) attributable to our shareholders                                      |   |                                   | 2.5    |   |               |   | 4.9    |          |   |   | (5.2               | )      |   |   | 6.3 |   |   |   | (3.5 | ) |
| Income (loss) attributable to non-controlling interests                             |   |                                   | 4.6    |   |               |   | (1.7   | )             |   |   | (1.0               | )      |   |   | 6.3 |   |   |   | 1.0 |   |
| Basic and diluted income (loss) per share attributable to our shareholders          |   |                                   | 0.08   |   |               |   | 0.17   |          |   |   | (0.18              | )      |   |   | 0.21 |   |   |   | (0.12 | ) |

|                                                             |   | As of December 31, |   |
|------------------------------------------------------------------|--------|--------------------|--------|
|                                                             |   | 2016               |   |   | 2015 |   |
|                                                             |   | (millions of $)    |   |
| Total assets in the consolidated statement of financial position |   |               | 170.7  |   |   |   | 214.9 |   |
| Current assets                                                   |   |               | 102.4  |   |   |   | 151.1 |   |
| Investments in associate companies and other companies           |   |               | 43.2   |   |   |   | 34.9 |   |
| Long-term receivables                                            |   |               | 6.5    |   |   |   | 10.4 |   |
| Intangible assets                                                |   |               | 17.4   |   |   |   | 17.4 |   |
| Current liabilities                                              |   |               | 8.4    |   |   |   | 6.0 |   |
| Non-current liabilities                                          |   |               | 0.7    |   |   |   | 2.5 |   |
| Total liabilities                                                |   |               | 9.1    |   |   |   | 8.5 |   |
| Consolidated equity                                              |   |               | 161.6  |   |   |   | 206.4 |   |

----

|                                                                     |   | Year ended        |   |   | Three months ended |   |
|--------------------------------------------------------------------------|--------|-------------------|--------|--------|--------------------|--------|
|                                                                     |   | December 31, 2016 |   |   | December 31, 2015  |   |   | December 31, 2016 |   |   | December 31, 2015 |   |
|                                                                     |   | Audited           |   |   | Unaudited          |   |
|                                                                     |   | (millions of $)   |   |
| Investments in our and RDC's group companies                             |   |              | (40.4  | )      |               |   | (30.2 | ) |   |   | (4.0 | ) |   |   | (8.2 | ) |
| Proceeds received from disposal of our and RDC's non-current investments |   |              | 0.1    |   |               |   | 27.7 |   |   |   | * |   |   |   | 10.9 |   |
| Taxes paid                                                               |   |              | (1.6   | )      |               |   | (1.7 | ) |   |   | (1.6 | ) |   |   | (1.7 | ) |
| Dividend distributed by us                                               |   |              | (15.0  | )      |               |   | - |   |   |   | - |   |   |   | - |   |

| 1 | The amounts presented include RDC's cash flows in full (100%) in addition to our cash flows, but do not include the cash flows of its subsidiaries which are not fully owned. |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                             |   | Elron           |   |   | RDC    |   |
|----------------------------------|--------|-----------------|--------|--------|--------|--------|
|                             |   | 2016            |   |   | 2015   |   |   | 2016 |   |   | 2015 |   |
|                             |   | (millions of $) |   |
| Consolidated companies           |   |            |   |   |   |   |   |   |   |   |   |   |
|                             |   |            |   |   |   |   |   |   |   |   |   |   |
| Pocared                          |   |            | 6.5    |   |   |   | 11.6 |   |   |   | 9.0 |   |   |   | - |   |
|                             |   |            | 6.5    |   |   |   | 11.6 |   |   |   | 9.0 |   |   |   | - |   |
| Associates and other investments |   |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| BrainsGate                       |   |            | 4.6    |   |   |   | 3.3 |   |   |   | - |   |   |   | - |   |
| Cartiheal                        |   |            | -      |   |   |   | 6.7 |   |   |   | - |   |   |   | - |   |
| Coramaze                         |   |            | 2.0    |   |   |   | 2.0 |   |   |   | - |   |   |   | - |   |
| Notal Vision                     |   |            | 3.5    |   |   |   | 0.6 |   |   |   | - |   |   |   | - |   |
| Cloudyn                          |   |            | -      |   |   |   | - |   |   |   | - |   |   |   | 2.0 |   |
| Open Legacy                      |   |            | -      |   |   |   | - |   |   |   | 3.0 |   |   |   | 1.1 |   |
| SixGill                          |   |            | 2.5    |   |   |   | - |   |   |   | - |   |   |   | - |   |
| SecuredTouch                     |   |            | -      |   |   |   | - |   |   |   | 2.2 |   |   |   | - |   |
| Alcide                           |   |            | 1.5    |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Nitinotes                        |   |            | 0.7    |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Secdo                            |   |            | -      |   |   |   | - |   |   |   | 4.0 |   |   |   | - |   |
| IronScales                       |   |            | -      |   |   |   | - |   |   |   | 0.7 |   |   |   | 0.8 |   |
| Kyma1                            |   |            | -      |   |   |   | - |   |   |   | - |   |   |   | 1.6 |   |
| Other                            |   |            | 0.2    |   |   |   | 0.2 |   |   |   | - |   |   |   | 0.3 |   |
|                             |   |            | 15.0   |   |   |   | 12.8 |   |   |   | 9.9 |   |   |   | 5.8 |   |
| Total investments                |   |            | 21.5   |   |   |   | 24.4 |   |   |   | 18.9 |   |   |   | 5.8 |   |

|  | 1) | In September 2015 the sale of Kyma was completed. |
|--|----|---------------------------------------------------|

----

|                             |   | 2017            |   |
|----------------------------------|--------|-----------------|--------|
|                             |   | Elron           |   |   | RDC |   |
|                             |   | (millions of $) |   |
| Associates and other investments |   |            |   |   |   |   |
| Alcide                           |   |            | 0.7    |   |   |   | - |   |
| Coramaze                         |   |            | 0.9    |   |   |   | - |   |
| Nitinotes                        |   |            | 0.8    |   |   |   | - |   |
| Notal Vision                     |   |            | 0.3    |   |   |   | - |   |
| Total investments                |   |            | 2.7    |   |   |   | - |   |

----

|       |   | Cash flows used in operating activities for the year ended December 31, |   |   | Liquid resources balance as of December 31, |   |   | Note in |   |
|------------|--------|-------------------------------------------------------------------------|--------|--------|---------------------------------------------|--------|--------|---------|--------|
|       |   | 2016                                                                    |   |   | 2015                                        |   |   | 2016    |   |   | 2015 |   |   | "Item 18 – |   |
|       |   | (audited)                                                               |   |   | Financial                                   |   |
|       |   | (millions of $)                                                         |   |   | Statements"                                 |   |
| BrainsGate |   |                                                                    | (5.5   | )      |                                        |   | (5.4   | )       |   |   | (18.2 | ) |   |   | 8.3 |   |   |   | 3.B.4.b | ) |
| Pocared    |   |                                                                    | (8.7   | )      |                                        |   | (13.0  | )       |   |   | (9.7 | ) |   |   | 2.0 |   |   |   | 3.A.3.b | ) |

| 1 | See "Item 4.B – Business Overview" for details on the criteria for classifying a group company as a main company. |
|---|-------------------------------------------------------------------------------------------------------------------------|

----

----

|                     |   | Gain (loss) from changes in dollar interest rates |   |
|--------------------------|--------|---------------------------------------------------|--------|
|                     |   |                                              |   |   | Increase |   |   | Decrease |   |
|                     |   | Fair value                                        |   |   | 2% Absolute value |   |   |   | 10% |   |   |   | 5% |   |   | 0% interest |   |   |   | 10% |   |   |   | 5% |   |
|                     |   | $ millions                                        |   |
| Short term bank deposits |   |                                              | 31.1   |   |   |   | (0.3 | ) |   |   | * |   |   |   | * |   |   |   | 0.3 |   |   |   | * |   |   |   | * |   |

|                     |   | Gain (loss) from changes in dollar interest rates |   |
|--------------------------|--------|---------------------------------------------------|--------|
|                     |   |                                              |   |   | Increase |   |   | Decrease |   |
|                     |   | Fair value                                        |   |   | 2% Absolute value |   |   |   | 10% |   |   |   | 5% |   |   | 0% interest |   |   |   | 10% |   |   |   | 5% |   |
|                     |   | $ millions                                        |   |
| Short term bank deposits |   |                                              | 55.3   |   |   |   | (0.6 | ) |   |   | * |   |   |   | * |   |   |   | 0.3 |   |   |   | * |   |   |   | * |   |

----

| Item 6. | Directors, Senior Management and Employees |
|---------|--------------------------------------------|

| Directors                             |   |   |   |                  |
|---------------------------------------|--------|--------|--------|-----------------------|
|  Name                            |   | Age    |   | Position              |
|                                  |   |   |   |                  |
| Eduardo Elsztain(6)                   |   | 57     |   | Chairman              |
| Saul Zang(7)                          |   | 71     |   | Vice – Chairman |
| Amiram Erel (5)                       |   | 69     |   | Director              |
| Yehuda Freidenberg(1) (2) (3) (4) (5) |   | 75     |   | External Director     |
| Sholem (Saul) Lapidot                 |   | 37     |   | Substitute Director   |
| Lee-Bath Nelson(1) (2) (3) (5)        |   | 51     |   | External Director     |
| Yael Andorn (1) (3) (4) (5)           |   | 46     |   | Director              |
| Ehud Rassabi (1) (2) (3) (4) (5)      |   | 63     |   | External Director     |
| Gerardo Tyszberowicz                  |   | 36     |   | Substitute Director   |

----

| Executive Officers   Name |   | Age    |   | Position                                     |
|------------------------------------------|--------|--------|--------|----------------------------------------------|
|                                     |   |   |   |                                         |
| Ari Bronshtein                           |   | 47     |   | Chief Executive Officer                      |
| Yaron Elad                               |   | 39     |   | Vice-President & Chief Financial Officer |
| Zohar Rozenberg                          |   | 43     |   | Vice-President                               |

| (1) | Member of our audit committee. |
|-----|--------------------------------|

| (2) | External director under the Companies Law. |
|-----|--------------------------------------------|

| (3) | Independent Director under the Companies Law. |
|-----|-----------------------------------------------|

| (4) | Designated "financial expert" under the Sarbanes-Oxley Act of 2002. |
|-----|---------------------------------------------------------------------|

| (5) | Designated "financial expert" under the Companies Law. |
|-----|--------------------------------------------------------|

| (6) | Appointed Chairman of the board of directors on March 10, 2016 |
|-----|----------------------------------------------------------------|

| (7) | Appointed Vice-Chairman of the board of directors on March 10, 2016 |
|-----|---------------------------------------------------------------------|

----

----

----

|                                                                                 |   | Cash and Cash-Equivalent Forms of Compensation (in thousands of U.S. $) |   |
|--------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------|--------|
|                                                                                 |   | Salaries, Fees, Directors'Fees, Commissions and Bonuses                 |   |
| 2016(1) (2)                                                                          |   |                                                                    |   |
| All Directors as a group, consisting of 12 persons during 2016                       |   | $                                                                       | 304    |   |
| All Officers as a group,           |   | $                                                                       | 394    |   |

| (1) | Does not include payments by DIC to officers of the Company employed by DIC as part of the Services Agreement. For details regarding the Services Agreement with DIC and its termination, see "Item 7 –– Major Shareholders and Related Party Transactions – Related Party Transactions". |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | See below –"Payments paid during the period of this Annual Report to the five highest salary recipients amongst our and our subsidiaries officers ". |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------|

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----

| Information on recipient | Compensation for services (thousands of $) | Total              |
|--------------------------|--------------------------------------------|--------------------|
| Name                     | Position                                   | Date of employment | Type of Position | Shareholdings (Fully diluted) | Salary | Bonus | Share-based payments | Management fee |   |
| Ari Bronshtein           | CEO                                        | May 2009           | (1) | - | 455 (2) | 191 (3) | - | - | 646 |
| Zohar Rosenberg          | Vice- President                            | January 2016       | 100% (4) | - | 263 (5) | 108 (6) | - | - | 371 |
| Yaron Elad               | Vice- President & CFO                  | May 2009           | 100% (7) | - | 276 (8) | 95 (9) | - | - | 371 |
| Jonathan Garfunkel       | CEO of Pocared                             | March 2005         | 100% (10) | - | 225 (11) | - | 5 | - | 230 |
| Niv Levy                 | Director of Finance                        | September 2009     | 100% (12) | - | 176 (13) | 43 | - | - | 219 |

----

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| Name of Company | Full Goal                                                                                                  | Interim Goal                                                                           | Goal Accomplishment in 2016 |
|-----------------|------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------|-----------------------------|
| BrainsGate      | Receipt of “green light” from DSMB to continue the trial after conducting the interim surgery. | Recruiting 700 patients for the trial.                                                 | Full goal accomplished      |
| Pocared         | FDA approval for the UTI diagnosis.                                                                        | Submission of application for FDA marketing clearance for the UTI diagnosis.           | Goal not accomplished       |
| CartiHeal       | Existence of pre-sub meeting with the FDA.                                                                 | Receipt of positive results in the 2nd clinical trial.                                 | Full goal accomplished      |
| Notal Vision    | Receipt of IDTF approval.                                                                                  | FIH on the OTC product.                                                                | Full goal accomplished      |
| Coramaze        | Recruiting of first patient for the trial (FIH).                                                           | Completion of the product’s design.                                              | Goal not accomplished       |
| Elron           | Investments in two new companies by Elron or RDC.                                                          |  Investment in one new company by Elron or RDC.                                   | Full goal accomplished      |
| Elron           | New investment in a cyber company.                                                                         | Signing of two term sheets or letters of intent for the investment in a cyber company. | Full goal accomplished      |

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----

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|  | · | the person is a relative of the controlling shareholder, |
|--|--------|----------------------------------------------------------|

|  | · | the person or the person's spouse, siblings, parents, grandparents, descendants, spouses' descendants, siblings or parents, or the spouses of any of the foregoing (collectively, a "relative"), partner, employer, anyone that the person is subordinated to directly or indirectly, or any entity under the person's control, has as of the date of the person’s appointment as external director, or had, within the two years preceding the date of the person's appointment as external director, any affiliation with the company, the controlling shareholder in the company, a relative of the controlling shareholder, or an entity in which, currently or within the two years prior to the appointment date, the controlling shareholder was the company or the company's controlling shareholder, and additionally, in a company without a controlling shareholder, or without a shareholder holding 25% or more of the voting rights in the company any affiliation, on the appointment date, with the chairman of the board of directors, the chief executive officer, a significant shareholder (a shareholder holding 5% or more of the company's shares or voting rights), or the senior financial officer. |
|--|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | an employment relationship; |
|--------|--------|-----------------------------|

|   | · | a business or professional relationship maintained on a regular basis, subject to certain exclusions; |
|--------|--------|-------------------------------------------------------------------------------------------------------|

|   | · | control; and |
|--------|--------|--------------|

|   | · | service as an "office holder", as defined below in "Item 10 – Additional Information – Memorandum and Articles of Association", excluding service as a director who was appointed to serve as an external director in a company which is going to initially offer its shares to the public. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|  | · | The majority of shares voted at the meeting, including at least a majority of the shares held by non-controlling shareholders, or by disinterested shareholders (unless the personal interest does not derive from relationships with the controlling shareholder), which voted at the meeting, vote in favor of appointment of the director, without taking abstentions into account. According to the Companies Law, a "controlling shareholder" is a person who has the ability to direct the activities of a company, other than if this power derives solely from his/her position on the board of directors or any other position with the company. A person is presumed to be a controlling shareholder if he or she holds half or more of the following: (i) voting rights in the general meeting, or (ii) rights to appoint directors or the chief executive officer; or |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | The total number of shares held by the shareholders mentioned above, which voted against the election of the director, does not exceed two percent of the aggregate voting rights in the company. |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | The majority of shares voted at the meeting exclude shares held by controlling shareholders, shares held by interested shareholders (unless the personal interest does not derive from relationship with the controlling shareholder), and abstentions. |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | The total number of shares which voted for the election of the director which are held by non-controlling shareholders, or by disinterested shareholders (excluding interest that does not derive from a relationship with the controlling shareholder), exceeds two percent of the aggregate voting rights in the company. |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| As of December 31,                         |   | 2016   |   |   | 2015   |   |   | 2014   |   |
|--------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Management and Administration*   |   |   | -      |   |   |   | -      |   |   |   | 1 |   |

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----

| Item 7. | Major Shareholders and Related Party Transactions |
|---------|---------------------------------------------------|

| Name and Address                                          |   | Number of Ordinary Shares |       |   | Percent of Outstanding Ordinary Shares |   |   | Percent of Ordinary Shares on a fully diluted basis |   |
|-----------------------------------------------------------|--------|---------------------------|------------|--------|----------------------------------------|--------|--------|-----------------------------------------------------|--------|
| Discount Investment Corporation Ltd. (1) Tel Aviv, Israel |   |                      | 14,966,339 |   |                                   |   | 50.32  | %                                                   |   |   | 50.32 | % |

----

----

----

|  | (i) | DIC will pay us an annual sum of NIS2.059 million plus VAT including indemnification for the CEO's compensation and additional costs to us due to early termination of the Services Agreement, and a total of NIS2.745 million plus VAT for the period commencing from January 1, 2017 to April 30, 2018 (linked to Consumer Price Index). |
|--|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (ii) | We shall reimburse DIC for the actual current employer cost of the employees for the period from January 1, 2017 until March 31, 2017 (as at December 2016, the actual current monthly employer cost of the employees stood at approximately NIS0.8 million) less our quarterly payment to DIC for such period in accordance with the existing Services Agreement which is approximately NIS1.5 million. |
|--|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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----

| (1) | The coverage under the Policy was limited to $30 million per claim and in the aggregate during the policy period. |
|-----|-------------------------------------------------------------------------------------------------------------------|
| (2) | The premium amounts to $155,000 for a period of 18 months (i.e. an annual premium of approximately $103,000)      |

----

| Item 8. | Financial Information |
|---------|-----------------------|

----

----

----

| Item 9. | The Offer and Listing |
|---------|-----------------------|

|                                   |   | U.S.          |   |   | U.S.         |   |   | TASE      |   |   | TASE      |   |
|----------------------------------------|--------|---------------|--------|--------|--------------|--------|--------|-----------|--------|--------|-----------|--------|
| Period                                 |   | High (U.S. $) |   |   | Low (U.S. $) |   |   | High(NIS) |   |   | Low (NIS) |   |
|                                   |   |          |   |   |         |   |   |      |   |   |      |   |
| Annually                               |   |          |   |   |         |   |   |      |   |   |      |   |
|                                   |   |          |   |   |         |   |   |      |   |   |      |   |
| 2012                                   |   |          | 5.08   |   |         |   | 2.69   |      |   |   | 19.74     |   |   |   | 11.04 |   |
| 2013                                   |   |          | 8.62   |   |         |   | 4.41   |      |   |   | 30.27     |   |   |   | 16.51 |   |
| 2014                                   |   |          | 5.88   |   |         |   | 3.96   |      |   |   | 20.68     |   |   |   | 15.00 |   |
| 2015                                   |   |          | 5.22   |   |         |   | 4.06   |      |   |   | 20.29     |   |   |   | 16.12 |   |
| 2016                                   |   |          | 5.13   |   |         |   | 4.22   |      |   |   | 18.20     |   |   |   | 14.93 |   |
|                                   |   |          |   |   |         |   |   |      |   |   |      |   |   |   |   |   |
| Quarterly                              |   |          |   |   |         |   |   |      |   |   |      |   |   |   |   |   |
|                                   |   |          |   |   |         |   |   |      |   |   |      |   |   |   |   |   |
| First Quarter 2015                     |   |          | 5.00   |   |         |   | 4.06   |      |   |   | 19.62     |   |   |   | 16.12 |   |
| Second Quarter 2015                    |   |          | 5.00   |   |         |   | 4.46   |      |   |   | 20.22     |   |   |   | 16.99 |   |
| Third Quarter 2015                     |   |          | 5.10   |   |         |   | 4.28   |      |   |   | 19.84     |   |   |   | 16.70 |   |
| Fourth Quarter 2015                    |   |          | 5.22   |   |         |   | 4.14   |      |   |   | 20.29     |   |   |   | 16.67 |   |
|                                   |   |          |   |   |         |   |   |      |   |   |      |   |   |   |   |   |
| First Quarter 2016                     |   |          | 5.11   |   |         |   | 4.30   |      |   |   | 18.05     |   |   |   | 15.12 |   |
| Second Quarter 2016                    |   |          | 4.59   |   |         |   | 4.22   |      |   |   | 15.91     |   |   |   | 14.93 |   |
| Third Quarter 2016                     |   |          | 5.13   |   |         |   | 4.27   |      |   |   | 17.37     |   |   |   | 15.00 |   |
| Fourth Quarter 2016                    |   |          | 4.75   |   |         |   | 4.37   |      |   |   | 18.20     |   |   |   | 16.69 |   |
|                                   |   |          |   |   |         |   |   |      |   |   |      |   |   |   |   |   |
| Most recent six months                 |   |          |   |   |         |   |   |      |   |   |      |   |   |   |   |   |
| September 2016                         |   |          | 5.13   |   |         |   | 4.31   |      |   |   | 17.37     |   |   |   | 16.52 |   |
| October 2016                           |   |          | 4.75   |   |         |   | 4.52   |      |   |   | 18.20     |   |   |   | 17.25 |   |
| November 2016                          |   |          | 4.69   |   |         |   | 4.37   |      |   |   | 18.04     |   |   |   | 16.69 |   |
| December 2016                          |   |          | 4.71   |   |         |   | 4.43   |      |   |   | 18.12     |   |   |   | 16.94 |   |
| January 2017                           |   |          | 5.04   |   |         |   | 4.44   |      |   |   | 19.44     |   |   |   | 17.06 |   |
| February 2017                          |   |          | 4.73   |   |         |   | 4.44   |      |   |   | 17.51     |   |   |   | 16.76 |   |
| March 1, 2017 (through March 20, 2017) |   | 4.99          |   |   | 4.70         |   |   | 18.50     |   |   | 17.13     |   |

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| Item 10. | Additional Information |
|----------|------------------------|

----

|  | · | amendments to our Articles of Association and our Memorandum of Association; |
|--|--------|------------------------------------------------------------------------------|

|  | · | appointment or termination of our auditors; |
|--|--------|---------------------------------------------|

|  | · | appointment and dismissal of directors (in addition to the board of directors' authority to appoint directors in certain circumstances); |
|--|--------|------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | approval of interested party actions and transactions requiring general meeting approval as provided in sections 255 and 268 to 275 of the Companies Law due to a personal interest of a controlling shareholder or a director or on certain matters related to compensation of our officers, directors and our controlling shareholders; |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | increase or reduction of our authorized share capital and alterations of our share capital; |
|--|--------|---------------------------------------------------------------------------------------------|

|  | · | a merger as provided in section 320(a) of the Companies Law; |
|--|--------|--------------------------------------------------------------|

----

|  | · | the exercise of the board of directors' powers by a general meeting, if the board of directors is unable to exercise its powers and the exercise of any of its powers is vital for our proper management, as provided in the Companies Law; and |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | any matter that is required to be adopted by resolution of a general meeting pursuant to the law or in accordance with our Articles of Association. |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

----

|  | (a) | all of the directors are permitted to vote on the matter and attend the meeting in which the matter is considered; and |
|--|-----|------------------------------------------------------------------------------------------------------------------------|

|  | (b) | approval of the shareholders at a general meeting is required if the majority of the board of directors have a personal interest in the matter. |
|--|-----|-------------------------------------------------------------------------------------------------------------------------------------------------|

----

|  | · | any amendment to the Articles of Association; |
|--|--------|-----------------------------------------------|

|  | · | an increase of the company’s authorized share capital; |
|--|--------|--------------------------------------------------------------|

|  | · | a merger; or |
|--|--------|--------------|

|  | · | approval of interested party acts and transactions that require general meeting approval as provided in sections 255 and 268 to 275 of the Companies Law due to a personal interest of a controlling shareholder or a director or an executive officer of ours. |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | A. | Percentage of assets – the assets purchased or sold divided by our total assets presented in our most recent financial reports published by us; |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | Percentage of gain – the actual or forecasted gain or loss related to such event or matter divided by the total accumulated investments in existing group companies averaged for the preceding 12 quarters as presented in our reviewed or audited financial statements that were published by us; |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | C. | Percentage of equity – increase or decrease in our equity due to such event or matter divided by our equity presented in our most recent financial reports published by us prior to that event or matter; |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | D. | Percentage of liability – the liability being the subject of such event or matter divided by our total equity presented in our most recent financial reports published by us prior to that event or matter. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Without derogating from the need to decide for each such event or matter, the materiality of which is being evaluated, which of the criteria stipulated in Section A above, are relevant, the following criteria will be considered relevant for the transactions identified: A. Purchase of assets – percentage of total assets; B. Sale of assets – percentage of gain, percentage of total assets; C. Taking a loan – percentage of liability. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | In the absence of special qualitative considerations as discussed below, an event or matter shall be considered to be material if one of the relevant criteria exceeds 10%:   the percentage of assets; the percentage of equity; the percentage of liability to equity. With respect to the percentage of gain only, an event will be considered to be material, if in the absence of special qualitative considerations arising from the circumstances,  the actual or forecasted gain or loss related to such event is more than 5%. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| · | In the absence of qualitative considerations, an event or matter will be deemed not material if all the relevant criteria are less than 5% and with respect to the percentage of gain only, less than 2.5%. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Events or matters that are not classified under Sections C or D may be considered material and must be reviewed in qualitative terms with all of the relevant information and circumstances. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | In examining the materiality of an event or matter that is supposed to take place in the future, the probability of that event or matter materializing is to be determined as well as its expected importance and impact should it materialize. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | If dealing with an event or matter relating to a subsidiary or associate company of ours, our relative share of the impact of that event or matter is to be examined, in other words, relative to our percentage holding in that subsidiary or associate company, using the aforementioned materiality tests. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | If the event or matter is not an investment in securities, such as an engagement through financing agreements, engagement through agreements for the receipt of services and the like, the impacts of that event or matter on us must also be examined in terms of other relevant accounting items related to the nature of the subject event or matter. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | The event or matter involves material opportunities or risks and exposures. When examining this aspect, it is important to consider whether and to what extent the risk involved in that event or matter was not reflected in risk factors included in our previous public reports. The question of whether the event or matter is the realization of a risk factor reported to the public of investors prior to the occurrence of that event or matter is to be considered as well; |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | As part of the event or matter, we enter a new and important area of activity or exit an existing important area of activity; |
|--------|-------------------------------------------------------------------------------------------------------------------------------|

| · | The disclosure of the event or matter may bring about, with reasonable certainty and based on past experience, and evaluation models generally used by investors and analysts, a significant change in the price of our ordinary shares; |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | The event or matter may have a special impact on our financial statements such as the reclassification of specific items, etc.; |
|--------|---------------------------------------------------------------------------------------------------------------------------------|

----

| · | The event or matter may impact on our compliance with significant regulatory requirements, significant financial standards that may cause significant difficulty for us, or other significant contractual requirements; |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | The event or matter may significantly influence analysts and/or investors when they analyze our activity and results; |
|--------|-----------------------------------------------------------------------------------------------------------------------|

| · | The event or matter is perceived as a significant event by our management and used as the basis for making management decisions. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------|

| · | If our controlling shareholder is required to file an immediate report on an event or matter concerning us or a subsidiary or associate company of ours, we shall also file an immediate report on the same event or matter, even if the aforementioned quantitative rules do not require us to do so. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | With respect to lawsuits (including class action suits) – in an event regarding the filing of a lawsuit, including a class action, against us or any subsidiary or associate company of ours, the materiality of the event shall be examined as follows: A. Quantitative review – will be conducted according to the amount of the claim or class action, multiplied by our percentage holding in the company being sued, if this relates to subsidiary or associate company. If there is an assessment as to the chances of success when materiality is being examined, these chances shall be considered and the expectancy of the claim from our perspective will be calculated. The relevant quantitative criterion to examine the materiality of the lawsuits will be the percentage of gain. The percentage received after performing the calculation will be examined in light of the regular quantitative review procedures specified in above. B. Qualitative examination – the question of whether the filing of the claim or the threat of a lawsuit has a significant impact on all the information used in investment decisions by the public of investors for our ordinary shares will be examined. In this criteria, our relevant considerations such as the following will be taken into account: the identity of the plaintiff; group of plaintiffs; the anticipated effects should the claim be certified as a class action and if it is accepted by court; the existence of similar lawsuits against the company being sued about similar material and the extent of the impact of the additional claim on all the information in the possession of investors; the reference to the class action in our financial statements. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | With respect to administrative or criminal proceedings – in an event relating to a criminal investigation conducted by enforcement agencies, the Israeli Securities Authority or other regulatory authority, against us and/or any of our officers about a matter significant to us, and with respect to events regarding a criminal and/or administrative proceeding against us and/or our officers on a matter significant to us, the qualitative examination of materiality will be given additional weight, and specifically, the manner in which the Event may impact investors and/or analysts when they analyze our activities and results and how investors relate to the manner in which we and/or our officers conduct our business. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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|  | · | Tax “holiday” package for a “Privileged Enterprise”: a tax exemption applies to undistributed profits for two to fifteen years depending on geographical location of the “Privileged Enterprise” and the level of foreign ownership. Company tax rates of between 10% and 25% apply to the distributed exempt profits or profits derived subsequent to the exempt period. The total period of tax benefits is seven to fifteen years; or |
|--|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | Grant / Reduced tax package for an “Approved Enterprise”: Fixed asset grants up to 24% for enterprises in a development area and reduced company tax rates between 0% and 25% for seven to 15 years. |
|--|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|  | · | an individual citizen or resident of the United States for U.S. federal income tax purposes; |
|--|--------|----------------------------------------------------------------------------------------------|

|  | · | a corporation (or another entity taxable as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States or any political subdivision thereof or the District of Columbia; |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | an estate, the income of which may be included in gross income for U.S. federal income tax purposes regardless of its source; or |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------|

|  | · | a trust (i) if, in general, a U.S. court is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions or (ii) that has in effect a valid election under applicable U.S. Treasury Regulations to be treated as a U.S. person. |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Item 11. | Quantitative and Qualitative Disclosures About Market Risk |
|----------|------------------------------------------------------------|

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| Item 16. | [Reserved] |
|----------|------------|

| Item16A. | Audit Committee Financial Expert |
|----------|----------------------------------|

| Item 16B. | Code of Ethics |
|-----------|----------------|

----

| Item 16C. | Principal Accountant Fees and Services |
|-----------|----------------------------------------|

|               |   | 2015                             |   |   | 2016                        |   |
|--------------------|--------|----------------------------------|--------|--------|-----------------------------|--------|
|               |   | Kost Forer Gabbay & Kasierer |   |   | Kesselman and Kesselman (3) |   |   | Kost Forer Gabbay & Kasierer |   |
|               |   | (in thousands of U.S. $)         |   |
|               |   |                             |   |
| Audit Fees (1)     |   |                             | 337    |   |                        |   | 84 |   |   |   | 239 |   |
| Audit-Related Fees |   |                             | 20     |   |                        |   | - |   |   |   | - |   |
| Tax Fees (2)       |   |                             | 31     |   |                        |   | - |   |   |   | 81 |   |
| All Other Fees     |   |                             | -      |   |                        |   | - |   |   |   | - |   |
|  Total        |   |                             | 387    |   |                        |   | 84 |   |   |   | 320 |   |

|   | (1) | Audit Fees consist of fees billed for the annual audit services engagement and other audit services, which are those services that only the external auditor can reasonably provide, and include statutory audits; consents; and assistance with and review of documents filed with the SEC. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Tax Fees include fees billed for tax compliance services, including the audit of original and amended tax returns and claims for tax refund; tax consultations, such as assistance and representation in connection with tax audits and appeals requests for rulings or technical advice from taxing authority; and tax planning services. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | In 2015, prior to the appointment as our joint principal accountants, Kesselman and Kesselman provided us services in a total amount of approximately $12 thousand. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Item 16F. | Change in Registrant’s Certifying Accountant. |
|-----------|-----------------------------------------------------|

| Item 16G. | Corporate Governance |
|-----------|----------------------|

| Item 16H. | Mine Safety Disclosure |
|-----------|------------------------|

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| Item 19. | Exhibits |
|----------|----------|

| Exhibit No. | Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                  |
|-------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 1.1         | Articles of Association (English translation), consolidated version including amendments approved by the Company's shareholders on February 1, 2012 incorporated by reference to Exhibit 1 to the Annual Report on Form 20-F for the year ended December 31, 2011, filed with the SEC on March 13, 2012.                                                                                                                 |
| 1.2         | Memorandum of Association of Elron Electronic Industries Ltd., incorporated by reference to Exhibit 1.2 to the Company’s Annual Report on Form 20-F for the year ended December 31, 2000, filed with the SEC on June 8, 2001.                                                                                                                                                                                      |
| 4.1         | Services Agreement dated as of March 19, 2009 by and between the registrant and Discount Investment Corporation Ltd. incorporated by reference to Exhibit 99.2 to Form 6-K, filed with the SEC on March 24, 2009.                                                                                                                                                                                                        |
| 4.2         | Amendment to Services Agreement dated as of April 28 2015 by and between the registrant and Discount Investment Corporation Ltd. incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form 20-F for the year ended December 31, 2015, filed with the SEC on March 14, 2016.                                                                                                                  |
| 4.3         | Termination of Services Agreement dated as of March 14, 2017 by and between the registrant and Discount Investment Corporation Ltd.                                                                                                                                                                                                                                                                                      |
| 4.4    | Joint Venture Agreement, dated as of April 1993, among Discount Investment Corporation Ltd., PEC Israel Economic Corporation, Rafael Armament Development Authority Ltd. and Galram Technology Industries Limited (“Joint Venture Agreement”), incorporated by reference to Exhibit 10.4 to Amendment No. 5 to the Company’s Registration Statement on Form F-4, filed with the SEC on March 14, 2002. |
| 4.5         | Amendment to Joint Venture Agreement, dated December 30, 2007, incorporated by reference to Exhibit 4.2 to the Company's Annual Report on Form 20F for the year ended December 31, 2007 filed with the SEC on June 30, 2008.                                                                                                                                                                                             |
| 8.1         | List of subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                    |
| 11.1        | Code of Ethics, incorporated by reference to Exhibit 11.1 to the Company’s Annual Report on Form 20-F, filed with the SEC on June 29, 2004.                                                                                                                                                                                                                                                                        |
| 12.1        | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                  |
| 12.2        | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                  |
| 13.1        | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                                                                                                                                                 |

----

| 13.2 | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*                                       |
|------|------------------------------------------------------------------------------------------------------------------------------------------------|
| 15.1 | Consent of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, for Elron Electronic Industries Ltd., dated March 21, 2017. |
| 15.2 | Consent of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, for Elron Electronic Industries Ltd., dated March 21, 2017. |
| 15.3 | Consent of Kesselman & Kesselman, PricewaterhouseCoopers, for Elron Electronic Industries Ltd., dated March 21, 2017.                      |
| 15.4 | Consent of KPMG Somekh Chaikin, for Open Legacy Technologies Ltd, dated March 21, 2017.                                                        |

|  | * | This document is being furnished in accordance with SEC Release No. 33-8212 and 34-47551. |
|--|---|-------------------------------------------------------------------------------------------|

----

| Dated: March 21, 2017 | **ELRON ELECTRONIC INDUSTRIES LTD.** |                                       |
|-----------------------|--------------------------------------|--------------------------------------------|
|                  |                                 |                                       |   |
|                       | By:                                  | /s/ Ari Bronshtein                    |   |
|                  |                                 | Name: Ari Bronshtein                       |   |
|                  |                                 | Title:   Chief Executive Officer |   |
|                  |                                 |                                       |   |

|        | By:    | /s/ Yaron Elad                                             |   |
|--------|--------|-----------------------------------------------------------------|--------|
|   |   | Name: Yaron Elad                                                |   |
|   |   | Title:   Vice President & Chief Financial Officer |   |

----

| Elron Electronic Industries Ltd. Consolidated Financial Statements For the Year EndedDecember 31, 2016 |
|------------------------------------------------------------------------------------------------------------------|

----

----

|                                                                | Page   |
|---------------------------------------------------------------------|--------|
|                                                                |   |
| Reports of Independent Registered Public Accounting Firm            | F - 3  |
|                                                                |   |
| Consolidated Statements of Financial Position                       | F - 6  |
|                                                                |   |
| Consolidated Statements of Income (Loss)                            | F - 8  |
|                                                                |   |
| Consolidated Statements of Comprehensive Income (Loss)              | F - 9  |
|                                                                |   |
| Consolidated Statements of Changes in Equity                        | F - 10 |
|                                                                |   |
| Consolidated Statements of Cash Flows                               | F - 13 |
|                                                                |   |
| Notes to the Consolidated Financial Statements                      | F - 15 |
|                                                                |   |
| Annex to the Consolidated Financial Statements -                    |   |
|   Details Relating to Investments as of December 31, 2016 | F - 70 |

----

|  |  |  |  |
|--|--|--|--|

| KOST FORER GABBAY & KASIERERA Member of Ernst & Young Global | Kesselman & KesselmanCertified Public Accountants (Isr.)A member firm of PriceWaterhouseCoopers International Limited |
|----------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------|

----

|   | Kost Forer Gabbay & Kasierer3 Aminadav St.Tel-Aviv 6706703, Israel  | Tel: +972-3-6232525Fax: +972-3-5622555ey.com |
|--------|------------------------------------------------------------------------------|----------------------------------------------|
| Tel-Aviv, Israel | KOST FORER GABBAY & KASIERER     |
|------------------|--------------------------------------|
| March 21, 2017   | A Member of Ernst & Young Global |

----

|  |  |  |  |
|--|--|--|--|

| KOST FORER GABBAY & KASIERERA Member of Ernst & Young Global | Kesselman & KesselmanCertified Public Accountants (Isr.)A member firm of PriceWaterhouseCoopers International Limited |
|----------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------|

----

----

|                                                  |   |   |   |   | December 31 |    |
|-------------------------------------------------------|--------|--------|--------|--------|-------------|---------|
|                                                  |   |   |   |   | 2016        |    |   | 2015 |   |
|                                                  |   | Note   |   |   | $ thousands |    |
|                                                  |   |   |   |   |        |    |   |   |   |
| Current assets                                        |   |   |   |   |        |    |   |   |   |
| Cash and cash equivalents                             |   | 4      |   |   |        | 27,176  |   |   |   | 51,951 |   |
| Bank deposits                                         |   | 19     |   |   |        | 43,920  |   |   |   | 70,188 |   |
| Other investments in securities, net                  |   | 5      |   |   |        | 25,284  |   |   |   | 28,045 |   |
| Other accounts receivable                             |   | 6      |   |   |        | 5,990   |   |   |   | 900 |   |
|                                                  |   |   |   |   |        |    |   |   |   |   |   |
|                                                  |   |   |   |   |        | 102,370 |   |   |   | 151,084 |   |
|                                                  |   |   |   |   |        |    |   |   |   |   |   |
| Non‐current assets                              |   |   |   |   |        |    |   |   |   |   |   |
| Investments in associates                             |   | 3      |   |   |        | 23,508  |   |   |   | 15,529 |   |
| Investments in other companies measured at fair value |   | 7      |   |   |        | 19,696  |   |   |   | 19,395 |   |
| Long-term receivables                                 |   | 8      |   |   |        | 6,531   |   |   |   | 10,395 |   |
| Property, plant and equipment, net                    |   | 9      |   |   |        | 1,141   |   |   |   | 1,028 |   |
| Intangible assets                                     |   | 10     |   |   |        | 17,438  |   |   |   | 17,438 |   |
|                                                  |   |   |   |   |        |    |   |   |   |   |   |
|                                                  |   |   |   |   |        | 68,314  |   |   |   | 63,785 |   |
|                                                  |   |   |   |   |        |    |   |   |   |   |   |
| Total assets                                          |   |   |   |   |        | 170,684 |   |   |   | 214,869 |   |

----

----

|                                              |   |   |   |   | December 31 |    |
|---------------------------------------------------|--------|--------|--------|--------|-------------|---------|
|                                              |   |   |   |   | 2016        |    |   | 2015 |   |
|                                              |   | Note   |   |   | $ thousands |    |
|                                              |   |   |   |   |        |    |   |   |   |
| Current liabilities                               |   |   |   |   |        |    |   |   |   |
| Trade payables                                    |   |   |   |   |        | 440     |   |   |   | 445 |   |
| Other accounts payable                            |   | 11     |   |   |        | 7,959   |   |   |   | 5,567 |   |
|                                              |   |   |   |   |        |    |   |   |   |   |   |
|                                              |   |   |   |   |        | 8,399   |   |   |   | 6,012 |   |
|                                              |   |   |   |   |        |    |   |   |   |   |   |
| Long-term liabilities                             |   |   |   |   |        |    |   |   |   |   |   |
| Financial liabilities measured at fair value      |   | 19     |   |   |        | 694     |   |   |   | 351 |   |
| Long term taxes                                   |   | 16     |   |   |        | -       |   |   |   | 2,104 |   |
|                                              |   |   |   |   |        |    |   |   |   |   |   |
|                                              |   |   |   |   |        | 694     |   |   |   | 2,455 |   |
|                                              |   |   |   |   |        |    |   |   |   |   |   |
| Equity attributable to the Company's shareholders |   | 12     |   |   |        |    |   |   |   |   |   |
| Issued capital                                    |   |   |   |   |        | 9,573   |   |   |   | 9,573 |   |
| Share premium                                     |   |   |   |   |        | 190,753 |   |   |   | 190,753 |   |
| Capital reserves                                  |   |   |   |   |        | 4,128   |   |   |   | 3,085 |   |
| Accumulated deficit                               |   |   |   |   |        | (87,018 | ) |   |   | (45,204 | ) |
|                                              |   |   |   |   |        |    |   |   |   |   |   |
|                                              |   |   |   |   |        | 117,436 |   |   |   | 158,207 |   |
|                                              |   |   |   |   |        |    |   |   |   |   |   |
| Non-controlling interests                         |   |   |   |   |        | 44,155  |   |   |   | 48,195 |   |
|                                              |   |   |   |   |        |    |   |   |   |   |   |
| Total equity                                      |   |   |   |   |        | 161,591 |   |   |   | 206,402 |   |
|                                              |   |   |   |   |        |    |   |   |   |   |   |
| Total liabilities and equity                      |   |   |   |   |        | 170,684 |   |   |   | 214,869 |   |
|                               |   |                    |   |                                        |
|------------------------------------|--------|-------------------------|--------|---------------------------------------------|
| Eduardo Elsztain                   |   | Ari Bronshtein          |   | Yaron Elad                                  |
| Chairman of the Board of Directors |   | Chief Executive Officer |   | Vice President &Chief Financial Officer |

----

----

|                                                                                         |   |   |   |   | For the year ended December 31                |    |
|----------------------------------------------------------------------------------------------|--------|--------|--------|--------|-----------------------------------------------|---------|
|                                                                                         |   |   |   |   | 2016                                          |    |   | 2015 |   |   | 2014 |   |
|                                                                                         |   |   |   |   | $ thousands                                   |    |
|                                                                                         |   | Note   |   |   | (except for net income (loss) per share data) |    |
|                                                                                         |   |   |   |   |                                          |    |   |   |   |   |   |   |
| Income                                                                                       |   |   |   |   |                                          |    |   |   |   |   |   |   |
| Income from sales                                                                            |   |   |   |   |                                          | -       |   |   |   | 889 |   |   |   | 374 |   |
| Gain (loss) from disposal and revaluation of investee companies and changes in holdings, net |   | 15.A   |        |   |                                          | (2,062  | ) |   |   | 40,590 |   |   |   | 176,095 |   |
| Financial income                                                                             |   | 15.E   |        |   |                                          | 2,437   |   |   |   | 1,112 |   |   |   | 887 |   |
|                                                                                         |   |   |   |   |                                          | 375     |   |   |   | 42,591 |   |   |   | 177,356 |   |
|                                                                                         |   |   |   |   |                                          |    |   |   |   |   |   |   |   |   |   |
| Expenses                                                                                     |   |   |   |   |                                          |    |   |   |   |   |   |   |   |   |   |
| Cost of sales                                                                                |   |   |   |   |                                          | -       |   |   |   | 267 |   |   |   | 124 |   |
| Research and development expenses                                                            |   | 15.B   |        |   |                                          | 6,468   |   |   |   | 13,129 |   |   |   | 2,113 |   |
| Selling and marketing expenses                                                               |   | 15.C   |        |   |                                          | 337     |   |   |   | 2,008 |   |   |   | 1,324 |   |
| General and administrative expenses                                                          |   | 15.D   |        |   |                                          | 7,035   |   |   |   | 7,556 |   |   |   | 7,057 |   |
| Equity in losses of associates, net                                                          |   | 15.F   |        |   |                                          | 13,443  |   |   |   | 8,566 |   |   |   | 15,840 |   |
| Financial expenses                                                                           |   | 15.E   |        |   |                                          | 383     |   |   |   | 650 |   |   |   | 3,393 |   |
| Other expenses, net                                                                          |   | 15.G   |        |   |                                          | 2,244   |   |   |   | 22 |   |   |   | 793 |   |
|                                                                                         |   |   |   |   |                                          | 29,910  |   |   |   | 32,198 |   |   |   | 30,644 |   |
|                                                                                         |   |   |   |   |                                          |    |   |   |   |   |   |   |   |   |   |
| Income (loss) before taxes on income                                                         |   |   |   |   |                                          | (29,535 | ) |   |   | 10,393 |   |   |   | 146,712 |   |
| Taxes on income                                                                              |   | 16     |   |   |                                          | (1,236  | ) |   |   | (3,348 | ) |   |   | (45,326 | ) |
|                                                                                         |   |   |   |   |                                          |    |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                            |   |   |   |   |                                          | (30,771 | ) |   |   | 7,045 |   |   |   | 101,386 |   |
|                                                                                         |   |   |   |   |                                          |    |   |   |   |   |   |   |   |   |   |
| Attributable to:                                                                             |   |   |   |   |                                          |    |   |   |   |   |   |   |   |   |   |
| The Company's shareholders                                                                   |   |   |   |   |                                          | (26,814 | ) |   |   | 2,451 |   |   |   | 85,494 |   |
| Non-controlling interests                                                                    |   |   |   |   |                                          | (3,957  | ) |   |   | 4,594 |   |   |   | 15,892 |   |
|                                                                                         |   |   |   |   |                                          |    |   |   |   |   |   |   |   |   |   |
|                                                                                         |   |   |   |   |                                          | (30,771 | ) |   |   | 7,045 |   |   |   | 101,386 |   |
|                                                                                         |   |   |   |   |                                          |    |   |   |   |   |   |   |   |   |   |
| Net income (loss) per share attributable to the Company's shareholders (in $)                |   | 17     |   |   |                                          |    |   |   |   |   |   |   |   |   |   |
|                                                                                         |   |   |   |   |                                          |    |   |   |   |   |   |   |   |   |   |
| Basic and diluted net income (loss) per share                                                |   |   |   |   |                                          | (0.90   | ) |   |   | 0.08 |   |   |   | 2.87 |   |

----

----

|                                                                                           |   | For the year ended December 31 |    |
|------------------------------------------------------------------------------------------------|--------|--------------------------------|---------|
|                                                                                           |   | 2016                           |    |   | 2015 |   |   | 2014 |   |
|                                                                                           |   | $ thousands                    |    |
|                                                                                           |   |                           |    |   |   |   |   |   |   |
| Net income (loss)                                                                              |   |                           | (30,771 | ) |   |   | 7,045 |   |   |   | 101,386 |   |
|                                                                                           |   |                           |    |   |   |   |   |   |   |   |   |   |
| Other comprehensive income (loss) (net of tax):                                                |   |                           |    |   |   |   |   |   |   |   |   |   |
|                                                                                           |   |                           |    |   |   |   |   |   |   |   |   |   |
| Amounts that would never be reclassified to profit or loss:                                    |   |                           |    |   |   |   |   |   |   |   |   |   |
|                                                                                           |   |                           |    |   |   |   |   |   |   |   |   |   |
| Loss from financial assets measured at fair value through other comprehensive income           |   |                           | -       |   |   |   | (30 | ) |   |   | (421 | ) |
|                                                                                           |   |                           |    |   |   |   |   |   |   |   |   |   |
| Total loss that would never be reclassified to profit or loss                                  |   |                           | -       |   |   |   | (30 | ) |   |   | (421 | ) |
|                                                                                           |   |                           |    |   |   |   |   |   |   |   |   |   |
| Amounts that are classified or may be reclassified to profit or loss under certain conditions: |   |                           |    |   |   |   |   |   |   |   |   |   |
|                                                                                           |   |                           |    |   |   |   |   |   |   |   |   |   |
| Foreign currency translation differences for foreign operation                                 |   |                           | (81     | ) |   |   | (93 | ) |   |   | - |   |
|                                                                                           |   |                           |    |   |   |   |   |   |   |   |   |   |
| Total loss that would be reclassified to profit or loss under certain conditions          |   |                           | (81     | ) |   |   | (93 | ) |   |   | - |   |
|                                                                                           |   |                           |    |   |   |   |   |   |   |   |   |   |
| Total other comprehensive loss                                                                 |   |                           | (81     | ) |   |   | (123 | ) |   |   | (421 | ) |
|                                                                                           |   |                           |    |   |   |   |   |   |   |   |   |   |
| Total comprehensive income (loss)                                                              |   |                           | (30,852 | ) |   |   | 6,922 |   |   |   | 100,965 |   |
|                                                                                           |   |                           |    |   |   |   |   |   |   |   |   |   |
| Attributable to:                                                                               |   |                           |    |   |   |   |   |   |   |   |   |   |
| Company's shareholders                                                                         |   |                           | (26,895 | ) |   |   | 2,328 |   |   |   | 85,073 |   |
| Non-controlling interests                                                                      |   |                           | (3,957  | ) |   |   | 4,594 |   |   |   | 15,892 |   |
|                                                                                           |   |                           |    |   |   |   |   |   |   |   |   |   |
|                                                                                           |   |                           | (30,852 | ) |   |   | 6,922 |   |   |   | 100,965 |   |

----

----

|                                                                                        |   | Attributable to the Company's shareholders |   |   |          |   |    |                                                          |   |
|---------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|--------|---------------|--------|---------|---------------------------------------------------------------|--------|
|                                                                                        |   | Issued capital                             |   |   | Share premium |   |    | Capital reserve for transaction with controlling shareholders |   |   | Capital reservefor financialassets measured at fair value through other comprehensive income |   |   | Capital reserve from translationdifferences |   |   | Capital reserve from transactionswith non-controlling interests |   |   | Accumulated deficit |   |   | Total |   |   | Non- controlling interests |   |   | Total equity |   |
|                                                                                        |   | $ thousands                                |   |
| Balance at January 1, 2016                                                                  |   |                                       | 9,573  |   |          |   | 190,753 |                                                          |   |   | 351 |   |   |   | (1,192 | ) |   |   | (93 | ) |   |   | 4,019 |   |   |   | (45,204 | ) |   |   | 158,207 |   |   |   | 48,195 |   |   |   | 206,402 |   |
|                                                                                        |   |                                       |   |   |          |   |    |                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total comprehensive loss                                                                    |   |                                       | -      |   |          |   | -       |                                                          |   |   | - |   |   |   | - |   |   |   | (81 | ) |   |   | - |   |   |   | (26,814 | ) |   |   | (26,895 | ) |   |   | (3,957 | ) |   |   | (30,852 | ) |
| Dividend to equity holders of the Company (Note 12.C)                                       |   |                                       | -      |   |          |   | -       |                                                          |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (15,000 | ) |   |   | (15,000 | ) |   |   | - |   |   |   | (15,000 | ) |
| Share-based payments in respect of awards issued by subsidiaries                            |   |                                       | -      |   |          |   | -       |                                                          |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 73 |   |   |   | 73 |   |
| Investment in Pocared by RDC (Note 3.A.3.b))                                                |   |                                       | -      |   |          |   | -       |                                                          |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,124 |   |   |   | - |   |   |   | 1,124 |   |   |   | (1,124 | ) |   |   | - |   |
| Investment  of  non-controlling interests in consolidated company (Note 3.A.3.b)) |   |                                       | -      |   |          |   | -       |                                                          |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 968 |   |   |   | 968 |   |
|                                                                                        |   |                                       |   |   |          |   |    |                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at December 31, 2016                                                                |   |                                       | 9,573  |   |          |   | 190,753 |                                                          |   |   | 351 |   |   |   | (1,192 | ) |   |   | (174 | ) |   |   | 5,143 |   |   |   | (87,018 | ) |   |   | 117,436 |   |   |   | 44,155 |   |   |   | 161,591 |   |

----

----

|                                                                                               |   | Attributable to the Company's shareholders |   |   |          |   |    |                                                         |   |
|----------------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|--------|---------------|--------|---------|--------------------------------------------------------------|--------|
|                                                                                               |   | Issued capital                             |   |   | Share premium |   |    | Capital reserve for transaction with controllingshareholders |   |   | Capital reservefor financialassets measured at fair value through other comprehensive income |   |   | Capital reserve from translationdifferences |   |   | Capital reservefrom transactionswith non-controlling interests |   |   | Accumulated deficit |   |   | Total |   |   | Non-controllinginterests |   |   | Total equity |   |
|                                                                                               |   | $ thousands                                |   |
| Balance at January 1, 2015                                                                         |   |                                       | 9,573  |   |          |   | 190,753 |                                                         |   |   | 351 |   |   |   | (2,304 | ) |   |   | - |   |   |   | 4,019 |   |   |   | (46,513 | ) |   |   | 155,879 |   |   |   | 36,898 |   |   |   | 192,777 |   |
|                                                                                               |   |                                       |   |   |          |   |    |                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total comprehensive income (loss)                                                                  |   |                                       | -      |   |          |   | -       |                                                         |   |   | - |   |   |   | (30 | ) |   |   | (93 | ) |   |   | - |   |   |   | 2,451 |   |   |   | 2,328 |   |   |   | 4,594 |   |   |   | 6,922 |   |
| Share-based payments in respect of awards issued by subsidiaries                                   |   |                                       | -      |   |          |   | -       |                                                         |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 7 |   |   |   | 7 |   |
| Non-controlling interests created due to initially consolidated company (Note 3.A.3.b))            |   |                                       | -      |   |          |   | -       |                                                         |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 5,434 |   |   |   | 5,434 |   |
| Investment  of  non-controlling interests in consolidated company                        |   |                                       | -      |   |          |   | -       |                                                         |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,073 |   |   |   | 1,073 |   |
| Change in non-controlling interests due to loss of control over subsidiaries  (Note 3.B.4.f)) |   |                                       | -      |   |          |   | -       |                                                         |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 189 |   |   |   | 189 |   |
| Sale of financial assets measured at fair value through other comprehensive income (Note 7.D)      |   |                                       | -      |   |          |   | -       |                                                         |   |   | - |   |   |   | 1,142 |   |   |   | - |   |   |   | - |   |   |   | (1,142 | ) |   |   | - |   |   |   | - |   |   |   | - |   |
|                                                                                               |   |                                       |   |   |          |   |    |                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at December 31,   2015                                                           |   |                                       | 9,573  |   |          |   | 190,753 |                                                         |   |   | 351 |   |   |   | (1,192 | ) |   |   | (93 | ) |   |   | 4,019 |   |   |   | (45,204 | ) |   |   | 158,207 |   |   |   | 48,195 |   |   |   | 206,402 |   |

----

----

|                                                                                          |   | Attributable to the Company's shareholders |   |   |          |   |    |                                                          |   |
|-----------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|--------|---------------|--------|---------|---------------------------------------------------------------|--------|
|                                                                                          |   | Issued capital                             |   |   | Share premium |   |    | Capital reserve for transaction with controlling shareholders |   |   | Capital reservefor financialassets measured at fair value through other comprehensive income |   |   | Capital reserve fromtransactionswith non-controlling interests |   |   | Accumulated deficit |   |   | Total |   |   | Non- controlling interests |   |   | Total equity |   |
|                                                                                          |   | $ thousands                                |   |
|                                                                                          |   |                                       |   |   |          |   |    |                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at January 1, 2014                                                                    |   |                                       | 9,573  |   |          |   | 190,753 |                                                          |   |   | 351 |   |   |   | (10,513 | ) |   |   | 3,996 |   |   |   | (13,377 | ) |   |   | 180,783 |   |   |   | 19,032 |   |   |   | 199,815 |   |
|                                                                                          |   |                                       |   |   |          |   |    |                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total comprehensive income (loss)                                                             |   |                                       | -      |   |          |   | -       |                                                          |   |   | - |   |   |   | (421 | ) |   |   | - |   |   |   | 85,494 |   |   |   | 85,073 |   |   |   | 15,892 |   |   |   | 100,965 |   |
| Share-based payments in respect of awards issued by subsidiaries                              |   |                                       | -      |   |          |   | -       |                                                          |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 38 |   |   |   | 38 |   |
| Dividend to equity holders of the Company                                                     |   |                                       | -      |   |          |   | -       |                                                          |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (110,000 | ) |   |   | (110,000 | ) |   |   | - |   |   |   | (110,000 | ) |
| Investment  of  non-controlling interests in consolidated company                   |   |                                       | -      |   |          |   | -       |                                                          |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 2,000 |   |   |   | 2,000 |   |
| Investment in subsidiaries by RDC                                                             |   |                                       | -      |   |          |   | -       |                                                          |   |   | - |   |   |   | - |   |   |   | 23 |   |   |   | - |   |   |   | 23 |   |   |   | (64 | ) |   |   | (41 | ) |
| Sale of financial assets measured at fair value through other comprehensive income (Note 7.D) |   |                                       | -      |   |          |   | -       |                                                          |   |   | - |   |   |   | 8,630 |   |   |   | - |   |   |   | (8,630 | ) |   |   | - |   |   |   | - |   |   |   | - |   |
|                                                                                          |   |                                       |   |   |          |   |    |                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at December 31,   2014                                                      |   |                                       | 9,573  |   |          |   | 190,753 |                                                          |   |   | 351 |   |   |   | (2,304 | ) |   |   | 4,019 |   |   |   | (46,513 | ) |   |   | 155,879 |   |   |   | 36,898 |   |   |   | 192,777 |   |

----

----

|                                                                                         |   | For the year ended December 31 |    |
|----------------------------------------------------------------------------------------------|--------|--------------------------------|---------|
|                                                                                         |   | 2016                           |    |   | 2015 |   |   | 2014 |   |
|                                                                                         |   | $ thousands                    |    |
|                                                                                         |   |                           |    |   |   |   |   |   |   |
| Cash flows from operating activities                                                         |   |                           |    |   |   |   |   |   |   |
| Net income (loss)                                                                            |   |                           | (30,771 | ) |   |   | 7,045 |   |   |   | 101,386 |   |
|                                                                                         |   |                           |    |   |   |   |   |   |   |   |   |   |
| Adjustments to reconcile net income (loss) to net cash used in operating activities:         |   |                           |    |   |   |   |   |   |   |   |   |   |
| Adjustment to the profit or loss items:                                                      |   |                           |    |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization                                                                |   |                           | 518     |   |   |   | 494 |   |   |   | 251 |   |
| Financial expenses (income), net                                                             |   |                           | (2,047  | ) |   |   | (1,329 | ) |   |   | 3,077 |   |
| Stock based compensation and changes in liability in respect of options                      |   |                           | 73      |   |   |   | 7 |   |   |   | (201 | ) |
| Impairment of intangible assets                                                              |   |                           | -       |   |   |   | - |   |   |   | 814 |   |
| Change in fair value of financial liabilities measured at fair value                         |   |                           | (490    | ) |   |   | (82 | ) |   |   | - |   |
| Loss (gain) from disposal and revaluation of investee companies and changes in holdings, net |   |                           | 2,062   |   |   |   | (40,590 | ) |   |   | (176,095 | ) |
| Equity in losses of associates, net                                                          |   |                           | 13,443  |   |   |   | 8,566 |   |   |   | 15,840 |   |
| Taxes on income                                                                              |   |                           | 1,236   |   |   |   | 3,348 |   |   |   | 45,326 |   |
| Other                                                                                        |   |                           | 82      |   |   |   | (13 | ) |   |   | (568 | ) |
|                                                                                         |   |                           |    |   |   |   |   |   |   |   |   |   |
|                                                                                         |   |                           | 14,877  |   |   |   | (29,599 | ) |   |   | (111,556 | ) |
|                                                                                         |   |                           |    |   |   |   |   |   |   |   |   |   |
| Changes in Assets and Liabilities:                                                           |   |                           |    |   |   |   |   |   |   |   |   |   |
| Increase in other accounts receivable                                                        |   |                           | (143    | ) |   |   | (561 | ) |   |   | (200 | ) |
| Increase (decrease) in trade payables                                                        |   |                           | (5      | ) |   |   | 252 |   |   |   | (24 | ) |
| Increase (decrease) in other accounts payable                                                |   |                           | 649     |   |   |   | 1,072 |   |   |   | (263 | ) |
|                                                                                         |   |                           |    |   |   |   |   |   |   |   |   |   |
|                                                                                         |   |                           | 501     |   |   |   | 763 |   |   |   | (487 | ) |
|                                                                                         |   |                           |    |   |   |   |   |   |   |   |   |   |
| Cash paid and received during the year for:                                                  |   |                           |    |   |   |   |   |   |   |   |   |   |
|                                                                                         |   |                           |    |   |   |   |   |   |   |   |   |   |
| Taxes paid                                                                                   |   |                           | (1,692  | ) |   |   | (24 | ) |   |   | - |   |
| Interest paid                                                                                |   |                           | -       |   |   |   | - |   |   |   | (12 | ) |
| Interest received                                                                            |   |                           | 1,275   |   |   |   | 1,167 |   |   |   | 519 |   |
|                                                                                         |   |                           |    |   |   |   |   |   |   |   |   |   |
|                                                                                         |   |                           | (417    | ) |   |   | 1,143 |   |   |   | 507 |   |
|                                                                                         |   |                           |    |   |   |   |   |   |   |   |   |   |
| Net cash used in operating activities                                                        |   |                           | (15,810 | ) |   |   | (20,648 | ) |   |   | (10,150 | ) |

----

----

|                                                                                             |   | For the year ended December 31 |    |
|--------------------------------------------------------------------------------------------------|--------|--------------------------------|---------|
|                                                                                             |   | 2016                           |    |   | 2015 |   |   | 2014 |   |
|                                                                                             |   | $ thousands                    |    |
|                                                                                             |   |                           |    |   |   |   |   |   |   |
| Cash flows from investment activities                                                            |   |                           |    |   |   |   |   |   |   |
| Purchase of property and equipment                                                               |   |                           | (631    | ) |   |   | (452 | ) |   |   | (39 | ) |
| Investment in associates and other companies                                                     |   |                           | (25,021 | ) |   |   | (16,631 | ) |   |   | (14,531 | ) |
| Proceeds from sale of investments in subsidiaries net of cash disposed of due to deconsolidation |   |                           | -       |   |   |   | (1,625 | ) |   |   | 3,074 |   |
| Proceeds from sale of associates and other companies                                             |   |                           | 71      |   |   |   | 27,482 |   |   |   | 283,905 |   |
| Sale of (investment in) other investments in securities, net                                     |   |                           | 2,822   |   |   |   | (28,325 | ) |   |   | - |   |
| Proceeds from sale of financial assets measured at fair value                                    |   |                           | -       |   |   |   | 188 |   |   |   | 203 |   |
| Cash provided from acquisition of investments in subsidiaries                                    |   |                           | -       |   |   |   | 1,893 |   |   |   | - |   |
| Taxes paid as a result of realization of investments in companies                                |   |                           | -       |   |   |   | (1,721 | ) |   |   | (19,534 | ) |
| Withdrawal (investment) of deposits, net                                                         |   |                           | 26,879  |   |   |   | 24,423 |   |   |   | (93,628 | ) |
|                                                                                             |   |                           |    |   |   |   |   |   |   |   |   |   |
| Net cash provided by investment activities                                                       |   |                           | 4,120   |   |   |   | 5,232 |   |   |   | 159,450 |   |
|                                                                                             |   |                           |    |   |   |   |   |   |   |   |   |   |
| Cash flows from financing activities                                                             |   |                           |    |   |   |   |   |   |   |   |   |   |
| Dividend paid to the Company's shareholders                                                      |   |                           | (15,000 | ) |   |   | - |   |   |   | (110,000 | ) |
| Investment of non-controlling interests in subsidiaries                                          |   |                           | 1,815   |   |   |   | 1,641 |   |   |   | 2,000 |   |
| Purchase of shares and options from non-controlling interests                                    |   |                           | -       |   |   |   | - |   |   |   | (44 | ) |
| Repayment of long-term loans                                                                     |   |                           | -       |   |   |   | - |   |   |   | (4,000 | ) |
|                                                                                             |   |                           |    |   |   |   |   |   |   |   |   |   |
| Net cash provided by (used in) financing activities                                              |   |                           | (13,185 | ) |   |   | 1,641 |   |   |   | (112,044 | ) |
|                                                                                             |   |                           |    |   |   |   |   |   |   |   |   |   |
| Exchange rate differences in respect of cash and cash equivalents                                |   |                           | 100     |   |   |   | (237 | ) |   |   | (3,584 | ) |
|                                                                                             |   |                           |    |   |   |   |   |   |   |   |   |   |
| Increase (decrease) in cash and cash equivalents                                                 |   |                           | (24,775 | ) |   |   | (14,012 | ) |   |   | 33,672 |   |
|                                                                                             |   |                           |    |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents as of beginning of the year                                            |   |                           | 51,951  |   |   |   | 65,963 |   |   |   | 32,291 |   |
|                                                                                             |   |                           |    |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents as of end of the year                                                  |   |                           | 27,176  |   |   |   | 51,951 |   |   |   | 65,963 |   |

----

----

----

----

|  | A. | Basis of presentation of the financial statements |
|--|----|---------------------------------------------------|

|  | 1. | Measurement basis |
|--|----|-------------------|

|  | 2. | The preparation format of the financial statements |
|--|----|----------------------------------------------------|

|  | 3. | Consistent accounting policies |
|--|----|--------------------------------|

|  | B. | Significant accounting judgments, estimates and assumptions used in the preparation of the financial statements |
|--|----|-----------------------------------------------------------------------------------------------------------------|

----

----

|  | B. | Significant accounting judgments, estimates and assumptions used in the preparation of the financial statements (Cont.) |
|--|----|-------------------------------------------------------------------------------------------------------------------------|

|  | C. | The operating cycle |
|--|----|---------------------|

|  | D. | Basis of consolidation |
|--|----|------------------------|

----

----

|  | D. | Basis of consolidation (Cont.) |
|--|----|--------------------------------|

----

----

|  | E. | Associates accounted for using the equity method of accounting |
|--|----|----------------------------------------------------------------|

----

----

|  | F. | Functional currency, presentation currency and foreign currency |
|--|----|-----------------------------------------------------------------|

|  | 1. | Functional currency and presentation currency |
|--|----|-----------------------------------------------|

|  | 2. | Transactions in foreign currency |
|--|----|----------------------------------|

|  | G. | Financial instruments |
|--|----|-----------------------|

|  | 1. | Initial recognition |
|--|----|---------------------|

|  | 2. | Subsequent measurement |
|--|----|------------------------|

----

----

|  | G. | Financial instruments (Cont.) |
|--|----|-------------------------------|

|  | a) | Financial assets measured at amortized cost |
|--|----|---------------------------------------------|

|  | - | The asset is held within a business model whose objective is to hold assets in order to collect the contractual cash flows. |
|--|---|-----------------------------------------------------------------------------------------------------------------------------|

|  | - | The contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
|--|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | b) | Financial assets measured at fair value |
|--|----|-----------------------------------------|

----

----

|  | H. | Fair value measurement |
|--|----|------------------------|

----

----

|  | I. | Property, plant and equipment |
|--|----|-------------------------------|

| Computers, office furniture and equipment | 3-14 years (mainly 3 years) |
|-------------------------------------------|-----------------------------|
| Lab equipment                             | Mainly 7 years              |

|  | J. | Intangible assets |
|--|----|-------------------|

|  | 1. | Research and development |
|--|----|--------------------------|

|  | 2. | Other intangible assets |
|--|----|-------------------------|

|  | a. | Intangible assets acquired in a business combination are included at the fair value at the acquisition date. After initial recognition, intangible assets are carried at their cost less any accumulated amortization (other than intangible assets having an indefinite useful life) and any accumulated impairment losses. |
|--|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | b. | Separately acquired intangible assets are measured on initial recognition at cost with the addition of costs directly attributable to the acquisition. |
|--|----|--------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | c. | Subsequent expenditures are capitalized as an intangible asset only when they increase the future economic benefits embodied in the specific asset for which they were expended. All other expenditures, including expenditures relating to goodwill and intangibles developed independently, are recognized in the statement of income as incurred (except for development costs which were capitalized). |
|--|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | d. | The amortization period of intangible assets having a finite useful life is determined according to the expected future economic benefits from the assets in each period, on the basis of estimated useful life of each group of assets. As for the testing of impairment, see Note 2.K below. |
|--|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                             | Technology and development in process * | Agreement with Rafael** |
|----------------------------------|-----------------------------------------|-------------------------|
| Useful lives                     | Not yet determined                      | Indefinite              |
| Amortization period              | ***                                     | Not amortized           |
| Internally generated or acquired | Acquired                                | Acquired                |

|  | **) | As a result of the agreement with Rafael Advanced Defense Systems Ltd. ("Rafael") - see Note 3.A.3.a). |
|--|-----|--------------------------------------------------------------------------------------------------------|

|  | ***) | Amortization of technology and development in process begins when sales are generated from the technology developed. The amortization period is set to reflect the future useful life, such as the estimated period in which future sales expected to be generated from the said technology developed. |
|--|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | K. | Impairment |
|--|----|------------|

|  | 1. | Financial assets carried at amortized cost |
|--|----|--------------------------------------------|

|  | 2. | Non-financial assets |
|--|----|----------------------|

----

----

|  | 2. | Non-financial assets (Cont.) |
|--|----|-----------------------------------|

|  | L. | Non-current assets held for sale |
|--|----|----------------------------------|

|  | M. | Employee benefits |
|--|----|-------------------|

|  | 1. | Post-employment benefits |
|--|----|--------------------------|

----

----

|  | M. | Employee benefits (Cont.) |
|--|----|---------------------------|

|  | 2. | Short-term benefits |
|--|----|---------------------|

|  | N. | Share-based payment transactions |
|--|----|----------------------------------|

|  | O. | Provisions |
|--|----|------------|

|  | P. | Revenues |
|--|----|----------|

----

----

|  | Q. | Leases |
|--|----|--------|

|  | R. | Taxes on income |
|--|----|-----------------|

|  | 1. | Current taxes |
|--|----|---------------|

|  | 2. | Deferred taxes |
|--|----|----------------|

----

----

|  | S. | Earnings (loss) per share |
|--|----|---------------------------|

|  | T. | Examination of the significance of evaluations of assets and obligations for disclosure or inclusion |
|--|----|------------------------------------------------------------------------------------------------------|

|  | U. | Certain immaterial amounts in prior year have been reclassified to conform to the current year presentation. |
|--|----|--------------------------------------------------------------------------------------------------------------|

|  | V. | Disclosure of new IFRS standards in the period prior to their adoption |
|--|----|------------------------------------------------------------------------|

----

----

|  | V. | Disclosure of new IFRS standards in the period prior to their adoption (Cont.) |
|--|----|--------------------------------------------------------------------------------|

|  | · | Lessees are required to recognize an asset and a corresponding liability in the statement of financial position in respect of all leases (except in certain cases) similar to the accounting treatment of finance leases according to the existing IAS 17, "Leases". |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|  | V. | Disclosure of new IFRS standards in the period prior to their adoption (Cont.) |
|--|----|--------------------------------------------------------------------------------|

|  | · | Lessees are required to initially recognize a lease liability for the obligation to make lease payments and a corresponding right-of-use asset. Lessees will also recognize interest and depreciation expense separately. |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | Variable lease payments that are not dependent on changes in the Consumer Price Index ("CPI") or interest rates, but are based on performance or use (such as a percentage of revenues) are recognized as an expense by the lessees as incurred and recognized as income by the lessors as earned. |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | In the event of change in variable lease payments that are CPI-linked, lessees are required to remeasure the lease liability and the effect of the remeasurement is an adjustment to the carrying amount of the right-of-use asset. |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | The new Standard includes two exceptions according to which lessees are permitted to elect to apply a method similar to the current accounting treatment for operating leases. These exceptions are leases for which the underlying asset is of low value and leases with a term of up to one year. |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | The accounting treatment by lessors remains substantially unchanged, namely classification of a lease as a finance lease or an operating lease. |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|  | A. | Subsidiaries |
|--|----|--------------|

|  | 1. | Additional information about subsidiaries that are held by the Company |
|--|----|------------------------------------------------------------------------|

|                                           |   | Principal place |   |   | Equity interest and voting rightsof non- controlling |   |
|------------------------------------------------|--------|-----------------|--------|--------|------------------------------------------------------|--------|
|                                           |   | of business     |   |   | interests                                            |   |
|                                           |   |            |   |   |                                                 |
| As of December 31, 2016 and December 31, 2015: |   |            |   |   |                                                 |   |
| RDC (1)                                        |   | Israel          |   |   | 49.90                                                | %      |

|  | (1) | Held through fully owned corporate company, DEP Holding Technology Ltd ("DEP"). |
|--|-----|---------------------------------------------------------------------------------|

|  | 2. | Summarized financial information of a subsidiary with material non-controlling interests (*) |
|--|----|----------------------------------------------------------------------------------------------|

|                    |   | Current assets |   |   | Non-current assets |   |   | Current liabilities |   |   | Non-current liabilities |   |   | Equity attributable to shareholders of the company |   |   | Non-controlling interests |   |
|-------------------------|--------|----------------|--------|--------|--------------------|--------|--------|---------------------|--------|--------|-------------------------|--------|--------|----------------------------------------------------|--------|--------|---------------------------|--------|
|                    |   |           |   |   |               |   |   |                |   |   |                    |   |   |                                               |   |   |                      |   |
| As of December 31, 2016 |   |           | 54,702 |   |               |   | 28,695 |                |   |   | 3,189                   |   |   |                                               | 9      |   |                      |   | 40,384 |   |   |   | 39,815 |   |
|                    |   |           |   |   |               |   |   |                |   |   |                    |   |   |                                               |   |   |                      |   |   |   |   |   |   |   |
| As of December 31, 2015 |   |           | 69,959 |   |               |   | 21,272 |                |   |   | 1,022                   |   |   |                                               | 2,115  |   |                      |   | 44,339 |   |   |   | 43,755 |   |

|  | (*) | The information presented does not include excess cost and goodwill. |
|--|-----|----------------------------------------------------------------------|

|                                 |   | Profit (loss) for the year |   |   | Profit (loss) attributable to non-controlling interests |   |   | Other comprehensive income |   |   | Total comprehensive income (loss) |   |
|--------------------------------------|--------|----------------------------|--------|--------|---------------------------------------------------------|--------|--------|----------------------------|--------|--------|-----------------------------------|--------|
|                                 |   |                       |   |   |                                                    |   |   |                       |   |   |                              |   |
| For the year ended December 31, 2016 |   |                       | (6,286 | )      |                                                    |   | (3,137 | )                          |   |   | -                                 |   |   |   | (6,286 | ) |
|                                 |   |                       |   |   |                                                    |   |   |                       |   |   |                              |   |   |   |   |   |
| For the year ended December 31, 2015 |   |                       | 15,168 |   |                                                    |   | 7,569  |                       |   |   | -                                 |   |   |   | 15,168 |   |

----

----

|  | A. | Subsidiaries (Cont.) |
|--|----|----------------------|

|                                             |   | For the year endedDecember 31 |    |
|--------------------------------------------------|--------|-------------------------------|---------|
|                                             |   | 2016                          |    |   | 2015 |   |
| Operating activities                             |   |                          | (519    | ) |   |   | (4,138 | ) |
| Investment activities                            |   |                          | (18,510 | ) |   |   | 8,491 |   |
| Increase (decrease) in cash and cash equivalents |   |                          | (19,029 | ) |   |   | 4,353 |   |

|  | 3. | Significant changes in investments in consolidated companies during the reporting period |
|--|----|------------------------------------------------------------------------------------------|

|  | a) | RDC |
|--|----|-----|

|  | b) | Pocared |
|--|----|---------|

----

----

|  | A. | Subsidiaries (Cont.) |
|--|----|----------------------|

|  | 3. | Significant changes in investments in consolidated companies during the reporting period (Cont.) |
|--|----|--------------------------------------------------------------------------------------------------|

|  | b) | Pocared (Cont.) |
|--|----|-----------------|

|                               |   | Values recognized upon initial consolidation |   |
|------------------------------------|--------|----------------------------------------------|--------|
|                               |   |                                         |   |
| Cash and cash equivalents          |   |                                         | 6,345  |   |
| Other accounts receivable          |   |                                         | 264    |   |
| Property, plant and equipment, net |   |                                         | 867    |   |
| Intangible assets                  |   |                                         | 14,387 |   |
| Trade payables                     |   |                                         | (209   | ) |
| Other accounts payable             |   |                                         | (981   | ) |
| Non-controlling interests          |   |                                         | (5,434 | ) |
|                               |   |                                         |   |   |
| Purchase consideration             |   |                                         | 15,239 |   |

----

----

|  | A. | Subsidiaries (Cont.) |
|--|----|----------------------|

|  | 3. | Significant changes in investments in consolidated companies during the reporting period (Cont.) |
|--|----|--------------------------------------------------------------------------------------------------|

|  | b) | Pocared (Cont.) |
|--|----|-----------------|

----

----

|  | A. | Subsidiaries (Cont.) |
|--|----|----------------------|

|  | 3. | Significant changes in investments in consolidated companies during the reporting period (Cont.) |
|--|----|--------------------------------------------------------------------------------------------------|

|  | c) | Financial data of previously consolidated and initially consolidated companies |
|--|----|--------------------------------------------------------------------------------|

|                                                 |   | Companies previously consolidated as of the date of deconsolidation |   |
|------------------------------------------------------|--------|---------------------------------------------------------------------|--------|
|                                                 |   | 2016                                                                |   |   | 2015 |   |   | 2014 |   |
|                                                 |   |                                                                |   |   |   |   |   |   |   |
| Cash and cash equivalents                            |   |                                                                | -      |   |   |   | 375 |   |   |   | - |   |
| Current assets (excluding cash and cash equivalents) |   |                                                                | -      |   |   |   | 240 |   |   |   | - |   |
| Non-current assets                                   |   |                                                                | -      |   |   |   | 253 |   |   |   | - |   |
| Current liabilities                                  |   |                                                                | -      |   |   |   | (1,087 | ) |   |   | - |   |
|                                                 |   | Companies initially consolidated, as of the date of initial consolidation |   |
|------------------------------------------------------|--------|--------------------------------------------------------------------------------|--------|
|                                                 |   | 2016                                                                           |   |   | 2015 |   |   | 2014 |   |
| Cash and cash equivalents                            |   |                                                                           | -      |   |   |   | 6,345 |   |   |   | - |   |
| Current assets (excluding cash and cash equivalents) |   |                                                                           | -      |   |   |   | 264 |   |   |   | - |   |
| Non-current assets                                   |   |                                                                           | -      |   |   |   | 867 |   |   |   | - |   |
| Current liabilities                                  |   |                                                                           | -      |   |   |   | (1,190 | ) |   |   | - |   |

|  | B. | Investments in associates accounted for using the equity method of accounting: |
|--|----|--------------------------------------------------------------------------------|

|  | 1. | Composition |
|--|----|-------------|

|                                                                           |   | December 31 |   |
|--------------------------------------------------------------------------------|--------|-------------|--------|
|                                                                           |   | 2016        |   |   | 2015 |   |
| Carrying amount of the shares and loans in the statement of financial position |   |        | 23,508 |   |   |   | 15,529 |   |
| The carrying amount of the shares and loans includes:                          |   |        |   |   |   |   |   |   |
| Allocated excess of cost                                                       |   |        | 2,801  |   |   |   | 4,098 |   |
| Goodwill                                                                       |   |        | 1,834  |   |   |   | 644 |   |
|                                                                           |   |        | 4,635  |   |   |   | 4,742 |   |

----

----

|  | B. | Investments in associates accounted for using the equity method of accounting: (Cont.) |
|--|----|----------------------------------------------------------------------------------------|

|  | 1. | Composition (Cont.) |
|--|----|--------------------------|

|  | 2. | Summarized data of the financial statements of associates, unadjusted to the Group's percentage of holdings (*) |
|--|----|-----------------------------------------------------------------------------------------------------------------|

|                    |   | Current assets |   |   | Non-current assets |   |   | Totalassets |   |   | Current liabilities |   |   | Non-current liabilities |   |   | Total liabilities |   |   | Equity attributable to shareholdersof the company |   |   | Equity attributable to non-controlling interests |   |
|-------------------------|--------|----------------|--------|--------|--------------------|--------|--------|-------------|--------|--------|---------------------|--------|--------|-------------------------|--------|--------|-------------------|--------|--------|---------------------------------------------------|--------|--------|--------------------------------------------------|--------|
|                    |   |           |   |   |               |   |   |        |   |   |                |   |   |                    |   |   |              |   |   |                                              |   |   |                                             |   |
| As of December 31, 2016 |   |           |   |   |               |   |   |        |   |   |                |   |   |                    |   |   |              |   |   |                                              |   |   |                                             |   |
| BrainsGate Ltd.         |   |           | 18,320 |   |               |   | 62     |        |   |   | 18,382              |   |   |                    | 2,285  |   |              |   | 3,739  |                                              |   |   | 6,024                                            |   |   |   | 12,358 |   |   |   | - |   |
|                    |   |           |   |   |               |   |   |        |   |   |                |   |   |                    |   |   |              |   |   |                                              |   |   |                                             |   |   |   |   |   |   |   |   |   |
| As of December 31, 2015 |   |           |   |   |               |   |   |        |   |   |                |   |   |                    |   |   |              |   |   |                                              |   |   |                                             |   |   |   |   |   |   |   |   |   |
| BrainsGate Ltd.         |   |           | 8,436  |   |               |   | 76     |        |   |   | 8,512               |   |   |                    | 2,291  |   |              |   | 1,687  |                                              |   |   | 3,978                                            |   |   |   | 4,534 |   |   |   | - |   |
|                          |   | Revenues |   |   | Gross profit |   |   | Operating loss |   |   | Loss from continuing operations |   |   | Loss for the year |    |   | Loss attributable to shareholders of the company |   |    | Loss attributable to non-controlling interests |   |   | Other comprehensive income (loss) |   |   | Total comprehensive loss |   |
|-------------------------------|--------|----------|--------|--------|--------------|--------|--------|----------------|--------|--------|---------------------------------|--------|--------|-------------------|---------|--------|--------------------------------------------------|--------|---------|------------------------------------------------|--------|--------|-----------------------------------|--------|--------|--------------------------|--------|
|                          |   |     |   |   |         |   |   |           |   |   |                            |   |   |              |    |   |                                             |   |    |                                           |   |   |                              |   |   |                     |   |
| 2016                          |   |     |   |   |         |   |   |           |   |   |                            |   |   |              |    |   |                                             |   |    |                                           |   |   |                              |   |   |                     |   |
| BrainsGate Ltd.               |   |     | -      |   |         |   | -      |           |   |   | (5,690                          | )      |   |              | (7,090  | )      |                                             |   | (7,090  | )                                              |   |   | (7,090                            | )      |   |                     | -      |   |   |   | - |   |   |   | (7,090 | ) |
|                          |   |     |   |   |         |   |   |           |   |   |                            |   |   |              |    |   |                                             |   |    |                                           |   |   |                              |   |   |                     |   |   |   |   |   |   |   |   |   |   |
| 2015                          |   |     |   |   |         |   |   |           |   |   |                            |   |   |              |    |   |                                             |   |    |                                           |   |   |                              |   |   |                     |   |   |   |   |   |   |   |   |   |   |
| BrainsGate Ltd.               |   |     | -      |   |         |   | -      |           |   |   | (6,378                          | )      |   |              | (6,213  | )      |                                             |   | (6,213  | )                                              |   |   | (6,213                            | )      |   |                     | -      |   |   |   | - |   |   |   | (6,213 | ) |
|                          |   |     |   |   |         |   |   |           |   |   |                            |   |   |              |    |   |                                             |   |    |                                           |   |   |                              |   |   |                     |   |   |   |   |   |   |   |   |   |   |
| 2014                          |   |     |   |   |         |   |   |           |   |   |                            |   |   |              |    |   |                                             |   |    |                                           |   |   |                              |   |   |                     |   |   |   |   |   |   |   |   |   |   |
| BrainsGate Ltd.               |   |     | -      |   |         |   | -      |           |   |   | (5,940                          | )      |   |              | (6,002  | )      |                                             |   | (6,002  | )                                              |   |   | (6,002                            | )      |   |                     | -      |   |   |   | - |   |   |   | (6,002 | ) |
| Pocared Diagnostics Ltd. (**) |   |     | -      |   |         |   | -      |           |   |   | (8,741                          | )      |   |              | (10,692 | )      |                                             |   | (10,692 | )                                              |   |   | (10,692                           | )      |   |                     | -      |   |   |   | - |   |   |   | (10,692 | ) |
| Total                         |   |     | -      |   |         |   | -      |           |   |   | (14,681                         | )      |   |              | (16,694 | )      |                                             |   | (16,694 | )                                              |   |   | (16,694                           | )      |   |                     | -      |   |   |   | - |   |   |   | (16,694 | ) |

----

----

|  | B. | Investments in associates accounted for using the equity method of accounting (Cont.): |
|--|----|----------------------------------------------------------------------------------------|

|  | 3. | Additional information about material associate that is held by the Company: |
|--|----|------------------------------------------------------------------------------|

|  | a) | General information |
|--|----|---------------------|

|                          |   | Principal place of |   | Equity interestand voting |   |   | Company's participating in gain (loss) |   |
|--------------------------|--------|--------------------|--------|---------------------------|--------|--------|----------------------------------------|--------|
|                          |   | business           |   | rights (1)                |   |   | rights (2)                             |   |
|                     |   |               |   |                      |   |   |                                   |   |
| As of December 31, 2016: |   |               |   |                      |   |   |                                   |   |
| BrainsGate Ltd.          |   | Israel             |   |                      | 29.82  |   |                                   |   | 29.86 |   |
|                     |   |               |   |                      |   |   |                                   |   |   |   |
| As of December 31, 2015: |   |               |   |                      |   |   |                                   |   |   |   |
| BrainsGate Ltd.          |   | Israel             |   |                      | 29.84  |   |                                   |   | 29.84 |   |

|  | (1) | Reflects the Company's ownership interests in the ordinary shares and the preferred shares of the investee companies on an as-converted-basis, and does not take full dilution into account. |
|--|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (2) | In most of the investees the Company invests in the form of a preferred security or other senior security, that grants it the preferred rights over common shares. Therefore, the Company recognizes losses based on its share in the associate's security or loan held by the Company that grants it the preferred rights, and to which the equity method is being applied, and not based on the Company's equity interests. See also Note 2.E. |
|--|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | b) | Reconciliation to the carrying amount of the Company's interest in material associate: |
|--|----|----------------------------------------------------------------------------------------|

|                                                       |   | BrainsGate         |   |
|------------------------------------------------------------|--------|--------------------|--------|
|                                                       |   | As of December 31, |   |
|                                                       |   | 2016               |   |   | 2015 |   |
|                                                       |   |               |   |   |   |   |
| Total equity                                               |   |               | 12,358 |   |   |   | 4,534 |   |
|                                                       |   |               |   |   |   |   |   |   |
| Participating share in profit or loss of the associate (*) |   |               | 29.5   | % |   |   | 30.7 | % |
|                                                       |   |               |   |   |   |   |   |   |
|                                                       |   |               | 3,646  |   |   |   | 1,392 |   |
|                                                       |   |               |   |   |   |   |   |   |
| Excess cost                                                |   |               | 10     |   |   |   | 10 |   |
| Share in the equity attributable to employee options       |   |               | (1,562 | ) |   |   | (1,562 | ) |
| Other adjustments                                          |   |               | 1,234  |   |   |   | 542 |   |
|                                                       |   |               |   |   |   |   |   |   |
| Balance of the investment in the associate                 |   |               | 3,328  |   |   |   | 382 |   |

----

----

|  | B. | Investments in associates accounted for using the equity method of accounting (Cont.): |
|--|----|----------------------------------------------------------------------------------------|

|  | 3. | Additional information about associates that are held by the Company: |
|--|----|-----------------------------------------------------------------------|

|  | b) | Reconciliation to the carrying amount of the Company's interest in material associate: (Cont.) |
|--|----|------------------------------------------------------------------------------------------------|

|                                                            |   | BrainsGate                      |   |
|-----------------------------------------------------------------|--------|---------------------------------|--------|
|                                                            |   | For the year ended December 31, |   |
|                                                            |   | 2016                            |   |   | 2015 |   |
| The results of operations of the associates                     |   |                            |   |   |   |   |
|                                                            |   |                            |   |   |   |   |
| Total comprehensive loss                                        |   |                            | (7,090 | ) |   |   | (6,213 | ) |
|                                                            |   |                            |   |   |   |   |   |   |
| Participating share in profit or loss of the associate (*)      |   |                            | 29.5   | % |   |   | 30.7 | % |
|                                                            |   |                            |   |   |   |   |   |   |
|                                                            |   |                            | (2,092 | ) |   |   | (1,908 | ) |
|                                                            |   |                            |   |   |   |   |   |   |
| Company’s share in revaluation of options to shareholders |   |                            | 435    |   |   |   | (53 | ) |
|                                                            |   |                            |   |   |   |   |   |   |
| Company's share in loss of the associate                        |   |                            | (1,657 | ) |   |   | (1,961 | ) |

|  | (*) | Represents the weighted average participating rate of Elron in BrainsGate’s losses in these years. See also Note 2.E above. |
|--|-----|-----------------------------------------------------------------------------------------------------------------------------------|

|  | c) | Other associates |
|--|----|------------------|

|  | 4. | Significant changes in investments in  associates during the reporting period |
|--|----|------------------------------------------------------------------------------------|

|  | a) | Given |
|--|----|-------|

----

----

|  | B. | Investments in associates accounted for using the equity method of accounting (Cont.): |
|--|----|----------------------------------------------------------------------------------------|

|  | 4. | Significant changes in investments in  associates during the reporting period (Cont.) |
|--|----|--------------------------------------------------------------------------------------------|

|  | a) | Given |
|--|----|-------|

|  | b) | BrainsGate |
|--|----|------------|

----

----

|  | B. | Investments in associates accounted for using the equity method of accounting (Cont.): |
|--|----|----------------------------------------------------------------------------------------|

|  | 4. | Significant changes in investments in  associates during the reporting period (Cont.) |
|--|----|--------------------------------------------------------------------------------------------|

|  | c) | CartiHeal |
|--|----|-----------|

|  | d) | Kyma |
|--|----|------|

|  | 1) | The selling security holders of Kyma (the "Sellers") received a cash consideration in the amount of approximately $35,000 (the "Immediate Consideration"), subject to certain adjustments. In addition, the Sellers may receive additional contingent cash consideration in the form of inter alia (a) earn-out payments calculated as a multiple of year-on-year revenue growth from the sale of certain products of Kyma for a period of 4.5 years, and (b) future payments per unit deployed of certain products developed by the Acquirer incorporating Kyma's technology, for a period of 5.5 years (together the "Contingent Consideration"), provided however that the Contingent Consideration will be payable to the Sellers if and for such amounts exceeding $10,000; |
|--|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|  | B. | Investments in associates accounted for using the equity method of accounting (Cont.): |
|--|----|----------------------------------------------------------------------------------------|

|  | 4. | Significant changes in investments in  associates during the reporting period (Cont.) |
|--|----|--------------------------------------------------------------------------------------------|

|  | d) | Kyma (Cont.) |
|--|----|--------------|

|  | 2) | The Acquirer is entitled to certain indemnities from the Sellers in connection with the Transaction, as is customary in transactions of this type. Out of the Immediate Consideration, RDC received an amount of approximately $18,800 (of which an amount of approximately $2,200 was deposited in escrow for a period of 24 months in order to secure certain indemnification obligations to the Acquirer). In addition, at the date of the completion of the Transaction, RDC recognized an asset in respect of the Contingent Consideration valued at the amount of approximately $5,200, which was determined with the assistance of an independent appraiser. The fair value of the contingent consideration as of December 31, 2016, was also determined with the assistance of an independent appraiser, and was valued at the amount of approximately $6,100. The change in fair value was recorded under line item gain from disposal and revaluation of investee companies and changes in holdings, net.As a result of the Transaction, Elron recognized a net gain attributable to the Company's shareholders in the amount of approximately $8,900 in 2015 (a consolidated net gain in the amount of approximately $17,800). |
|--|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | e) | Coramaze |
|--|----|----------|

----

----

|  | B. | Investments in associates accounted for using the equity method of accounting (Cont.): |
|--|----|----------------------------------------------------------------------------------------|

|  | 4. | Significant changes in investments in  associates during the reporting period (Cont.) |
|--|----|--------------------------------------------------------------------------------------------|

|  | f) | Cloudyn |
|--|----|---------|

|  | g) | Open Legacy |
|--|----|-------------|

----

----

|  | B. | Investments in associates accounted for using the equity method of accounting (Cont.): |
|--|----|----------------------------------------------------------------------------------------|

|  | 4. | Significant changes in investments in  associates during the reporting period (Cont.) |
|--|----|--------------------------------------------------------------------------------------------|

|  | g) | Open Legacy (Cont.) |
|--|----|---------------------|

|  | h) | SixGill |
|--|----|---------|

|  | i) | SecuredTouch |
|--|----|--------------|

|  | j) | Alcide |
|--|----|--------|

----

----

|  | B. | Investments in associates accounted for using the equity method of accounting (Cont.): |
|--|----|----------------------------------------------------------------------------------------|

|  | 4. | Significant changes in investments in  associates during the reporting period (Cont.) |
|--|----|--------------------------------------------------------------------------------------------|

|  | j) | Nitinotes |
|--|----|-----------|

|  | k) | Secdo |
|--|----|-------|

|  | l) | Ironscales |
|--|----|------------|

----

----

|                                       |   | December 31 |   |
|--------------------------------------------|--------|-------------|--------|
|                                       |   | 2016        |   |   | 2015 |   |
|                                       |   |        |   |   |   |   |
| Cash                                       |   |        | 6,397  |   |   |   | 20,779 |   |
| Cash equivalents - short-term deposits (*) |   |        | 20,779 |   |   |   | 31,172 |   |
|                                       |   |        |   |   |   |   |   |   |
|                                       |   |        | 27,176 |   |   |   | 51,951 |   |

|  | (*) | The deposits bear interest rate, which is determined based on the deposit period and currency. The interest rate on deposits as of December 31, 2016, is between 0.2% to 1.3%. |
|--|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|             |   | December 31 |   |
|------------------|--------|-------------|--------|
|             |   | 2016        |   |   | 2015 |   |
|             |   |        |   |   |   |   |
| Debentures (A)   |   |        | 25,284 |   |   |   | 23,115 |   |
| Other securities |   |        | -      |   |   |   | 4,930 |   |
|             |   |        |   |   |   |   |   |   |
|             |   |        | 25,284 |   |   |   | 28,045 |   |

|  | (A) | Investment in debentures denominated in USD, carrying an interest linked to the Libor. These debentures are financial assets measured at fair value through profit or loss. |
|--|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                         |   | December 31 |   |
|------------------------------|--------|-------------|--------|
|                         |   | 2016        |   |   | 2015 |   |
|                         |   |        |   |   |   |   |
| Escrow deposits (A)          |   |        | 3,328  |   |   |   | - |   |
| Contingent consideration (B) |   |        | 1,615  |   |   |   | - |   |
| Government institutions      |   |        | 236    |   |   |   | 348 |   |
| Prepaid expenses             |   |        | 443    |   |   |   | 148 |   |
| Other                        |   |        | 368    |   |   |   | 404 |   |
|                         |   |        |   |   |   |   |   |   |
|                         |   |        | 5,990  |   |   |   | 900 |   |

|  | (A) | During 2017, the Company has the right to receive the escrow deposits from the sale of Kyma (see Note 3.B.4.d) above) and Jordan Valley (see Note 7.C below). As of December 31, 2015, these amounts was included as part of long term receivables. |
|--|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (B) | The fair value of a portion of the contingent consideration from the sale of Jordan Valley (see Note 7.C below) to be received during 2017. As of December 31, 2015, the fair value of this portion was included as part of long term receivables. |
|--|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|  | 1. | Discounted Future Earnings Method - This methodology is used when the investees undergoing evaluation are able to provide projections for their future cash flows. In addition, it was deemed not unreasonable that market participants or other investors would use this methodology to determine the fair value of their rights in these companies. |
|--|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 2. | Company Security Transaction Method ("CSTM") - According to the CSTM method, the value of each investee is estimated based upon recent transaction prices in the investee's securities. For these transactions to be relied upon to develop an estimate of fair value, they must be arm's length transactions. Additional factors considered in this analysis include: size, amount and type of shares sold; the timing of the transaction relative to the estimation date; differences in the rights, preferences, marketability; control of the transaction securities; participation of new investors and existing shareholders, volatility in the investee's projections and the volatility of comparable firms. |
|--|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 3. | Option Pricing Model ("OPM") - After deriving the investee's fair value, it is generally accepted for market participants to allocate the value of the investee to the different classes of equity. OPM is an option pricing model based on the Black and Scholes formula or based on the Binomial (lattice) model. This model is based upon the concept that the securities of a firm's capital structure can be considered as call options on the value of the firm. The model uses a Black and Scholes option model or a Binomial (lattice) model to estimate the value of the investee between value ranges. |
|--|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | A. | Notal |
|--|----|-------|

----

----

|  | A. | Notal (Cont.) |
|--|----|---------------|

|  | 1. | The value of Notal established by the Appraiser: Approximately $73,400. Accordingly, the value of Elron's interest was determined at $15,000. As a result, in 2016 Elron recorded a loss of approximately $3,200 in respect of the change in the value of Notal, recorded under line item gain (loss) from disposal and revaluation of investee companies and changes in holdings, net in the statement of income. The decrease in the value of the investment in Notal was offset by an increase in the amount of approximately $3,500 as a result of Elron's investments in Notal (see above). |
|--|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 2. | The valuation model used by the Appraiser: |
|--|----|--------------------------------------------|

|  | a. | The DCF Method was used to determine Notal's value (enterprise value). |
|--|----|------------------------------------------------------------------------|

|  | b. | The Option Pricing Model (OPM), using the formulas of Black and Scholes model, was used to allocate Notal's value to different classes of shares and to determine the value of Elron's interest accordingly. |
|--|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 3. | The assumptions used: |
|--|----|-----------------------|

|  | a. | The discount rate (WACC): 18%. |
|--|----|--------------------------------|

|  | b. | The long term growth rate/ terminal value: Discounted cash flows were computed until the end of the patent's life. The valuation did not use "representative year". |
|--|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | c. | The standard deviation: The volatility used in the Black and Scholes model was 52.5%. |
|--|----|---------------------------------------------------------------------------------------|

|  | B. | Aqwise |
|--|----|--------|

|  | C. | Jordan Valley |
|--|----|---------------|

----

----

|  | C. | Jordan Valley (Cont.) |
|--|----|-----------------------|

|  | D. | Enablence |
|--|----|-----------|

|                         |   | December 31 |   |
|------------------------------|--------|-------------|--------|
|                         |   | 2016        |   |   | 2015 |   |
|                         |   |        |   |   |   |   |
| Contingent consideration (A) |   |        | 6,222  |   |   |   | 6,740 |   |
| Escrow deposits (B)          |   |        | 171    |   |   |   | 3,502 |   |
| Other                        |   |        | 138    |   |   |   | 153 |   |
|                         |   |        |   |   |   |   |   |   |
|                         |   |        | 6,531  |   |   |   | 10,395 |   |

|  | (A) | The Group recorded assets in respect of contingent consideration from the sale of Kyma (see Note 3.B.4.d) above) and from the sale of Jordan Valley (see Note 7.C above). As of December 31, 2016 part of this amount was classified as part of other accounts receivable in accordance with its expected maturity date (see Note 6 above). |
|--|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (B) | According to the sale agreement of Kyma and Jordan Valley during 2015, a portion of the consideration was deposited in escrow, in bank deposits. As of December 31, 2016 the majority of the balance was classified as part of other accounts receivable in accordance with its expected maturity date (see Note 6 above). |
|--|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                                                                      |   | Technology      |   |   |                |   |   |   |   |
|---------------------------------------------------------------------------|--------|-----------------|--------|--------|---------------------|--------|--------|--------|--------|
|                                                                      |   | and in-process  |   |   | Agreement           |   |   |   |   |
|                                                                      |   | Development (1) |   |   | with Rafael (1),(2) |   |   | Total  |   |
|                                                                      |   |            |   |   |                |   |   |   |   |
| Cost                                                                      |   |            |   |   |                |   |   |   |   |
| Balance at January 1, 2015                                           |   |            | 1,461  |   |                |   | 3,051  |   |   |   | 4,512 |   |
| Additions due to business combinations (3)                                |   |            | 14,387 |   |                |   | -      |   |   |   | 14,387 |   |
| Decrease due to sale of consolidated company (4)                          |   |            | (1,461 | )      |                |   | -      |   |   |   | (1,461 | ) |
| Balance at December 31, 2015  and at December 31, 2016 (5) |   |            | 14,387 |   |                |   | 3,051  |   |   |   | 17,438 |   |
|                                                                      |   |            |   |   |                |   |   |   |   |   |   |   |
| Acrrued amortization and impairment                                       |   |            |   |   |                |   |   |   |   |   |   |   |
| Balance at January 1, 2015                                      |   |            | 1,084  |   |                |   | -      |   |   |   | 1,084 |   |
| Amortization recognized during the year                                   |   |            | 197    |   |                |   | -      |   |   |   | 197 |   |
| Decrease due to sale of consolidated company (4)                          |   |            | (1,281 | )      |                |   | -      |   |   |   | (1,281 | ) |
| Balance at December 31, 2015 and atDecember 31, 2016 (5)        |   |            | -      |   |                |   | -      |   |   |   | - |   |
|                                                                      |   |            |   |   |                |   |   |   |   |   |   |   |
| Amortized cost                                                            |   |            |   |   |                |   |   |   |   |   |   |   |
| Balance at December 31, 2016 and at December 31, 2015           |   |            | 14,387 |   |                |   | 3,051  |   |   |   | 17,438 |   |

|  | (1) | The Company examines the need for impairment in regards with these assets at least once a year. |
|--|-----|-------------------------------------------------------------------------------------------------|

|  | (2) | Not systematically amortized – indefinite useful life (see Note 3.A.3.a)). The Company estimated the recoverable amount of the agreement with Rafael as part of RDC as a whole. In accordance with this examination, it was concluded that there was no need to depreciate the carrying amount of the asset in the financial statements. The assets and liabilities of RDC were included in the recoverable amount estimate. |
|--|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (3) | As a result of the initial consolidation of Pocared (see Note 3.A.3.b)). |
|--|-----|--------------------------------------------------------------------------|

|  | (4) | As a result of ceasing consolidation of Cloudyn (see Note 3.B.4.f)). |
|--|-----|----------------------------------------------------------------------|

|  | (5) | In 2016, there was no change in the balance of the intangible assets. |
|--|-----|-----------------------------------------------------------------------|

|                                           |   | December 31 |   |
|------------------------------------------------|--------|-------------|--------|
|                                           |   | 2016        |   |   | 2015 |   |
| Accrued expenses                               |   |        | 1,185  |   |   |   | 1,722 |   |
| Liabilities to employees in respect of payroll |   |        | 1,313  |   |   |   | 1,695 |   |
| Governmental institutions (A)                  |   |        | 4,233  |   |   |   | 1,299 |   |
| Other payables(B)                              |   |        | 1,228  |   |   |   | 851 |   |
|                                           |   |        | 7,959  |   |   |   | 5,567 |   |

|  | (A) | Including short term taxes as well as provision related to indirect taxes. In 2016, the Company received a tax assessment from the VAT authorities regarding the years 2011-2015, in the total amount of approximately $2,500 bearing interest and linked to the CPI. The Company disputes the claims and accordingly, filed an objection to the VAT authorities. The Company deems the provision in the financial statements to be sufficient. |
|--|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (B) | Also includes liability related to legal proceedings (see Note 14 below). |
|--|-----|---------------------------------------------------------------------------|

----

----

|  | A. | Composition of share capital: |
|--|----|-------------------------------|

|                                             |   | December 31,    |       |
|--------------------------------------------------|--------|--------------------------------|------------|
|                                             |   | 2016                           |       |   | 2015 |   |
|                                             |   | Registered                     |       |   | Issued and outstanding |   |   | Registered |   |   | Issued and outstanding |   |
|                                             |   | Number of shares               |       |
|                                             |   |                           |       |   |   |   |   |   |   |   |   |   |
| Ordinary shares of NIS 0.003 par value each |   |                           | 35,000,000 |   |   |   | 29,743,767 |   |   |   | 35,000,000 |   |   |   | 29,743,767 |   |

|  | B. | Capital management in the Company |
|--|----|-----------------------------------|

|  | C. | Dividend |
|--|----|----------|

|  | A. | The Company operates in one segment, namely "Holdings and Corporate Operations". This segment includes corporate headquarters and reflects the operations of the investments in investee companies and their sale. |
|--|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | B. | Revenues based on the location of customers, are as follows: |
|--|----|--------------------------------------------------------------|

|   |   | December 31, |   |
|--------|--------|--------------|--------|
|   |   | 2016         |   |   | 2015 |   |   | 2014 |   |
|   |   |         |   |   |   |   |   |   |   |
| USA    |   |         | -      |   |   |   | 630 |   |   |   | 279 |   |
| Other  |   |         | -      |   |   |   | 259 |   |   |   | 95 |   |
|   |   |         |   |   |   |   |   |   |   |   |   |   |
|   |   |         | -      |   |   |   | 889 |   |   |   | 374 |   |

----

----

|  | A. | Legal claims |
|--|----|--------------|

|  | 1. | In November 1999, a number of institutional shareholders of Elscint filed a claim in the District Court of Haifa, together with a request to approve certain causes of action set out in the claim, as a class action on behalf of the public shareholders of Elscint, and a request for certain causes of action to be treated as a derivative action against various defendants, including Elscint, Elbit Imaging, Elron, companies to which Elron sold its holdings in Elbit Imaging in May 1999, and certain officers in the defendant companies. The claim alleges, mainly, that Elbit Imaging is duty bound to make a tender offer for the shares of Elscint held by the public and that it unlawfully refuses to do so and, in addition, it raises allegations of preference of the interests of the defendants over those of Elscint and its public shareholders with respect to a number of transactions involving Elscint that the plaintiffs allege discriminated against Elscint's public shareholders. In June 2007 the plaintiffs submitted to the Haifa District Court an updated statement of claim and request to approve the claim as a class action. The updated claim claims compensation for damages sustained due to the alledged failure to effect the tender offer, but no longer seeks an order compelling the tender offer. The updated statement of claim does not specify the monetary amount claimed, but does include various allegations relating to the manner of determining the damages claimed. |
|--|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|  | A. | Legal claims (Cont.) |
|--|----|----------------------|

|  | 2. | If the Company is involved in claims, in addition to the one described above, in the ordinary course of business, a provision related to the costs that may result from these claims is recognized only when it is more likely than not that an obligation originating from past events will arise, and the amount of that obligation can be quantified or estimated within a reliable range. The amount of the provisions is based on the estimated risk factor in every claim. Events occuring during legal deliberations may require a renewed valuation of that estimation. The Company's estimation of the risk is based on the legal opinion of its legal consultants as well as the Company's estimation of probable settlement amounts that the Company may pay, providing both parties agree to the settlement's conditions. As of the reporting date, no provision was included in the financial statements in respect of these additional claims. |
|--|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | B. | Commitments |
|--|----|-------------|

|  | 1. | The Group has commitments in regards with possible indemnification for presentations given in transactions for sale of investee companies, such as Medingo Ltd., which was sold in 2010. For details regarding sale of Group companies during the reporting periods, see Notes 3 and 7 above. |
|--|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 2. | For details about the Services Agreement with DIC and its termination subsequent to the reporting date, see Note 18.B. |
|--|----|------------------------------------------------------------------------------------------------------------------------|

|  | 3. | For details about other commitments with related parties, see Note 18. |
|--|----|------------------------------------------------------------------------|

|  | A. | Gain (loss) from disposal and revaluation of investee companies and changes in holdings, net |
|--|----|----------------------------------------------------------------------------------------------|

|                         |   | For the year ended December 31 |   |
|------------------------------|--------|--------------------------------|--------|
|                         |   | 2016                           |   |   | 2015 |   |   | 2014 |   |
|                         |   |                           |   |   |   |   |   |   |   |
| Kyma (see Note 3.B.4.d))     |   |                           | 407    |   |   |   | 21,106 |   |   |   | - |   |
| Pocared (Note 3.A.3.b))      |   |                           | -      |   |   |   | 10,120 |   |   |   | - |   |
| Cloudyn (Note 3.B.4.f))      |   |                           | -      |   |   |   | 4,728 |   |   |   | - |   |
| Given Merger (Note 3.B.4.a)) |   |                           | -      |   |   |   | - |   |   |   | 175,019 |   |
| Jordan Valley (Note 7.C)     |   |                           | 679    |   |   |   | 4,044 |   |   |   | (1,410 | ) |
| Notal (Note 7.A)             |   |                           | (3,224 | ) |   |   | 263 |   |   |   | 1,858 |   |
| Aqwise (Note 7.B)            |   |                           | -      |   |   |   | 219 |   |   |   | 471 |   |
| Other                        |   |                           | 76     |   |   |   | 110 |   |   |   | 157 |   |
|                         |   |                           |   |   |   |   |   |   |   |   |   |   |
|                         |   |                           | (2,062 | ) |   |   | 40,590 |   |   |   | 176,095 |   |

|  | B. | In 2016, the research and development expenses are mainly attributed to Pocared (In 2015, the research and development expenses are attributed to Pocared and Cloudyn which was consolidated up until December 2015). |
|--|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | C. | Selling and marketing expenses |
|--|----|--------------------------------|

|                                 |   | For the year ended December 31 |   |
|--------------------------------------|--------|--------------------------------|--------|
|                                 |   | 2016                           |   |   | 2015 |   |   | 2014 |   |
| Salaries, wages and related expenses |   |                           | 169    |   |   |   | 1,083 |   |   |   | 638 |   |
| Advertising and public relations     |   |                           | 149    |   |   |   | 176 |   |   |   | 281 |   |
| Other                                |   |                           | 19     |   |   |   | 749 |   |   |   | 405 |   |
|                                 |   |                           |   |   |   |   |   |   |   |   |   |   |
|                                 |   |                           | 337    |   |   |   | 2,008 |   |   |   | 1,324 |   |

----

----

|  | D. | General and administrative expenses |
|--|----|-------------------------------------|

|                                 |   | For the year ended December 31 |   |
|--------------------------------------|--------|--------------------------------|--------|
|                                 |   | 2016                           |   |   | 2015 |   |   | 2014 |   |
| Salaries, wages and related expenses |   |                           | 1,948  |   |   |   | 2,672 |   |   |   | 2,099 |   |
| Services agreement with DIC (*)      |   |                           | 1,568  |   |   |   | 1,555 |   |   |   | 1,712 |   |
| Rent and building maintenance        |   |                           | 580    |   |   |   | 767 |   |   |   | 741 |   |
| Professional services                |   |                           | 1,502  |   |   |   | 1,138 |   |   |   | 1,172 |   |
| Other                                |   |                           | 1,437  |   |   |   | 1,424 |   |   |   | 1,333 |   |
|                                 |   |                           |   |   |   |   |   |   |   |   |   |   |
|                                 |   |                           | 7,035  |   |   |   | 7,556 |   |   |   | 7,057 |   |

|  | (*) | For further information, see Note 18.B. |
|--|-----|-----------------------------------------|

|  | E. | Financial income and expenses |
|--|----|-------------------------------|

|  | 1. | Financial income |
|--|----|------------------|

|                                                                 |   | For the year ended December 31 |   |
|----------------------------------------------------------------------|--------|--------------------------------|--------|
|                                                                 |   | 2016                           |   |   | 2015 |   |   | 2014 |   |
|                                                                 |   |                           |   |   |   |   |   |   |   |
| Interest income from loans and other receivables                     |   |                           | 8      |   |   |   | 17 |   |   |   | 48 |   |
| Interest income from deposits and securities                         |   |                           | 1,169  |   |   |   | 1,013 |   |   |   | 839 |   |
| Income from exchange rate differences, net                           |   |                           | 557    |   |   |   | - |   |   |   | - |   |
| Income from change in fair value of financial assets and liabilities |   |                           | 669    |   |   |   | 81 |   |   |   | - |   |
| Other                                                                |   |                           | 34     |   |   |   | 1 |   |   |   | - |   |
|                                                                 |   |                           |   |   |   |   |   |   |   |   |   |   |
| Total financial income                                               |   |                           | 2,437  |   |   |   | 1,112 |   |   |   | 887 |   |

|  | 2. | Financial expenses |
|--|----|--------------------|

|                                                                                                   |   | For the year ended December 31 |   |
|--------------------------------------------------------------------------------------------------------|--------|--------------------------------|--------|
|                                                                                                   |   | 2016                           |   |   | 2015 |   |   | 2014 |   |
|                                                                                                   |   |                           |   |   |   |   |   |   |   |
| Loss from impairment of financial assets and liabilities measured at fair value through profit or loss |   |                           | 206    |   |   |   | 321 |   |   |   | - |   |
| Loss from change in exchange rate of foreign currency, net                                             |   |                           | -      |   |   |   | 177 |   |   |   | 3,329 |   |
| Commissions                                                                                            |   |                           | 19     |   |   |   | 43 |   |   |   | 37 |   |
| Other                                                                                                  |   |                           | 158    |   |   |   | 109 |   |   |   | 27 |   |
|                                                                                                   |   |                           |   |   |   |   |   |   |   |   |   |   |
| Total financial expenses                                                                               |   |                           | 383    |   |   |   | 650 |   |   |   | 3,393 |   |

----

----

|  | E. | Financial income and expenses( Cont.) |
|--|----|---------------------------------------|

|  | 3. | Financial income (expenses), net, by components |
|--|----|-------------------------------------------------|

|                                                  |   | For the year ended December 31 |   |
|-------------------------------------------------------|--------|--------------------------------|--------|
|                                                  |   | 2016                           |   |   | 2015 |   |   | 2014 |   |
| Deposits and receivables                              |   |                           |   |   |   |   |   |   |   |
| Deposits and securities                               |   |                           | 1,726  |   |   |   | 837 |   |   |   | (2,490 | ) |
| Other deposits and receivables                        |   |                           | 8      |   |   |   | 17 |   |   |   | 48 |   |
|                                                  |   |                           |   |   |   |   |   |   |   |   |   |   |
| Financial assets at fair value through profit or loss |   |                           | 463    |   |   |   | (321 | ) |   |   | - |   |
|                                                  |   |                           |   |   |   |   |   |   |   |   |   |   |
| Financial liabilities                                 |   |                           |   |   |   |   |   |   |   |   |   |   |
| Loans from banks                                      |   |                           | -      |   |   |   | - |   |   |   | (12 | ) |
| Other                                                 |   |                           | (143   | ) |   |   | (71 | ) |   |   | (52 | ) |
|                                                  |   |                           |   |   |   |   |   |   |   |   |   |   |
| Total financial income (expenses), net                |   |                           | 2,054  |   |   |   | 462 |   |   |   | (2,506 | ) |

|  | F. | Equity in losses of associates, net |
|--|----|-------------------------------------|

|                                                 |   | For the year ended December 31 |   |
|------------------------------------------------------|--------|--------------------------------|--------|
|                                                 |   | 2016                           |   |   | 2015 |   |   | 2014 |   |
| Company's share in net losses of associates (1) (2)  |   |                           | 13,205 |   |   |   | 8,491 |   |   |   | 15,840 |   |
| Amortization of excess cost in respect of associates |   |                           | 238    |   |   |   | 75 |   |   |   | - |   |
| Total loss on equity basis                           |   |                           | 13,443 |   |   |   | 8,566 |   |   |   | 15,840 |   |

|  | (1) | Including also the Company's share in the losses of former associates until the date they ceased being associates. |
|--|-----|--------------------------------------------------------------------------------------------------------------------|

|  | (2) | See also Note 3.B above. |
|--|-----|--------------------------|

|  | G. | Other expenses , net |
|--|----|----------------------|

|                                                                             |   | For the year ended December 31 |   |
|----------------------------------------------------------------------------------|--------|--------------------------------|--------|
|                                                                             |   | 2016                           |   |   | 2015 |   |   | 2014 |   |
|                                                                             |   |                           |   |   |   |   |   |   |   |
| Provision in respect of contingent liabilities (see Note 11 and Note 14.A above) |   |                           | 2,291  |   |   |   | - |   |   |   | - |   |
| Impairment of intangible assets                                                  |   |                           | -      |   |   |   | - |   |   |   | 814 |   |
| Other                                                                            |   |                           | (47    | ) |   |   | 22 |   |   |   | (21 | ) |
|                                                                             |   |                           |   |   |   |   |   |   |   |   |   |   |
| Total other expenses, net                                                        |   |                           | 2,244  |   |   |   | 22 |   |   |   | 793 |   |

----

----

|  | A. | Tax laws applicable to the Group companies |
|--|----|--------------------------------------------|

|  | B. | Tax rates applicable to the Group |
|--|----|-----------------------------------|

|  | C. | Taxes on income included in the statements of income |
|--|----|------------------------------------------------------|

|                            |   | Year ended December 31, |   |
|---------------------------------|--------|-------------------------|--------|
|                            |   | 2016                    |   |   | 2015 |   |   |   | 2014 (*) |   |
|                            |   |                    |   |   |   |   |   |   |   |   |
| Current taxes                   |   |                    | 174    |   |   |   | 1,244 |   |   |   | 20,490 |   |
| Deferred taxes                  |   |                    | -      |   |   |   | 2,104 |   |   |   | 28,440 |   |
| Taxes in respect of prior years |   |                    | 1,062  |   |   |   | - |   |   |   | (3,604 | ) |
|                            |   |                    |   |   |   |   |   |   |   |   |   |   |
|                            |   |                    | 1,236  |   |   |   | 3,348 |   |   |   | 45,326 |   |

----

----

|  | D. | Long term taxes |
|--|----|-----------------|

|  | E. | Theoretical tax: |
|--|----|------------------|

|                                                                                                             |   | Year ended December 31, |    |
|------------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                                                             |   | 2016                    |    |   | 2015 |   |   | 2014 |   |
|                                                                                                             |   |                    |    |   |   |   |   |   |   |
| Income (loss) before taxes on income                                                                             |   |                    | (29,535 | ) |   |   | 10,393 |   |   |   | 146,712 |   |
|                                                                                                             |   |                    |    |   |   |   |   |   |   |   |   |   |
| Statutory tax rate                                                                                               |   |                    | 25      | % |   |   | 26.5 | % |   |   | 26.5 | % |
|                                                                                                             |   |                    |    |   |   |   |   |   |   |   |   |   |
| Tax (tax benefit ) computed at the statutory tax rate                                                            |   |                    | (7,384  | ) |   |   | 2,754 |   |   |   | 38,879 |   |
| Increase (decrease) in taxes on income (tax benefit) resulting from the following factors:                       |   |                    |    |   |   |   |   |   |   |   |   |   |
| Company's share of losses of associates, net                                                                     |   |                    | 3,361   |   |   |   | 2,270 |   |   |   | 4,198 |   |
| Changes in temporary differences with respect to which deferred taxes were not recognized                        |   |                    | 415     |   |   |   | (5,186 | ) |   |   | (3,847 | ) |
| Increase in unrecognized tax losses for which deferred taxes were not recognized                                 |   |                    | 3,864   |   |   |   | 3,565 |   |   |   | 7,313 |   |
| Differences in measurement basis (Israeli CPI for tax purposes and foreign currency in the financial statements) |   |                    | -       |   |   |   | (26 | ) |   |   | 2,422 |   |
| Exempt income, net                                                                                               |   |                    | (82     | ) |   |   | (29 | ) |   |   | (35 | ) |
| Taxes in respect of previous years                                                                               |   |                    | 1,062   |   |   |   | - |   |   |   | (3,604 | ) |
|                                                                                                             |   |                    |    |   |   |   |   |   |   |   |   |   |
| Taxes on income                                                                                                  |   |                    | 1,236   |   |   |   | 3,348 |   |   |   | 45,326 |   |

----

----

|  | A. | Related parties |
|--|----|-----------------|

|  | B. | Details of transactions with related and interested parties |
|--|----|-------------------------------------------------------------|

----

----

|  | B. | Details of transactions with related and interested parties (Cont.) |
|--|----|---------------------------------------------------------------------|

----

----

|  | C. | Composition of balances with interested and related parties |
|--|----|-------------------------------------------------------------|

|                                           |   | DIC    |   |   | Other related parties and interested parties |   |   | IDB    |   |   | Associates |   |   | Key management personnel |   |
|------------------------------------------------|--------|--------|--------|--------|----------------------------------------------|--------|--------|--------|--------|--------|------------|--------|--------|--------------------------|--------|
|                                           |   |   |   |   |                                         |   |   |   |   |   |       |   |   |                     |   |
| Other accounts receivable                      |   |   | -      |   |                                         |   | 5      |   |   |   | 6          |   |   |                     | 13     |   |   |   | - |   |
| Trade and other accounts payable               |   |   | (6     | )      |                                         |   | (2     | )      |   |   | (12        | )      |   |                     | -      |   |   |   | (77 | ) |
| Highest balance during the year of receivables |   |   | -      |   |                                         |   | -      |   |   |   | -          |   |   |                     | 9      |   |   |   | - |   |
|                                           |   | DIC    |   |   | Other related parties and interested parties |   |   | IDB    |   |   | Associates |   |   | Key management personnel |   |
|------------------------------------------------|--------|--------|--------|--------|----------------------------------------------|--------|--------|--------|--------|--------|------------|--------|--------|--------------------------|--------|
|                                           |   |   |   |   |                                         |   |   |   |   |   |       |   |   |                     |   |
| Other accounts receivable                      |   |   | -      |   |                                         |   | -      |   |   |   | -          |   |   |                     | 63     |   |   |   | - |   |
| Trade and other accounts payable               |   |   | (8     | )      |                                         |   | (34    | )      |   |   | (24        | )      |   |                     | -      |   |   |   | (166 | ) |
| Highest balance during the year of receivables |   |   | -      |   |                                         |   | -      |   |   |   | -          |   |   |                     | 63     |   |   |   | - |   |

----

----

|  | D. | Transactions with related and interested parties |
|--|----|--------------------------------------------------|

|                                |   | For terms see Note |   |   | DIC    |   |   | Sister companies |   |   | IDB    |   |   | Associates |   |   | Key management personnel |   |   | Other related parties and interested party |   |
|-------------------------------------|--------|--------------------|--------|--------|--------|--------|--------|------------------|--------|--------|--------|--------|--------|------------|--------|--------|--------------------------|--------|--------|--------------------------------------------|--------|
|                                |   |               |   |   |   |   |   |             |   |   |   |   |   |       |   |   |                     |   |   |                                       |   |
| Income (*)                          |   |               |   |   |   | -      |   |             |   | -      |   |   |   | 16         |   |   |                     | 62     |   |                                       |   | - |   |   |   | 12 |   |
|                                |   |               |   |   |   |   |   |             |   |   |   |   |   |       |   |   |                     |   |   |                                       |   |   |   |   |   |   |   |
| Expenses                            |   |               |   |   |   |   |   |             |   |   |   |   |   |       |   |   |                     |   |   |                                       |   |   |   |   |   |   |   |
| Services Agreement-related expenses |   |               | 18.B   |        |   |   | (1,568 | )                |   |   | -      |   |   |       | -      |   |                     |   | -      |                                       |   |   | - |   |   |   | - |   |
| Directors' remuneration             |   |               | 18.D.2 |   |   |   | (29    | )                |   |   | -      |   |   |       | (4     | )      |                     |   | -      |                                       |   |   | (271 | ) |   |   | - |   |
| Insurance-related expenses          |   |               |   |   |   |   | -      |             |   |   | -      |   |   |       | -      |   |                     |   | -      |                                       |   |   | - |   |   |   | (100 | ) |
| Other                               |   |               |   |   |   |   | -      |             |   |   | (8     | )      |   |       | (48    | )      |                     |   | -      |                                       |   |   | - |   |   |   | (1 | ) |
|                                |   |               |   |   |   |   |   |             |   |   |   |   |   |       |   |   |                     |   |   |                                       |   |   |   |   |   |   |   |   |
|                                |   |               |   |   |   |   | (1,597 | )                |   |   | (8     | )      |   |       | (36    | )      |                     |   | 62     |                                       |   |   | (271 | ) |   |   | (89 | ) |
|                                |   | For terms see Note |   |   | DIC    |   |   | Sister companies |   |   | IDB    |   |   | Associates |   |   | Key management personnel |   |   | Other related parties and interested party |   |
|-------------------------------------|--------|--------------------|--------|--------|--------|--------|--------|------------------|--------|--------|--------|--------|--------|------------|--------|--------|--------------------------|--------|--------|--------------------------------------------|--------|
|                                |   |               |   |   |   |   |   |             |   |   |   |   |   |       |   |   |                     |   |   |                                       |   |
| Income (*)                          |   |               |   |   |   | -      |   |             |   | -      |   |   |   | -          |   |   |                     | 3      |   |                                       |   | - |   |   |   | - |   |
|                                |   |               |   |   |   |   |   |             |   |   |   |   |   |       |   |   |                     |   |   |                                       |   |   |   |   |   |   |   |
| Expenses                            |   |               |   |   |   |   |   |             |   |   |   |   |   |       |   |   |                     |   |   |                                       |   |   |   |   |   |   |   |
| Services Agreement-related expenses |   |               | 18.B   |        |   |   | (1,555 | )                |   |   | -      |   |   |       | -      |   |                     |   | -      |                                       |   |   | - |   |   |   | - |   |
| Directors' remuneration             |   |               | 18.D.2 |   |   |   | (29    | )                |   |   | -      |   |   |       | (28    | )      |                     |   | -      |                                       |   |   | (261 | ) |   |   | - |   |
| Insurance-related expenses          |   |               |   |   |   |   | -      |             |   |   | -      |   |   |       | -      |   |                     |   | -      |                                       |   |   | - |   |   |   | (105 | ) |
| Other                               |   |               |   |   |   |   | -      |             |   |   | (9     | )      |   |       | (61    | )      |                     |   | -      |                                       |   |   | - |   |   |   | (115 | ) |
|                                |   |               |   |   |   |   |   |             |   |   |   |   |   |       |   |   |                     |   |   |                                       |   |   |   |   |   |   |   |   |
|                                |   |               |   |   |   |   | (1,584 | )                |   |   | (9     | )      |   |       | (89    | )      |                     |   | 3      |                                       |   |   | (261 | ) |   |   | (220 | ) |

----

----

|  | D. | Transactions with related and interested parties (Cont.) |
|--|----|----------------------------------------------------------|

|                                 |   | For terms see Note |   |   | DIC    |   |   | Sister companies |   |   | IDB    |   |   | Associates |   |   | Key management personnel |   |   | Other related parties and interested party |   |
|--------------------------------------|--------|--------------------|--------|--------|--------|--------|--------|------------------|--------|--------|--------|--------|--------|------------|--------|--------|--------------------------|--------|--------|--------------------------------------------|--------|
|                                 |   |               |   |   |   |   |   |             |   |   |   |   |   |       |   |   |                     |   |   |                                       |   |
| Income (*)                           |   |               |   |   |   | -      |   |             |   | -      |   |   |   | -          |   |   |                     | 61     |   |                                       |   | - |   |   |   | - |   |
|                                 |   |               |   |   |   |   |   |             |   |   |   |   |   |       |   |   |                     |   |   |                                       |   |   |   |   |   |   |   |
| Expenses                             |   |               |   |   |   |   |   |             |   |   |   |   |   |       |   |   |                     |   |   |                                       |   |   |   |   |   |   |   |
| Services Agreement-related expenses  |   |               | 18.B   |        |   |   | (1,712 | )                |   |   | -      |   |   |       | -      |   |                     |   | -      |                                       |   |   | - |   |   |   | - |   |
| Directors' remuneration              |   |               | 18.D.2 |   |   |   | (14    | )                |   |   | -      |   |   |       | -      |   |                     |   | -      |                                       |   |   | (310 | ) |   |   | - |   |
| Insurance-related expenses           |   |               |   |   |   |   | -      |             |   |   | -      |   |   |       | -      |   |                     |   | -      |                                       |   |   | - |   |   |   | (111 | ) |
| Salaries, wages and related expenses |   |               |   |   |   |   | -      |             |   |   | -      |   |   |       | -      |   |                     |   | -      |                                       |   |   | (804 | ) |   |   | - |   |
| Other                                |   |               |   |   |   |   | -      |             |   |   | (17    | )      |   |       | (63    | )      |                     |   | -      |                                       |   |   | - |   |   |   | (94 | ) |
|                                 |   |               |   |   |   |   |   |             |   |   |   |   |   |       |   |   |                     |   |   |                                       |   |   |   |   |   |   |   |   |
|                                 |   |               |   |   |   |   | (1,726 | )                |   |   | (17    | )      |   |       | (63    | )      |                     |   | 61     |                                       |   |   | (1,114 | ) |   |   | (205 | ) |

----

----

|  | D. | Transactions with related and interested parties (Cont.) |
|--|----|----------------------------------------------------------|

|                             |   | No. of personnel in |   |   | For the year ended December 31, 2014 |   |
|----------------------------------|--------|---------------------|--------|--------|--------------------------------------|--------|
| Short-term employee benefits     |   |                | 1      |   |                                 |   | 726 |   |
| Termination benefits             |   |                | 1      |   |                                 |   | 169 |   |
| Share-based payment transactions |   |                | 1      |   |                                 |   | (91 | ) |
| Total                            |   |                |   |   |                                 |   | 804 |   |
|                         |   | No. of personnel in2016 |   |   | For the year ended December 31, 2016 |   |   | No. of personnel in2015 |   |   | For the year ended December 31, 2015 |   |   | No. of personnel in2014 |   |   | For the year ended December 31, 2014 |   |
|------------------------------|--------|-------------------------|--------|--------|--------------------------------------|--------|--------|-------------------------|--------|--------|--------------------------------------|--------|--------|-------------------------|--------|--------|--------------------------------------|--------|
|                         |   |                    |   |   |                                 |   |   |                    |   |   |                                 |   |
| Short-term employee benefits |   |                    | 12     |   |                                 |   | 304    |                    |   |   | 7                                    |   |   |                    | 318    |   |                                 |   | 10 |   |   |   | 324 |   |

|  | 1. |   Grants: |
|--|----|----------------|

|  | 2. | Directors' compensation |
|--|----|-------------------------|

----

----

|  | A. | Classification of financial assets and financial liabilities |
|--|----|--------------------------------------------------------------|

|                                                                         |   | December 31, |   |
|------------------------------------------------------------------------------|--------|--------------|--------|
|                                                                         |   | 2016         |   |   | 2015 |   |
| Financial assets:                                                            |   |         |   |   |   |   |
|                                                                         |   |         |   |   |   |   |
| Financial assets measured at amortized cost:                                 |   |         |   |   |   |   |
| Other short term accounts receivable                                         |   |         | 3,748  |   |   |   | 681 |   |
| Bank deposits                                                                |   |         | 43,920 |   |   |   | 70,188 |   |
| Long term receivables                                                        |   |         | 171    |   |   |   | 3,502 |   |
|                                                                         |   |         |   |   |   |   |   |   |
| Financial assets measured at fair value through profit or loss:              |   |         |   |   |   |   |   |   |
| Investments in other companies measured at fair value through profit or loss |   |         | 19,696 |   |   |   | 19,395 |   |
| Other investments in securities, net                                         |   |         | 25,284 |   |   |   | 28,045 |   |
| Short and Long term receivables                                              |   |         | 7,837  |   |   |   | 6,740 |   |
|                                                                         |   |         |   |   |   |   |   |   |
| Financial liabilities:                                                       |   |         |   |   |   |   |   |   |
|                                                                         |   |         |   |   |   |   |   |   |
| Financial liabilities measured at amortized cost:                            |   |         |   |   |   |   |   |   |
| Trade payables and other current liabilities                                 |   |         | 4,166  |   |   |   | 4,749 |   |
|                                                                         |   |         |   |   |   |   |   |   |
| Financial liabilities measured at fair value through profit or loss          |   |         | 694    |   |   |   | 351 |   |

|  | B. | Management of financial risks |
|--|----|-------------------------------|

|  | · | Market risk (including currency risk, CPI risk, interest rate risk and other price risk). |
|--|--------|-------------------------------------------------------------------------------------------|

|  | · | Credit risk. |
|--|--------|--------------|

|  | · | Liquidity risk. |
|--|--------|-----------------|

----

----

|  | B. | Management of financial risks (Cont.) |
|--|----|---------------------------------------|

|  | 1. | Currency risk |
|--|----|---------------|

|  | 2. | CPI risk |
|--|----|----------|

|  | 3. | Other price risk |
|--|----|------------------|

----

----

|  | B. | Management of financial risks (Cont.) |
|--|----|---------------------------------------|

|  | 4. | Interest risk |
|--|----|---------------|

|                       |   | December 31, |   |
|----------------------------|--------|--------------|--------|
|                       |   | 2016         |   |   | 2015 |   |
| Fixed rate instruments:    |   |         |   |   |   |   |
|                       |   |         |   |   |   |   |
| Financial assets (A)       |   |         | 55,305 |   |   |   | 92,948 |   |
|                       |   |         |   |   |   |   |   |   |
| Floating rate instruments: |   |         |   |   |   |   |   |   |
|                       |   |         |   |   |   |   |   |   |
| Financial assets (B)       |   |         | 38,176 |   |   |   | 34,997 |   |

|  | (A) | As of December 31, 2016, Comprised of deposits classified as cash equivalents in the amount of approximately $12,690, short term bank deposits denominated in USD in the amount of approximately $31,052, which bear interest of 0.7%-1.7% and short term bank deposits denominated in NIS in the amount of approximately $11,563 which bear interest of 0.3%-0.6%. |
|--|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (B) | As of December, 31, 2016, Comprised of USD debentures bearing a Lybor-linked interest plus approximately 0.9% in the amount of $25,284, deposits classified as cash equivalents in the amount of approximately $8,089, short term bank deposits in the amount of $1,305 and escrow deposits in the amount of $3,499 received from sale of Group Companies. |
|--|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|  | C. | Sensitivity tests relating to changes in market factors |
|--|----|---------------------------------------------------------|

|  | D. | Sensitivity tests relating to price risk |
|--|----|------------------------------------------|

|         |   | 2016   |   |   | 2015   |   |   | 2014   |   |
|--------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|         |   |   |   |   |   |   |   |   |   |
| 5% increase  |   |   | 2,686  |   |   |   | 2,595  |   |   |   | 1,437 |   |
| 10% increase |   |   | 5,372  |   |   |   | 5,057  |   |   |   | 2,875 |   |
| 5% decrease  |   |   | (2,686 | )      |   |   | (2,709 | )      |   |   | (1,437 | ) |
| 10% decrease |   |   | (5,372 | )      |   |   | (5,194 | )      |   |   | (2,875 | ) |

|  | E. | Fair value of financial instruments |
|--|----|-------------------------------------|

|  | F. | Classification of financial instruments by fair value hierarchy |
|--|----|-----------------------------------------------------------------|

| Level 1 | -      | quoted prices (unadjusted) in active markets for identical assets or liabilities.                                                         |   |
|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------|--------|
|    |   |                                                                                                                                      |
| Level 2 | -      | inputs other than quoted prices included within Level 1 that are observable either directly or indirectly.                                |
|    |   |                                                                                                                                      |
| Level 3 | -      | inputs that are not based on observable market data (valuation techniques which use inputs that are not based on observable market data). |

----

----

|  | F. | Classification of financial instruments by fair value hierarchy (Cont.) |
|--|----|-------------------------------------------------------------------------|

|                                                                        |   | Level 1 |   |   | Level 2 (*) |   |   | Level 3 |   |
|-----------------------------------------------------------------------------|--------|---------|--------|--------|-------------|--------|--------|---------|--------|
| Financial assets measured at fair value:                                    |   |    |   |   |        |   |   |    |   |
| Investments in other companies measured at fair value (**)                  |   |    | -      |   |        |   | -      |    |   |   | 19,696 |   |
| Other investments in securities                                             |   |    | -      |   |        |   | 25,284 |    |   |   | - |   |
| Other receivables (***)                                                     |   |    | -      |   |        |   | -      |    |   |   | 7,837 |   |
|                                                                        |   |    | -      |   |        |   | 25,284 |    |   |   | 27,533 |   |
|                                                                        |   |    |   |   |        |   |   |    |   |   |   |   |
| Financial liabilities measured at fair value through profit or loss (****): |   |    | -      |   |        |   | -      |    |   |   | 694 |   |
|                                                                        |   | Level 1 |   |   | Level 2 (*) |   |   | Level 3 |   |
|-----------------------------------------------------------------------------|--------|---------|--------|--------|-------------|--------|--------|---------|--------|
| Investments in other companies measured at fair value (**)                  |   |    | -      |   |        |   | -      |    |   |   | 19,395 |   |
| Other investments in securities, net                                        |   |    | 4,930  |   |        |   | 23,115 |    |   |   | - |   |
| Long term receivables (***)                                                 |   |    | -      |   |        |   | -      |    |   |   | 6,740 |   |
|                                                                        |   |    | 4,930  |   |        |   | 23,115 |    |   |   | 26,135 |   |
|                                                                        |   |    |   |   |        |   |   |    |   |   |   |   |
| Financial liabilities measured at fair value through profit or loss (****): |   |    | -      |   |        |   | -      |    |   |   | 351 |   |

|  | *) | Comprised of investment in debentures denominated in USD, carrying an interest linked to the Libor. These debenture are measured at fair value using fair value quotes from several information resources. |
|--|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | **) | see Note 7 above. |
|--|-----|-------------------|

|  | ***) | Includes the contingent consideration due to the sale of Kyma and Jordan Valley, see Note 3.B.4.d) and 7.C above, respectively. |
|--|------|---------------------------------------------------------------------------------------------------------------------------------|

|  | ****) | Includes a liability regarding options to purchase preferred shares in Pocacred held by non-controlling interests, see Note 3.A.3.b) above. |
|--|-------|---------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                                                              |   | Financial assets measured at fair value |    |
|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|---------|
|                                                                                                                                              |   |                                    |    |
| Balance as of January 1, 2015                                                                                                                     |   |                                    | 27,339  |   |
|                                                                                                                                              |   |                                    |    |   |
| Total recognized income:                                                                                                                          |   |                                    |    |   |
| In profit or loss                                                                                                                                 |   |                                    | 5,074   |   |
| Investment                                                                                                                                        |   |                                    | 603     |   |
| Contingent consideration (Notes 3.B.4.d) and 7.C above)                                                                                           |   |                                    | 6,157   |   |
|    Sale (Note 7.C above)                                                                                                           |   |                                    | (13,038 | ) |
| Balance as of December 31, 2015                                                                                                                   |   |                                    | 26,135  |   |
|                                                                                                                                              |   |                                    |    |   |
| Total recognized loss:                                                                                                                            |   |                                    |    |   |
| In profit or loss (*)                                                                                                                             |   |                                    | (2,126  | ) |
| Investment (Note 7.A)                                                                                                                             |   |                                    | 3,524   |   |
| Balance as of December 31, 2016                                                                                                                   |   |                                    | 27,533  |   |
|                                                                                                                                              |   |                                    |    |   |
| (*)          The entire loss is attributed to assets held as of the end of the reporting period |   |                                    |    |   |

----

----

|  | F. | Classification of financial instruments by fair value hierarchy (Cont.) |
|--|----|-------------------------------------------------------------------------|

|  | G. | Liquidity risk |
|--|----|----------------|

|  | 1. | Set forth below are the contractual repayment dates of financial liabilities, including an estimate of the interest payments, without amounts with respect to which there are offset agreements: |
|--|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|  | H. | Linkage terms of assets and liabilities on a consolidated basis |
|--|----|-----------------------------------------------------------------|

|                                                  |   | NIS(CPIlinked) |   |   | USD(or USDlinked) |   |   | NIS(not linked) |   |   | Non-monetary item** |   |   | Total  |   |
|-------------------------------------------------------|--------|----------------|--------|--------|-------------------|--------|--------|-----------------|--------|--------|---------------------|--------|--------|--------|--------|
| Assets *                                              |   |           |   |   |              |   |   |            |   |   |                |   |   |   |   |
| Cash and cash equivalents                             |   |           | -      |   |              |   | 24,538 |            |   |   | 2,638               |   |   |   | -      |   |   |   | 27,176 |   |
| Other investments in securities                       |   |           | -      |   |              |   | 25,284 |            |   |   | -                   |   |   |   | -      |   |   |   | 25,284 |   |
| Other accounts receivable                             |   |           | 5      |   |              |   | 78     |            |   |   | 498                 |   |   |   | 466    |   |   |   | 1,047 |   |
| Bank deposits                                         |   |           | -      |   |              |   | 31,072 |            |   |   | 12,848              |   |   |   | -      |   |   |   | 43,920 |   |
| Investments in associates                             |   |           | -      |   |              |   | -      |            |   |   | -                   |   |   |   | 23,508 |   |   |   | 23,508 |   |
| Investments in other companies measured at fair value |   |           | -      |   |              |   | -      |            |   |   | -                   |   |   |   | 19,696 |   |   |   | 19,696 |   |
| Property, plant and  equipment, net              |   |           | -      |   |              |   | -      |            |   |   | -                   |   |   |   | 1,141  |   |   |   | 1,141 |   |
| Intangible assets                                     |   |           | -      |   |              |   | -      |            |   |   | -                   |   |   |   | 17,438 |   |   |   | 17,438 |   |
| Long-term receivables                                 |   |           | -      |   |              |   | 11,336 |            |   |   | 138                 |   |   |   | -      |   |   |   | 11,474 |   |
|                                                  |   |           |   |   |              |   |   |            |   |   |                |   |   |   |   |   |   |   |   |   |
|                                                  |   |           | 5      |   |              |   | 92,308 |            |   |   | 16,122              |   |   |   | 62,249 |   |   |   | 170,684 |   |
| Liabilities *                                         |   |           |   |   |              |   |   |            |   |   |                |   |   |   |   |   |   |   |   |   |
| Trade payables                                        |   |           | -      |   |              |   | 91     |            |   |   | 349                 |   |   |   | -      |   |   |   | 440 |   |
| Other accounts payable                                |   |           | -      |   |              |   | 515    |            |   |   | 3,202               |   |   |   | 4,242  |   |   |   | 7,959 |   |
| Financial liabilities measured at fair value          |   |           | -      |   |              |   | -      |            |   |   | -                   |   |   |   | 694    |   |   |   | 694 |   |
|                                                  |   |           | -      |   |              |   | 606    |            |   |   | 3,551               |   |   |   | 4,936  |   |   |   | 9,093 |   |
|                                                  |   | NIS(CPIlinked) |   |   | USD(or USDlinked) |   |    | NIS(not linked) |   |   | Non-monetary item** |   |   | Total  |   |
|-------------------------------------------------------|--------|----------------|--------|--------|-------------------|--------|---------|-----------------|--------|--------|---------------------|--------|--------|--------|--------|
| Assets *                                              |   |           |   |   |              |   |    |            |   |   |                |   |   |   |   |
| Cash and cash equivalents                             |   |           | -      |   |              |   | 41,867  |            |   |   | 10,084              |   |   |   | -      |   |   |   | 51,951 |   |
| Other investments in securities, net                  |   |           | -      |   |              |   | 23,115  |            |   |   | -                   |   |   |   | 4,930  |   |   |   | 28,045 |   |
| Other accounts receivable                             |   |           | 2      |   |              |   | 47      |            |   |   | 677                 |   |   |   | 174    |   |   |   | 900 |   |
| Bank deposits                                         |   |           | -      |   |              |   | 55,192  |            |   |   | 14,996              |   |   |   | -      |   |   |   | 70,188 |   |
| Investments in associates                             |   |           | -      |   |              |   | -       |            |   |   | -                   |   |   |   | 15,529 |   |   |   | 15,529 |   |
| Investments in other companies measured at fair value |   |           | -      |   |              |   | -       |            |   |   | -                   |   |   |   | 19,395 |   |   |   | 19,395 |   |
| Property, plant and  equipment, net              |   |           | -      |   |              |   | -       |            |   |   | -                   |   |   |   | 1,028  |   |   |   | 1,028 |   |
| Intangible assets                                     |   |           | -      |   |              |   | -       |            |   |   | -                   |   |   |   | 17,438 |   |   |   | 17,438 |   |
| Long-term receivables                                 |   |           | -      |   |              |   | 10,242  |            |   |   | 153                 |   |   |   | -      |   |   |   | 10,395 |   |
|                                                  |   |           |   |   |              |   |    |            |   |   |                |   |   |   |   |   |   |   |   |   |
|                                                  |   |           | 2      |   |              |   | 130,463 |            |   |   | 25,910              |   |   |   | 58,494 |   |   |   | 214,869 |   |
| Liabilities *                                         |   |           |   |   |              |   |    |            |   |   |                |   |   |   |   |   |   |   |   |   |
| Trade payables                                        |   |           | -      |   |              |   | 133     |            |   |   | 312                 |   |   |   | -      |   |   |   | 445 |   |
| Other accounts payable                                |   |           | -      |   |              |   | 1,741   |            |   |   | 3,779               |   |   |   | 47     |   |   |   | 5,567 |   |
| Financial liabilities measured at fair value          |   |           | -      |   |              |   | -       |            |   |   | -                   |   |   |   | 351    |   |   |   | 351 |   |
| Long term taxes                                       |   |           | -      |   |              |   | -       |            |   |   | -                   |   |   |   | 2,104  |   |   |   | 2,104 |   |
|                                                  |   |           | -      |   |              |   | 1,874   |            |   |   | 4,091               |   |   |   | 2,502  |   |   |   | 8,467 |   |

|  | *) | Non-current assets and liabilities in this table include their current maturities. |
|--|----|------------------------------------------------------------------------------------|

|  | **) | Including non-financial items. |
|--|-----|--------------------------------|

----

----

| A. | Details Relating to Investments as of December 31, 2016 |
|----|--------------------------------------------------------------|

|                                        |   | Rate of holdings in equity |   |   | Consolidated rate ofholdings in |   |   | Elron's effectiverate ofholdings |   |   | Fully diluted consolidatedrate of |   |   | Elron's fully diluted effectiverate of |   |   | Consolidated carrying value of investmentDecember 31, |   |
|---------------------------------------------|--------|----------------------------|--------|--------|---------------------------------|--------|--------|----------------------------------|--------|--------|-----------------------------------|--------|--------|---------------------------------------------|--------|--------|------------------------------------------------------------|--------|
|                                        |   | Elron (1)                  |   |   | RDC (2)                         |   |   | equity                           |   |   | in equity (3)                     |   |   | holdings                                    |   |   | holdings (3)                                               |   |   | 2016 |   |
|                                        |   | %                          |   |   | $ thousands                     |   |
| Investments in investee companies           |   |                       |   |   |                            |   |   |                             |   |   |                              |   |   |                                        |   |   |                                                       |   |   |   |   |
|                                        |   |                       |   |   |                            |   |   |                             |   |   |                              |   |   |                                        |   |   |                                                       |   |   |   |   |
| Subsidiaries:                               |   |                       |   |   |                            |   |   |                             |   |   |                              |   |   |                                        |   |   |                                                       |   |   |   |   |
| Pocared Diagnostics Ltd.                    |   |                       | 55.11  |   |                            |   | 11.65  |                             |   |   | 66.76                             |   |   |                                        | 60.95  |   |                                                       |   | 66.45 |   |   |   | 58.68 |   |   |   | 19,542 |   |
|                                        |   |                       |   |   |                            |   |   |                             |   |   |                              |   |   |                                        |   |   |                                                       |   |   |   |   |   |   |   |   |   |   |   |
| Associates:                                 |   |                       |   |   |                            |   |   |                             |   |   |                              |   |   |                                        |   |   |                                                       |   |   |   |   |   |   |   |   |   |   |   |
| BrainsGate Ltd.                             |   |                       | 29.82  |   |                            |   | -      |                             |   |   | 29.82                             |   |   |                                        | 29.82  |   |                                                       |   | 26.61 |   |   |   | 26.61 |   |   |   | 3,328 |   |
| Cartiheal (2009) Ltd.                       |   |                       | 34.85  |   |                            |   | -      |                             |   |   | 34.85                             |   |   |                                        | 34.85  |   |                                                       |   | 28.21 |   |   |   | 28.21 |   |   |   | 3,681 |   |
| Coramaze technologies GmbH                  |   |                       | 28.00  |   |                            |   | -      |                             |   |   | 28.00                             |   |   |                                        | 28.00  |   |                                                       |   | 28.00 |   |   |   | 28.00 |   |   |   | 1,560 |   |
| Cloudyn Software Ltd.                       |   |                       | -      |   |                            |   | 39.53  |                             |   |   | 39.53                             |   |   |                                        | 19.80  |   |                                                       |   | 33.50 |   |   |   | 16.78 |   |   |   | 3,822 |   |
| SixGill Ltd.                                |   |                       | 21.99  |   |                            |   | -      |                             |   |   | 21.99                             |   |   |                                        | 21.99  |   |                                                       |   | 24.65 |   |   |   | 24.65 |   |   |   | 1,757 |   |
| SecuredTouch Inc.                           |   |                       | -      |   |                            |   | 29.07  |                             |   |   | 29.07                             |   |   |                                        | 14.57  |   |                                                       |   | 24.64 |   |   |   | 12.35 |   |   |   | 1,742 |   |
| Alcide IO Ltd.                              |   |                       | 29.88  |   |                            |   | -      |                             |   |   | 29.88                             |   |   |                                        | 29.88  |   |                                                       |   | 25.00 |   |   |   | 25.00 |   |   |   | 1,081 |   |
| M.G. Therapeutics Ltd.                      |   |                       | 17.00  |   |                            |   | -      |                             |   |   | 17.00                             |   |   |                                        | 17.00  |   |                                                       |   | 22.63 |   |   |   | 22.63 |   |   |   | - |   |
| Plymedia Israel (2006) Ltd.                 |   |                       | 23.33  |   |                            |   | -      |                             |   |   | 23.33                             |   |   |                                        | 23.33  |   |                                                       |   | 17.97 |   |   |   | 17.97 |   |   |   | - |   |
| Audioburst Ltd.                             |   |                       | 10.88  |   |                            |   | -      |                             |   |   | 10.88                             |   |   |                                        | 10.88  |   |                                                       |   | 9.25 |   |   |   | 9.25 |   |   |   | - |   |
| Open Legacy Technologies Ltd.               |   |                       | -      |   |                            |   | 45.14  |                             |   |   | 45.14                             |   |   |                                        | 22.61  |   |                                                       |   | 36.86 |   |   |   | 18.47 |   |   |   | 2,490 |   |
| IronScales Ltd.                             |   |                       | -      |   |                            |   | 27.03  |                             |   |   | 27.03                             |   |   |                                        | 13.54  |   |                                                       |   | 30.00 |   |   |   | 15.03 |   |   |   | 75 |   |
| SinuSafe Ltd.                               |   |                       | 21.90  |   |                            |   | -      |                             |   |   | 21.90                             |   |   |                                        | 21.90  |   |                                                       |   | 19.74 |   |   |   | 19.74 |   |   |   | 77 |   |
| Nitiniotes Ltd.                             |   |                       | 14.16  |   |                            |   | -      |                             |   |   | 14.16                             |   |   |                                        | 14.16  |   |                                                       |   | 12.44 |   |   |   | 12.44 |   |   |   | 650 |   |
| Cyber Secdo Ltd.                            |   |                       | -      |   |                            |   | 24.30  |                             |   |   | 24.30                             |   |   |                                        | 12.18  |   |                                                       |   | 21.05 |   |   |   | 10.55 |   |   |   | 3,221 |   |
|                                        |   |                       |   |   |                            |   |   |                             |   |   |                              |   |   |                                        |   |   |                                                       |   |   |   |   |   |   |   |   |   |   |   |
| Other investments:                          |   |                       |   |   |                            |   |   |                             |   |   |                              |   |   |                                        |   |   |                                                       |   |   |   |   |   |   |   |   |   |   |   |
|                                        |   |                       |   |   |                            |   |   |                             |   |   |                              |   |   |                                        |   |   |                                                       |   |   |   |   |   |   |   |   |   |   |   |
| Notal Vision Inc.                           |   |                       | 21.16  |   |                            |   | -      |                             |   |   | 21.16                             |   |   |                                        | 21.16  |   |                                                       |   | 17.59 |   |   |   | 17.59 |   |   |   | 15,000 |   |
| Atlantium Technologies Ltd.                 |   |                       | 6.16   |   |                            |   | -      |                             |   |   | 6.16                              |   |   |                                        | 6.16   |   |                                                       |   | 5.49 |   |   |   | 5.49 |   |   |   | 130 |   |
| Aqwise – Wise Water Technologies Ltd. |   |                       | 19.81  |   |                            |   | -      |                             |   |   | 19.81                             |   |   |                                        | 19.81  |   |                                                       |   | 17.94 |   |   |   | 17.94 |   |   |   | 4,500 |   |

|   | (1) | Including holdings through Elron's fully-owned subsidiaries. |
|--------|-----|--------------------------------------------------------------|

|   | (2) | Including holdings through RDSeed. |
|--------|-----|------------------------------------|

|   | (3) | Elron's effective holdings include holdings by RDC multiplied by 50.10%. (Elron's holding rate in RDC). |
|--------|-----|---------------------------------------------------------------------------------------------------------|

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