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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 20-F

|                                                                                                                                                    |                                                                                                   
|--------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------
|o                                                                                                                                                   | REGISTRATION STATEMENT
  PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
|                                                                                                                                                    |                                                                                                   
|OR                                                                                                                                                 
|                                                                                                                                                    |                                                                                                   
|x                                                                                                                                                   | ANNUAL REPORT PURSUANT TO
  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934            
|                                                                                                                                                    |                                                                                                   
|For
  the fiscal year ended December 31, 2007                                                                                                      
|                                                                                                                                                    |                                                                                                   
|OR                                                                                                                                                 
|                                                                                                                                                    |                                                                                                   
|o                                                                                                                                                   | TRANSITION REPORT PURSUANT
  TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934        
|                                                                                                                                                    |                                                                                                   
|For
  the transition period from _________ to ________                                                                                             
|                                                                                                                                                    |                                                                                                   
|OR                                                                                                                                                 
|                                                                                                                                                    |                                                                                                   
|o                                                                                                                                                   | SHELL COMPANY REPORT
  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934     
|                                                                                                                                                    |                                                                                                   
|Date
  of event requiring this shell company report _________                                                                                      
|                                                                                                                                                    |                                                                                                   
|Commission
  File Number: 0-12332                                                                                                                  
|                                                                                                                                                    |                                                                                                   
|SCAILEX CORPORATION LTD.                                                                                                                           
|                                                                                                                                                   
|(Exact
  name of Registrant as specified in its charter and translation of
  Registrants name into English)                                       
|                                                                                                                                                    |                                                                                                   
|Israel                                                                                                                                             
|                                                                                                                                                   
|(Jurisdiction
  of incorporation or organization)                                                                                                  
|                                                                                                                                                    |                                                                                                   
|16 Shenkar St., Entrance B, Herzliya Pituach 46120, Israel                                                                                         
|                                                                                                                                                   
|(Address
  of principal executive offices)                                                                                                         
|                                                                                                                                                   
|Shachar Rachim, Chief Financial Officer 
  Tel: (972)-9- 9610903; Fax: (972)-9- 961091216 Shenkar St., Entrance B, Herzliya Pituach 46120,
  Israel
|                                                                                                                                                   
|(Name,
  Telephone, E-mail and/or Facsimile number and Address of Company Contact
  Person)                                                        
|                                                                                                                                                   
|Securities
  registered or to be registered pursuant to Section 12(b) of the Act:                                                                  
|None                                                                                                                                               
|                                                                                                                                                   
|                                                                                                                                                   
|Securities
  registered or to be registered pursuant to Section 12(g) of the Act:                                                                  
|Ordinary Shares, NIS 0.12 nominal (par) value per share                                                                                            
|                                                                                                                                                   
|(Title
  of Class)                                                                                                                                 

---

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

Indicate
the number of outstanding shares of each of the issuers classes of capital or
common stock as of December 31, 2007:

|                                                                  
|------------------------------------------------------------------
|43,579,388
Ordinary Shares, NIS 0.12 nominal (par) value per share
|                                                                  

Indicate by check mark if
the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.

oYesxNo

If this report is an annual
or transition report, indicate by check mark if the registrant is not required
to file reports pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.

oYesxNo

Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.

xYesoNo

Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o     Accelerated Filer
x     Non-Accelerated Filer o

Indicate by check mark which
basis of accounting the registrant has used to prepare the financial statements
included in this filing:

U.S. GAAP x

International Financing
Reporting Standards as issued by the International Accounting Standards
Board  o

Other o

If Other has been checked
in response to the previous question, indicate by check mark which financial
statement item the registrant has elected to follow.

Item 17 o     Item 18 o

If this is an annual report,
indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

xYesoNo

2

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TABLE OF CONTENTS

|                                                                |  |      |    | 
|--------------------------------------------------------------- |  | ---- | -- | 
|                                                                |  | Page
|                                                                |  |     
|                                                                |  |      |    | 
|INTRODUCTION                                                    |  |      | 5  | 
|                                                                |  |      |    | 
|PART I                                                          |  |      | 6  | 
|Item 1.
  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |  |      | 6  | 
|                                                                |  |      |    | 
|Item 2.
  OFFER STATISTICS AND EXPECTED TIMETABLE               |  |      | 6  | 
|                                                                |  |      |    | 
|Item 3.
  KEY INFORMATION                                       |  |      | 6  | 
|A. Selected Financial
Data                                      |  |      | 6  | 
|B. Capitalization and
Indebtedness                              |  |      | 9  | 
|C. Reasons for the Offer and Use of
Proceeds                    |  |      | 9  | 
|D. Risk Factors                                                 |  |      | 9  | 
|                                                                |  |      |    | 
|Item 4.
  INFORMATION ON THE COMPANY                            |  |      | 15 | 
|A. History and Development of the
Company                       |  |      | 15 | 
|B. Business Overview                                            |  |      | 18 | 
|C. Organizational
Structure                                     |  |      | 24 | 
|D. Property, Plants and
Equipment                               |  |      | 25 | 
|                                                                |  |      |    | 
|Item 4A.
  UNRESOLVED STAFF COMMENTS                            |  |      | 25 | 
|                                                                |  |      |    | 
|Item 5.
  OPERATING AND FINANCIAL REVIEW AND PROSPECTS          |  |      | 25 | 
|A. Operating Results                                            |  |      | 27 | 
|B. Liquidity and Capital
Resources                              |  |      | 34 | 
|C. Research and Development, Patents
and Licenses               |  |      | 37 | 
|D. Trend Information                                            |  |      | 37 | 
|E. Off-Balance Sheet
Arrangements                               |  |      | 37 | 
|F. Tabular Disclosure of Contractual
Obligations                |  |      | 38 | 
|                                                                |  |      |    | 
|Item 6.
  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES            |  |      | 38 | 
|A. Directors and Senior
Management                              |  |      | 38 | 
|B. Compensation                                                 |  |      | 41 | 
|C. Board Practices                                              |  |      | 42 | 
|D. Employees                                                    |  |      | 49 | 
|E. Share Ownership                                              |  |      | 50 | 
|                                                                |  |      |    | 
|Item 7.
  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS     |  |      | 51 | 
|A. Major Shareholders                                           |  |      | 51 | 
|B. Related Party
Transactions                                   |  |      | 54 | 
|C. Interests of Expert and
Counsel                              |  |      | 55 | 
|                                                                |  |      |    | 
|Item 8.
  FINANCIAL INFORMATION                                 |  |      | 55 | 
|A. Consolidated Statements and Other
Financial Information      |  |      | 55 | 
|B. Significant Changes                                          |  |      | 55 | 
|                                                                |  |      |    | 
|Item 9.
  THE OFFER AND LISTING                                 |  |      | 56 | 
|A. Offer and Listing
Details                                    |  |      | 56 | 
|B. Plan of Distribution                                         |  |      | 57 | 
|C. Markets                                                      |  |      | 57 | 
|D. Selling Shareholders                                         |  |      | 57 | 
|E. Dilution                                                     |  |      | 57 | 
|F. Expenses of the
Issue                                        |  |      | 57 | 

3

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|                                                                                        |  |  |    | 
|--------------------------------------------------------------------------------------- |  |  | -- | 
|Item 10.
  ADDITIONAL INFORMATION                                                       |  |  |    | 
|A. Share Capital                                                                        |  |  | 57 | 
|B. Memorandum and Articles of
Association                                               |  |  | 57 | 
|C. Material Contracts                                                                   |  |  | 61 | 
|D. Exchange Controls                                                                    |  |  | 75 | 
|E. Taxation                                                                             |  |  | 76 | 
|F. Dividends and Paying
Agents                                                          |  |  | 82 | 
|G. Statement by Experts                                                                 |  |  | 82 | 
|H. Documents on Display                                                                 |  |  | 82 | 
|I. Subsidiary
Information                                                               |  |  | 83 | 
|                                                                                        |  |  |    | 
|Item 11.
  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   |  |  | 83 | 
|                                                                                        |  |  |    | 
|Item 12.
  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       |  |  | 84 | 
|                                                                                        |  |  |    | 
|PART II                                                                                 |  |  | 84 | 
|                                                                                        |  |  |    | 
|Item 13.
  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              |  |  | 84 | 
|                                                                                        |  |  |    | 
|Item 14.
  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |  |  | 84 | 
|                                                                                        |  |  |    | 
|Item 15.
  CONTROLS AND PROCEDURES                                                      |  |  | 84 | 
|                                                                                        |  |  |    | 
|Item 16A.
  Audit Committee Financial Expert                                            |  |  | 85 | 
|Item 16B.
  Code of Ethics                                                              |  |  | 85 | 
|Item 16C.
  Principal Accountant Fees and Services                                      |  |  | 85 | 
|Item 16D.
  Exemptions From the Listing Standards for Audit Committees                  |  |  | 87 | 
|Item 16E.
  Purchases of Equity Securities by the Issuer and Affiliated Purchasers      |  |  | 87 | 
|                                                                                        |  |  |    | 
|PART III                                                                                |  |  | 87 | 
|                                                                                        |  |  |    | 
|Item 17.
  FINANCIAL STATEMENTS                                                         |  |  | 87 | 
|                                                                                        |  |  |    | 
|Item 18.
  FINANCIAL STATEMENTS                                                         |  |  | 87 | 
|                                                                                        |  |  |    | 
|Item 19.
  EXHIBITS                                                                     |  |  | 88 | 
|                                                                                        |  |  |    | 
|SIGNATURES                                                                              |  |  | 90 | 

4

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INTRODUCTION

Unless indicated otherwise by the context,
all references in this Annual Report to:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | we, us, our, Scailex, or the Company are to Scailex
  Corporation Ltd. (formerly known as Scitex Corporation Ltd.) and its wholly
  owned and/or majority owned subsidiaries;                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                        
| | · | Dollars or $ are to United States dollars;                                                                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                        
| | · | NIS or Shekel are to New Israel Shekels;                                                                                                                                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                                        
| | · | the Companies Law or the Israeli Companies Law are to the Israeli
  Companies Law, 5759-1999, as amended;                                                                                                                                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                                                        
| | · | the SEC are to the United States Securities and Exchange
  Commission;                                                                                                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                                                                        
| | · | Scailex Vision and Scailex Vision International are to Scailex
  Vision (Tel-Aviv) Ltd. (formerly known as Scitex Vision Ltd.), our majority
  owned subsidiary, and Scailex Vision International Ltd. (formerly known as
  Scitex Vision International Ltd.), Scailex Visions wholly owned subsidiary,
  respectively;                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                                        
| | · | Jemtex is to Jemtex InkJet Printing Ltd., of which we hold 15% of
  the equity interests;                                                                                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                        
| | · | IPE is to Israel Petrochemicals Enterprise Ltd.;                                                                                                                                                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                                                                        
| | · | Israel Corp. is to  The Israel Corporation Ltd.;                                                                                                                                                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                                                                        
| | · | PCH is to Petroleum Capital Holdings Ltd., a subsidiary of ours
  that is expected to be sold in the netx few days to IPE, our controlling
  shareholder, pursuant to a transaction that has already been approved by our board
  of Directors and shareholders, but is subject to the purchase of all of IPEs
  shares in Scailex by Suny Electronics Ltd. (Suny), one of our shareholders.
  and
| |   |                                                                                                                                                                                                                                                                                                                                                                                                        
| | · | ORL is to Oil Refineries Ltd., an oil refinery located in Haifa,
  Israel.                                                                                                                                                                                                                                                                                                                           

CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS

Except for the
historical information contained in this Annual Report on Form 20-F, certain
information contained herein, including, without limitation, information
appearing under Item 4. Information on the Company and Item 5. Operating and
Financial Review and Prospects, are forward-looking statements (within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934). Forward-looking statements are based on
various assumptions (some of which are beyond our control) and may be
identified by the use of forward-looking terminology, such as may, can be, will,
expects, anticipates, intends, believes, projects, continues,
plans,
seeks, potential, and similar words and phrases. Actual results could
differ materially from those contained in forward-looking statements due to a
variety of factors, including, but not limited to:

| |   |                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | our absence
  of significant operations following the sale of the business of Scailex
  Digital Printing, Scailex Vision, the reduction of our holdings in Jemtex to
  15%, as well as the anticipated sale of PCH to IPE;
| |   |                                                                                                                                                                                                                           
| | · | uncertainty
  as to our future business model and our ability to identify and evaluate
  suitable business opportunities;                                                                                                 
| |   |                                                                                                                                                                                                                           
| | · | risks
  relating to pursuing strategic alternatives;                                                                                                                                                                      

5

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| |   |                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | changes in
  domestic and foreign economic and market conditions;                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                               
| | · | the impact
  of the Companys accounting policies;                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                               
| | · | our
  classification as a passive foreign investment company (PFIC), which may
  subject our U.S. shareholders to adverse U.S. federal income tax
  consequences. See Item 10.E Taxation - Certain Material U.S. Federal Income
  Tax Considerations.; and
| |   |                                                                                                                                                                                                                                                               
| | · | the fact
  that we may be deemed an investment company under the Investment Company
  Act of 1940 which may subject us to certain U.S. regulations and be subject
  to limitations with respect to the investment of our assets; and                        
| |   |                                                                                                                                                                                                                                                               
| | · | those risks
  set forth under Item 3D. Risk Factors in this Annual Report as well as
  those discussed elsewhere in this Annual Report.                                                                                                                     

Except as may
be required by law, we do not undertake, and specifically disclaim, any
obligation to release publicly the results of any revisions which may be
required to any forward-looking statements to reflect the occurrence of
anticipated or unanticipated events or circumstances after the date of such
forward-looking statements.

USE OF TRADE NAMES

Scailex is our
trademark. Jemtex is a trademark of Jemtex.

PART I

|                  |                                                      
|----------------- | -----------------------------------------------------
|ITEM 1.           | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|                  |                                                      
|Not
  applicable.
|                  |                                                      
|ITEM 2.           | OFFER STATISTICS AND EXPECTED TIMETABLE              
|                  |                                                      
|Not
  applicable.
|                  |                                                      
|ITEM 3.           | KEY INFORMATION                                      

A. SELECTED FINANCIAL DATA

The following
selected consolidated statements of operations data for the years ended
December 31, 2005, 2006 and 2007 and the selected consolidated balance sheet
data as of December 31, 2006 and 2007 are derived from our audited
consolidated financial statements set forth elsewhere in this Annual Report,
which have been prepared in accordance with generally accepted accounting principles
in the United States (U.S. GAAP). The selected consolidated statement of
operations data for the years ended December 31, 2003 and 2004 and the selected
consolidated balance sheet data as of December 31, 2003, 2004 and 2005 are
derived from audited consolidated financial statements not appearing in this
Annual Report, which have been prepared in accordance with U.S. GAAP.

In November
2005, Scailex Vision, our majority owned subsidiary, sold its business to
Hewlett-Packard Company, as described below under Item 10.C Additional
InformationMaterial Contracts. As a result of the sale, since November 2005,
the results of operations of Scailex Vision have been reported as discontinued
operations and the consolidated results from continuing operations have no longer
included the revenues and expenses attributable to Scailex Vision. Similarly,
assets and liabilities relating to Scailex Vision are presented on our balance
sheet separately as assets and liabilities of discontinued operations.

6

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Our
consolidated financial statements for prior periods have been reclassified to
reflect these changes. See Note 1b(2) to our consolidated financial statements
included in this Annual Report.

In August
2006, we decreased our holdings in Jemtex from approximately 75% to approximately
15% (on a fully diluted basis). See Item 4A. History and Development of the
Company, Item 4B. Business Overview, and Item 10C. Material
Contracts-Reorganization Contract between the Company and Senior Management of
Jemtex. As a result of the sale, since August 2006 the results of operations
of Jemtex have been reported as discontinued operations and the consolidated
results from continuing operations have no longer included the revenues and
expenses attributable to Jemtex. Similarly, assets and liabilities relating to
Jemtex are presented on our balance sheet separately as assets and liabilities
of discontinued operations. Our consolidated financial statements for prior
periods have been reclassified to reflect these changes. See Note 1b(3) to our
consolidated financial statements included in this Annual Report.

As of December
31, 2007, our continuing operations were comprised of Scailex Corporation and
PCH. Consequently, we did not record any revenues from such continuing
operations in the years 2003 through 2007. Since we are exploring our strategic
alternatives, including engaging in new areas of operations, the data presented
below are not indicative of our future operating results or financial position.

As of December
31, 2007, the majority of our assets were cash, available-for-sale financial
assets (mainly comprising of our shares in ORL) and securities
held-to-maturity. In the next few days, and following the recent approval by our
board of directors and shareholders, we expect to sell 100% of the share
capital of our wholly owned subsidiary, PCH, to IPE, our controlling
shareholder, for the total sum of approximately NIS 1.14 billion (approximately
$338 million). This transaction is subject to the purchase by Suny Electronics
Ltd. from IPE of all of the Scailex shares held by IPE. Following these
concurrent transactions, we would no longer have any interest in ORL. See Item
10.C. Material Contracts - The PCH Sale Agreement, dated April 10, 2008.

The following selected financial data should
be read in conjunction with Item 5. Operating and Financial Review and
Prospects and the consolidated financial statements and the notes thereto and
the other financial information appearing elsewhere in this Annual Report.

7

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BALANCE SHEET DATA

|                                                                              |  |                           |         |      |  |      |         |      |  |      |         |   |  |  |         |    |  |  |         |  
|----------------------------------------------------------------------------- |  | ------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  |  | ------- | -- |  |  | ------- | -
|                                                                              |  | As of December 31,        |        
|                                                                              |  |                           |        
|                                                                              |  | 2007                      |         | 2006 |  | 2005 |         | 2004 |  | 2003 |        
|                                                                              |  |                           |         |      |  |      |         |      |  |      |        
|                                                                              |  | (US Dollars in thousands) |        
|                                                                              |  |                           |        
|                                                                              |  |                           |         |      |  |      |         |      |  |      |         |   |  |  |         |    |  |  |         |  
|Net working capital (continuing operations)
  **                              |  |                           | 422,413 | ***  |  |      | 271,809 |      |  |      | 230,303 |   |  |  | 142,705 |    |  |  | 59,035  |  
|Net working capital (discontinued
  operations) **                            |  |                           | (2,855  | )    |  |      | 1,876   |      |  |      | 42,079  | * |  |  | (2,265  | )* |  |  | 101,019 | *
|Cash, cash equivalents and short termInvestments (continuing operations)      |  |                           | 421,862 | ***  |  |      | 273,216 |      |  |      | 230,350 |   |  |  | 142,239 |    |  |  | 64,995  |  
|Cash, cash equivalents and short term
  investments (discontinued operations) |  |                           | 6,644   |      |  |      | 7,352   |      |  |      | 59,658  | * |  |  | 18,345  | *  |  |  | 34,318  | *
|Total assets                                                                  |  |                           | 446,628 |      |  |      | 319,572 |      |  |      | 351,018 |   |  |  | 274,153 |    |  |  | 394,085 |  
|Long term liabilities (continuing
  operations)                               |  |                           | 67,045  |      |  |      | 654     |      |  |      | 107     |   |  |  | 649     |    |  |  |        |  
|Long term liabilities (discontinued  operations)****                          |  |                           | 6,508   |      |  |      | 11,382  |      |  |      | 42,990  |   |  |  | 21,247  |    |  |  | 23,625  |  
|Share capital                                                                 |  |                           | 6,209   |      |  |      | 6,205   |      |  |      | 6,205   |   |  |  | 6,205   |    |  |  | 6,205   |  
|Shareholders equity                                                          |  |                           | 345,914 |      |  |      | 285,034 |      |  |      | 261,603 |   |  |  | 154,274 |    |  |  | 224,698 |  

|     |                                                                                                                                                                           
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*    | Includes a
  restricted cash deposit in a bank, the balance of which was $5,165,000,
  $18,000,000 and $18,262,000 as of December 31, 2005, 2004 and 2003,
  respectively.
|     |                                                                                                                                                                           
|**   | Net working
  capital is calculated as current assets minus current liabilities as
  presented in the audited financial reports.                                          
|     |                                                                                                                                                                           
|***  | Including an
  investment in ORL shares that is presented as available-for-sale assets.                                                                                   
|     |                                                                                                                                                                           
|**** | Includes minority interest related to discontinue operation.                                                                                                              

8

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STATEMENT OF
OPERATIONS DATA

|                                                                                          |  |                                                       |        |      |  |        |   |      |         |      |   |        |   |  |        |  
|----------------------------------------------------------------------------------------- |  | ----------------------------------------------------- | ------ | ---- |  | ------ | - | ---- | ------- | ---- | - | ------ | - |  | ------ | -
|                                                                                          |  | Year Ended December 31,                               |       
|                                                                                          |  |                                                       |       
|                                                                                          |  | 2007                                                  |        | 2006 |  | 2005   |   | 2004 |         | 2003 |  
|                                                                                          |  |                                                       |        |      |  |        |   |      |         |      |  
|                                                                                          |  | (U.S. dollars in thousands, except per share amounts) |       
|                                                                                          |  |                                                       |        |      |  |        |   |      |         |      |   |        |   |  |        |  
|General and administrative expenses                                                       |  |                                                       | (3,570 | )    |  | (2,955 | ) |      | (2,964  | )    |   | (3,201 | ) |  | (2,890 | )
|                                                                                         
|Financial income - net                                                                    |  |                                                       | 2,580  |      |  | 13,202 |   |      | 4,283   |      |   | 2,757  |   |  | 48     |  
|Other income (loss)  net                                                                 |  |                                                       | 10,823 |      |  | 3,141  |   |      | 917     |      |   | 62     |   |  | (2,323 | )
|                                                                                          |  |                                                       |        |      |  |        |   |      |         |      |   |        |   |  |        |  
|                                                                                          |  |                                                       |        |      |  |        |   |      |         |      |   |        |   |  |        |  
|Income (loss) before taxes on income                                                      |  |                                                       | 9,833  |      |  | 13,388 |   |      | 2,236   |      |   | (382   | ) |  | (5,165 | )
|                                                                                          |  |                                                       |        |      |  |        |   |      |         |      |   |        |   |  |        |  
|Tax benefit (Taxes on income)                                                             |  |                                                       |       |      |  | (1,502 | ) |      | 94      |      |   | 1,121  |   |  |       |  
|Share in results of associated companies                                                  |  |                                                       |       |      |  |       |   |      | 2,876   |      |   | (1,418 | ) |  | (2,237 | )
|                                                                                          |  |                                                       |        |      |  |        |   |      |         |      |   |        |   |  |        |  
|Minority interest in loss (income) of a
  subsidiary                                      |  |                                                       | 3,979  |      |  | (478   | ) |      |        |      |   |       |   |  |       |  
|                                                                                          |  |                                                       |        |      |  |        |   |      |         |      |   |        |   |  |        |  
|Net income (loss) from continuing
  operations                                            |  |                                                       | 13,812 |      |  | 11,408 |   |      | 5,206   |      |   | (679   | ) |  | (7,402 | )
|                                                                                          |  |                                                       |        |      |  |        |   |      |         |      |   |        |   |  |        |  
|Net income from
  discontinued operations                                                 |  |                                                       | 1,447  |      |  | 11,135 |   |      | 100,932 |      |   | 47,932 |   |  | 8,780  |  
|                                                                                          |  |                                                       |        |      |  |        |   |      |         |      |   |        |   |  |        |  
|Net
  income                                                                              |  |                                                       | 15,259 |      |  | 22,543 |   |      | 106,138 |      |   | 47,253 |   |  | 1,378  |  
|                                                                                          |  |                                                       |        |      |  |        |   |      |         |      |   |        |   |  |        |  
|Earnings (loss) per share- basic                                                          |  |                                                       |        |      |  |        |   |      |         |      |   |        |   |  |        |  
|Continuing operations                                                                     |  |                                                       | 0.36   |      |  | 0.30   |   |      | 0.14    |      |   | (0.02  | ) |  | (0.17  | )
|Discontinued operations                                                                   |  |                                                       | 0.04   |      |  | 0.29   |   |      | 2.65    |      |   | 1.19   |   |  | 0.20   |  
|                                                                                          |  |                                                       |        |      |  |        |   |      |         |      |   |        |   |  |        |  
|                                                                                          |  |                                                       | 0.40   |      |  | 0.59   |   |      | 2.79    |      |   | 1.17   |   |  | 0.03   |  
|                                                                                          |  |                                                       |        |      |  |        |   |      |         |      |   |        |   |  |        |  
|Earnings (loss) per share- diluted                                                        |  |                                                       |        |      |  |        |   |      |         |      |   |        |   |  |        |  
|Continuing operations                                                                     |  |                                                       | 0.36   |      |  | 0.30   |   |      | 0.14    |      |   | (0.02  | ) |  | (0.17  | )
|Discontinued operations                                                                   |  |                                                       | 0.04   |      |  | 0.29   |   |      | 2.55    |      |   | 1.19   |   |  | 0.20   |  
|                                                                                          |  |                                                       |        |      |  |        |   |      |         |      |   |        |   |  |        |  
|                                                                                          |  |                                                       | 0.40   |      |  | 0.59   |   |      | 2.69    |      |   | 1.17   |   |  | 0.03   |  
|                                                                                          |  |                                                       |        |      |  |        |   |      |         |      |   |        |   |  |        |  
|                                                                                          |  |                                                       |        |      |  |        |   |      |         |      |   |        |   |  |        |  
|Weighted average number of sharesoutstanding(in
  thousands) -                    - basic |  |                                                       | 38,164 |      |  | 38,066 |   |      | 38,066  |      |   | 40,336 |   |  | 43,018 |  
|- diluted                                                                                 |  |                                                       | 38,207 |      |  | 38,156 |   |      | 38,134  |      |   | 40,336 |   |  | 43,018 |  
|                                                                                          |  |                                                       |        |      |  |        |   |      |         |      |   |        |   |  |        |  
|Dividends
  per share                                                                     |  |                                                       |       |      |  |       |   |      |        |      | $ | 2.36   |   |  |       |  
|                                                                                          |  |                                                       |        |      |  |        |   |      |         |      |   |        |   |  |        |  

B.

Not
Applicable.

C. REASONS FOR THE OFFER AND USE OF PROCEEDS.

Not
Applicable.

D. RISK FACTORS

The following
important factors, together with others that appear with the forward-looking
statements made by, or on behalf of, Scailex in this Annual Report, or in
Scailexs other SEC filings and public statements, could affect our actual
results and could cause our actual results to differ materially from those
expressed in any forward-looking statements.

Risks Related to Our Business

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|· | We have sold our principal operating
  businesses and currently conduct only limited business activities.                                                                                                                                                                                                                                                                                                                                                     
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  | We sold the
  business of Scitex Digital Printing Inc., or SDP, one of our two principal
  operating subsidiaries, to Eastman Kodak Company, or Kodak, in January 2004.
  In November 2005, Scailex Vision, our remaining principal operating
  subsidiary, sold its business to Hewlett-Packard Company, or Hewlett-Packard.
  In August, 2006, we decreased our holdings in Jemtex from approximately 75%
  to approximately 15% (on a fully diluted basis).

9

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---

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In the next
  few days, and following the recent approval by our board of directors and
  shareholders, we expect to sell 100% of the share capital of our wholly owned
  subsidiary, PCH, to IPE, our controlling shareholder, for the total sum of
  approximately NIS 1.14 billion (approximately $338 million). This transaction
  is subject to the purchase by Suny Electronics Ltd. from IPE of all of the
  Scailex shares held by IPE. Following these concurrent transactions, we would
  no longer have any interest in ORL.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | See Item
  4A. History and Development of the Company, Item 4B - Business Overview,
  Item 10C - Material Contracts - The PCH Sale Agreement, dated April 10,
  2008 and Item 10C - Material Contracts - Reorganization Contract between
  the Company and Senior Management of Jemtex.                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | As of the
  date of this Annual Report, we hold substantially all of our assets in cash
  and cash equivalents and ORL shares. After completing the abovementioned sale
  of PCH, our plan of operation will be to explore and consider strategic
  investments and business opportunities. Other than activities relating to
  attempting to locate such opportunities and activities relating to our
  holdings, we do not currently conduct any material operations.                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | In the event
  that ownership in Scailex changes as a result of the abovementioned share
  transaction between IPE, our current controlling shareholder, and Suny Electronics Ltd., we
  expect that five of our directors will be asked to resign and new directors
  will be appointed. There is uncertainty as to how we will conduct our
  operations and the investments that we will make in the event such
  transaction occurs.                                                                                                

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|· | We may not be successful in identifying and
  evaluating suitable business opportunities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  | While we are
  actively exploring strategic transactions and opportunities, there can be no
  assurance that we will be successful in identifying and evaluating suitable
  business opportunities. We may invest in entities having no significant
  operating history or other negative characteristics, such as having limited
  or no potential for immediate earnings that will not necessarily provide us
  with significant financial benefits in the short term. In the event that we
  make new investments, a significant factor in our success will be the
  performance of target entities and their management, as well as numerous
  other factors beyond our control. There is no assurance that we will be able
  to invest on terms favorable to us, or at all.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|· | We may be deemed an investment company
  under the Investment Company Act of 1940, which could subject us to material
  adverse consequences.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  | We believe that
  we are not subject to regulation or registration under the Investment Company
  Act of 1940, or the Investment Company Act, because we are incorporated
  outside of the United States and are not publicly offering and do not propose
  to publicly offer our securities in the United States. We also do not promote
  our securities in the United States and our ordinary shares were delisted
  from Nasdaq. The Investment Company Act limits our ability to raise capital
  in the United States.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  | In addition,
  following the sale of the businesses of SDP and Scailex Vision and the
  investment of the cash proceeds of such transactions, we believe we are
  not engaged in an investment company business because we are actively
  engaged in exploring and considering strategic investments and business
  opportunities and hold substantially all of our assets in cash and cash
  equivalents. If we fail to make strategic, controlling investments, the
  likelihood of being deemed to be engaged in an investment
  company business would increase over time. If we were to engage in a
  public offering of our securities in the United States or were deemed to
  promote our securities in the United States and also to be engaged in an
  investment company business, we may be required to seek exemptive or other relief
  from the SEC so as not to be regulated under the Investment Company Act.
  No assurance can be made that we would obtain such exemptive or other relief
  from the SEC, if and when we seek the same. As a result, we may be required
  to take certain actions with respect to the investment of our assets or the
  distribution of cash to our shareholders in order to avoid being deemed an
  investment company, which actions may not be as favorable to us as if we were
  not potentially subject to regulation under the Investment Company Act.

10

---

---

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  | If we were
  deemed to be an investment company and engaged in a public offering of our
  securities or promoting our securities in the United States, we could be
  found to be in violation of the Investment Company Act, and a violation
  of that act could subject us to material adverse consequences.                                                                                                                                                                                                                                                    
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|· | We hold substantially all of our assets in
  cash and financial instrument, and are exposed to decreases in the value of
  our financial investments.                                                                                                                                                                                                                                                                                                                                                                                                            
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  | As of
  December 31, 2007, we held, on a consolidated basis, approximately $437.4
  million in cash and financial instruments, which represented substantially
  all of our assets. This amount included $8.9 million which was presented as
  non current assets, $6.6 million of which was allocated to discontinued
  operations, and $307.4 million of ORL shares, which was presented as
  available-for-sale assets.                                                                                                                                       
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  | Because our
  shares in ORL are held in shekels, and our operational currency is the U.S.
  Dollar, we are subject to fluctuations in the dollar-shekel exchange rates
  and to fluctuations in the share price of ORL. This could adversely affect
  our financial condition.                                                                                                                                                                                                                                                                                   
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  | During the
  next few days and following the recent approval by our board of directors and
  shareholders, we expect to sell 100% of the share capital of our wholly owned
  subsidiary, PCH, to IPE, our controlling shareholder, for the total sum of
  approximately NIS 1.14 billion (approximately $338 million). This transaction
  is subject to and would occur concurrently with the purchase by Suny
  Electronics Ltd. from IPE of all of the Scailex shares held by IPE. Following
  these transactions, we would no longer have any interest in ORL.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  | In the event
  of a change in our ownership resulting from the abovementioned agreement
  between Suny and IPE, our operating currency may change from dollars to
  shekels, and we cannot predict what affect the fluctuation of the shekel
  rates would have on our operations and cash flow. For information on the types
  of our investments as of December 31, 2007, see Item 11  Quantitative and
  Qualitative Disclosures About Market RiskPresentation of Exchange Rate and
  Interest Rate Risk.                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|· | We are undergoing, and may in the future
  undergo, tax audits and may have to make material payments to tax authorities
  at the conclusion of these audits.                                                                                                                                                                                                                                                                                                                                                                                                    
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  | As a result
  of tax audits or assessments in Israel or abroad related to the Company or to
  our subsidiaries which sold their operations, we may be required to pay
  additional taxes, as a result of which our future results may be adversely
  affected. For more information about these audits and other tax assessments,
  please see under Item 5B.  Liquidity & Capital Resources  Tax Audits.                                                                                                                                                    

Risks Related to Operations in Israel

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|· | Political, economic and military instability
  in Israel or the Middle East may adversely affect our results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  | Our
  corporate headquarters are located in Israel. Since the establishment of the
  State of Israel in 1948, a number of armed conflicts have taken place between
  Israel and its Arab neighbors. A state of hostility, varying in degree and
  intensity, has led to security and economic problems for Israel. Since
  October 2000, there has been a high level of violence between Israel and the
  Palestinians. Further, in 2006, Israel was engaged in an armed conflict with
  Hezbollah, a Lebanese Islamist Shiite militia group, which involved thousands
  of missile strikes and disrupted most day-to-day civilian activity in
  northern Israel.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  | Any armed
  conflicts or political instability in the region, including acts of terrorism
  or any other hostilities involving or threatening Israel, would likely
  negatively affect business conditions and harm our business. Furthermore,
  several countries restrict business with Israel and Israeli companies and additional
  countries may restrict doing business with Israel and Israeli companies as a
  result of hostilities between Israel and the Palestinians.                                                                                                                                                                                

11

---

---

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  | These
  political, economic and military conditions might deter potential targets
  from effecting a business combination with an Israeli company. In addition,
  the operations and financial results of the remaining companies in which we
  have holdings could be adversely affected if political, economic or military
  events curtailed or interrupted trade between Israel and its present trading
  partners or if major hostilities involving Israel should occur in the Middle
  East.                                                                                                                                                                                                                                                                                    
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  | In addition,
  some of our directors  and officers are currently obligated to
  perform annual reserve duty. All reservists are subject to being called to
  active duty at any time under emergency circumstances. We cannot assess the
  full impact of these requirements on our workforce and business if conditions
  should change, and we cannot predict the effect on us of any expansion or reduction
  of these obligations.                                                                                                                                                                                                                                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|· | A litigant may have difficulty enforcing
  U.S. judgments against us, our officers and directors, our Israeli
  subsidiaries and affiliates or asserting U.S. securities law claims in
  Israel.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  | Service of
  process upon us, our Israeli subsidiaries and affiliates, and our directors
  and officers, substantially all of whom reside outside the United States, may
  be difficult to obtain within the United States. Furthermore, all of our
  directors and officers are located outside the United States, and any
  judgment obtained in the United States against us or any of them may not be
  collectible within the United States. There is doubt as to the enforceability
  of civil liabilities under the Securities Act of 1933 and the Securities Exchange
  Act of 1934 in original actions instituted in Israel. However, subject to
  specified time limitations, Israeli courts may enforce a U.S. final executory
  judgment in a civil matter, provided that:

| |   |                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | adequate
  service of process has been effected and the defendant has had a reasonable
  opportunity to be heard;                                                 
| |   |                                                                                                                                                                   
| | · | the judgment
  and its enforcement are not contrary to the law, public policy, security or
  sovereignty of the State of Israel;                                  
| |   |                                                                                                                                                                   
| | · | the judgment
  was obtained after due process before a court of competent jurisdiction
  according to the rules of private international law prevailing in Israel;
| |   |                                                                                                                                                                   
| | · | the judgment
  was not obtained by fraudulent means and does not conflict with any other
  valid judgment in the same matter between the same parties;            
| |   |                                                                                                                                                                   
| | · | an action
  between the same parties in the same matter is not pending in any Israeli
  court at the time the lawsuit is instituted in the U.S. court; and        
| |   |                                                                                                                                                                   
| | · | the U.S.
  court is not prohibited from enforcing judgments of Israeli courts.                                                                                    

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|· | Provisions of Israeli law may delay,
  prevent or make more difficult an acquisition of Scailex.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  | The Israeli
  Companies Law generally requires that a merger be approved by the board of
  directors and a majority of the shares voting on the proposed merger. For
  purposes of the shareholder vote, unless a court rules otherwise, the merger
  will not be deemed approved if shares representing a majority of the voting
  power present at the shareholders meeting, and which are not held by the
  other party to the merger (or by any person who holds 25% or more of the
  shares or the right to appoint 25% or more of the directors of the other
  party or its general manager), have voted against the merger. Upon the
  request of any creditor of a party to the proposed merger, a court may delay
  or prevent the merger if it concludes that there is a reasonable concern
  that, as a result of the merger, the surviving company will be unable to
  satisfy the obligations of the surviving company. Finally, a merger may
  generally not be completed unless at least (1) 50 days have passed since the
  filing of a merger proposal signed by both parties with the Israeli Registrar
  of Companies and (2) 30 days have passed since the merger was approved by the
  shareholders of each of the parties to the merger. Also, in certain
  circumstances an acquisition of shares in a public company must be made by
  means of a tender offer.

12

---

---

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Lastly,
  Israeli tax law treats some acquisitions, such as stock-for-stock exchanges
  between an Israeli company and a foreign company, less favorably than U.S.
  tax laws. These provisions of Israeli corporate and tax law may have the
  effect of delaying, preventing or make more difficult an acquisition of or
  merger with us, which may adversely affect our ability to engage in a business
  combination and could depress our share price.

Risks Related to the Market for Our Ordinary
Shares

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|· | If there is no active trading market for
  our ordinary shares, our investors may be unable to sell their shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  | In October
  2006, the Companys shares were de-listed from NASDAQs Global Market because
  the Company was determined by Nasdaq to be a public shell lacking any
  business operations, pursuant to Marketplace Rule 4300. As of the date of
  this Annual Report, the Companys shares are traded on the Tel Aviv Stock
  Exchange and are quoted on the OTC Bulletin Board (OTCBB) in the United
  States. We cannot guarantee there will be an active trading market for our
  ordinary shares in the United States. We also cannot provide our investors
  with any assurance that our ordinary shares will continue to be quoted on the
  OTC Bulletin Board or, if quoted, that there will be an active public market
  for our shares. Further, the OTCBB is not a listing service or exchange, but
  is instead a dealer quotation service for subscribing members. If our
  ordinary shares are not quoted on the OTCBB or if there is no public market
  for our ordinary shares, investors may not be able to resell the shares of
  our ordinary shares that they have purchased and may lose all of their
  investment, or they may be required to sell their shares on TASE, where
  liquidity of the shares also cannot be guaranteed.

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                    
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -----------------------------------------------------------------------------------
|· | We expect to qualify as a passive foreign
  investment company, or PFIC, in 2007, as it was in 2006. Unless U.S. holders of
  our shares make certain elections under U.S. federal income tax rules and
  regulations, they may be subject to certain adverse U.S. federal income tax
  consequences.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                    
|  | Under the
  PFIC rules, a U.S. holder who disposes of, or is deemed to dispose of, our
  shares at a gain, or who receives, or is deemed to receive, certain
  distributions with respect to our shares, generally will be required to treat
  such gain or distributions as ordinary income earned ratably over the
  holders holding period and will be subject to a special tax and interest
  charge on amounts treated as earned during periods during which we are
  classified as a PFIC. Certain elections may be used to reduce or eliminate
  the adverse impact of the PFIC rules for holders of our shares (QEF elections
  and mark-to-market elections), but these elections may accelerate the
  recognition of taxable income and may result in the recognition of ordinary
  income in excess of amounts actually distributed to the holder. In addition,
  because we are a PFIC, our distributions will not qualify for the reduced
  rate of U.S. federal income tax that applies to qualified dividends paid to
  non-corporate U.S. taxpayers. The PFIC rules are extremely complex;
  prospective U.S. investors are urged to consult independent tax advisers
  regarding the potential consequences to them of our classification as a PFIC.
  See Item 10.E Taxation  Certain Material U.S. Federal Income Tax
  Considerations.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|· | Volatility of our share price could
  adversely affect us and our shareholders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                    
|  | The market
  price for our ordinary shares has been and may continue to be volatile and
  could be subject to wide fluctuations in response to numerous factors, such
  as:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | market
  conditions or trends;                                                     
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                    
|  | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | political,
  economic and other developments in the State of Israel and world-wide;
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                    
|  | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | actual or
  anticipated variations in our operating results and/or assets;         
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                    
|  | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | material
  corporate transactions; and                                             
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                    
|  | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | entry into
  strategic partnerships or joint ventures by us.                       

13

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|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                               
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------
|  | In addition,
  the stock market in general, and the market for Israeli companies in
  particular, has been highly volatile in the past few years. Many of these
  factors are beyond our control and may materially adversely affect the market
  price of our ordinary shares, regardless of our performance. Shareholders may
  not be able to sell their ordinary shares following periods of volatility
  because of the markets adverse reaction to such volatility, and we may not
  be able to raise capital through an offering of securities.                                                                                                                                                                               
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|· | A single shareholder may be able to control
  us.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                               
|  | In July
  2006, Israel Petrochemicals Enterprise Ltd. (IPE) (through its wholly owned
  subsidiary Petrochemical Holdings Ltd.) purchased an aggregate of
  approximately 49.4% of our outstanding ordinary shares from Clal Industries
  and Investments Ltd. (Clal) and Discount Investment Corporation Ltd.
  (Discount). As of June 26, 2008, IPE held 50.06% of the Companys
  outstanding ordinary shares.                                                                                                                                                                                                                                                                                                               
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  | As of June
  26, 2008, IPE was held 60.91% by Modgal Industries (99) Ltd., 12.29% by ORL,
  and 6.67% by Keter Plastic, and Modgal Industries (99) Ltd. was held 50.14%
  by Modgal Ltd., 23.03% by European Holdings International Ltd., and 26.83% by
  Adler BV. (held by Leonid N. Nevzlin (71%), who is the main beneficiary of
  Menatap Ltd., a foreign company).                                                                                                                                                                                                                                                                                                                                                              
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  | As of June
  26, 2008, Modgal Ltd. was held by 50% by Gima Investments Ltd. (held 37.5%
  each by Jacob Gottenstein and Alex Passal and 12.5% by each of Arie
  Silverberg and Micha Lazar), 47% by I.D. Federman Holdings Ltd. (held 49% by
  Adi Federman, 49% by Shelly Federman and 2% by their mother, Irit Federman)
  and 3% by Eran Schwartz.                                                                                                                                                                                                                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  | European
  Holdings International Ltd. is held by Petrol Investments Ltd. (50%) and
  Petco Investments Ltd. (50%). The shareholder of Petrol Investments Ltd. is
  David Federman, the husband of Irit Federman and father of Adi and Shelly
  Federman. Petco Investments Ltd. has the same shareholder structure as Gima
  Investments Ltd.                                                                                                                                                                                                                                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  | As a result
  of the foregoing holdings, the corporate actions of the Company may be
  significantly influenced by the Federman family, Jacob Gottenstein, and Alex
  Passal. In addition, IPE may have sufficient voting power, subject to special
  approvals required by Israeli law for transactions involving controlling
  shareholders, to:                                                                                                                                                                                                                                                                                                                                                                                    
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                               
|  | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | elect all of
  our directors (subject to the provisions of the Companies Law with regard to
  outside directors); and         
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                               
|  | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | approve or
  reject any merger, consolidation or other sale or liquidation event that
  requires approval of our shareholders.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                               
|  | In the next
  few days, it is contemplated that IPE will sell all of its shares in Scailex
  to Suny for an aggregate purchase price of NIS 737 million (approximately
  $220 million). Immediately following such transaction, Suny will be our
  largest shareholder, and the corporate activities of the
  Company may be significantly influenced by Mr. Ilan Ben Dov, the indirect
  controlling shareholder of Suny. In addition, Suny would have sufficient
  voting power to elect all of our directors (subject to special voting provisions regarding the election of external directors) and approve or reject any merger,
  consolidation or other sale or liquidation event that requires approval of
  our shareholders.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                               
|  | This
  concentration of ownership of our ordinary shares could delay or prevent
  proxy contests, mergers, tender offers, open-market purchase programs or
  other purchases of our ordinary shares that might otherwise give our
  shareholders the opportunity to realize a premium over the then-prevailing
  market price for our ordinary shares. This concentration of ownership may
  also adversely affect our share price.                                                                                                                                                                                                                                                                                                   

14

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|        |                           
|------- | --------------------------
|ITEM 4. | INFORMATION ON THE COMPANY

A. HISTORY AND DEVELOPMENT OF THE COMPANY

CORPORATE HISTORY & DETAILS

Our legal and
commercial name is Scailex Corporation Ltd. and our legal form is a company limited
by shares. We were incorporated under the laws of the State of Israel on
November 2, 1971, succeeding a predecessor corporation, Scientific Technology
Ltd. that was founded on September 5, 1968. On December 29, 2005, we changed
our name from Scitex Corporation Ltd. to Scailex Corporation Ltd. Our
corporate headquarters and principal executive offices are located at 16
Shenkar St., Entrance B, Herzliya Pituach, P.O.B. 12423, Israel, 46733. Our
telephone number in Israel is (972) 9 - 9610900. Our website address is
www.scailex.com. Information contained on our website does not
constitute a part of this Annual Report.

We initially
focused on imaging competencies in systems for the textile design market. In
1979, we launched the worlds first computerized color prepress system. In the
1990s, we identified the evolving digital printing market and focused on
commercializing innovative solutions for the graphic publishing industry in its
transition from analog to digital printing, and made several key acquisitions
of digital printing operations. We operated in this field principally through
SDP, our then indirect wholly owned subsidiary, and Scailex Vision, our
majority owned subsidiary. In April 2000, we sold our digital preprint
operations and our print-on-demand systems business to Creo, now part of Kodak.
In January 2004, we sold the businesses of SDP to Kodak.

In November
2005, we sold the operations of Scailex Vision, which was involved in the wide
format segment to Hewlett-Packard, and in August 2006, we reduced our holdings
from 75% to 15% in Jemtex, which was involved in the industrial inkjet digital
printing market. Since the completion of these transactions, other than its
investment in ORL, most of the Company assets are cash and cash equivalents,
and the Company is looking for additional investment opportunities. Between
February and May 2007, the Company, through its then 80.1% subsidiary, PCH,
purchased approximately 13.4% of ORLs share capital. Between July and October
2007, PCH increased its holdings in ORL to 15.76%.

On March, 26
2008, the Company completed the purchase of the minority 19.9% interest of
Linura Holding AG (Linura) in PCH, and received, by way of assignment, the
capital note that PCH had issued to Linura. The total consideration for the
purchase was $57.2 million. With the purchase of Linuras share in PCH, a
15.76% shareholder in ORL, PCH became a wholly owned subsidiary of the Company.
See also Item 10C. Material Contracts  The Share Purchase Agreement between
Scailex and Linura, dated March 26, 2008.

During the next
few days, and following the recent approval by our board of directors and
shareholders, we expect to sell 100% of the share capital of our wholly owned
subsidiary, PCH, to IPE, our controlling shareholder, for the total sum of
approximately NIS 1.14 billion (approximately $338 million). This transaction
is subject to and would occur concurrently with the purchase by Suny
Electronics Ltd. from IPE of all of the Scailex shares held by IPE, described
below. Following our sale of PCH, we would no longer have any interest in ORL.
There is no guarantee that these transactions will in fact be consummated.

Concurrent
with our sale of our interest in PCH to IPE, it is contemplated that IPE will
sell all of its shares in Scailex to Suny Electronics Ltd. for an aggregate
purchase of NIS 741 million (approximately $220 million). Immediately following
such transaction, Suny Electronics Ltd. will be our largest shareholder and at
such time is expected to hold approximately 87% of our outstanding share
capital.

15

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MAJOR BUSINESS
DEVELOPMENTS

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | July 2006:
  our two major shareholders, Clal and Discount sold their entire holdings in
  the Company, representing approximately 49.4% of our outstanding share
  capital, to IPE.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | · | August 2006:
  the Company entered into an agreement for the reorganization of Jemtex
  whereby the Companys equity holdings in the Company were reduced from
  approximately 75% to approximately 15% (on a fully diluted basis). Under the
  terms of the reorganization agreement, the Company converted a sum of
  approximately $6.7 million, out of an aggregate amount of approximately $9.7
  million provided by the Company to Jemtex by way of loans, into shares of
  Jemtex, while the remaining amount of approximately $3.0 million was to be
  paid to the Company over a period of five to seven years, unless Jemtex paid
  the Company a sum of $1.0 million by January 4, 2007, whereupon the debt
  would be deemed to have been repaid in full. On January 4, 2007, the Company
  was paid $1.0 million (plus interest), and in accordance with the terms of
  the reorganization agreement the Company forgave the $3.0 million in
  outstanding loans and deemed those loans to be paid in full. Following the
  reduction of the Companys holdings in Jemtex, the Company ceased to
  consolidate the financial results of Jemtex in its financial statements and
  classified the operations of Jemtex as discontinued operations. See also
  Item 10C. Material Contracts.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | · | November
  2006: XMPie, a minority held company, was sold to Xerox Corporation for
  approximately $48 million, of which the Company received approximately $1.3
  million (in May 2008 the Company received an additional amount of
  approximately $0.1 million; an additional approximately $0.1 million remains
  in escrow.).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | · | December
  2006: PCH was created, held 80.1% by Scailex and 19.9% by Linura Holding AG,
  a Swiss company indirectly held by one of the largest global natural resource
  companies, pursuant to a Shareholders Agreement with Linura. PCH was established
  for the purpose of acquiring shares of ORL, an oil refinery located in Haifa,
  Israel. See Item 10C. Material Contracts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | · | February
  2007: we entered into a Memorandum of Understanding (the MOU) with Israel
  Corp. for the joint acquisition of ORLs shares and control thereof. Pursuant
  to the MOU, we initially purchased through PCH, our then 80.1% subsidiary,
  12.62% of the outstanding shares of ORL, and Israel Corp. acquired 40.98% of
  the outstanding shares. As a result, Scailex, through PCH, and Israel Corp.,
  jointly acquired an aggregate of 53.6% of the issued share capital of ORL.
  The MOU provided for, among other things, the joint acquisition of ORL shares
  by PCH and Israel Corp. and an option for PCH to acquire additional shares in
  ORL from Israel Corp. Total consideration paid by PCH for the purchase of the
  ORL shares was approximately $192.9 million. The ORL transaction required two
  approvals: (i) approval from the Commissioner of the Israeli Antitrust
  Authority for the acquisition of 25% or more of ORLs share capital, and (ii)
  a control permit from the Minister of Finance and the Prime Minister
  necessary under Israeli law in order to exercise the rights associated with
  control of ORL or 24% or more of ORLs share capital.                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |   | In May 2007,
  because we were experiencing delays in receiving the control permit, we and
  Israel Corp. revoked the MOU and entered into a Deed of Undertaking pursuant
  to which the parties agreed, inter alia,
  to apply separately for the control permit, and in the event PCH would
  succeed in receiving mandatory regulatory approvals, including the control
  permit and any additional approvals required by the Antitrust Commission, by
  May 12, 2009, the Company, PCH and Israel Corp. would enter into a control
  agreement for the joint control of ORL (the Control Agreement). In
  addition, pursuant to the Deed of Undertaking, we were granted the right to
  exercise a call option, allowing us to increase our holdings in ORL to 45% of
  the 50.25% control core of ORL within 120 days of the receipt of mandatory
  regulatory approvals required to control ORL. Following termination of the
  MOU, PCH acquired, independent of Israel Corp., additional shares of ORL for
  $12.9 million, increasing PCHs holdings in the outstanding share capital of
  ORL to approximately 13.4%.                                                                                                                                                                      

16

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | In July -
  October 2007, we acquired additional shares in ORL for $36.9 million, thereby
  increasing our holdings in ORL to 15.76% of ORLs outstanding share capital.                                                                                                                                                                                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |   | For a
  complete description see Item 4B. Business Overview and Item 10C. Material
  Contracts.                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | · | On March 26,
  2008 we completed the purchase of Linuras entire shareholding in PCH, and
  received the capital note that PCH had issued to Linura. The total
  consideration for the purchase was a total of $57.2 million. With the
  purchase of Linuras share in PCH, PCH became our wholly owned subsidiary.                                                                                                                                                                                                                                            
|
| | · | During the
  next few days, and following the recent approval by our board of directors
  and shareholders, we expect to sell 100% of the share capital of our wholly
  owned subsidiary, PCH, to IPE, our controlling shareholder, for the total sum
  of approximately NIS 1.14 billion (approximately $338 million). This
  transaction is subject to and would occur concurrently with the purchase by
  Suny Electronics Ltd. from IPE of all of the Scailex shares held by IPE.
  Following our sale of PCH, we would no longer have any interest in ORL.

With the sale
of the business of Scailex Vision in November 2005, as described above, and the
anticipated sale of our shares in ORL through the sale of PCH, we will no
longer conduct significant business operations. Currently, we hold
substantially all of our assets in cash and financial assets. Our current plan
of operation is to explore and consider strategic investments and business
opportunities. Other than activities relating to attempting to locate such
opportunities and activities relating to our holdings, we do not currently
conduct any material operations.

PRINCIPAL CAPITAL EXPENDITURE &
DIVESTITURES

Since January
1, 2005, except for the cash distribution described below, most of our
principal capital expenditures and divestitures have been for the acquisition
or sale of interests in other companies, as follows:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | In November
  2005, we sold the business of Scailex Vision. This transaction is described
  under Item 10C. Material Contracts
  below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | · | In June
  2005, we sold all of our 22.9% holdings in Objet Geometries Ltd. to several
  shareholders of Objet for $3.0 million in cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | · | In July
  2005, IDX Systems Corporation, or IDX, acquired the assets of RealTimeImage
  Ltd., or RTI, in which we held a 14.9% stake, for an estimated purchase price
  of $15.5 million. The book value of our investment in RTI was recorded at
  $1.2 million on our balance sheet as of December 31, 2005, and such
  investment is accounted for under the cost method. In February 2006, we
  received a dividend of approximately $2.6 million from RTI, and in August
  2007 we received an additional $0.4 million.                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | · | Since
  January 1, 2004, we invested an aggregate of approximately $7.1 million in
  Jemtex in consideration for the issuance to us of convertible debentures and
  preferred shares of Jemtex. Until August 2006, we held an approximate 74.9%
  interest (85.4% assuming conversions of the debentures, but not giving effect
  to the pending financing described in the next sentence) in Jemtex. In 2006,
  we invested an additional $2 million in Jemtex in respect of a pending round
  of financing by Jemtex. In August 2006, we entered into a reorganization agreement
  with senior management of Jemtex, pursuant to which our holdings in Jemtex
  were reduced to 15%.

17

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | Under the
  terms of the reorganization agreement, we converted a sum of approximately
  $6.7 million, out of an aggregate amount of approximately $9.7 million
  provided by the Company to Jemtex by way of loans, into shares of Jemtex
  while the remaining amount of approximately $3.0 million was to be paid to
  the Company over a period of five to seven years, unless Jemtex paid the
  Company a sum of $1.0 million by January 4, 2007, whereupon the debt would be
  deemed to have been repaid in full. On January 4, 2007, the Company was paid
  $1.0 million (plus interest), and in accordance with the terms of the
  reorganization agreement, the Company forgave the $3.0 million in outstanding
  loans and those loans to be paid in full. See also Item 10C. Material
  Contracts below.                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | · | In February
  2007 we entered into an MOU with Israel Corp. through our then 80.1% owned
  subsidiary, PCH, pursuant to which we jointly acquired shares of ORL in
  February and March 2007. As a result of the joint purchase, Israel Corp. and
  Scailex (through PCH) held 40.98% and 12.62%, respectively, of the
  outstanding shares of ORL. Total consideration paid by PCH for the purchase
  of the ORL shares was $192.9 million. In May 2007 we acquired, through PCH,
  independent of Israel Corp., additional shares of ORL for $12.9 million,
  which increased our holdings in ORL, through PCH, to approximately 13.4%. In
  July - October 2007, we made an additional purchase, through PCH, of
  approximately 47.4 million shares of ORL for $36.9 million, thereby
  increasing our holding to 15.76% of ORLs outstanding share capital.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | · | On March 26,
  2008, we completed the purchase of the minority 19.9% interest of Linura in
  PCH, and received, by way of assignment, the capital note that PCH had issued
  to Linura, increasing our holdings in PCH to 100% of PCHs outstanding
  shares. The total consideration for the purchase was $57.2 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | · | In the next
  few days, and following the recent approval of our Board of Directors, we
  expect to sell all of the issued share capital of PCH to IPE, the controlling
  shareholder of Scailex, for the total consideration of  approximately NIS
  1.14 billion (approximately $338 million). Following this transaction, we
  would no longer have any vested interest in ORL.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

As previously
reported, we were involved in several disputes with C.D.I. Technologies (1999)
Ltd. (CDI) a minority shareholder of Scailex Vision, including claims against
us, Scailex Vision and several other parties. In May 2005, we and our former
two largest shareholders, Clal and Discount, purchased all of CDIs interest in
Scailex Vision, constituting 1.89% of Scailex Visions issued share capital
(1.35% on a fully diluted basis), for $1.6 million, plus additional contingent
consideration to be paid if Scailex Vision had an exit event in the
subsequent two years at a higher valuation than implied in the agreement. As a
result of the sale of the business of Scailex Vision to Hewlett Packard, we
have already paid to CDI an additional $0.3 million in February 2006, $0.2
million in February 2007 and $0.3 million in June 2008 in respect of such
contingent consideration, and we expect to pay an additional amount in the future
(as a result of Scailex Visions future distributions). In connection with the
purchase agreement, CDI agreed to dismiss all of the claims asserted by it
against us and the other parties.

B. BUSINESS OVERVIEW

Following the
sale of Scailex Visions business in November 2005 and following the
anticipated sale of our interest in PCH, through which we currently hold shares
of ORL, to IPE, our controlling shareholder, which is due to occur in the next
few days, we would no longer have any interest in ORL, and we would
substantially cease all of the operations of our business as conducted prior
thereto. Following our sale of our interest in PCH, we would hold substantially
all of our assets in cash and financial assets. Our current plan of operation
is to explore and consider strategic investments and business opportunities.

18

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OIL REFINERIES LTD.

Information
presented in this Annual Report regarding ORL and its subsidiaries was compiled
based on and it is qualified in its entirety on, ORLs public filings in
Israel. ORL is a public company in Israel, with its shares traded on TASE, and
its reports are made in Hebrew and posted on the web site of the Israeli
Securities Authority at www.magna.gov.il.
Additional information about ORL, together with recent financial information,
can be found on ORLs web site, http://www.orl.co.il/index_eng.html.
The contents of this web site are not deemed to be part of this Annual Report.

Purchase of ORL Shares by the Company

In December
2006, in anticipation of the public offering by the State of Israel of ORLs
shares, the Company entered into a shareholders agreement with Linura Holding
AG, a Swiss company indirectly held by one of the largest global natural
resource companies, pursuant to which the parties established PCH to purchase
shares in ORL. Under the agreement, we held 80.1% of PCHs share capital, while
Linura held 19.9%. For a description of the agreement, see Item 10C. Material
Contracts.

In February
and March 2007, Scailex, through PCH, and Israel Corp. jointly acquired 53.6%
of ORLs issued share capital pursuant to an MOU signed by the parties, which
provided for, among other things, the joint acquisition of ORL shares by PCH
and Israel Corp. and an option for PCH to acquire additional shares in ORL from
Israel Corp. Of the 53.6%, PCH acquired 12.62% of ORLs outstanding shares and
Israel Corp. acquired 40.98% of the outstanding shares. Total consideration
paid by PCH for the purchase of the ORLs shares was $192.9 million.

Israeli law
requires that in order to exercise the rights associated with control of ORL or
24% or more of ORLs share capital, including the right to receive dividends,
the right to appoint directors and officials, and the right to exercise voting
rights in the Annual General Meeting, a control permit from the Minister of
Finance and the Prime Minister must be obtained, pursuant to the Israeli
Government Companies Order (Declaration of the States Vital Interests in ORL)
(2007). In addition, upon the acquisition of 25% or more of ORLs share
capital, Israeli law requires receipt of approval by the Commissioner of the
Israeli Antitrust Authority. While we did receive the required approval from
the Israeli Antitrust Commissioner on March 27, 2007, we experienced delays in
receiving the control permit. As a result, on May 10, 2007 we and Israel Corp.
revoked the MOU and entered into an irrevocable Deed of Undertaking, pursuant
to which the parties agreed to apply separately for the control permit, and the
parties agreed to enter into the Control Agreement for the joint control of ORL
upon receipt of the control permit and any additional regulatory authorities,
by May 15, 2009.

Following the
adoption of the Deed of Undertaking, PCH (our then 80.1% owned subsidiary)
acquired, independently of Israel Corp., an additional 15.5 million shares of
ORL for $12.9 million, bringing its total current holdings in ORL to
approximately 13.4%. In July through October 2007, we made an additional
purchase, through PCH, of approximately 47.4 million shares of ORL for $36.9
million, thereby increasing our holding to 15.76% of ORLs outstanding share
capital. For a description of current agreements with Israel Corp., as well as
contemplated future agreements see Item 10C. - Material Contracts.

PCH
experienced delays in receiving the control permit due to the fact that
additional information was requested about Linura, which holds 19.9% of PCH. In
November 2007, the Company was notified by competent government authorities
that the control permit would not be granted, among other reasons, so long as
Linura maintained its holdings in PCH. On March 26, 2008, the
Company completed the purchase of the minority 19.9% interest of Linura in PCH,
and received, by way of assignment, the capital note that PCH had issued to
Linura. The total consideration for the purchase was $57.2 million. With the
purchase of Linuras share in PCH, a 15.76% shareholder in ORL, PCH became a
wholly owned subsidiary of the Company.

19

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In addition,
pursuant to the Deed of Undertaking, we were granted the right to exercise a
call option, allowing us to increase our holdings in ORL to 45% of the 50.25%
control core of ORL within 120 days of the receipt of mandatory regulatory
approvals required to control ORL or until May 15, 2009, whichever is earlier.
The Deed of Undertaking further provides that the right to enter into the
Control Agreement is transferable to a third party, subject to Israel Corp.s
right of first refusal, provided that such third party receives a control
permit by May 15, 2009.

Sale of ORL Shares
by the Company

In the next
few days, and following the recent approval by our board of directors and
shareholders, we expect to sell 100% of the share capital of our wholly owned
subsidiary, PCH, to IPE, our controlling shareholder, for the total sum of
approximately NIS 1.14 billion (approximately $338 million). This transaction
is subject and would occur concurrently with the purchase by Suny Electronics
Ltd. from IPE of all of the Scailex shares held by IPE. Following our sale of
PCH, we would no longer have any interest in ORL. There is no guarantee that
these transactions will in fact be consummated.

ORLs Business

ORL was
incorporated and registered in Israel in August 1959 as a result of a
government decision to acquire and receive the rights of an English petroleum
company under the franchise granted to it, and the ownership in the Haifa
refinery, which had up until then been under the control of foreign
shareholders.

ORL, together
with its subsidiaries, are industrial companies operating in Israel, which
mainly deal in the production of refined products, products for the
petrochemical industry, aromatic products for the chemicals and plastics
industries, and manufacturing of base oils and waxes. The subsidiaries
facilities are integrated with those of ORL.

Until
September 28, 2006, ORL operated a refinery at Haifa and a refinery at Ashdod.
As part of the privatization process of ORL, on September 28, 2006, ORLs
operations were split in such a way that the Ashdod refinery was sold to a
subsidiary of ORL, Oil Refineries-Ashdod Ltd. (ORA), which was sold on the
date of the split to Paz Oil Company Ltd. (Paz).

Refining. ORLs
principal field of operation is refining. ORL operates an 180,000 barrel per
day refinery and ranks at 7.4 on the Nelson Complexity Index. ORL purchases
crude oil and interim materials, distills and separates them into various
products, some of which are end products and others of which are raw materials
for the manufacture of other products.

The refining of
oil is a process that consists of a number of stages:

| |   |                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------
| | · | Separation
  by distillation  a process that results in groups of products, according to
  the differences in their boiling points.
| |   |                                                                                                                                     
| | · | Cracking and
  reformation  a process that alters the chemical composition, giving rise to
  products of higher added value.       
| |   |                                                                                                                                     
| | · | Refining  a
  process that purifies, cleanses and improves the quality of the products.                                            
| |   |                                                                                                                                     
| | · | Finishing 
  a process required to meet requisite parameters.                                                                      

Products from
ORLs refining business include: light gasses; liquefied petroleum gas;
naphtha; various kinds of gasoline; kerosene; various kinds of diesel; various
kinds of fuel oil; waxy substances; and bitumen. ORL also generates revenues by
selling electricity and steam manufactured in its power plant to industrial
customers in the Haifa Bay, as well as infrastructure services (storage,
pumping and loading of fuel products).

20

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The main
factor affecting the results of refinery operations is the refining margin (i.e., the difference between revenues from
sales of the set of products that ORL sells, and the cost of raw materials
purchased by ORL at the refinery gate). Most of ORLs prices were capped, with
maximum prices set by the Israeli Supervision of Prices for Commodities and
Services Order (2000) until January 1, 2007, when such restrictions were
removed with regard to most of ORLs refinery products (excluding liquefied
petroleum gas, bitumen and low-sulfur diesel).

ORLs raw
materials are crude oil and interim materials produced in the process of
separating out crude oil. ORL purchases its crude oil from various suppliers
worldwide, mostly on the basis of spot transactions, with the remainder
(20-30%) via one year contracts based on price formulas. This combination enables
ORL to take advantage of opportunities for purchasing crude at attractive
prices and create a fixed basis for regular supply. The majority of the crude
oil is purchased from countries bordering the Black and Caspian Seas and,
according to ORLs assessment, it is not dependant upon any one supplier.

Refining
operations accounted for approximately 85% of ORLs consolidated revenue for
the fiscal year 2007.

Polymers. Polymer
products are manufactured by Carmel Olefins Ltd. (Carmel Olefins), a private
company in which ORL holds a 50% ownership interest, and in which IPE, our
controlling shareholder, holds the remaining 50%. Carmel Olefins produces
ethylene, polyethylene and polypropylene, which are the principal raw materials
in the plastics industry. Carmel Olefins is the only manufacturer of
polypropylene and low density polyethylene in Israel. Carmel Olefins
manufactures its products in three integrated facilities  a monomer facility,
a polyethylene facility and a polypropylene facility. The monomer facility is
fed mainly by naphtha purchased from ORL, manufactures ethylene and propylene
which are used as feedstock to the polypropylene facility.

Aromatics. Aromatic
materials are produced by Gadiv, a private company that is wholly-owned by ORL.
Gadiv is engaged in the manufacture and sale of aromatic products. These are
interim products or components of the raw materials used in manufacturing other
products, and are not intended for consumption by end users. The raw materials
requires by Gadiv are supplied by ORL and Carmel Olefins. Gadiv sells most
(about 95%) of its products out of Israel.

DOR VENTURES

Dor Venture
Capital Fund (Dor), headquartered in Brussels, Belgium, is a specialized
venture capital fund investing in technology companies worldwide. As of
December 31, 2006, we had invested an aggregate of approximately $3.6 million
in one of the funds managed by Dor, and we are generally committed to invest up
to an additional $1.4 million in the future upon Dors request. To date, we
received approximately $1.3 million as distributions from the fund. We
currently hold approximately 13.2% of Dor. The Company has decided to
discontinue its investment in Dor and not to realize its commitment to invest
an additional $1.4 million. As a result of this decision, the Company will be
subject to penalties and the Companys holdings in Dor may be diluted by 50%.

REALTIMEIMAGE LTD.

RTI was formed
in 1996. It was headquartered in San Bruno, California, with research and
development operations in Or-Yehuda, Israel, and employed about 42 employees
(it had no employees as of December 31, 2006) before IDX Information
Corporation Systems acquired the companys business in July of 2005. We held an
approximately 14.9% interest in RTI until that time. After the sale we received
a dividend of $2.6 million, and the Company received an additional $0.54
million. Since RTI sold its healthcare business to IDX, it has not conducted
any operations.

RTI is
presented in our financial reports on a cost method. After receiving a total
dividend of $3.1 million, we recognized a capital gain of $1.9 million.

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XMPIE INC.

XMPie, which was formed in 2000, developed and
marketed software solutions for dynamic publishing in print and electronic
media. The XMPie software platform was designed to allow organizations and
marketing service providers, such as digital commercial printers and direct
marketing agencies, to efficiently create  plan, design and produce  highly
customized and personalized documents for direct marketing communication and
other highly targeted messaging disciplines. XMPie is headquartered in New
York, New York and, as of December 31, 2005, employed approximately 50 people.
In November 2006, the Xerox Corporation acquired XMPie for approximately $48
million, including our approximately 2.3% interest in XMPie. We received $1.3
million for the sale, and we received approximately $0.1 million on May 26,
2008, which was held in escrow. An additional $0.1 million still remains in
escrow.

DISCONTINUED OPERATIONS

Scailex Vision

On November 1,
2005, we completed a transaction to sell the business of Scailex Vision, as
described under Item 10C. Material
Contracts  Sale of Scailex Visions Businessbelow. As a result of
this transaction, the results of operations of Scailex Vision are reported as
discontinued operations and the consolidated results from continuing operations
no longer include revenues and expenses attributable to Scailex Vision.
Nevertheless, since the operations of Scailex Vision comprised one of our
principal activities in the past years, the following is a brief description of
Scailex Visions business prior to November 1, 2005. Accordingly, the following
description of Scailex Visions business, to the extent it uses the current
tense, does not purport to describe the current operations of Scailex Vision.
For example, since November 2005, Scailex Visions business is conducted under
the name of HP Industrial Printing Ltd., a wholly owned subsidiary of
Hewlett-Packard (HP).

General. Scailex
Vision Ltd. (formerly, Scitex Vision Ltd.), or Scailex Vision, is our majority
owned subsidiary (approximately 77.1% interest on an issued and outstanding
basis; - on a fully diluted basis, taking into account the contemplated
distributions to employees of Scailex Vision and outstanding options, our
ownership in Scailex Vision is approximately 71.8%.). It was a developer,
manufacturer and distributor of wide-format and super-wide format, color inkjet
digital printing systems used for point-of-purchase displays, banners and
indoor and outdoor advertising posters. It was also engaged in the design,
development, manufacturing and marketing of advanced digital printing presses
and specialized water-based inks for the packaging and textile markets based on
its patented drop-on-demand inkjet technology. As of November 1, 2005, Scailex
Vision employed approximately 570 employees (including employees of its sales,
marketing and support subsidiaries and part-time and temporary employees).

Scailex Vision
printers are dedicated to a wide array of applications including billboards,
fleet marking, banners, street advertising, point-of-purchase displays and
floor and window graphics, and applications for the packaging display market
and, through strategic partners, for the textile market. Its printing systems
are aimed at providing high-quality and cost-effective solutions to digital
printing houses worldwide.

Scailex Vision
had a large customer base with over 2,000 systems installed globally. It sold
its products through its direct sales force, indirect distribution channels and
third party joint sales arrangements. Equipment
sales were typically made on terms requiring an advance payment, with the
balance of the purchase price payable in stages, generally on delivery and on
or shortly after installation.

22

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As previously
reported, we were involved in several disputes with C.D.I. Technologies (1999)
Ltd. (CDI) a minority shareholder of Scailex Vision, including claims against
us, Scailex Vision and several other parties. In May 2005, we and our former
two largest shareholders, Clal and Discount, purchased all of CDIs interest in
Scailex Vision, constituting 1.89% of Scailex Visions issued share capital
(1.35% on a fully diluted basis), for $1.6 million, plus additional contingent
consideration to be paid if Scailex Vision had an exit event in the
subsequent two years at a higher valuation than implied in the agreement. As a
result of the sale of the business of Scailex Vision to Hewlett Packard, we
have already paid to CDI an additional $0.3 million in February 2006, $0.2
million in February 2007 and $0.3 million in June 2008 in respect of such
contingent consideration. In connection with the purchase agreement, CDI agreed
to dismiss all of the claims asserted by it against us and the other parties.

Jemtex Ink Jet
Printing Ltd.

In August
2006, a reorganization agreement was signed with the senior management of
Jemtex, whereby our holdings in the Company were reduced from 74.9% to 15% (on
a fully diluted basis). See Item 4A. History and Development of the Company
and Item 10C. Material Contracts.

As a result of
the aforementioned reorganization transaction, the results of operations of
Jemtex are reported as discontinued operations and the consolidated results
from continuing operations no longer include revenues and expenses attributable
to Jemtex. Nevertheless, since the operations of Jemtex comprised one of our
principal activities in the past years, the following is a brief description of
Jemtexs business prior to August 2006. Accordingly, the following description
of Jemtex business, to the extent it uses the current tense, does not purport
to describe the current operations of Jemtex. For additional details see Note
1b(3) to the Companys financial statements. For details of the asset and
liabilities of Jemtex and the results of the measures taken with respect to the
discontinued operations of Jemtex, see Note 1b(3) of the Companys financial
statements.

Jemtex,
located in Lod, Israel, was established in 1995. Jemtex is a developer of
inkjet based digital systems, printheads and engines for the heavy-duty
industrial printing markets for the ceramic tiles, carpet and corrugated
packaging markets.

Jemtexs
Continuous Ink Jet technology was designed to allow for customization, higher
flexibility in design, file changes during print runs, smaller production runs,
and faster turnaround time from print order to delivery of printed material.
Jemtex developed solutions for nozzle design, drop assignment and image
processing algorithms for multi-nozzle alignment, calibration and on-line video
process control. The design of its printheads and modular implementation aimed
to assure fast assembly and up time, as well as smooth operation with higher
viscosity inks and colorant concentrations. Jemtexs strategy was to operate
through strategic alliances.

CUSTOMERS & SALES

As explained
in Item 3A, we did not record any revenues from our current continuing
operations in the past three years.

GOVERNMENT REGULATIONS

Trade & Export.
Israel has the benefit of a free trade agreement with the United States which,
generally, permits tariff-free access into the United States for products
produced in Israel by the Israeli companies in which Scailex has invested. In
addition, as a result of an agreement entered into by Israel with the European
Union, or the EU, and countries remaining in the European Free Trade
Association, or EFTA, the EU and EFTA have abolished customs duties on Israeli
industrial products. However, there can be no assurance that these agreements
will not be terminated, changed, amended or otherwise declared non-applicable
to all or some of our Israeli subsidiaries, joint ventures and Group Companies,
thereby materially harming our and their businesses.

23

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Investment Company Act of 1940.
Regulation under the Investment Company Act governs almost every aspect of
a registered investment companys operations and can be very onerous for
operating companies, especially those that conduct business through, or with,
partially owned affiliates. The Investment Company Act, among other things,
limits an investment companys capital structure, borrowing practices and
transactions between an investment company and its affiliates, and prohibits
the issuance of traditional options, warrants and incentive compensation
arrangements, imposes requirements concerning the composition of an investment
companys board of directors and requires shareholder approval of certain
policy changes. Contracts made in violation of the Investment Company Act are
void unless a court finds otherwise. An investment company organized outside of
the United States is not permitted to publicly offer or promote its securities
in the United States.

We believe
that we are not subject to regulation or registration under the Investment
Company Act because we are incorporated outside of the United States and are
not publicly offering and do not propose to publicly offer our securities in
the United States. We also do not promote our securities in the United States
and recently delisted our common stock from Nasdaq. The Investment Company Act
limits our ability to raise capital in the United States.

In addition,
following the sale of the businesses of SDP and Scailex Vision and the
investment of the cash proceeds of such transactions, we believe we are
not engaged in an investment company business because we are actively engaged
in exploring and considering strategic investments and business opportunities
and hold substantially all of our assets in cash and cash equivalents. If we
fail to make strategic, controlling investments, the likelihood of being deemed
to be engaged in an investment company business would increase over time.
If we were to engage in a public offering of our securities in the United
States or were deemed to promote our securities in the United States and also
to be engaged in an investment company business, we may be required to seek
exemptive or other relief from the SEC so as not to be regulated under the
Investment Company Act. No assurance can be made that we would obtain such
exemptive or other relief from the SEC, if and when we seek the same. As a
result, we may be required to take certain actions with respect to the
investment of our assets or the distribution of cash to our shareholders in order
to avoid being deemed an investment company, which actions may not be as
favorable to us as if we were not potentially subject to regulation under the
Investment Company Act. If we were deemed to be an investment company and
engaged in a public offering of our securities or promoting our securities in
the United States, we could be found to be in violation of the Investment
Company Act, and a violation of that act could subject us to material
adverse consequences.

C. ORGANIZATIONAL STRUCTURE

Scailex is part
of a group of which it is the parent company. The following table sets forth
the name, jurisdiction and ownership and voting interest of our principal
subsidiaries, as of the date hereof:

|                                 |  |              |  |                               |        
|-------------------------------- |  | ------------ |  | ----------------------------- | -------
|Name                             |  | Jurisdiction |  | Ownership and Voting Interest
|                                 |  |              |  |                              
|                                 |  |              |  |                               |        
|Scailex
  Vision (Tel-Aviv) Ltd. |  | Israel       |  | 77.1                          | %(1)(2)
|Jemtex Ink
  Jet Ltd.            |  | Israel       |  | 15                            | %      
|Petroleum
  Capital Holding      |  | Israel       |  | 100                           | %(3)   

(1) In
November 2005, Scailex Vision sold its business to Hewlett-Packard and
consequently has only minimal operations, primarily related to managing the
company following the transaction. As a result, our holdings in Scailex Vision
currently represent primarily our right to share, with the other shareholders
and employees of Scailex Vision, in the distribution of any cash that Scailex
Vision makes after payment of all of its commitments and liabilities.

(2) After
giving effect to contemplated distributions to employees of Scailex Vision and
outstanding options, ownership is approximately 71.8% on a fully diluted basis.

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(3) Following
the formation of PCH in December 2006, Scailex held 80.1% of its shares, and
Linura Holding AG held 19.9% of its shares, for the purpose of acquiring shares
of ORL. We held 80.1% of PCHs outstanding shares throughout 2007. During March
2008, we purchased Linuras interest in PCH, thereby increasing our holdings in
PCH to 100% of PCHs outstanding shares. During the next few days, and following
the recent approval by our board of directors and shareholders, we expect to
sell 100% of the share capital of our wholly owned subsidiary, PCH, to IPE, our
controlling shareholder, for the total sum of approximately NIS 1.14 billion
(approximately $338 million). Following our sale of PCH, we would no longer
have any interest in ORL.

D.
PROPERTY, PLANT AND EQUIPMENT

In January
2007, we entered into a lease for 400 square meters of office space in
Herzliya, Israel for approximately $9,000 a month, which includes rent and
monthly management fees. We renovated said office space for approximately $700,000.
The lease is in effect for a period of five years and may be extended for an
additional ten-year period (with an option to extend the lease five consecutive
times for a period of terms of two years each, rather than one additional
ten-year period). In September 2007 we moved into the Herzliya offices.

|         |                          
|-------- | -------------------------
|ITEM 4A. | UNRESOLVED STAFF COMMENTS

None.

|        |                                             
|------- | --------------------------------------------
|ITEM 5. | OPERATING AND FINANCIAL REVIEW AND
PROSPECTS

The following
discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements included elsewhere in this
Annual Report, which have been prepared in accordance with U.S. GAAP. The
preparation of these financial statements requires us to make estimates,
judgments and assumptions, all of which may affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. Accordingly, actual results may differ from
these estimates or judgments under different assumptions or conditions. In this
respect, we urge you to read the discussion under the caption Critical Accounting Policies below.

For so long as
our ordinary shares were both on the TASE and Nasdaq, we prepared our financial
results in accordance with U.S. GAAP. As a result of the delisting of our
shares from Nasdaq in September 2006, we were no longer considered a
dual-listed company for purposes of Israeli law, and as such, we were required
by Israeli law to prepare our financial statements in accordance with the
Israeli Securities Law Regulations. Therefore, in accordance with Israeli law,
we have prepared our financial reports from the third quarter of 2006 and
onwards in accordance with IFRS for the purposes of reporting in Israel, and we
submit our financial statements to the SEC in accordance with U.S. GAAP, in
accordance with the SEC rules and regulations. The Company also translates into
the English language its IFRS financial statements that it submits in Israel
and then submits those reports to the SEC under cover of a Form 6-K.

The discussion
below contains forward-looking statements that involve risks and uncertainties.
Our actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including, but not limited
to, those set forth in Item 3Key InformationRisk Factors.

You should read the following discussion with
the consolidated financial statements and other financial information included
elsewhere in this Annual Report.

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OVERVIEW

Historically,
we were an operating company until 2000, after which our operations were
carried out by our then active subsidiaries, which focused on the industrial
inkjet digital printing market. In recent years, we have sold substantially all
of our operations and undergone substantial changes and developments,
including:

| |   |                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | the sale of
  the business of SDP to Kodak in January 2004;                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                
| | · | the sale of
  the businesses of Scailex Vision to Hewlett Packard in November 2005; in
  which we ended our involvement in the wide format inkjet digital printing
  market;                                                                                   
| |   |                                                                                                                                                                                                                                                                
| | · | the sale of
  our entire holdings in Objet in June 2005;                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                
| | · | the sale of
  the operations of Real Time Image Ltd. and XMPie;                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                
| | · | the
  reduction in our holdings of Jemtex to 15% in August 2006, after which we
  discontinued our operations in the industrial inkjet digital printing
  industry, as described above in Item 4B. Business Overview above;                                  
| |   |                                                                                                                                                                                                                                                                
| | · | the
  purchase, through our then 80.1% subsidiary, PCH, of approximately 13.4% of
  the share capital of ORL in February through May 2007, and the purchase of
  additional shares in ORL, bringing our holding to 15.76% of ORLs outstanding
  share capital;
| |   |                                                                                                                                                                                                                                                                
| | · | the purchase
  of Linuras entire shareholding in PCH on March 26, 2008, for the inclusive
  consideration of $57.2 million. With the purchase of Linuras share in PCH,
  PCH became a wholly owned subsidiary of the Company; and                            

We anticipate
selling 100% of the issued and paid-up share capital of our wholly owned
subsidiary, PCH, to IPE, our controlling shareholder, in the next few days, for
the consideration of approximately NIS 1.14 billion (approximately $338
million), and subject to the concurrent purchase by Suny Electronics Ltd. from
IPE of all of the Scailex shares held by IPE. There is no guarantee that these
transactions will in fact be consummated. Following our sale of PCH, we would
no longer have any interest in ORL.

As of the date
of this Annual Report, we hold substantially all of our assets in financial
investments.

FINANCIAL
HIGHLIGHTS

In 2003, we
recorded net income of approximately $1.4 million, which was primarily derived
from approximately $8.8 million of net income from discontinued operations that
resulted from the sum of the operational results of Scailex Vision, SDP and
Jemtex in 2003 offset by a net loss of $7.4 million from continuing operations
(mainly from headquarter expenses, impairments of our cost investments in Dor
and Real Time Image Ltd., and losses derived from the Companys proportionate
share in Objets 2003 financial results).

In 2004, we
recorded net income of approximately $47.3 million, which was primarily derived
from net income from discontinued operations of $47.9 million (of which was as
a result of the sale of SDP to Kodak) offset primarily by losses of $0.7 million
from continuing operations (mainly from operating expenses incurred by our
headquarters that were offset by income derived from our deposits and
investments).

26

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In 2005, we
recorded net income of approximately $106.1 million, which was derived from: (1)
net income from continuing operations of $5.2 million that was mainly from
finance income related to yield from the Companys cash balances and income of
$2.9 million in capital gains derived from the sale of Objet, offset by general
and administrative expenses related to consultants and headquarter expenses;
and (2) net income from discontinued operations of $100.9 million of which net
income of $92.3 million related to a capital gain from the sale of Scailex
Visions business, net income of $4.3 million related to the activities of
Scailex Vision through the closing of the transaction in November 2005 and net
income of $8.8 million related to the sale of SDPs business. This net income
was offset by a loss of $4.5 million related to Jemtexs operations and an
amortization of Jemtexs technology in 2005.

In 2006, we
recorded net income of approximately $22.5 million which was comprised of $11.4
million of net income related to continued operations and net income of $11.1
million related to discontinued operations.

Net income
from continued operations in 2006 derived mainly from financial income reduced
by general and administrative expenses relating to consultant and headquarters
expenses. The reduction in net income as compared to net income in 2005 occurred
mainly as a result of Scailex Visions sale to HP in 2005 which generated net
income from discontinued operations. The net income from continued operations
increased due to the growth of the cash balance of the Company and the increase
of the monetary interest rate in the United States, where substantially all our
cash is held.

In 2007, our
net income decreased to approximately $15.3 million as a result of: (1) a
decrease of $10.6 million in net financial income as a result of the decrease
in cash and securities due to the investment in ORL which reduced its interest
income, and in addition due to an increase in financial expenses mainly due to
exchange rate differences on a capital note issued to the minority shareholders
in a subsidiary; and (3) a decrease in income from discontinued operations. The
decrease in net income was partially offset by a dividend of $10.7 million
received from ORL, and by the fact that we had no other expenses, including tax
expenses, in 2007.

During the next
few days, and following the recent approval by our board of directors and
shareholders, we expect to sell 100% of the share capital of our wholly owned
subsidiary, PCH, to IPE, our controlling shareholder, for the total sum of
approximately NIS 1.14 billion (approximately $338 million). This transaction
is subject to and would occur concurrently with the purchase by Suny
Electronics Ltd. from IPE of all of the Scailex shares held by IPE. In 2007,
because the majority of our assets were cash, available-for-sale financial assets
(mainly comprising of our shares in ORL) and securities held-to-maturity, any
increase in our equity was attributable to our holdings in ORL. Following the
expected sale of PCH, as described above, we would no longer have any interest
in ORL, which could materially affect our ability to increase our shareholders
equity in the future. However, there is no guarantee that these transactions
will in fact be consummated. See also Item 10C. Material Contracts.

Since we are
exploring strategic alternatives, including engaging in new areas of
operations, the data presented below are not indicative of our future operating
results or financial position.

A. OPERATING RESULTS

EXPLANATORY NOTES

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|· | Discontinued Operations (Jemtex): In August 2006, we decreased our
  holdings in Jemtex from approximately 75% to approximately 15% (on a fully
  diluted basis).As a result of
  the sale, the results of operations of Jemtex are reported as discontinued
  operations and the consolidated results from continuing operations no longer
  include revenues and expenses attributable to Jemtex. Similarly, assets and
  liabilities relating to Jemtex are presented on our balance sheet separately
  as assets and liabilities of discontinued operations. Our consolidated
  financial statements for prior periods have been reclassified to reflect
  these changes. See Note 1b to our consolidated financial statements included
  in this Annual Report.

27

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|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|· | Discontinued Operations (Scailex Vision):In November 2005, we completed the
  sale of substantially all of the assets and business of Scailex Vision to HP.
  As a result of the sale, the results of operations of Scailex Vision are
  reported as discontinued operations and the consolidated results from
  continuing operations no longer include revenues and expenses attributable to
  Scailex Vision. Similarly, assets and liabilities relating to Scailex Vision
  are presented on our balance sheet separately as assets and liabilities of
  discontinued operations. Our consolidated financial statements for prior periods
  have been reclassified to reflect these changes. See Note 1b(2) to our
  consolidated financial statements included in this Annual Report.                                                                   
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|· | Discontinued Operations (SDP):In January 2004, we completed the sale
  of substantially all of the assets and business of SDP to Kodak. As a result
  of the sale, the results of operations of SDP are reported as discontinued
  operations and the consolidated results from continuing operations no longer
  include revenues and expenses attributable to SDP. Similarly, assets and
  liabilities relating to SDP are presented on our balance sheet separately as
  assets and liabilities of discontinued operations. Our consolidated financial
  statements for prior periods have been reclassified to reflect these changes.
  See Note 1b(1) to our consolidated financial statements included in this
  Annual Report.                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|· | Definition of Segments:Prior to the sale of SDPs and Scailex
  Visions businesses, we reported in two segments: high speed digital printing
  (SDP) and wide format digital printing (Scailex Vision). In conjunction with
  the commencement of reporting the results of operations of SDP and Scailex
  Vision as discontinued operations, we modified the definition of our business
  segments and our results of operations were reported in two segments 
  Corporate (Scailex Corporation) and Industrial inkjet printing (Jemtex).
  After reducing our holdings in Jemtex to 15% in 2006, we present our holdings
  in Jemtex on a cost investment basis and we began to report our financial
  statement with one segment, the corporate segment. See Notes 1a and 1b to our
  consolidated financial statements included in this Annual Report.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|· | No Revenues.
  As described above, as a result of the sale of SDPs and Scailex Visions
  businesses and the reduction of our interest in Jemtex, our consolidated
  financial statements for prior periods have been reclassified to reflect the
  discontinuation of such operations. As a result, no data regarding revenues
  or cost of revenues is presented below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

2007 FINANCIAL
HIGHLIGHTS

Some of the
key aspects of our operating results in 2007 are as follows:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|· | No revenues
  from continuing operations were recorded.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|· | Net income
  from continuing operations was $13.8 million compared to net income from
  continuing operations of 11.4 million in 2006. The increase in income was
  principally due to the dividend of $10.7 million that we received from ORL,
  and which is presented as other income. There was a moderation in the
  increase of net income from continuing operations due to a decrease in income
  from interest resulting from the decrease in cash invested in daily deposits
  and a decrease in the balance of marketable securities due to the investment
  in the shares of ORL.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|· | Net income
  (including from discontinued operations) was $15.3 million. The net income
  from discontinued operations aggregated $1.4 million and mainly consisted of:
  (1) approximately $1 million received from Jemtex; and (2) net profit of $4
  million from the discontinued operations of Scailex Vision.                                                                                                                                                                                                                                                                          

28

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COMPARISON OF 2005, 2006 AND 2007 FINANCIAL
RESULTS

Costs and Expenses

As explained
above, as a result of the reclassification of our financial results, we did not
recognize any revenues in those years.

Operating Expenses

Operating
expenses were comprised of general and administrative expenses of $3.6 million,
which included primarily salaries and related costs for our executive and
administrative staff, insurance, legal and accounting expenses, both in Israel
and abroad, as well as investor relations expenses.

General and
administrative expenses increased from $3.0 million in 2006 to $3.6 million in
2007 mainly due to the professional fees paid to consultants for evaluating new
investments. In 2006 and in 2005, general and administrative expenses were $3.0
million, relating to headquarter expenses, and they were mainly used for
payment of salaries and related expenses, directors and officers insurance,
investor relations expenses and consultant fees.

Financial and Other
Income and expenses

Net financial
income consisted was primarily derived from interest earned on bank overnight
deposits and on marketable bonds (U.S. government and U.S. agency bonds) offset
by financing expenses, such as bank charges and foreign exchange differences.

|                                               |  |                                      |      |      |  |      |   |  |      |  
|---------------------------------------------- |  | ------------------------------------ | ---- | ---- |  | ---- | - |  | ---- | -
|                                               |  | Year ended December 31,              |     
|                                               |  |                                      |     
|                                               |  | 2007                                 |      | 2006 |  | 2005 |  
|                                               |  |                                      |      |      |  |      |  
|                                               |  | (approximate US Dollars in millions) |     
|                                               |  |                                      |      |      |  |      |   |  |      |  
|Interest income                                |  |                                      | 7.8  |      |  | 13.8 |   |  | 4.5  |  
|Loss on marketable securities                  |  |                                      | (0.2 | )    |  | (0.4 | ) |  | (0.1 | )
|                                              
|Bank Charges and net foreign exchange
  losses |  |                                      | (5.0 | )    |  | (0.2 | ) |  | (0.1 | )
|                                               |  |                                      |      |      |  |      |   |  |      |  
|                                               |  |                                      |      |      |  |      |  
|Total financial income, net                    |  |                                      | 2.6  |      |  | 13.2 |   |  | 4.3  |  
|                                               |  |                                      |      |      |  |      |   |  |      |  

Total net
financial income amounted to $2.6 million in 2007 compared to $13.2 million in
2006. The significant decrease was due to the decrease in income from interest
as a result of the decrease in cash invested in daily deposits, and the balance
of marketable securities due to the investment in the shares of ORL. It was
further reduced due to an appreciation of the NIS against the US Dollar with
respect of loans received from the minority holder in PCH and nominated in NIS.

29

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Net financial
income increased from $4.3 million in 2005 to $13.2 million in 2006, due
primarily to the significant increase in the Companys cash balance arising
from the sale of operations of Scailex Vision to Hewlett-Packard (See Note
1b(2) to our consolidated financial statements) and due to an increase in
dollar interest rates.

Furthermore,
the average overnight LIBOR rate which we received on our cash deposits was
5.1% in 2007 compared to 4.9% in 2006 and compared to 3.3% in 2005. This rate
increased from 2.35% in the beginning of 2005 to 4.34% at the beginning of 2006
and to 5.34% at the beginning of 2007. The LIBOR rate decreased to 4.82% at the
end of 2007.

Net other
income for the Company in 2007 amounted to $10.8 million and was mostly due to
a dividend received from ORL. In 2006, other income amounted to $3.1 million
and was mostly derived from dividends received from RTI, which the Company
recorded as income of $2.6 million, as well as a gain from the sale of XMPie
shares for $1.3 million, which was recorded as income. In 2005, other income
amounted to $0.9 million, derived mainly from receipt of a $0.8 million
dividend from Dor.

Net income
from continuing operations amounted to $13.8 million in 2007, compared to 11.4
million in 2006. The increase in net income was principally due to the dividend
received from ORL that offset a decrease in net financial income.

In 2007, net
income from discontinued operations amounted to $1.4 million and mainly
consisted of: (1) $1.0 million received from Jemtex; and (2) net profit of $0.4
million from the discontinued operations of Scailex Vision.

In 2006, net
income from discontinued operations amounted to $11.1 million and mainly
consisted of: (1) a price adjustment to proceeds from the sale of Scailex
Vision assets and operations, amounting to approximately $2.8 million (net of
tax and minority); (2) income of $4.8 million derived from linkage and interest
differentials on a principal amount of a tax refund received by SDP from the
U.S. tax authorities relating to a tax return amendment that SDP filed for
prior years; and (3) tax income net of minority of approximately $3.1 million
related to reduced tax income related to discontinued operations in previous
years. This income was offset by Jemtex operational losses amounting to
approximately $2.3 million. The income from discontinued operations in 2005 was
$100.9 million and derived mainly from the capital gain resulting from the sale
of Scailex Vision to Hewlett Packard.

Taxes

Israeli
companies are generally subject to income tax at the corporate rate of 29% for
2007 (compared to 31% for 2006 and 34% for 2005). Following an amendment to the
Israeli Income Tax Ordinance, which came into effect on January 1, 2006, the
corporate tax rate is scheduled to decrease as follows: 27% for the 2008 tax
year, 26% for the 2009 tax year and 25% for the 2010 tax year and thereafter.

Capital gains
derived after January 1, 2003, are subject to capital gains tax at a rate of
25%. See Item 5B  Corporate Tax Rate below for additional information.

As of the end
of 2007, our losses for tax purposes were $496.6 million, with minimal change
as compared to $439.5 million as of December 31, 2006. We did not create any
deferred tax assets on these losses since we believe that it is not more likely
than not that these deferred tax assets will be utilized. As of the end of
2005, our losses for tax purposes were $385.2 million. The increase in 2006 was
mainly due to the losses for tax purposes that were incurred in 2006 as a
result of the partial sale of our interest in Jemtex and the liquidation of our
fully owned subsidiary, SDC.

Additionally,
PCH had a provision for deferred taxes relating to profits from an increase in
value of ORL shares which was recorded as comprehensive income within the
shareholders equity.

A number of
factors may impact future taxable income, including those discussed under Risk
Factors in Item 3D, as well as any tax planning strategies. To the extent that
estimates of future taxable income are reduced or not realized, the amount of
the deferred tax asset considered realizable could be adversely affected.

30

---

---

The Company
recorded no taxes on income in 2007. The Companys tax expenses amounted to
approximately $1.5 million in 2006, stemming mainly from the write-off of a tax
asset of a foreign subsidiary that was not utilized because that company
entered into a liquidation process in July 2006. This figure compares to the
minimal tax benefit in 2005.

Equity Investments

From June 2000
until June 2005, we held an equity stake in Objet Geometrics Ltd. In 2005, we
sold our holdings in Objet for a consideration of $3.0 million. The capital
gain from that sale was approximately $2.9 million and was reduced by our
proportionate share in Objet losses in 2005, which amounted to $0.1 million.
See Item 4A. Principal Capital Expenditures and Divestitures.

IMPACT OF RELATED PARTY TRANSACTIONS

We have
entered into a number of agreements with related parties. Please see Item 7B 
Related Party Transactions below for specific details as to these transactions
and certain other related party transactions entered into by us.

We believe
that the terms of these related party transactions are not different in any
material respect than the terms we could receive from unaffiliated third
parties. The pricing and/or value of such transactions were arrived based on
arms-length negotiations between the parties and, in certain cases, based
upon, among other things, opinions of third party financial advisors. Our
management reviewed the pricing of such transactions and confirmed that they
were not materially different than could have been obtained from unaffiliated
third parties.

Under the
Companies Law certain transactions and arrangements with interested parties
require approval by our board of directors and our audit committee and, in some
cases, also require approval by our shareholders. In this respect, see the
discussion in Item 6C  Approval of Specified Related Party Transactions under
Israeli Law below.

IMPACT OF INFLATION AND EXCHANGE RISKS

New Israeli Shekel.The
Companys operational currency is the Dollar. Until the Companys investment in
ORL shares, most of the Companys assets were held in Dollars. The investment
in ORL shares was effected through the issuance of NIS capital notes to the
shareholders by PCH (see note 3d that details the capital note issuing
process). The assets and liabilities that are measured in NIS are subject to
revaluation or devaluation in the financial reports and, as a result, they are
presented in our profits and losses and/or the shareholders equity as
comprehensive income (for example, ORL shares are presented as
available-for-sale assets). The table below sets forth the annual rate of
inflation, the annual rate of devaluation (or revaluation) of the NIS against
the U.S. dollar and the gap between the two for the periods indicated:

|                            |  |                         |      |      |  |      |      |      |  |      |      |    |  |      |    |  |  |      |    | 
|--------------------------- |  | ----------------------- | ---- | ---- |  | ---- | ---- | ---- |  | ---- | ---- | -- |  | ---- | -- |  |  | ---- | -- | 
|                            |  | Year Ended December 31,
|                            |  |                        
|                            |  | 2007                    |      | 2006 |  | 2005 |      | 2004 |  | 2003
|                            |  |                         |      |      |  |      |      |      |  |     
|                            |  |                         |      |      |  |      |      |      |  |      |      |    |  |      |    |  |  |      |    | 
|Inflation (Deflation)       |  |                         | 3.4  | %    |  |      | (0.1 | )%   |  |      | 2.4  | %  |  | (1.2 | )% |  |  | (1.9 | )%
|Revaluation (Devaluation)   |  |                         | (9.0 | )%   |  |      | 8.2  | %    |  |      | (6.8 | )% |  | 1.6  | %  |  |  | 7.6  | % 
|Inflation (Devaluation) gap |  |                         | 12.4 | %    |  |      | 8.1  | %    |  |      | (4.4 | )% |  | 2.8  | %  |  |  | 5.7  | % 

Costs not denominated
in, or linked to, dollars are translated to dollars, when recorded, at
prevailing exchange rates for the purposes of our financial statements. To the
extent such costs are linked to the Israeli Consumer Price Index, such costs
may increase if the rate of inflation in Israel exceeds the rate of devaluation
of the shekel against the dollar or if the timing of such devaluations were to
lag considerably behind inflation.

31

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Conversely,
such costs may, in dollar terms, decrease if the rate of inflation is lower
than the rate of devaluation of the shekel against the dollar. Accordingly, our
Israeli operations experienced an increase in dollar costs in 2003, 2004, and
2006 and a decrease in 2005 and 2007. The representative dollar exchange rate
for converting the shekel to dollars, as reported by the Bank of Israel, was
NIS 3.846 on December 31, 2007 (NIS 4.225 on December 31, 2006).

Other currencies.Prior
to the sale of SDP and Scailex Vision we had a significant amount of activity
in non-dollar currencies. However, subsequent to the sale of SDP and Scailex
Vision, the volume of activity in non-dollar currencies became nominal. Since
November 2005, substantially all of the Companys assets and operations have
been in U.S. dollars. From February 2007 until June 2008, our holdings of ORL
shares through PCH were denominated in NIS, and, as such, the capital notes
issued by PCH to its shareholders for the purpose of financing the purchase of
ORL shares were denominated in NIS as well. See also Item 11. Quantitative and
Qualitative Disclosures about Market Risk.

CRITICAL ACCOUNTING POLICIES

Our discussion
and analysis of our financial condition and results of operations included in
this Item 5 and elsewhere in this Annual Report are based upon our consolidated
financial statements, which have been prepared in accordance with U.S. GAAP.
The preparation of these financial statements often requires us to make
estimates, judgments and assumptions, which may affect the reported amounts of
assets, liabilities, revenues, expenses and related disclosures as of the date
of the financial statements and during the reported period. On a regular basis,
we evaluate and may revise our estimates. We base our estimates on historical
experience and various other assumptions that we believe to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent. Some of those judgments can be complex, and consequently, actual
results may differ from those estimates. For any given individual estimate,
judgment or assumption made by our management, there may be alternative
estimates, judgments or assumptions which are also reasonable, and any estimate
or assumption presented is rarely identical to the actual results. We believe
that the estimates, assumptions and judgments described below have the greatest
potential impact on our financial statements and consider these to be our
critical accounting policies:

Deferred tax assets

The Company
records deferred taxes due to carry-forward losses and deductions for tax
purposes when there
is a reasonable expectation of their realization against future taxable income.
The deferred taxes are calculated according to the tax rates that are expected
to apply at the time of their utilization.

Provisions for
contingent liabilities

A number of lawsuits are
pending against a subsidiary of the Company, Scailex Vision. For the purpose of
examining the legal relevance of the aforesaid lawsuits, and in order to
ascertain the probability that they will be decided to be a detriment to the
Company, the Companys management relies on the opinions of professional legal
advisors. Once the Companys advisors formulate their legal position and the
Companys prospects regarding the subject of the lawsuit (if and to the extent
possible, as dependent on the relevant circumstances of each lawsuit), the
Companys management estimates, inter alia,
the sum that should be recorded in the financial statements, if any. An
interpretation that differs from that of the Companys legal advisors regarding
an existing legal situation, a differing understanding by the Companys
management of engagement contracts, as well as changes originating from
relevant case law or the addition of new facts, all may affect the value of the
overall provision in respect of legal proceedings.

32

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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Reporting Standards
adopted by Scailex

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | In February 2007, the
  FASB issued FASB No. 159, The Fair Value Option for Financial Assets and
  Financial LiabilitiesIncluding an Amendment of FASB Statement No. 115.
  This standard permits an entity to choose to measure many financial
  instruments and certain other items at fair value. Most of the provisions in
  FASB No. 159 are elective; however, the amendment to FASB No. 115,
  Accounting for Certain Investments in Debt and Equity Securities, applies to
  all entities with available-for-sale and trading securities. The fair value
  option established by FASB No. 159 permits all entities to choose to
  measure eligible items at fair value at specified election dates. A business
  entity will report unrealized gains and losses on items for which the fair
  value option has been elected in earnings (or another performance indicator
  if the business entity does not report earnings) at each subsequent reporting
  date. The fair value option: (a) may be applied instrument by
  instrument, with a few exceptions, such as investments otherwise accounted
  for by the equity method; (b) is irrevocable (unless a new election date
  occurs); and (c) is applied only to entire instruments and not to
  portions of instruments. FASB No. 159 is effective as of the beginning
  of an entitys first fiscal year that begins after November 15, 2007.
  The Company does not expect the adoption of FASB No. 159 to have a material impact on its consolidated
  financial statements.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | 2. | In December 2007, the FASB
  issued FASB 141(R), Business Combinations, the objective of which is to
  improve the relevance, representational faithfulness, and comparability of
  the information that a reporting entity provides in its financial reports
  about a business combination and its effects. The new standard requires the
  acquiring entity in a business combination to recognize all (and only) the
  assets acquired and liabilities assumed in the transaction; establishes the
  acquisition-date fair value as the measurement objective for all assets
  acquired and liabilities assumed; and requires the acquirer to disclose to
  investors and other users all of the information they need to evaluate and
  understand the nature and financial effect of the business combination.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | 3. | In December 2007, the FASB
  issued FASB 160 Noncontrolling Interests in Consolidated Financial
  Statementsan amendment of ARB No.51  the objective of which is to improve
  the relevance, comparability, and transparency of the financial information
  that a reporting entity provides in its consolidated financial statements by
  establishing accounting and reporting standards by requiring all entities to
  report noncontrolling (minority) interests in subsidiaries in the same
  wayas equity in the consolidated financial statements. Moreover, Statement
  160 eliminates the diversity that currently exists in accounting for
  transactions between an entity and noncontrolling interests by requiring they
  be treated as equity transactions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    | Both FASB 141(R) and FASB
  160 are effective for fiscal years beginning after December 15, 2008. The
  Company does not believe that adoption of these standards will have any
  impact on its financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | 4. | In March 2008, the
  Financial Accounting Standards Board (the FASB) issued Statement of
  Financial Accounting Standards No. 161, Disclosures about Derivative
  Instruments and Hedging Activities (SFAS 161). SFAS 161 changes the
  disclosure requirements for derivative instruments and hedging activities.
  The Company will be required to provide enhanced disclosures about
  (a) how and why derivative instruments are used, (b) how derivative
  instruments and related hedged items are accounted for under Statement of
  Financial Accounting Standards No. 133, Accounting for Derivative
  Instruments and Certain Hedging Activities (SFAS 133), and its related
  interpretations, and (c) how derivative instruments and related hedged
  items affect the Companys financial position, financial performance, and
  cash flows. This statement is effective for financial statements issued for
  fiscal years and interim periods beginning after November 15, 2008. The
  Company is currently evaluating the requirements of SFAS 161 and has not yet
  determined the impact of adoption, if any, on its financial position, results
  of operations or cash flows.                                                                                                                                                                                                                                                                                                                                         

33

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IMPACT OF GOVERNMENTAL POLICIES

In February
2007, we entered into a Memorandum of Understanding (the MOU) with Israel
Corp. for the joint acquisition of ORL shares and control thereof. Pursuant to
the MOU, we initially purchased through PCH, our then 80.1% subsidiary, 12.62%
of the outstanding shares of ORL, and Israel Corp. acquired 40.98% of the
outstanding shares. Israeli law requires that in order to exercise the rights
associated with control of ORL or 24% or more of ORLs share capital, including
the right to receive dividends, the right to appoint directors and officials, and
the right to exercise voting rights in the Annual General Meeting, a control
permit from the Minister of Finance and the Prime Minister must be obtained,
pursuant to the Israeli Government Companies Order (Declaration of the States
Vital Interests in ORL) (2007). In addition, upon the acquisition of 25% or
more of ORLs share capital, Israeli law requires receipt of approval by the
Commissioner of the Israeli Antitrust Authority. While we have received the
required approval of the Antitrust Commissioner, we have experienced delays in
receiving the control permit. As a result, in May 2007, we and Israel Corp.
revoked the MOU and entered into an irrevocable Deed of Undertaking, pursuant
to which the parties agreed to apply separately for the control permit, and in
the event that PCH succeeds in receiving the control permit by May 15, 2009,
the parties will enter into the Control Agreement for the joint control of ORL.
Since signing the Deed of Undertaking, PCH has acquired additional ORL shares
(independent of Israel Corp.), and as of June 26, 2008, it held approximately
15.76% of the outstanding share capital of ORL.

PCH has
experienced delays in receiving the control permit due to the fact that
additional information was requested about Linura, which held 19.9% of PCH. If
we are denied the control permit by the relevant authorities, we will not be
able to enter into the Control Agreement with Israel Corp. for the joint
control of ORL, and we would retain a minority interest in ORL with little
influence over the activities of ORL. In addition, in such event, we may elect
to find more suitable investments, and we may elect to sell, subject to Israel
Corp.s right of first refusal, the ORL shares in order to pursue such other
investments. During the next few days, and following the recent approval by our
board of directors and shareholders, we expect to sell 100% of the share
capital of our wholly owned subsidiary, PCH, to IPE, our controlling
shareholder, for the total sum of approximately NIS 1.14 billion (approximately
$338 million), whereby selling our interest in ORL. Because the shares of ORL
are publicly traded, and in the even then such concurrent transactions occur,
we may sell our shares in ORL at a loss, which may materially and adversely
affect our financial results. See Item 3B. Risk Factors, Item 4B. Business
Overview and Item 10C. Material Contracts.

B. LIQUIDITY & CAPITAL RESOURCES

OVERVIEW

On
December 31, 2007, our net working capital from continuing operations was
$422.4 million, compared to $271.8 million on December 31, 2006. The net
working capital increased primarily as a result of loans received from the
minority shareholders of PCH which were converted into a capital note and
presented as a long term liability in the amount of $53.9 million used for the
purchase of ORLs shares.

On
December 31, 2006, the Companys net working capital from continuing
operations was $276.1 million as compared to $230.3 million in 2005. The
increase in 2006 was primarily due to an increase in the cash and cash
equivalents related to continued operations that derived from a cash allocation
from discontinued operations to continued operations resulting from a decrease
in discontinued liabilities and from an increase in short-term portion of
financial instruments held to maturity from long-term due to upcoming maturity
of the financial instruments.

Cash, cash equivalents, and
short-term investments as of December 31, 2007 for continued and
discontinued operations were $421.9 million (of which $6.6 million were from
discontinued operations) compared to $273.2 million at December 31,
2006 (of which $3.2 million were from discontinued operations). The increase in
2007 was primarily attributable to loans received from the minority
shareholders of PCH in the amount of $53.9 million which were used to purchase
shares of ORL.

34

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---

The cash, cash
equivalents, short-term investments for continued and discontinued operations
as of December 31, 2006 were $273.2 million compared to $230.4 million at
December 31, 2005. The decrease in 2006 was primarily attributable to the
dividend of approximately $34.2 million paid by Scailex Vision in February 2006
to the minority holders of that company, which was offset by an increase in
current maturity of held-to-maturity securities due to their upcoming maturity.

Our working
capital is sufficient for the Companys present business requirements.

Cash Flows

Cash flow from operations.

Overview. We had
positive cash flow from operations in 2007, which amounted to $21.5 million,
mostly due to a dividend received from ORL in the amount of $10.7 million
and  financial income of approximately
$9.6 million.

We had
positive cash flow from operations in 2006, which amounted to $24.7 million,
stemming mainly from a decrease in the cash allocated to discontinued
operations as a result of a dividend distributed by Scailex Vision to its
minority shareholders and payments of other liabilities in respect of
discontinued operations, a tax refund received by SDP from the U.S. tax
authorities and from financial income derived from interest received with
respect to Companys funds.

We had
positive cash flow from operations in 2005, totaling $26.9 million, which was
mostly due to positive cash flow from current operations of Scailex Vision up
to the date of the sale of its assets, and positive cash flow from operations
of the Company itself that derived mainly from financial income derived from
Company investments and deposits.

Cash flow from investment activities.

Our investment
activities currently consist primarily of investments and redemptions of
short-term bank deposits and U.S. government securities. The cash used in
investment activities in 2007 amounted to $195.9 million and consisted mainly
of an investment of $242.6 million in purchasing shares of ORL that was reduced
by the realization and maturity of bonds in the total amount of $47.1
million.

In 2006,
$0.4 million used for investment activities, and in 2005 $184.6 million
was generated from investment activities. The cash used in investment
activities in 2006 was related primarily to tax payments related to the Scailex
Vision sale adjusted mainly by the receipt in 2006 of additional consideration
of approximately $6.6 million from the sale of the business of Scailex Vision
and by the receipt of a dividend stemming from the sale of the operations of
RTI. The cash generated from investment activities in 2005 was related
primarily to the proceeds received from the sale of Scailex Visions business.

Cash flow from financing activities.

The net cash
from financing activities in 2007 was $48.1 million, attributed mainly to loans
received from the minority shareholders of PCH in the amount of $53.9 million
which were offset by a dividend distributed by Scailex Vision to its minority
shareholders in the amount of $6.3 million.

Net cash used
in financing activities in 2006 was approximately $34.2 million,
consisting mainly of a distribution of a dividend by Scailex Vision to its
minority shareholders in February 2006. Net cash used in financing activities
in 2005 was approximately $43.2 million, consisting mainly of repayment of
loans drawn by Scailex Vision.

In sum, the
net cash flow (cash and cash equivalents) used in 2007 amounted to $129.9
million.

The cash, cash
equivalents and marketable securities investment (short- and long-term) balance
as of December 31, 2007 was $437.4 million (of which $6.6 million was presented
as current assets from discontinued operations) compared to a balance of $303.6
million as of December 31, 2006 (of which $7.4 million was presented under
current assets from discontinued operations).

35

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---

The above
balances exclude funds in the amount of $15.8 million held in escrow under
terms of the sale of the business of Scailex Vision to Hewlett Packard.

The ability of
our subsidiaries to transfer funds to us in the form of cash dividends is
generally subject to restrictions imposed by the corporate laws of the
respective jurisdiction in which they are incorporated. For example, our
Israeli subsidiaries and companies in which we currently invest may not pay
dividends unless they meet specified criteria or, if these criteria are not
met, only with the approval of the court. We do not believe that such
restrictions or any other restrictions imposed by law on our subsidiaries have
had or are expected to have any material adverse impact on our ability to meet
our cash obligations.

Capital Expenditures

Capital expenditures in
fixed assets in 2007 amounted to $0.7 million which were invested in the new
offices the Company leases in Herzliya, while our capital expenditures in fixed
assets of continuing operations in 2005 and 2006 were nominal.

Credit Facilities

The Company
has a large cash balance and has no outstanding bank liabilities. Through the
end of 2007, the Company had a liability in its financial reports in respect of
a capital note issued to the minority shareholders in PCH in the amount of
$53.9 million. These capital notes were assigned to Scailex in March 26, 2008
at the time Scailex purchased the minority interest in PCH. (see Item
10C.  Material Contracts.)

Tax Audits

Not all of the
tax returns of our operations are final and, from time to time, we are subject
to further audit and assessment by the applicable tax authorities, including
the following:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | In Israel,
  we have received, or are considered to have received, final tax assessments
  through the 2002 tax year. Scailex Vision has final tax assessments through
  the 2007 tax year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | · | In the
  United States, in partial settlement of an audit by the Internal Revenue
  Service (IRS) of our U.S. subsidiaries for the years 1992 through 1996, we
  consented to a partial assessment by the IRS for approximately $10.6
  million of federal taxes on certain agreed upon issues. In February 2004, we
  reached a settlement with the IRS, whereby we agreed to an assessment of $5.9
  million of additional federal income taxes for these years (rather than $29.6
  million as initially proposed by the IRS, excluding interest accrued
  thereon). We had previously established balance sheet reserves on account of
  this audit which turned out to be sufficient. Accordingly, we paid as a final
  additional cash cost of the IRS audit (taking into consideration the full
  federal tax assessment, state taxes and interest thereon, and after
  application of a $21.5 million advance payment), an amount of approximately
  $11.6 million. In December 2004, as a result of the conclusion of this IRS
  audit, we filed amended federal tax returns for the years 1994, 1995 and
  1997, requesting a refund of $7.8 million of federal taxes. Since we estimate
  that there is a high likelihood that we will receive the refund, we recorded
  a federal income tax receivable of $7.8 million as part of discontinued
  operations in 2005. In July 2006, the Company received the requested refund
  in the amount of $12.6 million which included an additional $4.8 million
  related to interest accrued on the principal amount. The total refund was
  recorded in discontinued operations. In 2006, a tax audit was undertaken for
  SDPs 2003 tax year and concluded with no material results. In 2006, SDP and
  SDC were liquidated.

While we
believe that we established sufficient reserves for these matters, additional
payments may be required at the conclusion of these matters. It is not possible
to predict at this time whether and when any eventual payments will be made.

36

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Cash Outlook for
2008

Our management
believes that existing cash and short-term investments will be sufficient to
meet operating requirements in 2008.

On March 26,
2008, the Company completed the purchase of the minority 19.9% interest of
Linura Holding AGs (Linura) in PCH, and received, by way of assignment, the
capital note that PCH had issued to Linura. The total consideration for the
purchase was $57.2 million.

Following the
recent approval by our board of directors and shareholders, during the next few
days we expect to sell 100% of the share capital of PCH to IPE, for the total
sum of approximately NIS 1.14 billion (approximately $338 million). This
transaction is subject to and would occur concurrently with the purchase by Suny
Electronics Ltd. from IPE of all of the Scailex shares held by IPE, described
below.  Following our sale of PCH, we
would no longer have any interest in ORL.

EFFECTIVE CORPORATE TAX RATE

Israeli
companies are generally subject to corporate tax on their taxable income at the
rate of 29% for 2007 (compared to 31% for the 2006 tax year and 34% for the
2005 tax year). Following an amendment to the Israeli Income Tax Ordinance
which came into effect on January 1, 2006, the corporate tax rate is scheduled
to decrease as follows: 27% for the 2008 tax year, 26% for the 2009 tax year,
and 25% for the 2010 tax year and thereafter. Israeli companies are generally
subject to capital gains tax at a rate of 25% for capital gains derived after
January 1, 2003 (other than with respect to gains deriving from the sale of
listed securities).

See below
under Item 10E  Taxation and in Note 8 to our consolidated financial
statements for more information on our income taxes.

MARKET RISK

For
information on our market risk and the use of financial instruments for hedging
purposes, see below under Item 11  Quantitative and Qualitative Disclosures
About Market Risk.

C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

Following the
sale of Scailex Visions business in November 2005 and the sale of a majority
of our holdings in Jemtex, we are not conducting research and development
activities.

As part of the
SDP transaction in January 2004 and the Scailex Vision transaction in November
2005, Kodak and Hewlett-Packard acquired all the applicable intellectual
property of these subsidiaries relating to the digital printing businesses that
they acquired.

D. TREND INFORMATION

Our plan of
operation is to explore and consider strategic investments and business
opportunities. There is no assurance that any of these alternatives will be
pursued or, if one is pursued, the timing thereof or terms on which it would
occur. Since this may result in the engagement of new areas of operations, our
financial data reported in this Annual Report is not necessarily indicative of
our future operating results or financial position.

E. OFF-BALANCE SHEET ARRANGEMENTS

We are not a
party to any off-balance sheet arrangements that have or are reasonably likely
to have a current or future material effect on our financial condition, changes
therein, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.

37

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F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The table
below summarizes, as of December 31, 2007, our following contractual
obligations to third parties for the periods indicated:

|                                           |  |                                        |   |                  |     |           |  |           |  |                   |     |  |  |  |  | 
|------------------------------------------ |  | -------------------------------------- | - | ---------------- | --- | --------- |  | --------- |  | ----------------- | --- |  |  |  |  | 
|                                           |  | Payments Due by Period (in $ millions) |  
|                                           |  |                                        |  
|Contractual
  Obligations                  |  | Total                                  |   | Less than 1 Year |     | 1-3 Years |  | 3-5 Years |  | More than 5 Years |    
|                                           |  |                                        |   |                  |     |           |  |           |  |                   |    
|                                           |  |                                        |   |                  |     |           |  |           |  |                   |     |  |  |  |  | 
|Long-term debt1                            |  | 57.9                                   |   |                  |     |           |  | 57.9      |  |                   |     |  |  |  |  | 
|                                           |  |                                        |   |                  |     |           |  |           |  |                   |     |  |  |  |  | 
|Operating leases (facilities and vehicles) |  | 0.4                                    |   |                  | 0.1 |           |  | 0.2       |  |                   | 0.1 |  |  |  |  | 
|                                           |  |                                        |   |                  |     |           |  |           |  |                   |     |  |  |  |  | 
|Total contractual cash obligations         |  | 58.3                                   | 2 |                  | 0.1 |           |  | 58.1      |  |                   | 0.1 |  |  |  |  | 

(1) Through
December 31, 2007, our net working capital increased primarily as a result
of loans received from the minority shareholders of PCH which were converted
into a capital note and presented as a long term liability in the amount of
$53.9 million incurred for the purchase of ORLs shares.

(2) In
connection with our lease in Herzliya, we have deposited approximately $25,000
in a bank account to secure a bank guarantee covering our obligations under the
first three months of the lease. See Note 6 to our consolidated financial
statements included in this Annual Report.

|        |                                           
|------- | ------------------------------------------
|ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. DIRECTORS AND SENIOR MANAGEMENT

The following
table sets forth certain information with respect to our directors and senior
management, as of June 26, 2008*:

|                              |  |     |  |                |  |                                     
|----------------------------- |  | --- |  | -------------- |  | ------------------------------------
|Name                          |  | Age |  | Director Since |  | Position                            
|                              |  |     |  |                |  |                                     
|                              |  |     |  |                |  |                                     
|Eran Schwartz (2)             |  | 43  |  | 2006           |  | Chairman of
  the Board of Directors
|Yahel Shachar                 |  | 46  |  |               |  | Chief
  Executive Officer           
|Shachar Rachim                |  | 37  |  |               |  | Chief
  Financial Officer           
|Moshe Cohen                   |  | 56  |  |               |  | Internal
  Auditor                  
|Yossi Arad                    |  | 45  |  | 2007           |  | Director                            
|Dror Barzilai (1)(2)(3)(4)    |  | 55  |  | 2006           |  | Director                            
|Irit Ben-Ami (1)(3)           |  | 47  |  | 2006           |  | Director                            
|Yoav Biran (1)(3)(4)(5)(6)    |  | 69  |  | 2005           |  | Director                            
|Arie Ovadia (2)               |  | 60  |  | 2006           |  | Director                            
|Modi Peled (1)(3)             |  | 48  |  | 2006           |  | Director                            
|Arie Silverberg (1)(2)        |  | 61  |  | 2006           |  | Director                            
|Shalom Singer (1)(2)(3)(5)(6) |  | 62  |  | 2006           |  | Director                            
|Arie Zief (1)(5)(6)           |  | 62  |  | 2006           |  | Director                            

*We expect
that, immediately following the sale by IPE of its controlling interest in the
Company to Suny Electronics Ltd., five of our directors will be asked to resign
and new directors will be appointed.

38

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|    |                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Designated
  as independent director in accordance with NASDAQ Marketplace Rules.                                                                                                                               
|(2) | Member of
  the financial investments committee of the board of directors.                                                                                                                                        
|(3) | Member of
  the audit committee of the board of directors.                                                                                                                                                        
|(4) | An External
  Director pursuant to the Companies Law.                                                                                                                                                           
|(5) | Member of
  the remuneration committee of the board of directors.                                                                                                                                                 
|(6) | Member of
  the nominating committee of the board of directors.                                                                                                                                                   
|   
|    | All of the above directors were first appointed to the
  Companys board of directors on July 18, 2006, except for Yossi Arad, who was
  first appointed to the Companys board of directors on November 14, 2007.

Eran Schwartz serves
as Chief Executive Officer of IPE, the parent company of the Companys largest
shareholder, and of I.D. Federman Holdings Ltd., a major shareholder of one of
IPEs principal shareholders, and has held such positions for in excess of the
last five years. He is a director of Modgal Ltd. and of its subsidiaries.
Mr. Schwartz also serves as the Chairman of Scailex Vision (Tel Aviv) Ltd.
and director of IPE, PCH Ltd., Avgol Industries (1953) Ltd., Maccabi Tel Aviv
Basketball (1995) Ltd., Camera Corp Ltd., Wet Water Ltd., Secure Pharmaceuticals
Ltd., Pandav Ltd. and Globecom Investments Ltd. Mr. Schwartz holds a
bachelors degree in economics and business management and a masters degree in
business administration from Tel Aviv University, Israel.

Yahel Shachar joined
Scailex in December 2001 and was appointed Chief Financial Officer and
Corporate Secretary in February 2002. In 2006, he was appointed Chief Executive
Officer of Scailex. Before he joined Scailex, Mr. Shachar served as Chief
Operating Officer at BVR Technologies Ltd. from 1998 to 2001. From 1995 to
1998, he was an attorney with Goldfarb, Levy, Eran & Co., an Israeli law
firm. Mr. Shachar serves as a director of Scailex Vision (Tel Aviv) Ltd.,
Petroleum Capital Holdings Ltd., and Ham-let (Israel-Canada) Ltd. Mr. Shachar
holds an LL.M. degree from Georgetown University (specializing in corporate,
tax and securities law) in Washington, D.C., and an LL.B. degree from the Tel
Aviv University, and is a member of the Israeli and New York bar associations.

Shachar Rachim
joined Scailex in March 2004 as the Controller of Scailex Corporation Ltd. In
2006, he was appointed Chief Financial Officer of Scailex. Before joining
Scailex, he served as Assistant Controller for Discount Investments Ltd. and as
a senior accountant at PriceWaterhouseCoopers in Tel-Aviv. He holds a BA in
economics and accounting from Ben Gurion University and a masters degree in
business administration from ESG, France. He is a certified public accountant
in Israel.

Moshe Cohen has been
a senior partner for 25 years in the accounting firm of Chaikin, Cohen, Rubin 
Certified Public Accountants. Mr. Cohen serves as a director in various private
companies and as the Internal Auditor of a number of other public companies. He
holds a BA in economics and accounting from Tel Aviv University and he is a
certified public accountant in Israel.

Yossi Aradhas,
during the last five years, served as Chief Executive Officer of Tao Tsuot
Ltd., as Vice President of Investments of Suny Electronics Ltd. from 2003 to
2005, and as joint Chief Executive Officer of Migdal Asset Management Ltd. from
2001 to 2003. Mr. Arad serves as a director of Tao Tsuot Ltd., Tao Tsuot Real
Estate Ltd., Tao Tsuot Bonds Ltd., Tao Tsuot Underwriting and Offering Ltd.,
Durban Investments Ltd., Shamir Food Industries Ltd., Azorim Investments,
Development and Construction Ltd. and Ten Oil Company Ltd.  He holds a bachelors degree in Economics and
Business Management and a master degree in business administration from
Tel-Aviv University, Israel.

Dror Barzilai has
served as Chief Executive Officer of Nestle Ice Creams (Israel), a subsidiary
of the Osem Group. In addition, Mr. Barzilai serves as an external director of
Clal Credit Insurance Ltd. and as the Chairman of its audit committee, and as
an external director and an audit committee member of Clal Gemel Ltd. and
Carmit Candy Industries Ltd.. He is not an employee of the Company or any of
its subsidiaries or affiliated companies or of any principal shareholder or
other interested party (as such term is defined by the Companies Law), nor is
he related to any such person (which includes other directors of the Company).
Mr. Barzilai is a certified public accountant (Israel) and holds a
bachelor degree in accounting and economics from Tel Aviv University, Israel.
He also has graduated from the Advanced Management Program at Harvard Business
School.

39

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Irit Ben-Ami served
as Chief Financial Officer of some of the business units of General Health
Services in Israel until 2003. She is a director of Dorea Ltd., Eldan-Tech
Ltd. and AdvanTech Ltd. Ms. Ben-Ami holds a bachelors degree in economics
and accounting from Haifa University, Israel; an M.H.A. from Ben Gurion
University, Beersheba, Israel; and a law degree from the Shaarei Mishpat
College of Law, Israel. She is a certified public accountant (Israel) and a
member of the Israeli bar association.

Yoav Biran was
Director General of the Israel Ministry of Foreign Affairs from 2002 until
2004. Prior thereto, from 1998 to 2002, he served as Senior Deputy Director
General of the Ministry of Foreign Affairs with special responsibility for the
Middle East and the coordination of the peace process and, from 1999 to 2001,
he also acted as a Deputy National Security Advisor (Foreign Policy) in the
Israels Prime Ministers Office. From 1988 to 1993, Mr. Biran was
Israels Ambassador to the United Kingdom. He joined the Israel Ministry of
Foreign Affairs in 1963 and served in a number of increasingly senior
positions, both in Israel and abroad, until his appointment as Ambassador in
1988. He holds bachelors degrees in International Relations and History and a
masters degree in International Relations from the Hebrew University, Israel.

Dr. Arie Ovadia is a
director of IPE, Straus Elite Ltd., Real Estate Participations In Israel Ltd.,
Orda Print Industries Ltd., Tadiran Communications Ltd., Mehedrin Ltd., Carmel
Olefins Ltd., Giron Ltd. and Destiny Investments Ltd. In addition, in the past
he served as Chairman of the Phoenix Holdings Ltd. and acted as an advisor to corporations
and served as a member of the Israel Accounting Standards Board and has served
as a lecturer at Tel Aviv University and at the College of Management. He holds
a P.hD. in economics from the University of Pennsylvania, Wharton School.

Modi Peled has,
during the last five years, served as Managing Partner of Proviso Capital Ltd.
He serves as Managing Director of Pelgo Ltd., as a member of the executive
committee of Zoglobek Ltd. and as a director in Fourier system (1989) Ltd. Mr.
Peled also served in 2002 and 2003 as Chief Executive Officer of Migdal Private
Equity Ltd., and in 1997 he served as a CEO of Elite International BV.
Mr. Peled holds a bachelors degree in economics and business management
and a masters degree in business administration, both from Tel Aviv
University, Israel.

Arie Silverberg has,
during the last five years, acted as an advisor to Glencore International
AG, and for the last two years he has also been a director and Chief
Executive Officer of Energy Infrastructure Acquisition Company Ltd. Until
November 2006, he was a director of Granite Hacarmel Ltd. and many of its
subsidiaries. He also serves as a director in Avgol Industries (1953) Ltd. and
Carmel Olefins Ltd.  He holds a bachelors degree and a masters degree in
chemical engineering from the Technion  Israel Institute of Technology in
Haifa, Israel.

Shalom Singer serves
as a partner of Singer Barnea & Co. Ltd. and as Chairman of Clal Insurance
Company Ltd.s Investment Committee of Profit Participating Policies. From 2003
to 2005, Mr. Singer served as the Chairman and CEO of Kagam Central Pension
Fund. From 1999 to 2002 he served as Executive Vice President of Elbit Medical
Imaging Ltd. From 1991 until 1992 he served as the Director General of the
Israeli Ministry of Finance. Mr. Singer is a director of Scope-Metal Trading
& Technical Services Ltd., IPE, Scailex Vision and Robert Marcus Loss
Adjusters Ltd. He holds a bachelors degree in accounting from Haifa
University, Israel.

Arie Zief has,
during the last five years, served as Chairman of Modgal Ltd. Until recently,
he served as Chief Executive Officer of Dubek Ltd., a tobacco company. From
1991 to 1997, he was Director-General, Israeli Customs & Excise and VAT,
and from 1999 to 2003, he was Chairman of United Mizrachi Bank Investments.
Mr. Zief is a director of Carmel Olefins Ltd., IPE, and Scailex Vision
(Tel Aviv) Ltd., Ardalia Ltd. and is a member of the advisory committee to the
Bank of Israel. He holds a bachelors degree in economics from the Hebrew University,
Israel.

40

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Additional
Information

Upon the sale
of Clals and Discounts entire holdings in Scailex (constituting 18,800,255
shares, representing approximately 49.4% of Scailexs outstanding share
capital) to Israel Petrochemicals Enterprise Ltd. on July 18, 2006, the following
directors resigned from the Board: Arie Mientkavich, Shimon Alon, Avraham
Asheri, Raanan Cohen, Avi Fischer, Nachum Shamir, Shay Livnat and Ophira
Rosolio-Aharonson. They were replaced immediately by the following seven new directors:
Eran Schwartz, Irit Ben-Ami, Dr. Arie Ovadia, Modi Peled, Arie Silverberg,
Shalom Singer and Arie Zief. Mr. Eran Schwartz, CEO of IPE, was appointed
Chairman of our board of directors, replacing Mr. Arie Mientkavich, who served
as the Chairman since June 2006, when he replaced Mr. Ami Erel, who held the
position since 2003.

In addition,
Mr. Yahel Shachar, the former CFO of Scailex, was appointed as CEO of Scailex,
replacing Mr. Raanan Cohen. Mr. Shachar Rachim, the former controller of
Scailex, was appointed as CFO.

Mr. Yoav Biran
was elected as one of our external directors at our 2005 Annual General Meeting
which was held on December 29, 2005. He succeeded Ariella Zochovitzky, who had
been our external director since 2002. Mr. Dror Barzilai was elected as our
other external director at our 2006 Annual General Meeting, which was held on
December 31, 2006. He succeeded Mr. Gerald Dogon, who had served in such
capacity since 2003.

Mr. Yossi Arad
was appointed to the Companys board of directors on November
14, 2007. His appointment was approved at our Annual General Meeting
held on December 31, 2007.

There are no
family relationships among any of the directors or members of senior management
named above.

B. COMPENSATION

General

The total
salary and benefits of the directors and the CEO and related expenses for the
fiscal year ended December 31, 2007 amounted to approximately $0.7 million.

The following
table sets forth with respect to all directors and senior management of
Scailex, as a group, all cash and cash-equivalent forms of remuneration paid by
Scailex during the fiscal year ended December 31, 2006 and 2007:

|                                                                                    |  |                                                             |  |                             |    |  | 
|----------------------------------------------------------------------------------- |  | ----------------------------------------------------------- |  | --------------------------- | -- |  | 
|                                                                                    |  | Salaries, fees, directors fees, compensation
  and bonuses |  | Other benefits*             |   
|                                                                                    |  |                                                             |  |                             |   
|                                                                                    |  | (U.S. Dollars in thousands)                                 |  | (U.S. Dollars in thousands) |   
|                                                                                    |  |                                                             |  |                             |    |  | 
|2007: All directors and senior management
  as a group (consisting of 13 persons)   |  | 866                                                         |  |                             | 42 |  | 
|                                                                                    |  |                                                             |  |                             |    |  | 
|2006: All directors and senior management
  as a group (consisting of 11 persons)** |  | 904                                                         |  |                             | 33 |  | 

|   |                                                                                                                                                                                                                                                   
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  | These sums
  were set aside by us to provide pension, retirement and severance benefits to
  members of our senior management.                                                                                                                    
|** | These sums
  include a one-time payment to the CEO and the CFO of the Company from two of
  our former major shareholders, after the control of the Company was
  transferred, in the amounts of $250 thousands and $25 thousands,
  respectively.

41

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---

Total payments
by the Company and its subsidiaries to the CEO for the fiscal year ended
December 31, 2007 equaled: $258 thousands; to the CFO, $163 thousands; to the
Chairman of the Board, $304 thousands; and to the Internal Auditor, $11
thousands.

In accordance
with the approval of our shareholders on December 27, 2000, our external
directors receive annual directors fees and participation fees equivalent to
the maximum fees that were generally permitted for each external director under
regulations issued pursuant to the Companies Law (approximately $12,300 per
annum for directors fees and participation fees of approximately $480 per board
or committee meeting), although new regulations were approved in 2003, which
would, in certain circumstances, permit us to pay higher fees. Directors fees
and participation fees of a similar amount are paid to all our other directors,
other than directors who are office holders of our principal shareholders.
Except as aforesaid, we did not compensate any of our other directors in 2007.

Pursuant to
our 2003 Option Plan, in 2004, options exercisable for 120,000 ordinary shares
were granted to the Companys CFO at the time, Yahel Shachar, who presently
serves as the Companys CEO. In addition, options exercisable for 48,000
ordinary shares, were granted to the Companys Controller at the time, Shachar
Rachim, who currently serves as the Companys CFO. The options were granted with
an exercise price of $3.70 per share, and were exercisable in three equal
parts, beginning in January 2005 for the Companys CEO and in March 2005 for
the Companys CFO. In February 2007, Mr. Shachar exercised 80,000 options for
Company shares, and Mr. Rachim exercised 32,000 options for Company shares at
an exercise price of $3.70 per option. Immediately after exercising those
options, the two sold the shares to IPE at a price of approximately $9.14 per
share. See Item 6E. Share Ownership below.

There are no
arrangements or understandings between us and any of our directors for benefits
upon termination of service.

C. BOARD PRACTICES

INTRODUCTION

According to
the Israeli Companies Law and our Articles of Association, the management of
our business is vested in our board of directors. The board of directors may
exercise all powers and may take all actions that are not specifically granted
to our shareholders. As part of its powers, our board of directors may cause us
to borrow or secure payment of any sum or sums of money for our purposes, at
times and upon terms and conditions as it determines, including the grant of
security interests in all or any part of our property.

ELECTION OF
DIRECTORS

Our directors
are elected at annual meetings of our shareholders. Except for our external
directors (as described below), our directors hold office until the next annual
meeting of shareholders following the annual meeting at which they were
appointed, which is required to be held at least once during every calendar
year and not more than fifteen months after the last preceding meeting.
Directors may be removed earlier from office by resolution passed at a general
meeting of our shareholders. Our board of directors may temporarily fill
vacancies in the board until the next annual meeting of shareholders.

Under an
amendment to the Israeli Companies Law, our board of directors was required to
determine, by April 19, 2006, the minimum number of directors who must have
accounting and financial expertise (as such term is defined in regulations
promulgated under the Companies Law). Our board determined that the board
should include at least two directors who have accounting and financial
expertise. We have determined that Messrs. Eran Schwartz, Yossi Arad, Irit Ben
Ami, Arie Zief, Arie Ovadia, Modi Peled, Shalom Singer and Dror Barzilai have
the requisite accounting and financial expertise.

42

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ALTERNATE DIRECTORS

Our articles
of association provide that a director may appoint another person to serve as
an alternate director. An
external director may not appoint an alternate director, except in very limited
circumstances. To qualify as an alternate director, a person must be qualified
to serve as a director but cannot be a director or the alternate director of
another director. An alternate director shall have all the rights and
obligations of the director who appointed him or her. The alternate director
may not act for such director at any meeting at which the director appointing
him or her is present. Unless the time or scope of any appointment is limited
by the appointing director, the appointment is effective for all purposes until
the appointing director ceases to be a director or terminates the appointment.
Notwithstanding the foregoing, a director may serve as an alternate director on
any committee of our board of directors of which he or she is not already a
member. At present, there are no appointments of alternate directors.

EXTERNAL DIRECTORS

Under the
Companies Law, Israeli companies whose shares are listed for trading on a stock
exchange or have been offered as securities to the public in or outside of
Israel are required to appoint at least two external directors. Our external
directors are Messrs. Yoav Biran and Dror Barzilai.

The Companies
Law provides that a person may not be appointed as an outside director of a
company if the person or the persons relative, partner, employer or any entity
under the persons control has, as of the date of the persons appointment to
serve as an outside director, or had, during the two years preceding that date
any affiliation with:

| |   |                                                                     
| | - | --------------------------------------------------------------------
| | · | the company;                                                        
| |   |                                                                     
| | · | any entity
  controlling the company; or                            
| |   |                                                                     
| | · | any entity
  controlled by the company or by its controlling entity.

The term
affiliation includes:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | an
  employment relationship;                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                  
| | · | a business
  or professional relationship maintained on a regular basis;                                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                  
| | · | control; and                                                                                                                                                                                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                                                                  
| | · | service as
  an office holder, excluding service as an outside director of a company that
  is offering its shares to the public for the first time. The Companies Law
  defines the term office holder of a company to include a director, the
  chief executive officer, the chief business manager, a vice president and any
  officer that reports directly to the chief executive officer.

Pursuant to an
amendment to the Companies Law, effective as of January 19, 2005, (1) an
outside director must have either accounting and financial expertise or
professional qualifications (as such terms are defined in regulations
promulgated under the Companies Law) and (2) at least one of the outside
directors must have accounting and financial expertise. We believe that Mr.
Barzilai has the requisite accounting and financial expertise and that Mr.
Biran has the requisite professional qualifications.

43

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---

No person can
serve as an outside director if the persons position or other business
creates, or may create a conflict of interests with the persons
responsibilities as an outside director or may otherwise interfere with the
persons ability to serve as an outside director. Until the lapse of two years
from termination of office, a company may not engage an outside director to
serve as an office holder and cannot employ or receive services from that
person, either directly or indirectly, including through a corporation
controlled by that person.

Outside
directors are to be elected by a majority vote at a shareholders meeting,
provided that either:

| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | at least
  one-third of the shares of non-controlling shareholders voted at the meeting
  vote in favor of the election; or                                 
| |   |                                                                                                                                                             
| | · | the total
  number of shares voted against the election of the outside director does not
  exceed one percent of the aggregate voting rights in the company.

The initial
term of an outside director is three years and may be extended for an
additional three years. The terms of office of Mr. Barzilai and Mr. Biran
commenced in December 2006 and December 2005, respectively.

Outside directors
may be removed from office only by the same percentage of shareholders as is
required for their election, or by a court, and then only if the outside
directors cease to meet the statutory qualifications for their appointment or
if they violate their duty of loyalty to the company. Each committee of a
companys board of directors empowered with powers of the board of directors is
required to include at least one outside director except for the audit
committee, which is required to include all outside directors.

INDEPENDENT
DIRECTORS

In October
2006, we were de-listed from Nasdaq because the Company was determined by the
Nasdaq staff to be a public shell lacking any business operations. As of the
date of this Annual Report, the Companys shares are quoted on the OTC Bulletin
Board in the United States. Despite the fact that our shares have been
de-listed from Nasdaq, we still make efforts to comply with the corporate
governance provisions of the Nasdaq Marketplace Rules.

Of the ten
(10) members of our board of directors, our board of directors has determined
that, except for Mr. Eran Schwartz and Dr. Arie Ovadia, all other directors
qualify as independent directors within the meaning of the Nasdaq Marketplace
Rules, including all the members of our audit committee. However, while Mr.
Yossi Arad is currently considered to be an independent director within the
Nasdaq Marketplace Rules, such determination will be reconsidered by our board
of directors if and when Suny Electronics Ltd. purchases all of IPEs
outstanding shares in Scailex.

COMMITTEES OF THE BOARD

Subject to the
provisions of the Companies Law, our board of directors may delegate its powers
to committees consisting of board members. Our board of directors has
established the following committees:

Audit Committee.
Under the Companies Law, our board of directors is required to appoint an audit
committee, which must be comprised of at least three directors, including all
of the outside directors, but may not include:

| |   |                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------
| | · | the chairman
  of the board,                                                                           
| |   |                                                                                                        
| | · | a
  controlling shareholder or any relative thereof, or                                                
| |   |                                                                                                        
| | · | any director
  who is employed by the company or provides services to the company on a
  regular basis.

44

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---

Under the
Companies Law, the role of the audit committee is:

| |   |                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | to examine
  irregularities in the management of the companys business, including in
  consultation with the internal auditor and/or the companys independent
  accountants, and to recommend remedial measures to the board, and                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                
| | · | to review,
  and, where appropriate, approve certain related party transactions specified
  under the Companies Law, which it may not approve unless at the time of
  approval the two outside directors are serving as members of the audit
  committee and at least one of whom was present at the meeting in which an
  approval was granted, as more fully described below.

Pursuant to
SEC rules, the members of the audit committee are generally required to be
independent within the meaning of the SEC rules. Our audit committee comprises
Mr. Singer, chairman of the audit committee, Messrs. Barzilai and Biran (our
outside directors), Ms. Ben-Ami, and Mr. Peled, all of whom are independent
within the meaning of applicable Nasdaq and SEC rules. In addition, we have
adopted a charter for the audit committee.

Our audit
committee assists the board in fulfilling its responsibility for oversight of
the quality and integrity of our accounting, auditing and financial reporting
practices and financial statements and the independence qualifications and
performance of our outside auditors. Our audit committee also has the authority
and responsibility to oversee our outside auditors, to recommend for
shareholder approval the appointment and, where appropriate, replacement of our
outside auditors and to pre-approve audit engagement fees and all permitted
non-audit services and fees. Our Articles of Association allows for the
appointment of our auditors for a complete fiscal year, beyond the Annual
General Meeting.

In May 2004,
our board of directors resolved to designate the audit committee as our
Qualified Legal Compliance Committee, or the QLCC. In its capacity as the QLCC,
the audit committee is responsible for investigating reports made by attorneys
appearing and practicing before the SEC in representing us of perceived
material violations of U.S. federal or state securities laws, breaches of
fiduciary duty or similar violations by us or any of our agents.

Remuneration
Committee. Our
board of directors has also appointed a remuneration committee, which is
currently comprised of Arie Zief, Yoav Biran and Shalom Singer, all of whom are
independent within the meaning of Nasdaq Marketplace Rules. The role of the
remuneration committee is to review the salaries and incentive compensation of
our executive officers and to make recommendations on such matters for approval
by the board of directors. The members of the remuneration committee also
administer our share incentive and stock option plans, subject to additional
board approval where required pursuant to the Companies Law.

Financial
Investments Committee.Our board of directors has also appointed a financial
investments committee, which is currently comprised of Dr. Arie Ovadia, and
Messrs. Dror Barzilai, Eran Schwartz, Arie Silverberg and Shalom Singer. The
role of the financial investments committee is to review and manage our
financial investments and cash management in accordance with the principles
approved by the board of directors.

Nominating
Committee. In
March 2005, our board of directors established a nominating committee, which is
currently comprised of Messrs. Shalom Singer, Yoav Biran and Arie Zief, all of
whom are independent within the meaning of the Nasdaq Marketplace Rules. The
role of the nominating committee is to recommend to our board nominees for election
as directors at the annual meetings of shareholders and to identify candidates
to fill any vacancies on the board.

INTERNAL AUDITOR

Under the
Companies Law, our board of directors is also required to appoint an internal
auditor proposed by the audit committee. The role of the internal auditor is to
examine, among other things, whether our activities comply with the law and
orderly business procedure. The internal auditor may not be an interested party
or officer holder, or a relative of any interested party or office holder, and
may not be a member of our independent accounting firm.

45

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---

The Companies
Law defines the term interested party to include a person who holds 5% or
more of the companys outstanding share capital or voting rights, a person who
has the right to appoint one or more directors or the general manager, or any
person who serves as a director or as the general manager. Mr. Moshe Cohen of
Chaikin, Cohen, Rubin, an Israeli accounting firm, serves as our internal
auditor.

APPROVAL OF SPECIFIED RELATED PARTY
TRANSACTIONS UNDER ISRAELI LAW

Fiduciary Duties of
Office Holders.The Companies Law imposes a duty
of care and a duty of loyalty on all office holders of a company.

The duty of
care requires an office holder to act with the level of care with which a
reasonable office holder in the same position would have acted under the same
circumstances. The duty of care includes a duty to use reasonable means to
obtain:

| |   |                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------
| | · | information
  on the advisability of a given action brought for his approval or performed
  by him by virtue of his position; and
| |   |                                                                                                                                  
| | · | all other
  important information pertaining to these actions.                                                                   

The
duty of loyalty of an office holder includes a duty to:

| |   |                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | refrain from
  any conflict of interest between the performance of his duties in the company
  and the performance of his other duties or his personal affairs;         
| |   |                                                                                                                                                                         
| | · | refrain from
  any activity that is competitive with the company;                                                                                                       
| |   |                                                                                                                                                                         
| | · | refrain from
  exploiting any business opportunity of the company to receive a personal gain
  for himself or others; and                                               
| |   |                                                                                                                                                                         
| | · | disclose to
  the company any information or documents relating to the companys affairs
  which the office holder has received due to his position as an office holder.

Disclosure of
Personal Interests of an Office Holder. The
Companies Law requires that an office holder disclose to the company any
personal interest that he or she may have, and all related material information
known to him or her, in connection with any existing or proposed transaction by
the company. The disclosure is required to be made promptly and in any event no
later than the board of directors meeting at which the transaction is first
discussed. A personal interest of an office holder includes an interest of a
company in which the office holder is, directly or indirectly, a 5% or greater
shareholder, director or general manager or in which he or she has the right to
appoint at least one director or the general manager. In the case of an
extraordinary transaction, the office holders duty to disclose applies also to
a personal interest of a relative of the office holder. An extraordinary
transaction is a transaction not in the ordinary course of business, not on
market terms, or likely to have a material impact on the companys profitability,
assets or liabilities.

Under the
Companies Law, once the office holder complies with the above disclosure
requirement, the board of directors is authorized to approve the transaction,
unless the articles of association provide otherwise. Nevertheless, a
transaction that is adverse to the companys interest may not be approved.

If the
transaction is an extraordinary transaction, then it also must be approved by
the companys audit committee and board of directors, and, under certain
circumstances, by the shareholders of the company. When an extraordinary
transaction is considered by the audit committee and board of directors, the
interested director may not be present or vote, unless a majority of the
members of the board of directors or the audit committee, as the case may be,
has a personal interest in the matter. If a majority of the members of the
board of directors have a personal interest therein, shareholder approval is
also required.

46

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Under the
Companies Law, all arrangements as to compensation of directors in public
companies such as ours generally require the approvals of the audit committee,
the board of directors and the shareholders, in that order.

INSURANCE & INDEMNIFICATION OF DIRECTORS
AND SENIOR MANAGEMENT

Insurance.
Under the Companies Law, a company may, if its articles of association so
provide and subject to the provisions set forth in the law, enter into a
contract to insure the liability of an office holder for acts or omissions
committed in his or her capacity as an office holder of the company for:

| |   |                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | the breach
  of his or her duty of care to the company or to another person;                                                                                                                                     
| |   |                                                                                                                                                                                                                  
| | · | the breach
  of his or her duty of loyalty to the company, provided that he or she acted
  in good faith and had reasonable cause to assume that such act would not
  prejudice the interests of the company; and
| |   |                                                                                                                                                                                                                  
| | · | a financial
  obligation imposed upon him or her in favor of another person.                                                                                                                                     

Our articles
were amended in December 2000 to contain provisions in line with the aforesaid
provisions and, having obtained the approvals required under the Companies Law
and our articles, we have procured the permitted insurance for our office
holders. In December 2003, the Companys shareholders set the maximum annual
premium for such insurance at $1.0 million. The Company has insurance coverage
for $30 million that is in effect until August 14, 2008. The annual premium for
such coverage is approximately $0.3 million. On May 29, 2008, an Extraordinary
General Meeting of Scailex approved the procurement by the Company of a
directors and officers liability run-off insurance policy for the directors
and other officeholders in the Company and its subsidiaries in the event that
both the sale of PCH to IPE and the sale of all of IPEs shares in Scailex to
Suny take place.  If the run-off policy
is acquired, it will be valid for six to seven years, to the extent possible,
after the execution date of an agreement between Suny Electronics Ltd. and IPE
for the purchase by Suny of all of IPEs shares in Scailex.

Indemnification.
Subject to certain qualifications, the Companies Law also permits us, provided
that our articles of association allow us to do so, to indemnify an office
holder for acts or omissions committed in his or her capacity as an office
holder of the company, retroactively (after the liability has been incurred) or
in advance, for:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | a financial
  liability imposed on him or her in favor of another person by any judgment,
  including a settlement or an arbitration award approved by a court; provided
  that our undertaking to indemnify is limited to events that our board of
  directors believes are foreseeable in light of our actual operations at the
  time of providing the undertaking and to a sum or criterion that our board of
  directors determines to be reasonable under the circumstances;                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | · | reasonable
  litigation expenses, including attorneys fees, incurred by the office holder
  as a result of an investigation or proceeding instituted against him by a
  competent authority, provided that such investigation or proceeding concluded
  without the filing of an indictment against him and either (A) concluded
  without the imposition of any financial liability in lieu of criminal
  proceedings or (B) concluded with the imposition of a financial liability in
  lieu of criminal proceedings but relates to a criminal offense that does not
  require proof of criminal intent; and
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | · | reasonable
  litigation expenses, including attorneys fees, incurred by the office holder
  or charged to him or her by a court, resulting from the following:
  proceedings we institute against him or her or instituted on our behalf or by
  another person; a criminal indictment from which he or she was acquitted; or
  a criminal indictment in which he or she was convicted for a criminal offense
  that does not require proof of intent.                                                                                                                                                        

47

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In addition,
our articles of association provide that:

| |   |                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | we may
  indemnify an office holder following a determination to this effect made by
  us after the occurrence of the event in respect of which the office holder
  will be indemnified; and                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                           
| | · | we may
  undertake in advance to indemnify an office holder, provided that the
  undertaking is limited to types of occurrences, which, in the opinion of our
  board of directors, are, at the time of giving the undertaking, foreseeable
  and to an amount the board of directors has determined is reasonable in the
  circumstances.

In April 2004,
the Companys audit committee, board of directors and shareholders, in that
order, also resolved to indemnify the Companys office holders, including any
future director or officer of the Company who may be considered a controlling
shareholder (as such term is defined under the Companies Law), by providing
them with a Letter of Indemnification to be substantially in the form approved
by the shareholders. In December 2005, the Company approved certain revisions
to the Letter of Indemnification. These changes include provisions that the
maximum indemnification amount payable by the Company to all officers eligible
for indemnification is not to exceed $100 million, except for exceptional cases
to be approved by the Companys shareholders and audit committee. See Exhibit 4(c)(3) in Item 19 for the
form of the Letter of Indemnification to office holders.

On April 30,
2007, the Companys General Meeting approved the grant of Letters of
Exculpation to current and future Company office holders, relieving them from
liability to the Company, directly or indirectly, for any damage caused or that
may be caused to the Company resulting from a breach of an office holders duty
of care owed the Company, subject to certain limitations set forth by applicable
Israeli law.

Limitations on
Exculpation, Insurance and Indemnification. The
Companies Law provides that a company may not exculpate or indemnify an office
holder, or enter into an insurance contract which would provide coverage for
any monetary liability incurred as a result of any of the following:

| |   |                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | a breach by
  the office holder of his or her duty of loyalty unless, with respect to
  insurance coverage or indemnification, the office holder acted in good faith
  and had a reasonable basis to believe that the act would not prejudice the
  company;
| |   |                                                                                                                                                                                                                                                             
| | · | a breach by
  the office holder of his or her duty of care if the breach was committed
  intentionally or recklessly, unless it was committed only negligently;                                                                                             
| |   |                                                                                                                                                                                                                                                             
| | · | any act or
  omission committed with the intent to derive an illegal personal benefit; or                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                             
| | · | any fine
  imposed against the office holder.                                                                                                                                                                                                               

In addition,
under the Companies Law, exculpation of, an undertaking to indemnify or
indemnification of, and procurement of insurance coverage for, our office
holders must be approved by our audit committee and our board of directors and,
in specified circumstances, such as if the beneficiary is a director, by our
shareholders.

Our articles
also provide that, subject to the provisions of applicable law, we may procure
insurance for or indemnify any person who is not an office holder, including
without limitation, any of our employees, agents, consultants or contractors.

48

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D. EMPLOYEES

The following
table details certain data on the workforce of Scailex and its consolidated
subsidiaries for the periods indicated*:

|                                                           |  |                    |   |      |  |      |  |  |   | 
|---------------------------------------------------------- |  | ------------------ | - | ---- |  | ---- |  |  | - | 
|                                                           |  | As of December 31, |  
|                                                           |  |                    |  
|                                                           |  | 2007               |   | 2006 |  | 2005 | 
|                                                           |  |                    |   |      |  |      | 
|                                                           |  |                    |   |      |  |      |  |  |   | 
|Approximate numbers of employees by
  geographic location  |  |                    |   |      |  |      |  |  |   | 
|United States                                              |  |                    |  | **   |  | 1    |  |  | 1 | 
|Israel                                                     |  |                    | 4 | ***  |  | 4    |  |  | 4 | 
|                                                           |  |                    |   |      |  |      |  |  |   | 
|                                                           |  |                    |   |      |  |      |  |  |   | 
|Total workforce                                            |  |                    | 4 |      |  | 5    |  |  | 5 | 
|                                                           |  |                    |   |      |  |      |  |  |   | 
|                                                           |  |                    |   |      |  |      |  |  |   | 
|Approximate numbers of employees by
  category of activity |  |                    |   |      |  |      |  |  |   | 
|General and administrative                                 |  |                    | 4 |      |  | 5    |  |  | 5 | 
|                                                           |  |                    |   |      |  |      |  |  |   | 
|                                                           |  |                    |   |      |  |      |  |  |   | 
|Total workforce                                            |  |                    | 4 |      |  | 5    |  |  | 5 | 
|                                                           |  |                    |   |      |  |      |  |  |   | 

* Excludes the
employees of Scailex Vision and Jemtex for these years as a result of the sale
of Scailex Visions business in November 2005 and the reduction of holdings in
Jemtex in August 2006.

** The
contract between Scailex and the employee in the United States terminated in
June 2007.

*** The
Company recruited a new employee to fill a part-time (60%) secretarial position
commencing on January 1, 2008.

We consider
our relations with our employees to be positive and we have never experienced a
strike or work stoppage.

Our employees
are not generally represented by labor unions. Nevertheless, with respect to
our employees in Israel, certain provisions of the collective bargaining
agreements between the Histadrut (General Federation of Labor in Israel) and
Israels Coordination Bureau of Economic Organizations (including the
Manufacturers Association) are applicable to such employees by Israeli
governmental order. These provisions principally concern cost-of-living wage
increases, paid vacation and holidays, length of the workday, wage tariffs,
termination, severance payments and other conditions of employment. However, we
generally provide our employees with benefits and conditions beyond the
required minimums, including payment to managers insurance policies and pension
funds and contributions to funds to provide severance. Employee agreements are
generally for an undetermined term and each party may terminate the
relationship at will. As of the reporting date, the Company has no material
dependency on any employee.

49

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E.        SHARE
OWNERSHIP

SECURITY
OWNERSHIP OF OUR DIRECTORS AND EXECUTIVE OFFICERS

None of our
directors own any of our shares or hold any stock options for the purchase of
our shares, except for Mordechai Peled who is the CEO of Pelgo Ltd., which
holds 2,300 shares, constituting 0.01% of the outstanding shares of the
Company. Although several of our directors are directors or officers of our
major shareholders or their affiliates, such individuals disclaim beneficial
ownership of any of the shares held by these major shareholders.

None of our
executive officers own any of our shares or hold any stock options for the
purchase of our shares, except for our CEO, Mr. Yahel Shachar, and our CFO, Mr.
Shachar Rachim, who were granted options. Mr. Shachar beneficially owns 40,000
shares, all of which are in the form of stock options which are exercisable
within 60 days of the date of this Annual Report. The exercise price of all the
stock options held by Mr. Shachar is $3.70 (reduced to $2.52265 on May 22,
2008 due to a dividend distribution) per share and they expire in September
2014. Mr. Rachim beneficially owns 16,000 shares, all of which are in the form
of stock options, which are exercisable within 60 days of the date of this
Annual Report. The exercise price of all the stock options held by
Mr. Rachim is $3.70 (reduced to $2.52265 on May 22, 2008 due to a dividend
distribution) per share and they expire in September 2014. All of these options
were granted pursuant to our 2003 Stock Option Plan described below. See Item
6A. Directors and Senior Management above.

STOCK OPTION PLANS

From time to
time, we grant our employees and directors options to purchase our shares
pursuant to our share option plans:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | 1991 Plan. In
  September 1991, our shareholders approved the Israel Key Employee Share
  Incentive Plan 1991, primarily designed for employees of Scailex and its
  Israeli subsidiaries. Terms of the options granted under this plan, such as
  length of term, exercise price, vesting and exercisability, were determined
  by our board of directors. This plan expired in September 2001, except with
  respect to outstanding options granted under such plans. Accordingly, no
  further options can be granted under this plan. Options exercisable for
  15,500 shares remain outstanding under this plan and expire in December 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | · | 2001 and 2003 Plans.
  In December 2001, our shareholders approved the adoption of the 2001 Stock
  Option Plan, primarily designed for key employees of Scailex and its
  subsidiaries. In December 2003, our shareholders approved the adoption of the
  2003 Share Option Plan, designed for employees and officers of the Company
  who are Israeli residents. Under the 2003 plan, the options are allocated
  pursuant to Section 102 of the Income Tax Ordinance and regulations thereof.
  The aggregate number of our shares authorized and reserved for issuance under
  the 2001 and 2003 plan is 1,900,000 shares, such shares being available for
  issuance under either of the two plans. Terms of the options granted under
  these plans, such as length of term, exercise price, vesting and
  exercisability, are determined by our board of directors. In 2004, pursuant
  to the 2003 plan, our board of directors approved the grant to the Companys
  current Chief Executive Officer and Chief Financial Officer of options for
  the purchase of a aggregate of 168,000 shares, which constituted 0.4% of our
  issued share capital (on a fully diluted basis). In February 2007, options
  were exercised for the purchase of 112,000 of these shares, leaving a balance
  of options exercisable for 56,000 shares outstanding. There have been no
  option grants under the 2001 plan. Currently, all outstanding options under
  the 2003 plan expire in September 2014.

50

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The following
table summarizes certain information with respect to the foregoing plans:

|                                                         |  |                        |        |                                     |   |           | 
|-------------------------------------------------------- |  | ---------------------- | ------ | ----------------------------------- | - | --------- | 
|                                                         |  | 1991 ShareOption Plans |        | 2001 and
  2003 Share Option Plans* |  
|                                                         |  |                        |        |                                     |  
|                                                         |  |                        |        |                                     |   |           | 
|Number of shares available for
  future option awards    |  |                        | 0      |                                     |   | 1,732,000 | 
|Number of options outstanding                            |  |                        | 15,500 |                                     |   | 56,000    | 
|Weighted average exercise price of options
  outstanding |  | $                      | 10.98  |                                     | $ | 2.52265   | 

* The
data presented in this column are as of December 31, 2007.

The foregoing
description is qualified in its entirety by reference to the Israel Key
Employee Share Incentive Plan 1991, the 2001 Stock Option Plan (as amended,
2003), and to the 2003 Share Option Plan which are filed as exhibits in Item 19
of this Annual Report, all of which are hereby incorporated by reference.

REPURCHASE
PROGRAM

In May 1998,
our board of directors approved a program for our repurchase of up to two
million of our ordinary shares, to be held for the benefit of employees within
the framework of our stock option plans. These ordinary shares are held by a
trustee for reissuance to employees upon the exercise of existing stock
options. Under the approved program, we may not purchase ordinary shares from
our major shareholders. A balance of 448,975 ordinary shares is held by the
trustee pursuant to the program, purchased with funds provided by us. No
ordinary shares have been repurchased under this program since August 5, 1999.

|        |                                                
|------- | -----------------------------------------------
|ITEM 7. | MAJOR SHAREHOLDERS & RELATED PARTY TRANSACTIONS

A.       MAJOR
SHAREHOLDERS

Unless
otherwise stated, all data in this Item 7 is as of June 26, 2008, at which date
there were 43,579,388 of our ordinary shares outstanding, including:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | the 448,975
  ordinary shares purchased by the trustee pursuant to the repurchase program
  described in Item 6E above; and                                                                                                                                                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | · | the
  4,952,050 ordinary shares purchased by us in a self tender offer in 2004which
  are deemed issued but considered treasury shares (or dormant shares as such
  term is defined under the Israeli Companies Law) that carry no rights,
  including voting rights and the right to receive dividends, while owned by
  us. These shares will be available for us to sell in the future without further
  shareholder action (except as required by applicable law).

Percentages given in the table below
are based upon 38,178,363 ordinary shares carrying voting rights outstanding as of
June 26, 2008 (namely, the total number of outstanding ordinary shares of 43,579,388,
less the 448,975 ordinary shares and 4,952,050 ordinary shares, referred to above).

In all
instances, the percentage of ownership is equal to the voting rights of our
ordinary shares and all ordinary shares have identical voting rights. In
particular, the ordinary shares held by our principal shareholders do not carry
different voting rights.

To our
knowledge, except as described below, we are not directly or indirectly owned
or controlled (i) by any corporation, (ii) by any foreign government or (iii)
by any other natural or legal person, nor are there any arrangements, the
operation of which may at a subsequent date result in a change in control of
Scailex.

51

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The following
table sets forth the number of our ordinary shares owned by any person who is
known to us to own beneficially more than 5% of our ordinary shares as of June
26, 2008:

|                                                 |  |                            |  |                                   |       |   | 
|------------------------------------------------ |  | -------------------------- |  | --------------------------------- | ----- | - | 
|Name and
  Address                               |  | Number of
  Shares
  Owned |  | Percent of
  Shares
  Outstanding |      
|                                                 |  |                            |  |                                   |      
|                                                 |  |                            |  |                                   |       |   | 
|Israel Petrochemical Enterprises Ltd. (1)(2) (5) |  | 19,112,255                 |  |                                   | 50.06 | % | 
|Ilan Ben Dov
  (3)(4) (5)                        |  | 14,271,894                 |  |                                   | 37.3  | % | 
|Tao Tsuot
  Ltd. (4)                             |  | 9,211,035                  |  |                                   | 24.1  | % | 
|Suny
  Electronics Ltd. (4) (5)                  |  | 4,943,797                  |  |                                   | 12.9  | % | 

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Of the
  Company shares controlled by IPE, 50.06% of the outstanding shares in the
  Company (approximately 98.37% of the shares held by IPE) are subject to a
  first priority lien, unlimited in amount, which was granted by IPE to Israeli
  institutional investors in order to secure the repayment of debentures, in
  the principal amount of NIS 700 million (approximately $182 million), issued
  by IPE in a private placement by IPE to these investors in December 2006.
  Thus, a default on the debentures issued by IPE could result in a change of
  control of the Company.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (2) | These shares
  are held directly by Petrochemicals Holdings Ltd., a wholly-owned subsidiary
  of IPE. IPE is controlled 60.91% by Modgal Industries (99) Ltd., 12.29% by
  ORL, and 6.67% by Keter Plastic. Modgal Industries (99) Ltd. is held by
  Modgal Ltd. (50.14%), European Holdings International Ltd. (23.03%), and Adler
  BV (26.83%) (held by Leonid N. Nevzlin (71%), who is the main beneficiary of
  Menatep Ltd., a foreign company).                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | Modgal Ltd.
  is held by Gima Investments Ltd. (50%), I.D. Federman Holdings Ltd. (47%),
  and Eran Schwartz (3%). The shareholders of Gima Investments Ltd. are Jacob
  Gottenstein (37.5%), Alex Passal (37.5%), Arie Silverberg (12.5%) and Micha
  Lazar (12.5%), and the shareholders of I.D. Federman Holdings Ltd. are Adi
  Federman (49%) and Shelly Federman (49%) and Irit Federman (mother of Adi and
  Shelly Federman) (2%).                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | European
  Holdings International Ltd. is held by Petrol Investments Ltd. (50%) and
  Petco Investments Ltd. (50%). The shareholder of Petrol Investments Ltd. is
  David Federman, the husband of Irit Federman and father of Adi and Shelly
  Federman. Petco Investments Ltd. has the same shareholders as Gima
  Investments Ltd.                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (3) | As described
  in footnote (4) below, Mr. Ben Dov may be deemed to beneficially own all of
  the shares held directly by Tao Tsuot Ltd. (Tao) and Suny Electronics Ltd.
  (Suny). Accordingly, the number of shares listed as owned by Mr. Ben Dov
  includes the shares that are listed as owned by Tao and Suny.                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (4) | Tao directly
  owns 9,211,035 ordinary shares of the Company, and Mr. Ben Dov, directly and
  through Harmony (Ben Dov) Ltd., a company wholly-owned by Mr. Ben Dov,
  beneficially owns 83.27% of the shares of Tao. Accordingly, Mr. Ben Dov,
  Harmony (Ben Dov) Ltd. and Tao are the beneficial owners of the 9,211,035
  ordinary shares of the Company that are directly held by Tao. Mr. Ben Dov and
  Harmony (Ben Dov) Ltd. are also the beneficial owners of 117,062 ordinary
  shares of the Issuer that are directly held by Harmony (Ben Dov) Ltd.                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | Suny
  directly owns 4,943,797 ordinary shares of the Company, and Ben Dov Holdings
  Ltd., a company wholly-owned by Mr. Ben Dov, owns 68.59% of the shares of
  Suny. Accordingly, Mr. Ben Dov, Ben Dov Holdings Ltd. and Suny are the
  beneficial owners of the 4,943,797 ordinary shares of the Issuer that are
  directly held by Suny.                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | Mr. Ben Dov
  may therefore be deemed to have the sole voting and dispositive power as to
  the aggregate 14,271,894 ordinary shares of the Issuer held of record by Tao,
  Harmony (Ben Dov) Ltd. and Suny.                                                                                                                                                                                                                                                                                                                                                                                  

52

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| |     |                                                                                                                                                                                                                                                                                                                                   
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (5) | Suny has
  signed an agreement to purchase IPEs entire holding of Scailexs ordinary
  shares, constituting approximately 50.06% of Scailexs issued share capital,
  during the next few days. In consideration of Scailex shares, Suny has agreed
  to pay IPE approximately NIS 741 million.                                  
| |     |                                                                                                                                                                                                                                                                                                                                   
| |     | The transaction
  has been approved by Scailexs Board of Directors and Extraordinary General
  Meeting of Scailexs shareholders. Immediately following such transaction,
  Suny will be our largest shareholder with approximately 87% of our
  outstanding share capital, and IPE would cease to be a shareholder of
  Scailex.

Significant changes in percentage ownership
by major shareholders during last three years

Based upon
public filings with the SEC by Ilan Ben Dov, Ben Dov Holdings Ltd., a company
wholly owned by Mr. Ben Dov, and Suny, in August 2004, Mr. Ben Dov, Ben Dov
Holdings Ltd., and Suny became the beneficial owners of 2,043,997 ordinary
shares which were held directly by Suny, representing 5.37% of our outstanding
ordinary shares at the time. Since July 2004, Mr. Ben Dov, Ben Dov Holdings
Ltd., and Suny and/or their affiliates, purchased, from time to time,
additional ordinary shares, and Tao, in which Mr. Ben Dov directly and
indirectly have an 83.27% interest, and Harmony (Ben Dov) Ltd., a company
wholly owned by Mr. Ben Dov, also acquired ordinary shares. Based on public
filings made in May 2007, Mr. Ben Dov may now be deemed to have the sole voting
and dispositive power as to the aggregate of 14,271,894 ordinary shares of the
Company, due to his holdings in Suny, Tao and Harmony.  In addition, Suny has signed an agreement by
which it expects to purchase all of IPEs shares in Scailex, and as a result,
Ilan Ben Dov would be deemed, either directly or indirectly, to have the sole
voting and dispositive power as the aggregate of 33,384,149 ordinary shares of
the Company, due to his holdings in Suny, Tao, and Harmony. See shareholder
table above in this Item 7 describing the holdings of these entities and a
description of the proposed sale of shares to Suny.

On July 18,
2006, the Companys then principal shareholders, Clal and Discount, completed
the sale of all of the 18,800,255 Scailex shares held by them, representing
approximately 49.4% of Scailexs outstanding share capital, to a fully owned
subsidiary of Israel Petrochemicals Enterprise Ltd. (IPE), an Israeli holding company
whose shares are traded on the Tel Aviv Stock Exchange. IPEs controlling
shareholder is Modgal Industries Ltd., which holds 60.91% of IPE share capital.
50.14% of Modgal Industries Ltd. is held by Modgal Ltd., a company held by Gima
Investments Ltd. (50%), I.D. Federman Holdings Ltd. (47%) and Eran Schwartz
(3%).

The shares
were acquired by IPE for an aggregate purchase price of $165.0 million, and an
additional $2.6 million to be paid within 10 business days from closing due to
an adjustment in the purchase price relating to the $12.6 million tax refund
received by Scailex. The purchase price is subject to certain additional
adjustments according to the sale agreement.

In February
2007, IPE purchased 112,000 shares from two executives of the Company and an
additional 200,000 shares on TASE, increasing its total holdings in the Company
to 50.06%.

RECORD HOLDERS

Based on a
review of the information provided to us primarily by our transfer agent, as of
June 13, 2008, we had 282 shareholders of record, of whom 250 were registered
with addresses in the United States, representing approximately 33.44% of our
outstanding ordinary shares. These numbers are not representative of the number
of beneficial holders of our shares nor are they representative of where such
beneficial holders reside since many of these ordinary shares were held of
record by brokers or other nominees (including one U.S. nominee company, CEDE
& Co., which held approximately 33.28% of our outstanding ordinary shares
as of said date).

53

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Duties of
Shareholders

Disclosure by Controlling Shareholders.
Under the Companies Law, the disclosure requirements that apply to an office
holder also apply to a controlling shareholder of a public company. A
controlling shareholder is a shareholder who has the ability to direct the
activities of a company, including a shareholder that owns 25% or more of the
voting rights if no other shareholder owns more than 50% of the voting rights,
but excluding a shareholder whose power derives solely from his or her position
on the board of directors or any other position with the company.

Extraordinary
transactions with a controlling shareholder or in which a controlling
shareholder has a personal interest, and the engagement of a controlling
shareholder as an office holder or employee, generally require the approval of
the audit committee, the board of directors and the shareholders, in that
order. The shareholder approval must include at least one-third of the shares
of non-interested shareholders voted on the matter. However, the transaction
can be approved by shareholders without this one-third approval if the total
shares of non-interested shareholders voted against the transaction do not
represent more than one percent of the voting rights in the company.

General Duties of Shareholders.
In addition, under the Companies Law, each shareholder has a duty to act in
good faith towards the company and other shareholders and to refrain from
abusing his or her power in the company, such as in shareholder votes. In
addition, specified shareholders have a duty of fairness toward the company.
These shareholders include any controlling shareholder, any shareholder who
knows that it possesses the power to determine the outcome of a shareholder
vote and any shareholder who, pursuant to the provisions of the articles of
association, has the power to appoint an office holder or any other power with
respect to the company. However, the Companies Law does not define the
substance of this duty of fairness.

B.       RELATED
PARTY TRANSACTIONS

Globecom Management Agreement

On May 1,
2007, the Company entered into a management agreement with Globecom Investments
Ltd., (Globecom), a private company under the control of Mr. Eran Schwartz,
the Chairman of the Board of Scailex. Under the agreement, Globecom, through
Mr. Schwartz, is to provide management services to the Company. The term of the
agreement is for 18 months, commencing on July 2006, when Mr. Schwartz became
Chairman of the Companys board of directors. The agreement will remain in
effect until six months have elapsed after the date that one of the parties
issues a termination notice to the other.

The management
agreement sets forth that the scope of services to be provided will be
determined in accordance with actual needs of the Company. The monthly
aggregate cost to be paid by the Company for such services under the agreement
is approximately $26,000, to be linked to the Israeli consumer price index.
Globecom will also be entitled to the reimbursement of reasonable expenses.

The agreement
sets forth that Globecom and Schwartz are to receive indemnification rights and
insurance coverage similar to the rights and coverage offered to other Company
office holders. The agreement includes non-competition provisions which apply
for the term of the agreement and an additional six months beyond termination. Sale of Scailex Visions Business

In connection
with the sale of Scailex Visions business to Hewlett-Packard, we entered into
non-material agreements with Scailex Vision regarding the management thereof
following the sale, as well. See Item 10C. Material Contracts  Sale of
Scailex Vision below.

54

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C. INTERESTS OF EXPERT AND COUNSEL.

Not
applicable.

|        |                      
|------- | ---------------------
|ITEM 8. | FINANCIAL INFORMATION

A.            CONSOLIDATED
STATEMENTS AND OTHER FINANCIAL INFORMATION

FINANCIAL STATEMENTS

Our
consolidated financial statements are set forth in Item 18.

LEGAL PROCEEDINGS

We are from
time to time named as a defendant in certain routine litigation incidental to
our business. We are currently not party to any legal proceedings which would
reasonably be expected to have a material adverse effect on our financial
position. For a discussion of other pending legal proceedings, see Note 6b to
our consolidated financial statements included in this Annual Report.

In connection
with the legal proceedings relating to the asset purchase agreement with
Hewlett-Packard, under which Hewlett-Packard agreed to acquire substantially
all of the assets and business of Scailex Vision for $230 million and as
described below, Hewlett-Packard filed an indemnity claim with the escrow agent
in October 2006 seeking the release to it of $5.26 million from the escrow
funds, claiming Scailex Vision was in breach of certain representations
warranties in their purchase asset agreement. On May 5, 2008, a settlement
agreement was signed between Scailex Vision and HP, which concludes the
reciprocal claims between the parties with respect to the sum in escrow.  Within the scope of a settlement agreement,
HP and Scailex Vision agreed that, out of the inclusive total balance of the
escrow funds: the sum of approximately $7.8 million is being released to
Scailex Vision, the sum of approximately $7.4 million is being released to HP,
while the balance, at the sum of approximately $0.6 million, shall be retained
by the trustee to secure a particular claim in respect whereof HP is entitled
to indemnification. Additionally, HP agreed to pay to Scailex Vision 75% of any
payment HP receives from the Mexican tax authorities in connection with any
final judgment or settlement of the claims involving the escrow funds. See Item
10C. Material Contracts  Escrow Settlement Agreement below.

DIVIDEND POLICY

Except as
described below, we did not distribute any dividends (in cash or otherwise),
bonus shares or declared any split, recapitalization or make any rights
offerings to the holders of our shares since the third quarter of 1996. Payment
of dividends is considered by the Board from time to time, and a payment, or
non-payment, of a dividend should not be considered indicative as to the
payment of future dividends. For general information on the applicable tax rate
on dividends, please see in Item 10E.  Taxation below.

On July 12, 2004,
we distributed $2.36 per ordinary share, or approximately $90 million in the
aggregate, to our shareholders of record as of June 30, 2004.

On May 22,
2008, we distributed $1.17735 per ordinary share, or approximately $44.9
million, to our shareholders of record as of May 5, 2008.

B. SIGNIFICANT CHANGES

Except as
otherwise disclosed in this Annual Report, no significant change has occurred
since December 31, 2007.

55

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|        |                      
|------- | ---------------------
|ITEM 9. | THE OFFER AND LISTING

A. OFFER AND LISTING DETAILS

Our ordinary
shares are listed and traded on TASE, since 2001 under the symbol SCIX. Our
shares were listed for trade on the Nasdaq Global Market from 1980 until
October 2006. In October 2006, our ordinary shares were de-listed from Nasdaq
as a result of a determination by the Nasdaq staff that we are a public shell
lacking any business operations. As at the date of this Annual Report, the
Companys shares are traded on TASE and are quoted on the OTC Bulletin Board
(OTCBB) in the United States.

All share
prices below on Nasdaq and on the OTCBB are reported in U.S. dollars, and all
share prices below on TASE are reported in NIS. As of December 31, 2007, the
exchange rate was equal to NIS 3.855 per $1.00 (NIS 4.225 on December 31,
2006).

The following
table sets forth, for the periods indicated, the high and low closing sales
prices per ordinary share on Nasdaq, OTCBB and on TASE as reported in published
financial sources:

|                       |  |               |       |     |                             |       |      |  |           |     |  |           | 
|---------------------- |  | ------------- | ----- | --- | --------------------------- | ----- | ---- |  | --------- | --- |  | --------- | 
|Annual High
  and Low  |  | NASDAQ /OTCBB |       |     | The Tel Aviv Stock Exchange |      
|                       |  |               |       |     |                             |      
|                       |  | High          |       | Low |                             |       | High |  |           | Low | 
|                       |  |               |       |     |                             |       |      |  |           |     | 
|                       |  |               |       |     |                             |       |      |  |           |     |  |           | 
|2003                   |  | $             | 5.16  |     | $                           | 1.22  |      |  | NIS 24.15 |     |  | NIS 6.10  | 
|2004*                  |  | $             | 6.21  |     | $                           | 3.87  |      |  | NIS 28.00 |     |  | NIS 17.32 | 
|2005                   |  | $             | 7.06  |     | $                           | 5.10  |      |  | NIS 30.85 |     |  | NIS 22.32 | 
|2006                   |  | $             | 7.95  |     | $                           | 5.54  |      |  | NIS 33.93 |     |  | NIS 26.41 | 
|2007                   |  | $             | 10.84 |     | $                           | 7.55  |      |  | NIS 41.84 |     |  | NIS 32.35 | 
|Quarterly High and Low |  |               |       |     |                             |       |      |  |           |     |  |           | 
|2007                   |  |               |       |     |                             |       |      |  |           |     |  |           | 
|First Quarter          |  | $             | 8.75  |     | $                           | 7.55  |      |  | NIS 38.29 |     |  | NIS 32.35 | 
|Second Quarter         |  | $             | 9.45  |     | $                           | 8.45  |      |  | NIS 38.16 |     |  | NIS 35.69 | 
|Third Quarter          |  | $             | 9.21  |     | $                           | 7.95  |      |  | NIS 38.94 |     |  | NIS 33.78 | 
|Fourth Quarter         |  | $             | 10.84 |     | $                           | 9.00  |      |  | NIS 41.84 |     |  | NIS 36.69 | 
|2006                   |  |               |       |     |                             |       |      |  |           |     |  |           | 
|First Quarter          |  | $             | 6.11  |     | $                           | 5.54  |      |  | NIS 28.88 |     |  | NIS 26.41 | 
|Second Quarter         |  | $             | 7.11  |     | $                           | 5.88  |      |  | NIS 31.94 |     |  | NIS 27.24 | 
|Third Quarter          |  | $             | 7.27  |     | $                           | 6.21  |      |  | NIS 32.75 |     |  | NIS 28.81 | 
|Fourth Quarter         |  | $             | 7.95  |     | $                           | 6.75  |      |  | NIS 33.93 |     |  | NIS 29.43 | 
|Most Recent Six Months |  |               |       |     |                             |       |      |  |           |     |  |           | 
|December
  2007        |  | $             | 10.84 |     | $                           | 9.25  |      |  | NIS 41.84 |     |  | NIS 37.23 | 
|January 2008           |  | $             | 10.61 |     | $                           | 10.21 |      |  | NIS 40.50 |     |  | NIS 38.15 | 
|February
  2008        |  | $             | 10.56 |     | $                           | 9.52  |      |  | NIS 38.67 |     |  | NIS 35.71 | 
|March 2008             |  | $             | 9.70  |     | $                           | 8.60  |      |  | NIS 35.49 |     |  | NIS 29.94 | 
|April 2008             |  | $             | 10.15 |     | $                           | 9.25  |      |  | NIS 35.70 |     |  | NIS 33.41 | 
|May 2008*              |  | $             | 10.20 |     | $                           | 8.00  |      |  | NIS 35.58 |     |  | NIS 26.45 | 

* On April 10,
2008, we announced a distribution of NIS 3.93 ($1.17735) per ordinary share and,
effective May 5, 2008, the ordinary share price was adjusted (downwards) on the
OTCBB, and TASE to reflect such dividend. The earlier share prices reflected in the
table above were not adjusted to reflect this adjustment.

On June 27,
2008, the last reported sale price of our ordinary shares on the OTCBB was $8.50
per share, and on June 29, 2007, the last reported sale price of our ordinary
shares on the TASE was NIS 29.89 ($8.86) per share.

56

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B.       PLAN OF
DISTRIBUTION.

Not
Applicable.

C.       MARKETS.

In October 2006,
our ordinary shares were de-listed from Nasdaq as a result of a determination
by the Nasdaq staff that we are a public shell lacking any business operations.
Our ordinary shares are listed on TASE and are quoted on the OTCBB. The shares
trade on both markets under the symbol SCIXF

D.       SELLING
SHAREHOLDERS.

Not
Applicable.

E.        DILUTION.

Not
Applicable.

F.        EXPENSES
OF THE ISSUE.

Not
Applicable.

|         |                       
|-------- | ----------------------
|ITEM 10. | ADDITIONAL INFORMATION

A.       SHARE
CAPITAL

Not
Applicable.

B.       MEMORANDUM
AND ARTICLES OF ASSOCIATION

Set out below is a description of certain
provisions of our Memorandum of Association and Articles of Association, and of
the Israeli Companies Law related to such provisions. This description is only
a summary and does not purport to be complete and is qualified by reference to
the full text of the Memorandum and Articles which are incorporated by
reference as exhibits to this Annual Report and to Israeli law.

We were first
registered under Israeli law on November 2, 1971 as a private company,
succeeding a predecessor corporation, Scientific Technology Ltd., which was
founded on September 5, 1968. In May 1980, we became a public company. In
December 2005, we changed our name from Scitex Corporation Ltd. to Scailex
Corporation Ltd. We are registered with the Registrar of Companies in Israel
under number 52-003180-8.

OBJECTS AND PURPOSES

Pursuant to
Section 2(I)(a) of our Memorandum of Association, the principal object for
which we are established is to engage in the activity or business of, inter alia, developing, manufacturing,
producing, vending, purchasing, licensing, leasing, importing, exporting, or
otherwise dealing in any products and moveable property of every kind and
description, and to engage in selling, promoting, leasing, licensing,
importing, exporting, or otherwise dealing in, any services. We may also
acquire, create, form, operate, encourage or otherwise promote or manage any
kind of enterprise.

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DIRECTORS

The Companies
Law requires that transactions between a company and its office holders (which
term includes directors) or that benefit its office holders, including
arrangements as to the compensation of office holders, be approved as provided
for in the Companies Law and the companys articles of association. For further
information as to such approval provisions, see Item 6. Directors, Senior
Management and Employees  Board Practices  Approval of Specified Related
Party Transactions under Israeli Law)

Under our
Articles, in general, the management of our business is vested in the board of
directors, which may exercise all such powers, including the power to borrow or
secure the payment of any sum or sums of money for the purposes of the Company,
in such manner, at such times and upon such terms and conditions in all
respects, as it thinks fit.

There is no
requirement under our Articles or Israeli law for directors to retire on
attaining a specific age. The Articles do not require directors to hold our
ordinary shares to qualify for election.

SHARES

In December
2007, the general meeting approved the increase of the Companys registered
capital. As a result, our registered capital is divided into 60,000,000
ordinary shares of nominal (par) value NIS 0.12 each. There are no other
classes of shares. All of our outstanding shares are fully paid and
non-assessable. The shares do not entitle their holders to preemptive rights.

Subject to the
rights of holders of shares with special rights (which may be issued in the
future), holders of paid up ordinary shares are entitled to participate in the
payment of dividends and, in the event of our winding-up, in the distribution
of assets available for distribution, in proportion to the nominal value of
their respective holdings of the shares in respect of which such dividend is
being paid or such distribution is being made. Our Articles do not specify any
time limit after which dividend entitlement lapses.

Each ordinary
share is entitled to one vote on all matters to be voted on by shareholders,
including the election of directors. Our ordinary shares do not have cumulative
voting rights. As a result, the holders of our ordinary shares that represent a
simple majority of the voting power represented at a shareholders meeting and
voting at the meeting have the power to elect all of the directors put forward
for election, subject to specific requirements under the Companies Law with
respect to the election of External Directors. For further information as to
these requirements, see Item 6C. Board Practices  External Directors.

The Companies
Law requires that extraordinary transactions with a controlling shareholder or
in which a controlling shareholder has a personal interest, and the engagement
of a controlling shareholder as an office holder or employee, be approved as
provided for in the Companies Law, which may necessitate the approval of at
least one-third of the shares of non-interested shareholders voting on the
matter. For further information as to such provisions, see Item 7A. Major
Shareholders  Duties of Shareholders.

VARIATION OF RIGHTS

Shares with
preferential rights relating, among other things, to dividends, voting and
repayment of share capital can be created by adoption of a special
resolution, which requires approval by at least 75% of the voting power
represented at the meeting in person or by proxy and voting thereon. In
addition, through a special resolution, we can subdivide issued and outstanding
ordinary shares. Modification or abrogation of the rights of any class of
shares requires the written consent of the holders of 75% of the issued shares
of such a class or adoption of a special resolution by affected shareholders
voting separately as a class.

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GENERAL MEETINGS

Our Articles
provide that an annual general meeting must be held at least once in every
calendar year at such time within a period of not more than 15 months after the
holding of the last preceding annual general meeting, and at such place, as may
be determined by the board of directors. Our board of directors may, in its
discretion, convene additional shareholder meetings and, pursuant to the
Companies Law, must convene a meeting upon the demand of two directors or
one-quarter of the directors in office or upon the demand of the holder or
holders of five percent of our issued share capital and one percent of our
voting rights or upon the demand of the holder or holders of five percent of
our voting rights.

Under the
Companies Law, shareholder meetings generally require prior notice of not less
than 21 days. In December 2006, the General Meeting adopted an amendment to the
Companys Articles of Association that allows notice of General Meetings to be
duly given to Israeli shareholders by means of publication in two Israeli daily
publications and duly given to shareholders outside of Israel by means of
publication in one international daily publication or by international wire
service. The function of the annual general meeting is to receive and consider
the directors report, profit and loss account and balance sheet, to elect directors
and appoint auditors and fix their fees, and to transact any other business
which under the Articles or by law are to be transacted at our annual general
meeting.

The quorum
required for either an ordinary (regular) or an extraordinary (special) meeting
of shareholders consists of at least two shareholders present in person or by
proxy and holding or representing between them at least one-third of our voting
power. If a meeting is convened at the request of shareholders and no quorum is
present, it shall be dissolved. If a meeting is otherwise called and no quorum
is present, the meeting is adjourned to the same day one week later at the same
time and place, or to such other day time and place as our Chairman may
determine with the consent of a majority of the voting power represented at the
meeting and voting on the question of an adjournment. Our Articles provide
that, at adjourned meetings, any two or more shareholders present in person or
by proxy shall constitute a quorum. We believe this provision in our Articles
regarding the quorum at adjourned meetings complies with Israeli law and
practice.

Generally,
under the Companies Law and our Articles, shareholder resolutions are deemed
adopted if approved by the holders of a simple majority of the voting rights
represented at a meeting unless a different majority is required by law or
pursuant to our Articles. The Companies Law provides that resolutions on
certain matters, such as amending a companys articles of association, assuming
the authority of the board of directors in certain circumstances, appointing
auditors, appointing external directors, approving certain transactions,
increasing or decreasing the registered share capital and approving a merger
with another company must be made by the shareholders at a general meeting. A
company may determine in its articles of association certain additional matters
in respect of which resolutions by the shareholders in a general meeting will
be required.

A company such
as Scailex, incorporated prior to February 1, 2000, is subject to various rules
with respect to the transition from being governed by the Israeli Companies
Ordinance [New Version], 5743  1983, to being governed by the Companies Law.
These rules provide, among other things, that any amendment to the Memorandum
or Articles will generally require a resolution adopted by the holders of 75%
or more of the voting power represented and voting at a general meeting, and
that the approval of a merger will require a resolution adopted by the holders
of 75% or more of the voting power represented and voting at a general meeting,
unless and until we amend our Articles in such manner to provide for a
different majority.

Subject to the
Companies Law, a resolution in writing signed by the holders of all of our
ordinary shares entitled to vote at a meeting of shareholders or to which all
such shareholders have given their written consent will be sufficient to adopt
the resolution in lieu of a meeting.

59

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LIMITATION ON RIGHTS TO OWN SHARES

Our Memorandum
of Association, our Articles and Israeli law do not restrict in any way the
ownership or voting of ordinary shares by non-residents or persons who are not
citizens of Israel, except with respect to subjects of nations which are in a
state of war with Israel. Fully paid ordinary shares may be freely transferred
pursuant to our Articles unless the transfer is restricted or prohibited by
another instrument.

DIVIDEND AND LIQUIDATION RIGHTS

Dividends on
our ordinary shares may be paid only out of profits and other surplus, as
defined in the Companies Law, per our most recent financial statements or as
accrued over a period of two years, whichever is higher. Our board of directors
is authorized to declare dividends, provided that there is no reasonable
concern that payment of the dividend will prevent us from satisfying our
existing and foreseeable obligations as they become due. Notwithstanding the
foregoing, dividends may be paid with the approval of a court, provided that
there is no reasonable concern that payment of the dividend will prevent us
from satisfying our existing and foreseeable obligations as they become due. In
the event of our liquidation, after satisfaction of liabilities to creditors,
our assets will be distributed to the holders of ordinary shares in proportion
to their respective holdings. This liquidation right may be affected by the
grant of preferential dividends or distribution rights to the holders of a
class of shares with preferential rights that may be authorized in the future.

CHANGE OF CONTROL

There are no
specific provisions of our Memorandum or Articles that would have an effect of
delaying, deferring or preventing a change in control of Scailex or that would
operate only with respect to a merger, acquisition or corporate restructuring
involving us (or any of our subsidiaries). However, certain provisions of the
Companies Law may have such effect.

The Companies
Law includes provisions that allow a merger transaction and requires that each
company that is a party to the merger have the transaction approved by its
board of directors and a vote of the majority of its shares. For purposes of
the shareholder vote of each party, unless a court rules otherwise, the merger
will not be deemed approved if shares representing a majority of the voting
power present at the shareholders meeting and which are not held by the other
party to the merger (or by any person who holds 25% or more of the voting power
or the right to appoint 25% or more of the directors of the other party) vote
against the merger. Upon the request of a creditor of either party to the
proposed merger, the court may delay or prevent the merger if it concludes that
there exists a reasonable concern that as a result of the merger the surviving
company will be unable to satisfy the obligations of any of the parties to the
merger. In addition, a merger may not be completed unless at least (i) 50 days
have passed from the time that the requisite proposals for approval of the
merger have been filed with the Israeli Registrar of Companies by each merging
company and (ii) 30 days have passed since the merger was approved by the
shareholders of each merging company.

The Companies
Law also provides that an acquisition of shares in a public company must be
made by means of a tender offer if as a result of the acquisition the purchaser
would become a 25% or greater shareholder of the company. This rule does not
apply if there is already another 25% or greater shareholder of the company.
Similarly, the Companies Law provides that an acquisition of shares in a public
company must be made by means of a tender offer if as a result of the
acquisition the purchaser would become a 45% or greater shareholder of the
company, unless there is already a 45% or greater shareholder of the company.
These requirements do not apply if, in general, the acquisition (1) was made in
a private placement that received shareholder approval, (2) was from a 25% or
greater shareholder of the company which resulted in the acquirer becoming a
25% or greater shareholder of the company, or (3) was from a 45% or greater
shareholder of the company which resulted in the acquirer becoming a 45% or
greater shareholder of the company. The tender offer must be extended to all
shareholders, but the offeror is not required to purchase more than 5% of the
companys outstanding shares, regardless of how many shares are tendered by
shareholders. The tender offer may be consummated only if (i) at least 5% of
the companys outstanding shares will be acquired by the offeror and (ii) the
number of shares tendered in the offer exceeds the number of shares whose
holders objected to the offer.

60

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If, as a
result of an acquisition of shares, the acquirer will hold more than 90% of a
companys outstanding shares, the acquisition must be made by means of a tender
offer for all of the outstanding shares. If less than 5% of the outstanding
shares are not tendered in the tender offer, all the shares that the acquirer
offered to purchase will be transferred to it. The Companies Law provides for
appraisal rights if any shareholder files a request in court within three
months following the consummation of a full tender offer. If more than 5% of
the outstanding shares are not tendered in the tender offer, then the acquiror
may not acquire shares in the tender offer that will cause his shareholding to
exceed 90% of the outstanding shares.

Lastly,
Israeli tax law treats some acquisitions, such as stock-for-stock exchanges
between an Israeli company and a foreign company, less favorably than U.S. tax
laws. For example, Israeli tax law may, under certain circumstances, subject a
shareholder who exchanges his ordinary shares for shares in another corporation
to taxation prior to the sale of the shares received in such stock-for-stock
swap.

NOTIFICATION OF SHAREHOLDING

There are no
specific provisions of our Memorandum or Articles governing the ownership
threshold above which shareholder ownership must be disclosed; however the
Israeli Securities Law (1968) sets forth certain thresholds and situations in
which disclosure is required, such as possessing 5% or more of the issued
capital or voting power of a company, or possessing the ability to appoint a
director or a CEO, or the fact that a shareholder serves as a director or a CEO
of a company.

CHANGES IN CAPITAL

Our Articles
require that changes in capitalization must be adopted by special resolution,
approved by the holders of 75% or more of the voting power represented and
voting at a general meeting. Subject thereto, the conditions imposed by our
Memorandum and Articles governing changes in the capital, are no more stringent
than is required by Israeli law.

C.       MATERIAL
CONTRACTS

|  |                                            
|- | -------------------------------------------
|· | THE PCH SALE AGREEMENT DATED APRIL 10, 2008

During the next
few days, Scailex is expected to sell to IPE, its controlling shareholder, all
of Scailexs shares (PCH Shares)
in Petroleum Capital Holdings Ltd. (PCH),
such shares constituting 100% of PCHs issued share capital, subject to the
purchase by Suny Electronics Ltd. from IPE of all of the Scailex shares held by
IPE.  Following our sale of PCH, we
would no longer have any interest in ORL.

This sale is
to be made pursuant to an agreement (the PCH
Sale Agreement), dated April 10, 2008, between Scailex and IPE.

The main
principles of the PCH Sale Agreement are as follows:

On the
consummation date of the PCH Sale Agreement, subject to the fulfillment of all
suspending conditions stipulated in the PCH Sale Agreement, Scailex is to
transfer PCHs Shares to IPE. In addition to the purchase of all of PCHs
Shares, IPE is to purchase capital notes from Scailex at the inclusive par
value of NIS 1,028,320,561 (approximately $304.7 million), which are unlinked
and interest free, which were issued by PCH in respect of funds injected into
PCH by its shareholders (the Capital Notes),
subject to partial payment, as specified in paragraph 6, below. IPE is to
also receive, by way of transfer and assignment, all of the rights and
obligations of Scailex and PCH pursuant to and by virtue of an irrevocable deed
of undertaking dated May 10, 2007 from the Israel Corporation Ltd. (Israel Corporations Deed of Undertaking
and Israel Corporation,
respectively). Israel Corporations Deed of Undertaking regulates the relations
between Scailex, PCH and the Israel Corporation as shareholders of Oil
Refineries Ltd. (ORL), pursuant
whereto, Israel Corporation undertook to engage with Scailex and PCH, under
certain conditions, in an agreement for the joint control of ORL.

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In
consideration for the purchase of PCHs Shares, the Capital Notes and the
rights of Scailex and PCH pursuant to Israel Corporations Deed of Undertaking,
in addition to the assignment and transfer to IPE of all of Scailexs rights
and obligations pursuant to the rental agreement under which Scailex is renting
its offices in Herzliya Pituach (the Rental
Agreement and the Rented
Premises respectively) in the amount of approximately $0.86 million,
IPE is to pay the sum of NIS 1,144,312,022 (approximately $338 million) to
Scailex on the consummation date of the PCH Sale Agreement (the Consideration).

PCHs Shares
are to be sold to IPE as is, with the exception of certain representations,
while each party undertakes to indemnify the counter party in relation to
inaccuracy or incompleteness of the representations given, an undertaking that
shall expire on May 31, 2009. IPE will further undertake to indemnify
Scailex in respect of any damage or expense that might be caused to Scailex in
relation to any matter pertaining to Israel Corporations Deed of Undertaking,
and to the assignment thereof to IPE, this solely in respect of the period
during which Scailex and PCH are jointly and severally liable pursuant to
Israel Corporations Deed of Undertaking.

Until the
consummation date, PCH is to continue to operate its businesses under the
ordinary course of business, in a manner consistent with the manner by which it
operated its businesses in the past, and shall not effect any distribution
and/or other payment to its shareholders, save the payment of all of PCHs
liabilities and the partial payment of the Capital Notes, in such manner that,
on the consummation date, PCHs balances of cash and cash equivalents shall be
equivalent to the dividend that ORL declared on March 19, 2008, and which
was received on May 20, 2008, with the addition of any additional dividend
that PCH shall receive in respect of PCHs shares of ORL subsequent to the
signing of this agreement, and with the addition of the profits accrued with
respect to the dividend(s) (all of the said dividends shall be called
hereinafter: the Last Dividend).

On the
consummation date of the PCH Sale Agreement, the sole assets of PCH are to be
shares of ORL, PCHs rights by virtue of Israel Corporations Deed of
Undertaking, and cash and cash equivalents at the sum equivalent to the sum of
the Last Dividend and the profits thereof, and the sole liabilities of PCH
shall be pursuant to the Capital Notes and Israel Corporations Deed of
Undertaking.

The
consummation of the PCH Sale Agreement is subject to the fulfillment of the
following suspending conditions:

(a)
approval of the Transaction by Scailexs shareholders by the majority required
for the lawful approval thereof as an exceptional transaction with a
controlling shareholder, pursuant to the provisions of the Israeli Companies
Law, 5759  1999 (the Companies Law);

(b)
receipt of the approval of the Israel Antitrust Commissioner (to the extent
required);

(c)
that the signing and consummation of the PCH Sale Agreement shall not activate
and/or cause the activation of rights of first refusal and/or first offer by
any third party; and

(d)
The PCH Sale Agreement is further conditional upon the fulfillment of the
conditions precedent and suspending conditions stipulated in an agreement
between Suny Electronic Ltd. and IPE for the purchase by Suny of all of IPEs
shares in Scailex, and upon the execution of the Suny Agreement, concurrently
with the execution of the PCH Sale Agreement.

The foregoing description of the PCH sale
agreement is only a summary and does not purport to be complete and is
qualified by reference to the full text of the agreement filed by us as Exhibit
4(a)(10) in Item 19.

|  |                                                                                                 
|- | ------------------------------------------------------------------------------------------------
|· | SHAREHOLDERS AGREEMENT BETWEEN THE COMPANY, PCH AND LINURA DATED
  DECEMBER 21, 2006, AS AMENDED

On December
21, 2006, we entered into a shareholders agreement with (i) Linura Holding AG,
or Linura, a Swiss company indirectly held by one of the largest global
companies involved in natural resources, and (ii) Petroleum Capital Holdings
Ltd., or PCH, a company owned 80.1% by us and 19.9% by Linura.

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This agreement
has since been terminated due to our purchase of Linuras interest in PCH. The
shareholders agreement governed the formation and operation of PCH as well as
PCHs participation in the privatization of ORL by way of the State of Israels
initial public offering of the shares of ORL.

Under the
shareholders agreement, we provided management and administrative services to
PCH free of charge, excluding out-of-pocket expenses incurred for such
services, which were to be reimbursed by PCH.

PCH Board of Directors and Decision-Making
Process

Under the
shareholders agreement, the board of directors of PCH was to consist of at
least three and no more than seven members. So as long as Linura held 19.9% of
the share capital of PCH, it was entitled to appoint one director. We were
entitled to appoint the Chairman of the Board of the Directors. The Chairman
did not have an additional vote.

For so long as
Linura held at least 15% of the share capital of PCH, the following decisions
were subject to both our and Linuras approval as shareholders: (i) amendments
to PCHs articles of association; (ii) any merger, de-merger, reorganization,
consolidation, acquisition, sale or grant of an exclusive license to
substantially all of PCHs assets; (iii) decisions regarding bankruptcy,
liquidation of the business or reconciliation or any other settlement with
creditors; and (iv) an application for the listing of shares or debt securities
of PCH on any recognized stock exchange.

In addition,
under the terms of the agreement, for so long as Linura held at least 15% of
the share capital of PCH, the board of directors decision to approve any of
the foregoing, or to approve a transaction that is not within the normal course
of business and/or a transaction in respect of the sale of all of PCH assets or
a significant part thereof were subject to the approval of all members of the
board of directors appointed by us and Linura.

In addition to
the above decisions, for as long as Linura held at least 19.9% of PCHs shares,
the material terms of financing obtained by PCH until obtaining control over
ORL were subject to the approval of all members of the board of directors
appointed by us and Linura.

PCH Financing

As part of the
shareholders agreement, we and Linura committed to provide shareholder loans to
PCH in accordance with our pro rata shareholdings in PCH. If additional financing
were requested by PCH, we and Linura may each have provided additional
shareholder loans to PCH. The shareholders agreement also provided that PCH
could not distribute dividends until all of the shareholder loans were repaid
to PCH.

Restriction on Transfer of PCH Shares

Under the
shareholders agreement, until the date of expiration of the first Put Option
and the first Call Option (each as defined below), the parties were not
permitted to transfer their holdings in PCH or any rights under the shareholders
agreement, other than permitted transfers such as the transfer to subsidiaries.
Following the restriction period, the parties were permitted to transfer shares
in PCH subject to the right of first refusal and tag along rights described
below.

The
shareholders agreement further provided that neither we nor Linura may transfer
our holdings in PCH at any time if the transfer violated the terms of PCHs
control permit for the ORL shares (if granted) under applicable Israeli Law or
if the transfer would prevent PCH from obtaining such a control permit.

Under the
shareholders agreement, we had a right of first refusal in the event that
Linura desired to sell its PCH shares to a third party. Prior to accepting a
third partys offer, Linura must first have presented us with the details of
the offer after which we would have had 30 days to match the third partys
offer.

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The
shareholders agreement also granted Linura a right of first opportunity in the
event that we decided to sell our PCH shares to a third party. Prior to
offering our PCH shares to a third party, we must first have presented the
terms of the contemplated offer to Linura, which would have had 30 days to
accept the proposed offer. If Linura refused to accept the contemplated offer,
we would have had the right to force Linura to sell its shares in PCH to a
third party on the same terms as the proposed offer.

The
shareholders agreement also granted Linura the right to join the sale of our
PCH shares to a third party, pro-rata to Linuras holdings in PCH.

Transfers of ORL Shares

In the event
that PCH elected to sell its entire holdings in ORL to a third party, the
shareholders agreement provided that we and Linura would have had a right to
purchase the ORL shares first, pro-rata to our holdings in PCH.

First Put & Call Options

Under the
terms of the agreement, if, within twelve (12) months from the date of the
public offering of ORL shares PCH had not acquired control of ORL, Linura would
have been able to force us to purchase all of Linuras PCH shares. The purchase
price of Linuras PCH shares was equal to the amount of Linuras capital
investment in PCH, plus interest, minus dividends and returns of capital
contributions.

If Linura
failed to exercise the above option within thirty days from the date it would
have become entitled to exercise such right, we would have had the right to
purchase all of Linuras PCH shares according to a pricing mechanism stipulated
in the shareholders agreement.

Second Put & Call Options

On the first
anniversary of the date of acquisition of the control of ORL, Linura would have
been able to require Scailex to purchase all of Linuras PCH shares at a
purchase price equal to the amount of Linuras capital investment in PCH, minus
dividends and returns of capital contributions.

If Linura
failed to exercise the above option within thirty (30) days following the first
anniversary of the date of acquisition of control of ORL, we would have had the
option to purchase all of Linuras shares in PCH according to a pricing
mechanism stipulated in the shareholders agreement.

ORL Undertaking

Under the
shareholders agreement, the parties acknowledged that a party nominated by
Linura would use its best efforts to offer ORL competitive terms on crude oil
and petroleum products. For as long as Linura held 19.9% of the share capital
of PCH, and subject to legal restrictions, we and Linura agreed to use our
utmost efforts through PCH to increase the share of crude oil and/or petroleum
products supplied by such nominated party to ORL and/or the purchase by the
nominated party of any petroleum products designated for export by ORL,
provided however, that the nominated company extended the most competitive
offers to ORL and that ORLs competitive status as a purchaser or supplier, as
applicable, would not have been adversely affected.

Addendum to the Shareholders Agreement

On May 10,
2007, the parties to the shareholders agreement agreed that in the event that
the shareholders agreement contradicts the definitive Control Agreement to be
entered into by PCH, Scailex and Israel Corp., as set forth below, the Control
Agreement shall prevail.

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|  |                                                                                 
|- | --------------------------------------------------------------------------------
|· | THE SHARE PURCHASE  AGREEMENT
  BETWEEN SCAILEX AND LINURA, DATED MARCH 26, 2008

On March 26,
2008, the Company completed the purchase of the minority 19.9% interest of
Linura Holding AGs (Linura) in PCH, and received, by way of assignment, the
capital note that PCH had issued to Linura. The total consideration for the
purchase was $57.2 million. With the purchase of Linuras share in PCH, a
15.76% shareholder in ORL, PCH became a wholly owned subsidiary of the Company.

The main
principles of the Share Purchase Agreement are as follows:

Linura agreed
to sell Scailex its entire shareholdings in PCH and assign its Capital Note (as
defined below) to Scailex, on an AS IS basis all in the framework of the
Shareholders Agreement.

Scailex and
Linura agreed on a purchase price of $57.2 million for 199 ordinary shares of
PCH owned by Linura constituting 19.9% of the issued share capital of the
Company, and the outstanding capital note dated August 9, 2007, issued by PCH
in favor of Linura on the nominal amount of NIS 232,299,895.

Linura
represented and warranted that it was the sole lawful and beneficially owner of
its shares and the capital note, and that such shares and capital note were
free and clear of any options, first refusal rights, voting trust and other
voting agreements, and of all liens, claims, charges, encumbrances and/or other
third party rights of any kind whatsoever, save for Scailexs rights under the
Shareholders Agreement between Scailex, Linura, and PCH as described and
referenced below.

Linuras
shares and the capital note were transferred and assigned to Scailex.

The foregoing description of the share
purchase agreement is only a summary and does not purport to be complete and is
qualified by reference to the full text of the agreement filed by us as Exhibit
4(a)(9) in Item 19.

|  |                                                                                                                                                                                                    
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|· | MEMORANDUM OF UNDERSTANDING DATED FEBRUARY 18, 2007 (INCLUDING
  ADDENDUM THERETO DATED FEBRUARY 19, 2007) AND DEED OF UNDERTAKING DATED MAY
  10 2007, AMONG THE COMPANY, PCH AND THE ISRAEL CORP.

Memorandum of
Understanding

The Memorandum of Understanding described
below was revoked on May 10, 2007, and the parties thereto have entered into an
irrevocable Deed of Undertaking, as also described below.

On February
18, 2007, PCH and the Company (collectively the Scailex Group) entered into a
binding Memorandum of Understanding (the Memorandum of Understanding or
MOU) with Israel Corp. for the joint acquisition and control of ORL, pursuant
to which Israel Corp. and Scailex Group agreed to submit a joint proposal for
the purchase of shares of ORL as part of the public offering of shares of ORL
by the State of Israel. The parties agreed that Israel Corp. would hold 80% of
the shares of ORL to be acquired and the Scailex Group would hold the remaining
20% of such shares (the Preliminary Stake Ratio).

The parties
agreed in the MOU that they would mutually determine the number and price of
the ORL shares to be purchased and that, in the event of a dispute, each party
would be entitled to act in its sole discretion and, in such an event, the
Memorandum of Understanding would be revoked.

The Scailex
Group was granted the option (Call) to increase its share in the acquisition
from the Preliminary Stake Ratio to 45% of the shares to be purchased by the
parties as part of the offering within 120 days from the date of either: (a)
the receipt of mandatory regulatory approvals required to control ORL; or (b)
nine months from the date of execution of the Memorandum of Understanding,
whichever is earlier. The purchase price of a share acquired pursuant to the
Call option was to be the average NIS cost of ORL shares in the relevant
offering, linked to increases in the consumer price index, plus 5% annual
interest, subject to standard adjustments.

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The parties
agreed that the terms and conditions of the MOU would apply to the purchase,
either jointly or severally, of any additional shares of ORL after the public
offering. Decisions with regard to the purchase of shares of ORL in the
secondary market following completion of the offering, whether on the stock
exchange or outside the stock exchange, including a public offering, would be
mutually agreed upon.

Under the MOU,
each of the parties was entitled to acquire additional shares of ORL, provided
that it would offer the other party, within three (3) business days from the
date of the acquisition, the opportunity to purchase a proportional share of
the shares it purchased as if, on the same date the Call Option had been
exercised (i.e., 55% to Israel
Corp. and 45% to PCH,) at cost plus market interest until the date of actual
payment. However, the terms of the MOU were not to apply to acquisitions of additional
shares or securities of ORL by any of the parties that were to cause the shares
subject to the MOU to exceed 45% of ORLs issued share capital.

Appointment of Directors; Officers

Furthermore,
as part of the MOU, the parties agreed to appoint directors to the board of
directors of ORL, its committees and its subsidiaries, pro rata to each partys
holding, provided that the Scailex Group would be entitled to appoint at least
one director to ORLs board of directors or committees and provided that the
Scailex Group and Israel Corp. are able to affect the appointment of two or
more directors.

The parties
agreed that the manner of appointment and discharge of the executive officers
of ORL would be set forth in the Control Agreement to be entered into by the
parties at a future date. The parties also agreed that each party would
nominate one external director.

Voting at the General Meeting

The MOU
further provided that prior to any general meeting of ORL, the parties would
convene a preliminary meeting to decide (pro rata to their holdings in ORL) on
how they would vote and act at the general meeting, and the parties would
proceed in accordance with their mutual decision.

Dividends

Under the MOU,
the parties undertook to act pursuant to the provisions of all applicable laws
so that ORL and its subsidiaries would adopt a dividend policy providing for
the distribution of at least 75% of the annual profits that are deemed
distributable.

Right of First Refusal

If the Scailex
Group wishes to sell its shares in ORL to a third party, Israel Corp. would
have the right of first refusal with respect of the shares offered for sale and
would be entitled to purchase all the shares being offered for sale as follows:
(1) during the first year from the signing of the MOU, at the average cost
price of ORL shares acquired by the Scailex Group, with the value linked to
increases in the CPI, plus interest at a rate of 5% annually, subject to the
customary adjustments (the foregoing will not apply if the third party holds more
than 45% of ORLs issued share capital prior to the sale); and (2) after the
end of one year from the signing of the MOU, or in the event that the third
party holds more than 45% of ORLs issued share capital prior to the sale,
according to the price offered by the third party.

Tag Along

If Israel
Corp. desires to sell its shares in ORL, in whole or in part, to a third party,
the Scailex Group would be entitled to join the aforementioned sale in
proportion to its holdings of the ORL shares to which the provisions of this
MOU apply.

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Rights of Parties in the Event of Exercise of
the Call

If the Call
were to be exercised, the parties would grant each other the right of first
refusal with respect to the shares of ORL held by each party, and each party
would have the right (tag along right) to join the other (provided the right of
first refusal is not exercised) in the case of a sale of all or a portion of
the holdings of the other party, to a third party, pro rata to such partys
respective holdings of the ORL shares to which the provisions of this MOU
apply. If ORL shares are transferred to a third party, the acquiring party must
become a party to the Memorandum of Understanding or the definitive agreement
that follows the Memorandum of Understanding, and all provisions of the MOU or
the definitive agreement shall apply mutatis
mutandis to the third party.

Minority Interests

The Scailex
Group was granted customary minority rights, such as group veto rights with
respect to certain decisions affecting ORL or its subsidiaries and affiliated
companies, including: modifications to the articles of association, structural
changes (mergers, reorganization, material acquisitions/sales, etc.),
liquidations, stay of proceedings, the registration of securities or debt for
trading, and transactions with interested parties. Israel Corp. undertook that,
for so long as Israel Corp. and Scailex Group are in control of ORL, it would
act in manner conducive to Scailex Group fulfilling its undertakings to Linura,
subject to the provisions of any applicable law.

Buy/Sell

At the end of
twelve (12) months from the date of exercise of the Call, one party to the
agreement would be entitled to offer to purchase all shares of the other party
to which the provisions of the MOU apply at the price set in the offering, and
the second party would be bound to either accept the offer or, alternatively,
acquire all the shares of the offering party to which the provisions of the MOU
apply at a price determined in the offer, all per the election of the second
party.

Linura Supplier
Undertaking

The parties
agreed that so long as Linura holds at least 19.9% of the shares of PCH, and
subject to any applicable legal or regulatory restrictions, the parties would
use their best efforts to significantly increase the share in the supply of
crude oil and petroleum products sold to ORL and/or any purchase of petroleum
products designated by ORL for export, by the company nominated by Linura. The
foregoing is contingent upon the nominated company extending the most
competitive terms to ORL and ORLs competitive status as a purchaser or
supplier, as applicable, not being adversely affected.

Addendum to the MOU
Dated February 19, 2007

On February
19, 2007, the parties signed an addendum to the MOU provided that the
provisions of the Memorandum of Understanding and any amendment or addition
thereto will be subject to any financial arrangement made or to be made between
either of the parties and a bank or insurance company (the Lien Holder), that
will finance the purchase of ORL shares and whose loan will be secured by a
pledge of ORL shares.

Upon violation
of the financial arrangement by one of the parties and notification by the Lien
Holder that it intends to foreclose on all or a portion of the lien, the Lien
Holder would be entitled to allow the second party to pay all the debts of the
first party that were immediately payable and be entitled to receive all the
rights of the Lien Holder to the ORL shares subject to the lien in the form of
an irrevocable assignment.

The party that
receives ORL shares in the form of the aforementioned irrevocable assignment
would realize the lien subject to the provisions of the Memorandum of
Understanding.

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Joint Purchase of
ORL Shares

Pursuant to
the provisions of the MOU, the Scailex Group and Israel Corp. submitted a joint
offer as part of the public offering. On February 20, 2007, the Company
received notification that the joint offer was accepted and that PCH and Israel
Corp. had been issued 920 million shares of ORL, which constitutes
approximately 46% of the total share capital of ORL. In accordance with the
terms of the MOU, out of the total number of shares of ORL purchased jointly by
the Scailex Group and Israel Corp., PCH purchased 184 million ordinary shares
(9.2% of the issued share capital of ORL), and Israel Corp. purchased 736
million shares (36.8% of the issued share capital). The shares in the offering
were acquired based on a valuation of ORL of NIS 6.6 billion and a share value
of NIS 3.30 per share.

During
February and March 2007, PCH and Israel Corp. acquired an additional 107.24
million shares of ORL on the Tel Aviv Stock Exchange. As consideration for
these additional shares, PCH paid a total amount of approximately NIS 142.8
million at an average price of approximately NIS 2.96 per share. As a result of
the aforementioned purchases, Israel Corp. and Scailex (through PCH) held
jointly, as of March 28, 2007, 53.6% of the issued share capital of ORL, with
PCH holding 252.4 million shares, or 12.62% of the issued share capital, and
Israel Corp. holding 819.5 million shares, or 40.98% of the issued share
capital of ORL.

Notwithstanding
the foregoing, the rights in the shares of ORL were limited, including the
ability to exercise common control of ORL under a shareholder agreement, until
the shareholders received the mandatory regulatory approvals in Israel, which
included approval by the Israel Antirust Authority for the acquisition of 25%
or more of the ORL share capital and receipt of a control permit for control of
24% or more of ORL from the Minister of Finance and the Prime Minister. The
Scailex Group and Israel Corp. had received the necessary approval from the
Israeli Antitrust Commissioner, but never received the control permit, due to issues
relating to the control of PCH.

Deed of Undertaking

The parties
decided to revoke the MOU and the Addendum to the MOU on May 10, 2007 and
entered into an irrevocable deed of undertaking (the Deed of Undertaking),
which has since been terminated.

The Deed of
Undertaking allowed the parties to file separately for a control permit for the
acquisition of ORL. The parties entered into the Deed of Undertaking in order
to expedite the acquisition of the control of ORL since Scailex, PCH and Israel
Corp. believed  that it was in the best
interests of ORL to establish control by its new shareholders as soon as
possible. The decision to apply separately stemmed from the fact that the
parties assumed that Israel Corp., which until February 2007, formerly held 26%
of ORL, would succeed in obtaining a control permit in a relatively short time.
Furthermore, PCH experienced delays in receiving the control permit due to the
fact that additional information was requested about Linura, which holds 19.9%
of PCH. The revocation of the MOU enabled Israel Corp. to submit a separate
application for the control permit for the acquired ORL shares from the Finance
Minister and the Prime Minister.

The following
is a summary of the main points of the Deed of Undertaking:

The parties
agreed that if the Scailex Group received the mandatory regulatory approvals,
including a control permit and a possible additional approval from the Israeli
Antitrust Commissioner, on or before May 15, 2009, Israel Corp and the Scailex
Group would have entered into the Control Agreement for the joint control of
ORL, as described below.

The call
option (theCall Option), which
was to be granted to PCH pursuant to the Control Agreement (as described
below), would have been exercisable until May 15, 2009 or until 120 days after
the mandatory governmental approvals for the exercise of the ORL shares would
have been obtained, whichever would have been earlier. Exercise of the Call
Option would have enabled PCH to purchase and receive by way of transfer from
Israel Corp. 230 million shares of ORL (the Underlying Shares), so that,
subsequent to exercise of the Call Option, PCH would have held 45% of the
50.25% control core (the Control Core Shares) in ORLs share capital, and
Israel Corp. would have held 55% of the Control Core Shares in ORLs share
capital.

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The price of
the Underlying Shares would have been the cost price for purchasing the Control
Core Shares in the sale offering, namely NIS 3.30 per share for a total of NIS
759 million, plus index linkage differentials and linked interest at the rate
of 5% per annum, less any dividends distributed (if any), plus index linkage
differentials and interest as aforesaid.

The sale and
transfer of PCHs shares of ORL to a third party or sale of the control of PCH
or Scailex to a third party would have been subject to Israel Corp.s right of
first refusal to purchase all shares of ORL or the relevant PCH securities in
accordance with the provisions of the Control Agreement.

The right of
PCH and Scailex to enter into the Control Agreement may be transferred to a
third party in the event that: (i) PCH sold all of its shares in ORL to a third
party (and Israel Corp. does not exercise its right of first refusal), or (ii)
Scailex sold the control of PCH to a third party, and that third party obtains
all the requisite approvals, including approval of the Israeli Antitrust
Commissioner and a control permit, on or before May 15, 2009. In either such
case, Israel Corp. will enter into the Control Agreement with the third party
and all provisions thereof, including the Call Option, will apply. Until the
Control Agreement came into effect, Israel Corp. was entitled to exercise its
power of control in ORL (provided that it had received the required control
permit) at its discretion and without any restrictions.

On the signing
date of the Deed of Undertaking, PCH signed an irrevocable power of attorney
empowering Israel Corp. to vote in its name and on its behalf at the general
meetings of shareholders of ORL in respect of the 100 million shares of ORL
that PCH owns. The power of attorney will expire when the Control Agreement is
signed or six months after the date of the Deed of Undertaking, whichever is
earlier.

In May 2007,
following the adoption of the Deed of Undertaking, PCH purchased, independent
of Israel Corp., additional shares of ORL, bringing its total holdings to
13.39% of the share capital of ORL.

The Contemplated
Definitive Agreement for Joint Control of ORL by Israel Corp. and Scailex Group
(the Control Agreement)

Set forth
below are the main points of the contemplated, definitive Control Agreement
that was to have been signed by Israel Corp. and by the Scailex Group upon
receipt by the Scailex Group of all regulatory approvals required under applicable
law, including a control permit to hold the shares of ORL and any additional
approvals that may be required by the Antitrust Commissioner. The contemplated
Control Agreement would have related only to approximately 50.25% of the issued
and paid-up share capital of ORL and includes all bonus shares that would be
distributed (if any) in respect of said shares and all shares to be purchased
following an offering of said shares and which are and will be held by Israel
Corp. and PCH. (the Control Core Shares).

Undertakings relating to the Transfer and/or
Purchase of Securities

Freeze period

The agreement prescribes a
freeze period of six months commencing as of the signing date of the Control
Agreement, during which, neither party may transfer the Control Core Shares
held by it, other than to a person or corporation, which controls or is
controlled by the relevant party or is controlled by the controlling
shareholders of the relevant party (an Authorized Transferee).

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Transfer Restrictions

Commencing on
the expiration of the freeze period described above, a party may not transfer
and/or sell its Control Core Shares to a third party (other than an Authorized
Transferee) unless: (i) the party sells and/or transfers all (but not a
portion) of the Control Core Shares that it is holding; and (ii) the other
party is entitled to (A) purchase all the Control Core Shares being offered for
sale or transfer in accordance with the right of refusal rights described below
(Scailex Group right of first refusal would have taken effect only as of the
date of exercise by the Scailex Group of the Call Option described below) or
(B) tag along in the sale transaction of the Control Core Shares in accordance
with the tag along rights described below (Israel Corp. tag along right to take
effect only as of the date of exercise by Scailex Group of the Call Option
described below).

Purchase of Additional Shares

In the event
that the parties decide by mutual consent to increase the number of Control
Core Shares, they would then purchase additional Control Core Shares in
proportion to their holdings of Control Core Shares at the time. If a party
desires to purchase additional shares in ORL that would not be deemed to be
Control Core Shares, the party would be free to act upon such shares at its
discretion, so long as the conditions described below under Right to
Participate in the Purchase of Shares are satisfied and so long as it notifies
the other party in advance and votes such additional shares at General meetings
of ORL in conjunction with all of the Control Shares that it possesses. Unless
otherwise agreed upon by the parties, a party may not purchase additional
shares if it would cause ORL to be de-listed from TASE or create an obligation
to issue in full or in part a tender offer.

The right of first refusal

Following the
freeze period, and subject to the provisions described above under -
Undertakings relating to the Transfer and/or Purchase of Securities  Transfer
Restrictions, if either party wishes to transfer the Control Core Shares that
it holds, the other party would have the right of first refusal to purchase all
(but not a portion) of the Control Core Shares that are offered for sale by the
selling party under the same terms as are offered by the proposed buyer.

The transfer
of control in PCH and/or Scailex and/or the Israel Corp. (subject to certain
conditions) would also constitute events that would entitle the other party to
exercise its right of first refusal.

In the case of
the change in control of PCH, Israel Corp. would have the right to purchase all
the securities that are the subject of the change of control in PCH on the same
terms as contemplated in the change in control transaction. In the event of a
change in the control of Scailex or of the corporation controlling Scailex
(other than IPE and the corporations that control it) to a third party at which
time the Control Core Shares held by the Scailex Group constitute a majority
of the assets of the entity undergoing a change in control, Israel Corp. would
be entitled to purchase all (but not less than all) of the Control Core Shares
then held by the Scailex Group at the average market price during the 60
trading days that preceded the notice of sale, plus a 15% premium. The Scailex
Group would have had the right to purchase, at the average market price during
the 60 trading days that preceded the notice of sale, plus a 15% premium, all
(but not less than all) of the Control Core Shares then held by Israel Corp. in
the case of a change in control of Israel Corp.

As indicated
above, Scailex Groups right of first refusal rights would only come into
effect on the date on which the Scailex Group exercised the Call Option.

Tag-along right

Following the
freeze period, and subject to the provisions described above under -
Undertakings relating to the Transfer and/or Purchase of Securities  Transfer
Restrictions, if either party wishes to transfer the Control Core Shares that
it holds, then, provided that the right of first refusal was not exercised, the
other party would have the right to join in the sale under the same terms as
are offered by the proposed buyer. The other party would have the right to
include in the sale the same proportion of its Control Core Shares as the
selling party proposes to sell of its own Control Core Shares.

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As indicated
above, Israel Corp.s tag-along right would come into effect only on the date
on which the Scailex Group would have exercised the Call Option.

Right to Participate in the Purchase of
Shares

If one party
acquires additional securities of ORL, it would be obligated to notify the
other party of its purchase, specifying the terms of the purchase, and the
other party would have the right to purchase shares from the purchasing party
pro rata to the number of Control Core Shares held at that time by the
purchasing party as opposed to the number of Control Core Shares held by the
other party. For this purpose, PCH would be deemed to have exercised the call
option right described below if the purchase transaction occurred during the
option period. The price to be paid for these shares would be the same price at
which they were purchased by the purchasing party plus a customary prime shekel
interest rate.

Call option

Israel Corp.
would have granted PCH a Call Option to obligate Israel Corp. to sell and
transfer 230 million shares of ORL (the Underlying Shares) to PCH so that PCH
would have held 45% of the Control Core Shares, and Israel Corp. would have
held 55% of the Control Core Shares. The call option had to have been exercised
with respect to all, but not a portion, of the Underlying Shares. The call
option could have been exercised for a period of 120 days from the date of
receipt of the mandatory control permit, but no later than May 15, 2009. The
call option would expire at such time as PCH would hold less than 10% of ORLs
share capital. The purchase price for the Underlying Shares would be NIS 3.3
multiplied by the number of Underlying Share, plus increases in the Israeli consumer
price index plus linked interest at the rate 5% per annum, compounded
semi-annually, from the date Israel Corp. purchased the Underlying Shares less
any dividends or bonus shares distributed in respect of the Underlying Shares.

Pledge and Lien Restrictions on the
Securities of ORL

A party to the
Control Agreement may not pledge or place a lien on the Control Core Shares
that it holds, unless such pledge or encumbrance is in favor of a reputable
bank or insurance company or is made in order to secure debentures issued under
a public offering or an offering to institutional investors; provided, however,
that the exercise of such a pledge would be subject to first refusal rights of
the other party, which must be exercised within ten days of receiving notice of
such contemplated pledge.

Buy-Sell Mechanism

Following the
expiration of the six-month freeze period described above and throughout the
time the agreement is in effect, each party to the agreement would have the
right, subject to the exercise of the Call Option, to (i) purchase all of the
Control Core Shares held by the other party at that time, or to sell to the
other party all of the Control Core Shares that it holds and (ii) terminate the
agreement. The party desiring to activate this mechanism would deliver a notice
to the other party that it is willing to either sell to the other party all of
the Control Core Shares held by the notifying party at the price determined by
the notifying party or to purchase all of the Control Core Shares held by the
other party at the same price. The receiving party would then be required to
select one of the alternatives, and the parties would complete the transaction
chosen by the receiving party.

Appointment of directors

The parties to
the Control Agreement would undertake therein to exercise their voting power in
the following manner:

| |   |                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | So long as
  the Call Option has not been exercised, ORLs board of directors would
  consist of nine members (including two external directors), with Israel Corp.
  nominating five directors and PCH nominating two directors. Recommendation
  for nominations of the two external directors would be made by mutual
  agreement.

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| |   |                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | From such
  time as the Call Option is exercised, ORLs board of directors would consist
  of 11 members (including two external directors), with Israel Corp.
  nominating five directors and recommending one external director, and PCH
  nominating four directors and recommending one external director for
  nomination.

In the event
the ratio of Control Core Shares is changed, then the right of the parties to
nominate directors would be adjusted to reflect their changed holdings. Subject
to applicable law, the above ratios regarding each partys representation on
ORLs board of directors would apply for all the Board Committees as well,
except the audit committee, as well as for any subsidiary or affiliate of ORL.
Subject to law, the chairman of the board of directors would be nominated by
the Israel Corp. Subject to applicable law and the exercise of the Call Option,
the CEO, auditors, accountants and legal advisors of ORL and its subsidiaries
would be nominated by consent of the parties.

Voting at General Meetings

The Control
Agreement provides that the parties would agree in advance how to vote in
General Meetings on certain matters that could materially affect ORL, its
subsidiaries or affiliates (so long as each party holds at least 10% of ORLs
issued share capital). These matters include: the decision to enter into new
type of business; offering of shares or other securities by ORL or any
subsidiary; amendments to the Articles of Association of ORL; mergers or
reorganization of ORL or any subsidiary; extraordinary transactions;
appointment of accountants; liquidation or a related stay of proceedings (similar
to Chapter 11 proceedings in the United States); or a material sale or
purchase by ORL. In the absence of agreement on any of the above matters, such
matter would be decided by an agreed adjudicator. In addition, the parties
would act to amend ORLs articles of association so that resolutions regarding
the matters above would need to be approved by a General Meeting of ORL
shareholders or would require approval by a supermajority of 75% of all
directors present at the vote.

Dividend policy

The parties to
the Control Agreement would act, subject to any applicable laws, so that ORL
and its subsidiaries would adopt a dividend policy according to which at least
75% of the annual distributable profit would be distributed each year.

Term of the agreement

The Control
Agreement would terminate (a) in accordance with the relevant provisions in the
agreement or (b) on the date on which one of the parties ceases to hold at
least 10% of ORLs share capital.

Scailexs guarantee

Scailex would
guarantee all of PCHs obligations pursuant to the Control Agreement.

|  |                                                                               
|- | ------------------------------------------------------------------------------
|· | RE-ORGANIZATION CONTRACT BETWEEN THE COMPANY AND SENIOR MANAGEMENT OF
  JEMTEX

In August
2006, the Company entered into an agreement for the reorganization of Jemtex
whereby the Company transferred the majority of its holdings in Jemtex to
Jemtexs two senior managers, Mr. Avraham Raby and Dr. Yehoshua Sheinman, for
no consideration under certain terms. As a result of this transaction, the
Companys holdings in Jemtex declined from approximately 75% to approximately
15% (on a fully diluted basis). Under the terms of the reorganization
agreement, the Company converted a sum of approximately $6.7 million, out of an
aggregate amount of approximately $9.7 million provided by the Company to
Jemtex by way of loans, into shares of Jemtex while the remaining amount of
approximately $3.0 million was to be paid to the Company over a period of five
to seven years, unless Jemtex paid the Company a sum of $1.0 million by January
4, 2007, whereupon the debt would be deemed to have been repaid in full.

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The agreement
further provided that until the repayment of the outstanding loan amount or the
payment of $1.0 million by January 4, 2007, the Company would be protected
against dilution and its holdings in Jemtex would remain 15% of Jemtexs fully
diluted capital. In addition, it was determined that so long as the outstanding
loan amount stands at $3.0 million and has not been repaid, the Company would
be allowed to invest a sum of up to $5.0 million dollars in Jemtex, based on a
Companys valuation of Jemtex of $20 million. The reorganization agreement also
included undertakings by the senior management of Jemtex to continue their
employment with Jemtex for up to five years. In the event that the senior
managers employment is terminated, the agreement calls for 50% of their shares
to be transferred to Jemtex and 50% to the Company.

On January 4,
2007, pursuant to an investment agreement Jemtex undertook with a third party
investor, the Company was paid $1.0 million (plus interest), and in accordance
with the terms of the reorganization agreement set forth above, the Company
forgave the $3.0 million in outstanding loans and deemed this loan to be paid
in full. With the introduction of the third party investor, a number of the
provisions of the reorganization agreement were amended as follows: (i) the
Company relinquished the veto rights granted to it by Jemtexs articles of
association; (ii) a term was added whereby, after the month of August 2009, the
Company would retain its right to receive at least $3.0 million dollars from
the assets available for distribution in the event of the liquidation of Jemtex
or events deemed to be the liquidation of Jemtex (such as the sale of all or a
majority of the shares or assets of Jemtex, etc.) by means of an agreement
whereby the senior management of Jemtex would share equally with the Company
the assets available for distribution in such an event; and the Company would
be entitled to receive 50% of the shares of the senior management in the event
that the senior managers employment was terminated, while the third-party
investor would receive the remaining 50% of senior management shares; and (iii)
the Company was granted an option to invest $3.0 million in shares of Jemtex
(based on a Company valuation of Jemtex of $20 million) by August 2009.

In light of
the signing of the reorganization agreement with Jemtex and the Companys
reduced holdings in Jemtex, the Company ceased to consolidate the financial
results of Jemtex in its financial statements and classified the activity of
Jemtex as discontinued operations. For additional details see Note 1b(3) to the
Companys consolidate financial statements.

|  |                                           
|- | ------------------------------------------
|· | AGREEMENT FOR SALE OF REAL TIME IMAGE LTD.

In July 2005,
IDX Information Corporation Systems acquired the activities of Real Time Image
Ltd. (Real Time Image). Real Time Image was incorporated in Israel in 1997,
and engaged at the date of the sale in the development of products enabling the
transfer of medical documents on the Internet without compression. The Company,
which at the time of the acquisition held approximately 14.9% of the issued
share capital of Real Time Image, has received a sum of approximately $2.6
million from the sale as consideration and an additional sum of approximately
$0.5 million was received in 2007.

|  |                            
|- | ---------------------------
|· | AGREEMENT FOR SALE OF XMPIE

On November 9,
2006, Xerox Corporation acquired XMPie Inc., a private company incorporated in
the State of Delaware, in which the Company had held a 2.3% interest. As of the
date of this report, the Company has received as consideration a sum of
approximately $1.3 million. An additional $0.2 million owed to the Company
pursuant to the sale was being held in trust in accordance with the sale
agreement, out of which $0.1 million was received by the Company in May 2008.

|  |                                   
|- | ----------------------------------
|· | MANAGEMENT AGREEMENT WITH GLOBECOM

On April 30,
2007, the Companys shareholders approved a management agreement with Globecom,
 a private company under the control of Mr. Eran Schwartz, the Chairman of the
board of directors of Scailex. Under the agreement, Globecom, through Mr. Eran
Schwartz is to provide management services to the Company. The agreement
commenced July 2006, when Mr. Schwartz became Chairman of the Companys board
of directors and will remain in effect until six (6) months have elapsed after
the date that one of the parties issues a termination notice to the other. The
monthly aggregate cost to be paid by the Company for such services under the
agreement is approximately $26,000, to be linked to the consumer price index.
For a complete description of the Globecom management agreement see Item 7B.
Related Party Transactions.

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|  |                                  
|- | ---------------------------------
|· | SALE OF SCAILEX VISIONS BUSINESS

We currently
own approximately 77.1% of Scailex Visions outstanding share capital.

In August
2005, Scailex Vision entered into an asset purchase agreement with
Hewlett-Packard, under which Hewlett-Packard agreed to acquire substantially
all of the assets and business of Scailex Vision for $230 million (subject to
net working capital adjustments) in cash and to assume substantially all of
Scailex Visions liabilities related to the ongoing business. The sale was
completed on November 1, 2005. At closing, $23.0 million of the proceeds was
deposited in escrow for a period of 24 months to cover possible indemnification
claims, $1.0 million was deposited for a period of 12 months to cover tax
liabilities of the year 2005 (this escrow was released in November 2006), and
an additional $27.0 million was utilized to repay Scailex Visions retained
liabilities, mainly to Israeli banks. In April 2006, Hewlett-Packard paid
Scailex Vision an additional approximately $6.6 million to account for the
net working capital adjustment in the purchase price, i.e., in addition to the $230
million. Hewlett-Packard also transferred to Scailex Vision funds in an
aggregate amount of $1.1 million that were retained by Scailex Visions
subsidiaries following the closing.

Scailex Vision
made representations and warranties in the asset purchase agreement for the
benefit of Hewlett-Packard, which generally survive for a period of two years
following the closing of the transaction or, for certain matters, the
expiration of the applicable statute of limitations. Scailex Vision agreed to
indemnify Hewlett-Packard against damages or losses arising from any breach of
the representations and warranties, subject to certain limitations (including
customary de minimis exceptions and caps) detailed in the asset purchase
agreement. Scailex Vision also agreed to indemnify Hewlett-Packard against any
damages or losses arising from any breach of a covenant or agreement made by it
in the asset purchase agreement or from any liability of Scailex Vision that
Scailex Vision retained under the terms of the asset purchase agreement.
Scailex Vision is generally obligated to satisfy these indemnification
obligations only out of amounts deposited in the escrow discussed above.
Scailex Vision also agreed to certain ongoing covenants, including non-compete
and non-solicitation restrictions on its operations.

Hewlett-Packard
filed an indemnity claim with the escrow agent in October 2006 seeking the
release to it of $5.26 million from the escrow funds, claiming Scailex Vision
was in breach of certain representations warranties in their purchase asset
agreement. Scailex Vision rejected these claims, but there is no assurance that
Scailex Vision will be successful in defending its position. On May 5, 2008, a
settlement agreement was signed between Scailex Vision and HP, which settled
the reciprocal claims between the parties with respect to the sum in escrow.
Within the scope of a settlement agreement, HP and Scailex Vision agreed that,
out of the inclusive total balance of the escrow funds: the sum of
approximately $7.8 million is being released to Scailex Vision, the sum of
approximately $7.4 million is being released to HP, while the balance, at the
sum of approximately $0.6 million, shall be retained by the trustee to secure a
particular claim in respect whereof HP is entitled to indemnification.

In connection
with the transaction, we entered into incidental agreements with
Hewlett-Packard, as follows:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | We, Discount
  and Clal entered into an agreement, whereby, among other things, each of us
  agreed not to solicit certain employees of Scailex Vision for a period of 18
  months following the closing and not to compete with Hewlett-Packard in the
  business of Scailex Vision for a period of 24 months following the closing;
  and                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | · | We entered
  into a trademark license and domain name assignment agreement, whereby, among
  other things, we granted to Hewlett-Packard a license to our rights to the
  Scitex tradename and agreed, subject to shareholder approval, to change our
  corporate name. Our shareholders approved the change in our name in December
  2005 and, accordingly, we changed our name from Scitex Corporation Ltd. to
  our present name.

In February
2006, Scailex Vision distributed a cash dividend equivalent to the amount
available for distribution following the conclusion of the transaction for the
sale of assets to HP. The amount of the net accumulated dividend that was
distributed amounted to approximately $135 million (of which $101 was received
by the Company).

74

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In February
2007, with the consent of the court, Scailex Vision reduced its share capital
and distributed an additional dividend of $20 million to its shareholders (out
of which $14.3 was received by the Company). Additionally, in June 2008, with
the consent of the court, Scailex Vision reduced its share capital and distributed
an additional dividend of $25 million to its shareholders (out of which $17.9
was received by the Company).

|  |                                                                                                               
|- | --------------------------------------------------------------------------------------------------------------
|· | ESCROW SETTLEMENT AGREEMENT, DATED MAY 5, 2008, BETWEEN SCAILEX
  CORPORATION LTD. AND HEWLETT-PACKARD COMPANY

On May 5,
2008, a settlement agreement was signed between Scailex Vision and HP, which
settles the reciprocal claims between the parties with respect to the sum in
escrow. Within the scope of the settlement agreement, HP and Scailex Vision
agreed that, out of the inclusive total balance of the escrow funds: the sum of
approximately $7.8 million would be released to Scailex Vision, the sum of
approximately $7.4 million would be released to HP, while the balance, at the
sum of approximately $0.6 million, shall be retained by the trustee to secure a
particular claim in respect of which HP is entitled to indemnification.
Additionally, HP has agreed to pay to Scailex Vision 75% of any payment HP
receives from the Mexican tax authorities in connection with any final judgment
or settlement of the claims involving the escrow funds.

The foregoing description of the escrow
settlement agreement is only a summary and does not purport to be complete and
is qualified by reference to the full text of the agreement filed by us as
Exhibit 4(a)(11) in Item 19.

|  |                       
|- | ----------------------
|· | SALE OF SDPS BUSINESS

On November
24, 2003, we entered into an asset purchase agreement with Kodak, whereby Kodak
agreed to acquire substantially all of the assets and business of Scitex
Digital Printing, Inc. (SDP), a wholly-owned US subsidiary of Scailex, for $250
million in cash and to assume substantially all of SDPs liabilities related to
the ongoing business. In addition, as part of the transaction, we retained $12
million of SDPs cash balance at closing, producing total cash consideration
for the transaction of $262 million.

We completed
the sale on January 5, 2004. At closing, $15 million of the proceeds of the
sale, which amount was released 20 business days after closing, was placed in a
custody account to cover unknown federal tax liens. Furthermore, $10 million of
the proceeds of the sale was placed in a custody account to cover possible
indemnification claims, $5 million of which was released to Scailexs account
in January 2005 and the remaining $5 million of which was released in January
2006.

In July 2006,
SDP was liquidated.

The foregoing description of the asset
purchase agreement is only a summary and does not purport to be complete and is
qualified by reference to the full text of the agreement incorporated herein by
reference as Exhibit 4(a)(2) in Item 19.

D. EXCHANGE CONTROLS

There are
currently no Israeli currency control restrictions on payments of dividends or
other distributions with respect to our ordinary shares or the proceeds from
the sale of the shares, except for the obligation of Israeli residents to file
reports with the Bank of Israel regarding certain transactions. However,
legislation remains in effect pursuant to which currency controls can be
imposed by administrative action at any time.

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E. TAXATION

The following is a general summary only and
should not be considered as income tax advice or relied upon for tax planning
purposes. Holders of our ordinary shares should consult their own tax advisors
as to the United States, Israeli or other tax consequences of the purchase,
ownership and disposition of ordinary shares, including, in particular, the
effect of any foreign, federal, state or local taxes.

CERTAIN MATERIAL U.S. FEDERAL INCOME TAX
CONSIDERATIONS

Subject to the
limitations described herein, the following discussion describes certain
material U.S. federal income tax considerations applicable to a U.S. holder (as
defined below) regarding the acquisition, ownership and disposition of our
ordinary shares. A U.S. holder means a holder of our ordinary shares who is:

| |   |                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | an
  individual citizen or resident of the United States;                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                    
| | · | a
  corporation (or another entity taxable as a corporation for U.S. federal
  income tax purposes) created or organized in the United States or under the
  laws of the United States or any political subdivision thereof;       
| |   |                                                                                                                                                                                                                                    
| | · | an estate,
  the income of which is subject to U.S. federal income tax regardless of its
  source; or                                                                                                                              
| |   |                                                                                                                                                                                                                                    
| | · | in general,
  a trust, if a U.S. court is able to exercise primary supervision over the
  administration of the trust and one or more United States persons have the
  authority to control all substantial decisions of the trust.

Unless
otherwise specifically indicated, this discussion does not consider the United
States tax consequences to a person that is not a U.S. holder (a non-U.S.
holder) and considers only U.S. holders that will own our ordinary shares as
capital assets. This discussion is based on current provisions of the Internal
Revenue Code of 1986, as amended, referred to as the Code, current and proposed
Treasury regulations promulgated under the Code, administrative pronouncements
and judicial decisions, all as in effect today and all of which are subject to
change, possibly with a retroactive effect, which change could materially
affect the U.S. federal income tax considerations described herein. This
discussion does not address all aspects of U.S. federal income taxation that
may be relevant to any particular U.S. holder based on the U.S. holders
individual circumstances. In particular, this discussion does not address the
potential application of the alternative minimum tax or the U.S. federal income
tax consequences to U.S. holders that are subject to special treatment,
including, without limitation, U.S. holders who:

| |   |                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------
| | · | are
  broker-dealers or insurance companies;                                                            
| |   |                                                                                                         
| | · | are
  tax-exempt organizations or retirement plans;                                                     
| |   |                                                                                                         
| | · | are
  financial institutions or financial services entities;                                            
| |   |                                                                                                         
| | · | hold
  ordinary shares as part of a straddle, hedge or conversion transaction with
  other investments; 
| |   |                                                                                                         
| | · | have
  acquired their shares upon the exercise of employee stock options or
  otherwise as compensation;
| |   |                                                                                                         
| | · | hold their
  shares through partnerships or other pass-through entities;                                
| |   |                                                                                                         
| | · | own
  directly, indirectly or by attribution at least 10% of our voting power; or                       
| |   |                                                                                                         
| | · | have a
  functional currency that is not the U.S. dollar.                                               

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In addition,
this discussion does not address any aspect of state, local or non-U.S. tax
laws or the possible application of United States federal gift or estate tax.

U.S. holders
should review the summary below under Israeli Taxation for a discussion of
Israeli tax consequences and certain other tax consequences pursuant to the
income tax treaty between the governments of Israel and the U.S., which may be
applicable to them.

U.S. holders
should consult their tax advisors with respect to the specific U.S. federal,
state and local income tax consequences and any applicable non-U.S. tax
consequences to them of purchasing, holding or disposing of the ordinary
shares. U.S. holders are also urged to consult their tax advisors concerning
whether they will be eligible for benefits under the income tax treaty between
the governments of Israel and the U.S.

WE BELIEVE WE ARE A PASSIVE FOREIGN INVESTMENT
COMPANY UNDER U.S. FEDERAL INCOME TAX LAW

A non-U.S.
company is a passive foreign investment company, or PFIC, if 75% or more of its
gross income in a taxable year, including the pro rata share of the gross
income of any company, U.S. or foreign, in which it is considered to own,
directly or indirectly, 25% or more of the shares by value, is passive income.
Alternatively, a company will be considered to be a PFIC if at least 50% of its
assets in a taxable year, averaged over the year and ordinarily determined
based on fair market value and including the pro rata share of the assets of
any company in which we are considered to own, directly or indirectly, 25% or
more of the shares by value, are held for the production of, or produce,
passive income.

As a result of
the sale of Scailex Visions business in November 2005, we believe we became a
PFIC in 2006, and we believe that we were a PFIC in 2007 as well. U.S. holders
who hold ordinary shares during a period when we are a PFIC will be subject to
the rules described below, even if we cease to be a PFIC, subject to specified
exceptions for U.S. holders who made a qualified electing fund (a QEF)
election.

If a U.S.
holder does not make an election to treat us as a QEF as described below,
excess distributions by us to a U.S. holder will be taxed in a special way.
Excess distributions are amounts received by a U.S. holder on shares in a PFIC
in any taxable year that exceed 125% of the average distributions received by
the U.S. holder from the PFIC in the shorter of:

| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| | · | the three
  previous taxable years; or                                                 
| |   |                                                                                        
| | · | the U.S.
  holders holding period for ordinary shares before the present taxable year.

Excess
distributions must be allocated ratably to each day that a U.S. holder has held
shares in a PFIC. A U.S. holder would then be required to include amounts
allocated to the current taxable year in its gross income as ordinary income
for that year. Further, a U.S. holder would be required to pay tax on amounts
allocated to each prior taxable year at the highest rate in effect for that
year on ordinary income and the tax would be subject to an interest charge at
the rate applicable to deficiencies for income tax.

The entire
amount of gain that is realized by a U.S. holder upon the sale or other
disposition of our ordinary shares will also be treated as an excess
distribution and will be subject to tax as described above.

A U.S.
holders tax basis in our ordinary shares that were inherited from a deceased
person who was a U.S. holder would not receive a step-up to fair market value
as of the date of the deceaseds death but would instead be equal to the
deceaseds basis, if lower.

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The special
PFIC rules described above will not apply to a U.S. holder if the U.S. holder
makes an election to treat us as a QEF in the first taxable year in which the
U.S. holder owns ordinary shares or in which we are a PFIC, whichever is later,
and if we comply with specified reporting requirements. Instead, a shareholder
of a QEF is required for each taxable year in which we are a PFIC to include in
income a pro rata share of the ordinary earnings of the QEF as ordinary income
and a pro rata share of the net capital gain of the QEF as long-term capital
gain, subject to a separate election to defer payment of taxes. If deferred,
the taxes will be subject to an interest charge. We will supply U.S. holders
with the information needed to report income and gain under a QEF election if
we are classified as a PFIC. U.S. holders should consult their tax advisors
about the availability and procedure for filing a retroactive QEF election or
amended return.

The QEF
election is made on a shareholder-by-shareholder basis. Once made, the election
applies to all subsequent taxable years of the U.S. holder in which it holds
our ordinary shares and for which we are a PFIC and can be revoked only with
the consent of the Internal Revenue Service, or IRS. A shareholder makes a QEF
election by attaching a completed IRS Form 8621, including the required
election statement and the PFIC annual information statement, to a timely filed
U.S. federal income tax return for the year of the election. The election
statement also must be filed with the IRS Service Center in Philadelphia,
Pennsylvania. In addition, an electing U.S. holder must act each year to
maintain a QEF election by attaching a Form 8621 to the U.S. holders timely
filed tax return and comply with any other requirements as specified by the
IRS.

A U.S. holder
of PFIC shares which are traded on a qualifying exchange could elect to mark
the stock to market annually, recognizing as ordinary income or loss each year
an amount equal to the difference as of the close of the taxable year between
the fair market value of the PFIC shares and the U.S. holders adjusted tax
basis in the PFIC shares. Losses would be allowed only to the extent of net
mark-to-market gain previously included by the U.S. holder under the election
for prior taxable years. If the mark-to-market election were made, then the
rules presented above would not apply for periods covered by the election. U.S.
holders are urged to consult their tax advisors regarding the availability of
the mark-to-market election with respect to our shares.

If a QEF
election or mark-to-market election is not made for the first taxable year in
which the U.S. holder holds our ordinary shares or in which we are a PFIC,
whichever is later, then special rules will apply and U.S. holders should
consult their tax advisors regarding the application of those rules.

We intend to
waive certain benefits that we are entitled to under the U.S.-Israel income tax
treaty that would otherwise exempt us from the application of the U.S.
accumulated earnings tax (the AET). Under the AET, we will generally be
subject to a 15% tax on certain accumulated earnings if we accumulate earnings
and profits beyond the reasonable needs of the business (as defined in the
Code).

U.S. holders
are urged to consult their tax advisors about the PFIC rules, including
eligibility for and the manner and advisability of making, the QEF elections or
the mark-to-market election.

NON-U.S.
HOLDERS OF ORDINARY SHARES

Except as
described in Information Reporting and Backup Withholding below, a non-U.S.
holder of ordinary shares generally will not be subject to U.S. federal income
or withholding tax on the payment of dividends on, and the proceeds from the
disposition of, ordinary shares, unless:

| |   |                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | the item is
  effectively connected with the conduct by the non-U.S. holder of a trade or
  business in the United States;                                                                                                           
| |   |                                                                                                                                                                                                                                      
| | · | in the case
  of a resident of a country which has a treaty with the United States, the
  item is attributable to a permanent establishment;                                                                                         
| |   |                                                                                                                                                                                                                                      
| | · | in the case
  of an individual, the item is attributable to a fixed place of business in
  the United States;                                                                                                                        
| |   |                                                                                                                                                                                                                                      
| | · | the non-U.S.
  holder is an individual who holds the ordinary shares as a capital asset and
  is present in the United States for 183 days or more in the taxable year of
  the disposition and does not qualify for an exemption; or
| |   |                                                                                                                                                                                                                                      
| | · | the non-U.S.
  holder is subject to tax under the provisions of U.S. tax law applicable to
  U.S. expatriates.                                                                                                                       

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INFORMATION REPORTING AND BACKUP WITHHOLDING

Dividend
payments with respect to ordinary shares and proceeds from the sale or other
disposition of ordinary shares may be subject to information reporting to the
IRS and possible U.S. backup withholding at a current rate of 28%. Backup
withholding will not apply, however, to a holder who furnishes a correct
taxpayer identification number or certificate of foreign status and makes any
other required certification or who is otherwise exempt from backup
withholding. U.S. persons who are required to establish their exempt status
generally must provide IRS Form W-9 (Request for Taxpayer Identification Number
and Certification). Non-U.S. holders generally will not be subject to U.S.
information reporting or backup withholding. However, such holders may be
required to provide certification of non-U.S. status (generally on IRS Form
W-8BEN) in connection with payments received in the U.S. or through certain
U.S.-related financial intermediaries.

Backup
withholding is not an additional tax. Amounts withheld as backup withholding
may be credited against a holders U.S. federal income tax liability, and a
holder may obtain a refund of any excess amounts withheld by filing the
appropriate claim for refund with the IRS and furnishing any required
information.

ISRAELI TAX CONSIDERATIONS

The following
summary describes the current tax structure applicable to companies
incorporated in Israel, with special reference to its effect on us. It also
discusses Israeli tax consequences material to persons purchasing our ordinary
shares. To the extent that the summary is based on new tax legislation yet to
be judicially or administratively interpreted, we cannot be sure that the views
expressed will accord with any future interpretation by the Israeli tax
authorities or courts. The summary is not intended, and should not be
construed, as legal or professional advice and does not exhaust all possible
tax considerations. Accordingly, you should consult your tax advisor as to the
particular tax consequences of an investment in our ordinary shares.

TAX REFORM IN
ISRAEL

On January 1,
2003 a comprehensive tax reform took effect in Israel. Pursuant to the reform,
resident companies are subject to Israeli tax on income accrued or derived in
Israel or abroad. In addition, the concept of controlled foreign corporation
(C.F.C) was introduced according to which a foreign company may become subject
to Israeli taxes on certain income of a non-Israeli subsidiary if, among other
things, the subsidiarys primary source of income is passive income (such as
interest, dividends, royalties, rental income or capital gains).

The tax reform
also substantially changed the system of taxation of capital gains.

Capital gains
tax is reduced to 25%, except with respect to capital gains from marketable
securities, with transitional provisions for assets acquired prior to January
1, 2003. For further discussion see below Capital Gains Tax.

GENERAL CORPORATE TAX STRUCTURE

The corporate
tax rate applicable in 2007 was 29%. This rate was reduced to 27% in 2008 and
has been scheduled to be reduced to 26% in 2009 and 25% in 2010 and beyond
(those rates are effectively reduced for income derived from an Approved
Enterprise or Privileged Enterprise under the Law for Encouragement of
Capital Investments - 1959).

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TAXATION UNDER
INFLATIONARY CONDITIONS

The Income Tax Law (Inflationary Adjustments) - 1985 (Inflationary
Adjustments Law) is intended to neutralize the erosion of capital investments
in business and to prevent tax benefits resulting from deduction of
inflationary interest expenses. This law applies a supplementary set of
inflationary adjustments to the normal taxable profits computed under regular
historical cost principles.

Under the Inflationary Adjustments Law, results for tax purposes are
measured in real terms, in accordance with the changes in the consumer price
index. In addition, subject to certain limitations, depreciation of fixed
assets and losses carried forward are adjusted for inflation on the basis of
changes in the consumer price index.

The salient features of the Inflationary Adjustments Law can be
described generally as follows:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | A special tax adjustment for the preservation of equity, based on
  changes in the CPI, whereby certain corporate assets are classified broadly
  into fixed (inflation-resistant) assets and non-fixed assets. Where
  shareholders equity (as defined in the Inflationary Adjustment Law), exceeds
  the depreciated cost of fixed assets (as defined in the Inflationary
  Adjustment Law), a tax deduction which takes into account the effect of the
  annual rate of inflation on such excess is allowed (up to a ceiling of 70% of
  taxable income for companies in any single year, with the unused portion
  carried forward on a CPI-linked basis, without limit). If the depreciated
  cost of such fixed assets exceeds shareholders equity, then such excess,
  multiplied by the annual inflation rate, is added to taxable income.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | · | Subject to certain limitations, depreciation deductions on fixed
  assets and losses carried forward are adjusted for inflation based on the
  increase in the consumer price index (from the beginning of the 1982 fiscal
  year, and as of the 1985 fiscal year, with respect to equipment); and gains
  on the sale of certain traded securities are taxable. However, dealers in
  securities are subject to the regular tax rules applicable to business income
  in Israel.                                                                                                                                                                                                                                                                                                                                                                   

The Income Tax Law (Inflationary Adjustment Law), 1985 has been
abolished from the tax year 2008, subject to transitional provisions.

TAXATION OF
OUR SHAREHOLDERS

Capital Gains

Capital gain
tax is imposed on the disposal of capital assets by an Israeli resident, and on
the disposal of such assets by a non- Israel resident if those assets are
either (i) located in Israel; (ii) are shares or a right to a share in an
Israeli resident corporation; and (iii) rights in a foreign corporation whose
majority of assets is directly or indirectly, rights to assets located in
Israel (with respect to the applicable portion of the capital gain). The
Israeli Tax Ordinance distinguishes between Real Gain and the Inflationary
Surplus. Real Gain is the excess of the total capital gain over Inflationary
Surplus computed generally on the basis of the increase in the Israeli CPI
between the date of purchase and the date of disposal.

The capital
gain accrued by individuals on the sale of an asset purchased on or after
January 1, 2003 will be taxed at the rate of 20%. However, if the individual
shareholder is a Controlling Shareholder (i.e., a person who holds, directly
or indirectly, alone or together with other, 10% or more of one of the Israeli
resident companys means of control at the time of distribution or at any time
during the preceding 12 months period) such gain will be taxed at the rate of
25%. In addition, capital gain derived by an individual claiming deduction of
financing expenses in respect of such gain will be taxed at the rate of 25%.
The real capital gain derived by a corporation will be generally subject to tax
at the rate of 25%. However, the real capital gain derived from sale of
securities, as defined in Section 6 of the Inflationary Adjustment Law, by a
corporation, which was subject upon August 10, 2005 to the provisions of
Section 6 of the Inflationary Adjustment Law, will be taxed at the corporate
tax rate (27% in 2008). The capital gain accrued at the sale of an asset
purchased prior to January 1, 2003 will be subject to tax at a blended rate.

80

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The marginal
tax rate for individuals (up to 47% in 2008) and the regular corporate tax rate
for corporations (27% in 2008) will be applied to the gain amount which bears
the same ratio to the total gain realized as the ratio which the holding period
commencing at the acquisition date and terminating on January 1, 2003 bears to
the total holding period. The remainder of the gain realized will be subject to
capital gains tax at the rates applicable to an asset purchased after January
1, 2003 (see aforementioned).

Individual and
corporate shareholders dealing in securities in Israel are taxed at the tax
rates applicable to business income (in 2008  27% tax rate for a corporation
and a marginal tax rate of up to 47% for individual). Notwithstanding the
foregoing, if the shareholder is a non-Israeli resident, then such taxation is
subject to the provision of any applicable double tax treaty. Moreover, capital
gains derived from the sale of the shares by a non-Israeli shareholder may be
exempt under the Israeli income tax ordinance from Israeli taxation provided
the following cumulative conditions are met: (i) the shares were purchased upon
or after the registration of the shares at the stock exchange, (ii) the seller
does not have a permanent establishment in Israel to which the derived capital
gain is attributed, and (iii) if the seller is a corporation, less than 25% of
its means of control are held by Israeli resident shareholders. In addition,
the sale of the shares may be exempt from Israeli capital gains tax under an
applicable tax treaty. Thus, the U.S.-Israel Double Tax Treaty exempts U.S.
resident from Israeli capital gain tax in connection with such sale, provided
(i) the U.S. resident controlled, either directly or indirectly, less than 10%
of an Israeli resident companys voting power at any time within the 12  month
period preceding such sale; (ii) the seller, being an individual, is present in
Israel for a period or periods of less than 183 days during the taxable year;
and (iii) the capital gain from the sale was not derived through a permanent
establishment of the U.S. resident in Israel.

Either the
seller, the Israeli stockbrokers or financial institution through which the
sold securities are held is obliged, subject to the above mentioned exemptions,
to withhold tax upon the sale of securities from the real capital gain at the
rate of 25% in respect of a corporation and 20% in respect of an individual.

Generally, a
detailed return, including a computation of the tax due, should be submitted to
the Israeli Tax Authority, within 30 days of the completion of a transaction
and advanced payment amounting to the tax liability arising from the capital
gain is due. At the sale of traded securities, the aforementioned detailed
return may not be submitted and the advanced payment should not be paid if all
tax due was withheld at the source according to applicable provisions of the
Israeli income tax ordinance and regulations promulgated thereunder. Capital gain is also reportable on the
annual income tax return.

DIVIDENDS

A distribution
of dividend from income attributed to an Approved Enterprise or a Privileged
Enterprise under the Law for Encouragement of Capital Investments  1959 will
generally be subject to tax in Israel at the rate of 15%, subject to a reduced
rate under any applicable double tax treaty. A distribution of dividend from
income, which is not attributed to an Approved Enterprise to an Israeli
resident individual, will generally be subject to income tax at a rate of 20%.
However, a 25% tax rate will apply if the dividend recipient is a Controlling
Shareholder (i.e., a person who holds, directly or indirectly, alone or
together with other(s), 10% or more of one of the Israeli resident companys
means of control at the time of distribution or at any time during the
preceding 12 months period). If the recipient of the dividend is an Israeli
resident corporation, such dividend will be exempt from income tax provided the
income from which such dividend is distributed was derived or accrued within
Israel.

81

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Under the
Israeli income tax ordinance, a non-Israeli resident (either individual or
corporation) is generally subject to an Israeli income tax on the receipt of
dividends at the rate of 20% (25% if the dividends recipient is a Controlling
Shareholder (as defined above)); those rates are subject to a reduced tax rate
under an applicable double tax treaty. Thus, under the Double Tax Treaty
concluded between the State of Israel and the U.S. the following rates will
apply in respect of dividends distributed by an Israeli resident company to a
U.S. resident: (i) if the U.S. resident is a corporation which holds during
that portion of the taxable year which precedes the date of payment of the
dividend and during the whole of its prior taxable year (if any), at least 10%
of the outstanding shares of the voting stock of the Israeli resident paying
corporation and not more then 25% of the gross income of the Israeli resident
paying corporation for such prior taxable year (if any) consists of certain
type of interest or dividends  the tax rate is 12.5%, (ii) if both the
conditions mentioned in section (i) above are met and the dividend is paid from
an Israeli resident companys income which was entitled to a reduced tax rate
applicable to an approved enterprise under the Israeli Law for the
Encouragement of Capital Investments of 1959 the tax rate is 15%, and (iii) in
all other cases, the tax rate is 25%. The aforementioned rates under the Israel
U.S. Double Tax Treaty will not apply if the dividend income was derived
through a permanent establishment of the U.S. resident in Israel.

An Israeli
resident company whose shares are listed in a stock exchange is obligated to
withhold tax, upon the distribution of a dividend attributed to an Approved
Enterprises income, from the amount distributed, at the following rates: (i)
Israeli resident corporation  15%, (ii) Israeli resident individual  15%, and
(iii) non-Israeli resident  15%, subject to a reduced tax rate under an
applicable double tax treaty. If the dividend is distributed from an income not
attributed to the Approved Enterprise, the following withholding tax rates will
apply: (i) Israeli resident corporation  0%, (ii) Israeli resident individual
 20% (iii) non-Israeli resident  20%, subject to a reduced tax rate under an
applicable double tax treaty.

F. DIVIDENDS AND PAYING AGENTS.

Not Applicable.

G. STATEMENT BY EXPERTS.

Not Applicable.

H. DOCUMENTS ON DISPLAY

We are subject
to the informational requirements of the Securities Exchange Act of 1934, as
amended, applicable to foreign private issuers and, in accordance therewith,
are obligated to file reports, including annual reports on Form 20-F, and other
information with the SEC relating to our business, financial condition and
other matters. You may examine such reports, exhibits and other information
filed by us with the SEC, without charge, at the public reference facilities
maintained by the SEC at 100 F Street, N.E., Room 1580, Washington, D.C., 20549.
You may also receive copies of these materials by mail from the SECs Public
Reference Branch at 100 F Street, N.E., Room 1580, Washington, D.C., 20549, at
prescribed rates. For more information on the public reference rooms, call the
SEC at 1-800-SEC-0330. The SEC maintains an Internet website at
http://www.sec.gov that contains reports, proxy statements, information
statements and other material that are filed through the SECs Electronic Data
Gathering, Analysis and Retrieval (EDGAR) system. We began filing through the
EDGAR system on November 6, 2002.

As a foreign
private issuer, we are exempt from the rules under the Exchange Act prescribing
the furnishing and content of proxy statements, and our officers, directors and
principal shareholders are exempt from the reporting and short-swing profit
recovery provisions contained in Section 16 of the Exchange Act. In addition,
we are not required under the Exchange Act to file periodic reports and
financial statements with the SEC as frequently or as promptly as United States
companies whose securities are registered under the Exchange Act.

82

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---

Notwithstanding
the foregoing, we solicit proxies and furnish proxy statements for all meetings
of shareholders, a copy of which proxy statement is filed promptly thereafter
with the SEC under the cover of a Current Report on Form 6-K. However, we do
not distribute an annual report to our shareholders prior to our annual meeting
of shareholders, as the generally accepted business practice in Israel, where
we are incorporated, is not to distribute an annual report to shareholders. We
post our Annual Report on Form 20-F on our web site (www.scailex.com) as soon
as practicable following the filing of the Annual Report on Form 20-F with the
SEC.

I. SUBSIDIARY INFORMATION

Not Applicable.

|         |                                                           
|-------- | ----------------------------------------------------------
|ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Since most of
the Companys assets are cash and cash equivalents invested mostly in overnight
dollar-denominated deposits with U.S. banks and in U.S. government bonds and
ORL shares which are presented as available for sale assets, the major market
risk for the Company is a potential decline in the value of such assets. The
assets that are denominated in dollars are dependent on changes to the U.S.
monetary interest rate and/or the value of bonds held by the Company, which
would impact the Companys results of operations. The ORL share price is
dependent, among other things, on the conditions of the stock market in Israel,
the conditions of the global fuel economy, and the operations and results of
ORL itself.

We do not
actively hedge interest rate exposure or share prices or engage in other
transactions intended to manage risks relating to interest rate and share price
fluctuations. The interest income on our cash equivalents and short-term
investments is sensitive to changes in the general level of market interest
rates. Our shareholders equity is affected as well by changes in the ORL share
price, which is presented in our financial statements as comprehensive income
and not as a change in our profits and losses.

In general,
the Company does not acquire protection for its investments, partly due to
legal restrictions on the purchasing of various derivatives arising under the
SECs Investment Act of 1940 regulations.

PRESENTATION OF
EXCHANGE RATE AND INTEREST RATE RISK

Because the
Companys operational currency is the the US dollar, the table below details
the balance sheet exposure to other currencies, primarily NIS, as of the
periods indicated below (at fair value). Explanatory notes are provided below
the table.

|                          |  |                             |   |                               |     |  | 
|------------------------- |  | --------------------------- | - | ----------------------------- | --- |  | 
|                          |  | U.S. Dollar
  (in millions) |   | Other Currencies(in millions) |    
|                          |  |                             |   |                               |    
|                          |  |                             |   |                               |     |  | 
|as of
  December 31, 2007 |  | (68.0                       | ) |                               | 0.3 |  | 
|as of
  December 31, 2006 |  | (17.3                       | ) |                               | 2.0 |  | 

|  |                                                                                                                                
|- | -------------------------------------------------------------------------------------------------------------------------------
|· | The amounts
  shown in the table represent monetary assets less liabilities (net
  liabilities are represented in parentheses).

See Item 5.
Operating And Financial Review And Prospects  Impact of Inflation and Exchange
Rates.

83

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|         |                                                       
|-------- | ------------------------------------------------------
|ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not
applicable.

PART II

|         |                                                
|-------- | -----------------------------------------------
|ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not
applicable.

|         |                                                                               
|-------- | ------------------------------------------------------------------------------
|ITEM 14. | MATERIAL MODIFICATIONS IN THE RIGHTS OF SECURITY HOLDERS AND USE OF
  PROCEEDS

Not
applicable.

|         |                        
|-------- | -----------------------
|ITEM 15. | CONTROLS AND PROCEDURES

Disclosure Controls
and Procedures:Our Chief Executive Officer, or CEO, and Chief Financial Officer, or
CFO, are responsible for establishing and maintaining our disclosure controls
and procedures. These controls and procedures were designed to ensure that
information required to be disclosed in the reports that we file under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the
SEC. We evaluated these disclosure controls and procedures under the
supervision of our CEO and CFO as of December 31, 2007. Based on this
evaluation, our CEO and CFO concluded that our disclosure controls and
procedures were effective as of December 31, 2007.

Managements Annual
Report on Internal Control over Financial Reporting:Our management, under the supervision of
our Chief Executive Officer and Chief Financial Officer, is responsible for
establishing and maintaining adequate internal control over our financial
reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act of
1934, as amended. The Companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. Internal
control over financial reporting includes policies and procedures that:

| |   |                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | Pertain to
  the maintenance of records that in reasonable detail accurately and fairly
  reflect our transactions and asset dispositions;                                                              
| |   |                                                                                                                                                                                                         
| | · | provide
  reasonable assurance that transactions are recorded as necessary to permit
  the preparation of our financial statements in accordance with generally
  accepted accounting principles;       
| |   |                                                                                                                                                                                                         
| | · | provide
  reasonable assurance that receipts and expenditures are made only in
  accordance with authorizations of our management and board of directors (as
  appropriate); and                        
| |   |                                                                                                                                                                                                         
| | · | provide
  reasonable assurance regarding the prevention or timely detection of
  unauthorized acquisition, use or disposition of assets that could have a
  material effect on our financial statements.

Due to its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. In addition, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

84

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---

Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we evaluated the
effectiveness of our internal control over financial reporting as of
December 31, 2007 based on the framework for Internal
Control-Integrated Framework set forth by The Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on our assessment, our
management concluded that the Companys internal control over financial
reporting were effective as of December 31, 2007.

Attestation Report
of the Registered Public Accounting Firm:Brightman Almagor Zohar & Co., a
Member Firm of Deloitte Touche Tohmatsu, which has audited the financial statements
included in this Annual Report on Form 20-F, has issued an attestation report
on managements assessment of the Companys internal control over financial
reporting; their report is included in Item 18.

Changes in Internal
Control over Financial Reporting:There were no changes in the Companys
internal control over financial reporting that occurred during the year ended
December 31, 2007 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.

|          |                                 
|--------- | --------------------------------
|ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT

Our board of
directors has determined that five out of six audit committee members are
audit committee financial experts as defined in Item 16A of Form 20-F. Our
audit committee financial experts are Messrs. Shalom Singer, Dror Barzilai,
Irit Ben-Ami, Dr. Arie Ovadia and Mordechai Peled. Other than Dr. Arie Ovadia,
all the other directors are independent as this term is defined in the
Marketplace rules.

|          |               
|--------- | --------------
|ITEM 16B. | CODE OF ETHICS

We have
adopted a Code of Ethics and Business Conduct, which applies to all of our
directors, executive officers and employees. A copy of our Code of Ethics and
Business Conduct has been posted on our Internet website,
http://www.scailex.com.

|          |                                       
|--------- | --------------------------------------
|ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES

Until the end
of 2006, Kesselman & Kesselman, a member of PricewaterhouseCoopers
International Ltd. (PwC), served as our independent auditors. At the annual
general meeting held in December 2006, our shareholders appointed the
accounting firm of Brightman, Almagor, Zohar & Co., Certified Public
Accountants, a Member Firm of Deloitte, Touche, and Tohmatsu as our independent
auditors until the next annual meeting with regard to the audit of fiscal year
2007.

85

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---

PwC, including
Kesselman & Kesselman, billed the following fees to us for professional
services in 2006, and Brightman, Almagor & Co. billed the following fees to
us for professional services in 2007:

|                         |  |                                        |      |       |  |      | 
|------------------------ |  | -------------------------------------- | ---- | ----- |  | ---- | 
|                         |  | Year ended December 31,                |     
|                         |  |                                        |     
|                         |  | (approximate U.S. Dollars in millions) |     
|                         |  |                                        |     
|                         |  | 2007*                                  |      | 2006* | 
|                         |  |                                        |      |       | 
|                         |  |                                        |      |       |  |      | 
|Audit Fees
  (1)         |  |                                        | 0.09 |       |  | 0.20 | 
|Audit-Related
  Fees (2) |  |                                        | 0.02 |       |  | 0.02 | 
|Tax Fees (3)             |  |                                        | 0.05 |       |  | 0.13 | 
|All Other
  Fees (4)     |  |                                        |     |       |  | ---  | 
|Total Fees               |  |                                        | 0.16 |       |  | 0.35 | 
|                         |  |                                        |      |       |  |      | 

| |                                                                                      
| | -------------------------------------------------------------------------------------
| | * Includes
  fees related to services rendered in respect of discontinued operations.

| |     |                                                                                                                                                                                                                                                                         
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Audit Fees
  are the aggregate fees billed for the audit of our annual financial
  statements, reviews of interim financial statements and attestation services
  that are normally provided in connection with statutory and regulatory
  filings or engagements.    
| |     |                                                                                                                                                                                                                                                                         
| | (2) | Audit-Related
  Fees are the aggregate fees billed for assurance and related services that
  are reasonably related to the performance of the audit or review of our
  financial statements and are not reported under Audit Fees.                                    
| |     |                                                                                                                                                                                                                                                                         
| | (3) | Tax Fees
  are the aggregate fees billed for professional services rendered for tax
  compliance, tax advice on actual or contemplated transactions and tax
  planning Kesselman & Kesselman provided us with tax services such as PFIC
  evaluation and tax planning.
| |     |                                                                                                                                                                                                                                                                         
| | (4) | All Other
  Fees are the aggregate fees billed for professional services that are not
  reported under the captions Audit Fees, Audit-Related Fees or Tax Fees.                                                                                                 

The reduction
of the audit fees in 2007 as compared to 2006 was due to the fact that in 2006
the Company began reporting in Israel in accordance with IFRS, a process which required
extensive work. Furthermore, in 2006, the Company filed reports in geographical
areas other than Israel with respect to former subsidiaries that have since
been liquidated.

Our audit
committee oversees our independent auditors. See Item 6. Directors, Senior
Management and Employees  Board Practices.

Our audit
committee approves each audit and non-audit service to be performed by our
independent accountant before the accountant is engaged.

86

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|          |                                                           
|--------- | ----------------------------------------------------------
|ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FORAUDIT COMMITTEES.

Not
applicable.

|          |                                                                          
|--------- | -------------------------------------------------------------------------
|ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
  PURCHASERS.

ISSUER PURCHASES OF EQUITY SECURITIES

IPE

|              |  |                                                 |         |                                            |  |                                                                                                   |  |                                                                                                                               |  |  |  |  | 
|------------- |  | ----------------------------------------------- | ------- | ------------------------------------------ |  | ------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------- |  |  |  |  | 
|Period        |  | (a) Total Number of Shares (or Units) Purchased |         | (b) Average Price Paid per Share (or Unit) |  | (c) Total Number of Shares (or Units) Purchased as Part of
  Publicly Announced Plans or Programs |  | (d) Maximum Number (or Approximate Dollar Value) of Shares
  (or Units) that May Yet Be Purchased Under the Plans or Programs | 
|              |  |                                                 |         |                                            |  |                                                                                                   |  |                                                                                                                               | 
|              |  |                                                 |         |                                            |  |                                                                                                   |  |                                                                                                                               |  |  |  |  | 
|February 2007 |  |                                                 | 312,000 |                                            |  | NIS 37.06                                                                                         |  |                                                                                                                               |  |  |  |  | 

These purchases were made in open
market transactions on TASE. Nothing herein shall be deemed as an admission by IPE that it
is an affiliated purchaser within the meaning of Rule 10b-18 promulgated under
the Exchange Act.

Ilan Ben Dov (through Harmony, Tao and Suny Electronics)

|Period         | (a) Total Number of
Shares (or Units)
Purchased | (b) Average Price
Paid per Share (or
Unit) | (c) Total Number of
Shares (or Units)
Purchased as Part
of Publicly
Announced Plans or
Programs | (d) Maximum Number
(or Approximate
Dollar Value) of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or
Programs
|-------------- | ----------------------------------------------- | ------------------------------------------ | ----------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------
|
|
|
|January 2007   |                                                 |                                            |                                                                                                 | 183,972                                                                                                                    
|February 2007  |                                                 |                                            |                                                                                                 | 928,678                                                                                                                    
|March 2007     |                                                 |                                            |                                                                                                 | 722,803                                                                                                                    
|April 2007     |                                                 |                                            |                                                                                                 | 127,156                                                                                                                    
|May 2007       |                                                 |                                            |                                                                                                 | 190,583                                                                                                                    
|June 2007      |                                                 |                                            |                                                                                                 | 67,878                                                                                                                     
|July 2007      |                                                 |                                            |                                                                                                 | 403,934                                                                                                                    
|August 2007    |                                                 |                                            |                                                                                                 | 277,553                                                                                                                    
|September 2007 |                                                 |                                            |                                                                                                 | 355,034                                                                                                                    
|October 2007   |                                                 |                                            |                                                                                                 | 377,520                                                                                                                    
|November 2007  |                                                 |                                            |                                                                                                 | 161,113                                                                                                                    
|December 2007  |                                                 |                                            |                                                                                                 | 251,411                                                                                                                    
|January 2008   |                                                 |                                            |                                                                                                 | 770,390                                                                                                                    
|February 2008  |                                                 |                                            |                                                                                                 | 159,714                                                                                                                    
|June 2008(1)   |                                                 |                                            |                                                                                                 | 297,678                                                                                                                    

(1) As of June 26, 2008

PART III

|         |                     
|-------- | --------------------
|ITEM 17. | FINANCIAL STATEMENTS

We have
responded to Item 18 in lieu of this item.

|         |                     
|-------- | --------------------
|ITEM 18. | FINANCIAL STATEMENTS

Scailex is
filing as part of this Annual Report:

| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| | · | consolidated
  audited financial statements of Scailex for the year ended December 31, 2007;
  and

|                                                                                                           |  |      |            | 
|---------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | 
|Index to the Financial Statements of the Registrant:                                                       |  | Page |           
|                                                                                                           |  |      |           
|                                                                                                           |  |      |            | 
|Report of Independent
  Registered Public Accounting Firm relating to Scailex                              |  |      | F-2        | 
|Consolidated
  Balance Sheets at December 31, 2007 and 2006                                                |  |      | F-3 - F-4  | 
|Consolidated
  Statements of Operations for the Three Years ended December 31, 2007                        |  |      | F-5        | 
|Consolidated
  Statements of Changes in Shareholders Equity for the Three Years ended
  December 31, 2007 |  |      | F-6        | 
|Consolidated
  Statements of Cash Flows for the Three Years ended December 31, 2007                        |  |      | F-7        | 
|Notes to
  Consolidated Financial Statements                                                               |  |      | F-8 - F-37 | 
|Report of Independent Registered Public Accounting Firm relating to Scailex for 2006 and 2005              |  |      | F-38       | 

87

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|         |          |                                                                                                                                                                                                  
|-------- | -------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ITEM 19. | EXHIBITS
|         |          |                                                                                                                                                                                                  
|1.1      |          | Memorandum
  of Association of the Registrant.                                                                                                                                                   
|         |          |                                                                                                                                                                                                  
|1.2      |          | Amended and
  Restated Articles of Association of the Registrant.                                                                                                                                
|         |          |                                                                                                                                                                                                  
|4(a)(1)  |          | Asset
  Purchase Agreement, dated November 24, 2003, between Eastman Kodak Company,
  the Registrant, Scitex Digital Printing, Inc. and Scitex Development Corp.
  (1)                           
|         |          |                                                                                                                                                                                                  
|4(a)(2)  |          | Asset
  Purchase Agreement, dated August 11, 2005, between Hewlett-Packard Company
  and Scitex Vision Ltd. and the First Amendment thereto, dated November 1,
  2005. (2)                       
|         |          |                                                                                                                                                                                                  
|4(a)(3)  |          | Jemtex
  Reorganization Agreement, dated August 4, 2006, and amendments thereto dated
  September 2006 and January 4, 2007, between Scailex Corp. Ltd., Avi Raby and
  Yehoshua Sheinman. (3)    
|         |          |                                                                                                                                                                                                  
|4(a)(4)  |          | Shareholders
  Agreement, dated December 21, 2006, and amendments thereto dated February
  2007 and May 10, 2007, between Scailex Corporation Ltd. and Linura Holdings
  AG (4)                  
|         |          |                                                                                                                                                                                                  
|4(a)(5)  |          | Memorandum
  of Understanding dated February 18, 2007 and addendum dated February 19,
  2007, between Petroleum Capital Holdings Ltd., Scailex Corporation Ltd. and
  Israel Corporation Ltd. (5)
|         |          |                                                                                                                                                                                                  
|4(a)(6)  |          | Globecom
  Management Agreement, dated May 1, 2007, between Scailex Corporation Ltd. and
  Globecom Investments Ltd. (6)                                                                         
|         |          |                                                                                                                                                                                                  
|4(a)(7)  |          | Deed of
  Undertaking, dated May 10, 2007, between Petroleum Capital Holdings Ltd.,
  Scailex Corporation Ltd. and Israel Corporation Ltd. (7)                                                   
|         |          |                                                                                                                                                                                                  
|4(a)(9)  |          | Share
  Purchase Agreement, dated March 26, 2008, between Scailex Corporation Ltd.
  and Linura Holdings AG                                                                                      
|         |          |                                                                                                                                                                                                  
|4(a)(10) |          | The PCH Sale
  Agreement, dated April 10, 2008, between Scailex Corporation Ltd. and Israel
  Petrochemicals Enterprise Ltd.                                                                     
|         |          |                                                                                                                                                                                                  
|4(a)(11) |          | Escrow
  Settlement Agreement, dated May 5, 2008, between Scailex Corporation Ltd. and
  Hewlett-Packard Company [Translation from Hebrew]                                                       
|         |          |                                                                                                                                                                                                  
|4(c)(1)  |          | Form of the
  Letter of Indemnification provided to office holders. (8)                                                                                                                          
|         |          |                                                                                                                                                                                                  
|4(c)(2)  |          | The 2001
  Stock Option Plan (as amended, 2003). (9)                                                                                                                                             
|         |          |                                                                                                                                                                                                  
|4(c)(3)  |          | The 2003
  Share Option Plan. (10)                                                                                                                                                               
|         |          |                                                                                                                                                                                                  
|4(d)(1)  |          | Services
  Agreement, dated November 1, 2001, between Clal and the Registrant (as
  amended, 2004). (11)                                                                                         
|         |          |                                                                                                                                                                                                  
|4(d)(2)  |          | Services
  Agreement, dated March 1, 2004, between Discount Investment Corporation Ltd.
  and the Registrant. (12)                                                                               

88

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|         |  |                                                                                                                                                     
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|8        |  | List of
  Subsidiaries of the Registrant.                                                                                                           
|         |  |                                                                                                                                                     
|12(a)(1) |  | Certification
  of CEO of the Registrant pursuant to Rule 13a-14(a) as adopted pursuant to
  Section 302 of the Sarbanes-Oxley Act of 2002.         
|         |  |                                                                                                                                                     
|12(a)(2) |  | Certification
  of CFO of the Registrant pursuant to Rule 13a-14(a) as adopted pursuant to
  Section 302 of the Sarbanes-Oxley Act of 2002.         
|         |  |                                                                                                                                                     
|13(a)(1) |  | Certification
  of CEO of the Registrant pursuant to Rule 13a-14(b), as adopted pursuant to
  Section 906 of the Sarbanes-Oxley Act of 2002.        
|         |  |                                                                                                                                                     
|13(a)(2) |  | Certification
  of CFO of the Registrant pursuant to Rule 13a-14(b), as adopted pursuant to
  Section 906 of the Sarbanes-Oxley Act of 2002.        
|         |  |                                                                                                                                                     
|14(a)(1) |  | Consent of
  Independent Registered Public Accounting Firm relating to Registrant.                                                                  
|         |  |                                                                                                                                                     
|14(a)(2) |  | Consent of Independent Registered Public Accounting Firm relating to Registrant (relating to 2006 and
2005 Financial Statements).                   
|         |  |                                                                                                                                                     
|(1)      |  | Incorporated
  by reference to Exhibit 4(a)(2) to our Annual Report on Form 20-F for the
  fiscal year ended December 31, 2003, filed June 30, 2004.
|         |  |                                                                                                                                                     
|(2)      |  | Incorporated
  by reference to Exhibit 4(a)(5) to our Annual Report on Form 20-F for the
  fiscal year ended December 31, 2003, filed June 28, 2006.
|         |  |                                                                                                                                                     
|(3)      |  | Incorporated
  by reference to Exhibit 4(a)(3) to our Annual Report on Form 20-F for the
  fiscal year ended December 31, 2006, filed June 19, 2007.
|         |  |                                                                                                                                                     
|(4)      |  | Incorporated
  by reference to Exhibit 4(a)(4) to our Annual Report on Form 20-F for the
  fiscal year ended December 31, 2006, filed June 19, 2007.
|         |  |                                                                                                                                                     
|(5)      |  | Incorporated
  by reference to Exhibit 4(a)(5) to our Annual Report on Form 20-F for the
  fiscal year ended December 31, 2006, filed June 19, 2007.
|         |  |                                                                                                                                                     
|(6)      |  | Incorporated
  by reference to Exhibit 4(a)(6) to our Annual Report on Form 20-F for the
  fiscal year ended December 31, 2006, filed June 19, 2007.
|         |  |                                                                                                                                                     
|(7)      |  | Incorporated
  by reference to Exhibit 4(a)(7) to our Annual Report on Form 20-F for the
  fiscal year ended December 31, 2006, filed June 19, 2007.
|         |  |                                                                                                                                                     
|(8)      |  | Incorporated
  by reference to Appendix B to our Proxy Statement filed under the cover of a
  Current Report on Form 6-K filed December 1, 2005.    
|         |  |                                                                                                                                                     
|(9)      |  | Incorporated
  by reference to Exhibit (d)(4) to our Tender Offer Statement on Schedule TO
  filed May 14, 2004.                                    
|         |  |                                                                                                                                                     
|(10)     |  | Incorporated
  by reference to Appendix B to our Proxy Statement filed under the cover of a
  Current Report on Form 6-K filed December 3, 2003.    
|         |  |                                                                                                                                                     
|(11)     |  | Incorporated
  by reference to Exhibit 4(d)(1) to our Annual Report on Form 20-F for the
  fiscal year ended December 31, 2003, filed June 30, 2004.
|         |  |                                                                                                                                                     
|(12)     |  | Incorporated
  by reference to Exhibit 4(d)(3) to our Annual Report on Form 20-F for the
  fiscal year ended December 31, 2003, filed June 30, 2004.

89

---

---

SIGNATURES

The Registrant
hereby certifies that it meets all of the requirements for filing on Form 20-F
and that it has duly caused and authorized the undersigned to sign this Annual
Report on its behalf.

|                      |                            |                          
|--------------------- | -------------------------- | -------------------------
|                      | SCAILEX
  CORPORATION LTD.
|                      | (Registrant)              
|                      |                            |                          
|                      | By:                        | /s/ Yahel
  Shachar      
|                      |                            |                          
|                      |                            | Yahel Shachar            
|                      |                            | Chief
  Executive Officer
|                      |                            |                          
|Date: June 30,
  2008 |                            |                          

90

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---

SCAILEX CORPORATION LTD.(Formerly SCITEX CORPORATION LTD.)

2007 CONSOLIDATED FINANCIAL STATEMENTS

---

---

SCAILEX CORPORATION LTD.

2007 CONSOLIDATED FINANCIAL STATEMENTS

TABLE OF CONTENTS

|                                                                                              |           
|--------------------------------------------------------------------------------------------- | ----------
|                                                                                              | Page      
|                                                                                              |           
|REPORT OF INDEPENDENT
  REGISTERED PUBLIC ACCOUNTING FIRM                                     | F-2       
|CONSOLIDATED FINANCIAL STATEMENTS:                                                            |           
|Consolidated Balance Sheets                                                                   | F-3 - F-4 
|Consolidated Statements of Operations                                                         | F-5       
|Consolidated Statements of Changes in Shareholders
  Equity                                  | F-6       
|Consolidated Statements of Cash Flows                                                         | F-7       
|Notes to Consolidated Financial Statements                                                    | F-8 - F-37
|Report of Independent Registered Public Accounting Firm relating to Scailex for 2006 and 2005 | F-38      

The amounts are stated in U.S. dollars ($).

---

---

| |                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Brightman Almagor Zohar
1 Azrieli Center
Tel Aviv 67021
P.O.B. 16593, Tel Aviv 61164
Israel
Tel:   +972 (3) 608 5555
Fax:   +972 (3) 609 4022
info@deloitte.co.il
www.deloitte.com

REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Scailex Corporation Ltd.

We have audited the accompanying
consolidated balance sheets of Scailex Corporation Ltd. and subsidiaries (the
Company) as of December 31, 2007 and the related consolidated statements of
income, stockholders equity, and cash flows for the year than ended. These financial
statements are the responsibility of the Companys management. Our responsibility is
to express an opinion on the financial statements and financial statement schedules based
on our audits.

The audited Consolidated Financial
Statements as of December 31, 2006 and the related consolidated statements of income,
stockholders equity, and cash flows for each of the two years in the period ended
December 31 2006 were audited by other auditors, whose report dated June 17, 2007
expressed an unqualified opinion on those statements.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, such consolidated
financial statements present fairly, in all material respects, the financial position of
Scailex Corporation Ltd. and subsidiaries as of December 31, 2007, and the results of
their operations, the changes in their shareholders equity and their cash flows for
the year than ended, in conformity with accounting principles generally accepted in the
United States of America.

We also have audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United States), the
Company and subsidiarys internal control over financial reporting as of December 31,
2007, based on criteria established in Internal Control  Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and
our report dated June 30, 2008 expressed an unqualified opinion on the effectiveness of
the Companys internal control over financial reporting.

Brightman Almagor & Co.
Certified Public Accountants
A Member Firm of Deloitte Touche Tohmatsu
Tel Aviv, Israel
June 30, 2008

F-2

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---

| |                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Brightman Almagor Zohar
1 Azrieli Center
Tel Aviv 67021
P.O.B. 16593, Tel Aviv 61164
Israel
Tel:   +972 (3) 608 5555
Fax:   +972 (3) 609 4022
info@deloitte.co.il
www.deloitte.com

# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

To Board of Directors and the shareholders of
Scailex Corporation Ltd.

We have audited the internal control
over financial reporting of Scailex Corporation Ltd. and subsidiaries (the
Company) as of December 31, 2007, based on criteria established in Internal
Control  Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission. The Companys management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in Item 15
Controls and Procedures  Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Companys internal control over
financial reporting based on our audit.

We conducted our audit in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.

A companys internal control
over financial reporting is a process designed by, or under the supervision of, the
companys principal executive and principal financial officers, or persons performing
similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A companys internal control over
financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.

F-2a

---

---

| |                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Brightman Almagor Zohar
1 Azrieli Center
Tel Aviv 67021
P.O.B. 16593, Tel Aviv 61164
Israel
Tel:   +972 (3) 608 5555
Fax:   +972 (3) 609 4022
info@deloitte.co.il
www.deloitte.com

Because of the inherent limitations
of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may
not be prevented or detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may
deteriorate.

In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2007, based on the criteria established in Internal Control 
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.

We have also audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated financial statements as of and for the year ended December 31, 2007 of the
Company and our report June 30, 2008 expressed an unqualified opinion on those financial
statements.

Brightman Almagor & Co.
Certified Public Accountants
A Member Firm of Deloitte Touche TohmatsuTel Aviv, Israel
June 30, 2008

F-2b

---

---

SCAILEX CORPORATION LTD.CONSOLIDATEDBALANCE SHEETS

|                                                          |  |                           |         |      |  |         |  
|--------------------------------------------------------- |  | ------------------------- | ------- | ---- |  | ------- | -
|                                                          |  | December 31               |        
|                                                          |  |                           |        
|                                                          |  | 2007                      |         | 2006 | 
|                                                          |  |                           |         |      | 
|                                                          |  | U.S. dollars in thousands |        
|                                                          |  |                           |        
|                                                          |  |                           |         |      |  |         |  
|A s s e t s                                               |  |                           |         |      |  |         |  
|CURRENT ASSETS:                                           |  |                           |         |      |  |         |  
|Cash and cash equivalents                                 |  |                           | 111,360 |      |  | 236,967 | *
|Available-for-sale securities                             |  |                           | 308,411 |      |  | 14,258  |  
|Current maturities of securities held-to-maturity         |  |                           | 2,091   |      |  | 21,991  |  
|Other receivables                                         |  |                           | 3,165   |      |  | 713     |  
|                                                          |  |                           |         |      |  |         |  
|Current assets of discontinued operations                 |  |                           | 11,844  |      |  | 22,258  | *
|                                                          |  |                           |         |      |  |         |  
|T o t a l  current assets                                 |  |                           | 436,871 |      |  | 296,187 |  
|                                                          |  |                           |         |      |  |         |  
|                                                          |  |                           |         |      |  |         |  
|INVESTMENTS AND OTHER NON-CURRENT ASSETS:                 |  |                           |         |      |  |         |  
|Securities held-to-maturity                               |  |                           | 8,922   |      |  | 22,879  |  
|Other investments and prepaid expenses                    |  |                           |         |      |  | 404     |  
|Funds in respect of employee rights upon
  retirement     |  |                           | 139     |      |  | 90      |  
|                                                          |  |                           |         |      |  |         |  
|                                                          |  |                           | 9,061   |      |  | 23,373  |  
|                                                          |  |                           |         |      |  |         |  
|                                                          |  |                           |         |      |  |         |  
|PROPERTY AND EQUIPMENT,
  net of accumulated depreciation |  |                           | 696     |      |  | 12      |  
|                                                          |  |                           |         |      |  |         |  
|                                                          |  |                           | 446,628 |      |  | 319,572 |  
|                                                          |  |                           |         |      |  |         |  

*reclassified

|              |                                     
|------------- | ------------------------------------
|              | )                                   
|Eran Schwartz | ) Chairman of the Board of Directors
|              |                                     
|              | )                                   
|Yahel Shachar | ) Chief Executive Officer           

F-3

---

---

|                                                                                                                                                                                                                                                         |  |                           |         |      |  |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ------- | ---- |  | ------- | -
|                                                                                                                                                                                                                                                         |  | December 31               |        
|                                                                                                                                                                                                                                                         |  |                           |        
|                                                                                                                                                                                                                                                         |  | 2007                      |         | 2006 | 
|                                                                                                                                                                                                                                                         |  |                           |         |      | 
|                                                                                                                                                                                                                                                         |  | U.S. dollars in thousands |        
|                                                                                                                                                                                                                                                         |  |                           |        
|                                                                                                                                                                                                                                                         |  |                           |         |      |  |         |  
|Liabilities and shareholders equity                                                                                                                                                                                                                     |  |                           |         |      |  |         |  
|CURRENT LIABILITIES:                                                                                                                                                                                                                                     |  |                           |         |      |  |         |  
|Trade payables                                                                                                                                                                                                                                           |  |                           | 386     |      |  | 77      |  
|Income taxes payable                                                                                                                                                                                                                                     |  |                           | 1,155   |      |  | 1,055   |  
|Accrued and other liabilities                                                                                                                                                                                                                            |  |                           | 1,073   |      |  | 988     |  
|Current liabilities related to discontinued
  operations                                                                                                                                                                                                 |  |                           | 14,699  |      |  | 20,382  |  
|                                                                                                                                                                                                                                                         |  |                           |         |      |  |         |  
|T o t a l  current liabilities                                                                                                                                                                                                                           |  |                           | 17,313  |      |  | 22,502  |  
|                                                                                                                                                                                                                                                         |  |                           |         |      |  |         |  
|LONG-TERM LIABILITIES:                                                                                                                                                                                                                                   |  |                           |         |      |  |         |  
|Liability for employee rights upon
  retirement (note 5)                                                                                                                                                                                                 |  |                           | 189     |      |  | 176     |  
|Capital note from minority shareholders in
  a subsidiary                                                                                                                                                                                                |  |                           | 57,926  |      |  |         |  
|Deferred income taxes                                                                                                                                                                                                                                    |  |                           | 8,930   |      |  |         |  
|                                                                                                                                                                                                                                                         |  |                           |         |      |  |         |  
|T o t a l  long-term liabilities                                                                                                                                                                                                                         |  |                           | 67,045  |      |  | 176     |  
|                                                                                                                                                                                                                                                         |  |                           |         |      |  |         |  
|COMMITMENTS AND CONTINGENT LIABILITIES(note
  6)                                                                                                                                                                                                         |  |                           |         |      |  |         |  
|                                                                                                                                                                                                                                                         |  |                           |         |      |  |         |  
|T o t a l  liabilities                                                                                                                                                                                                                                   |  |                           | 84,358  |      |  | 22,678  |  
|                                                                                                                                                                                                                                                         |  |                           |         |      |  |         |  
|MINORITY INTEREST                                                                                                                                                                                                                                        |  |                           | 16,356  |      |  | 11,860  |  
|                                                                                                                                                                                                                                                         |  |                           |         |      |  |         |  
|SHAREHOLDERS EQUITY(note
  7):                                                                                                                                                                                                                          |  |                           |         |      |  |         |  
|Share capital - ordinary shares of NIS 0.12
  par value (authorized: December 31, 2007 and 2006  60,000,000 and 48,000,000
  shares; issued and outstanding respectively: December 31, 2007 and 2006 
  43,579,388 and 43,467,388 shares respectively) |  |                           | 6,209   |      |  | 6,205   |  
|Capital surplus                                                                                                                                                                                                                                          |  |                           | 281,055 |      |  | 280,637 |  
|Accumulated other comprehensive loss                                                                                                                                                                                                                     |  |                           | 44,609  |      |  | (590    | )
|Retained earnings                                                                                                                                                                                                                                        |  |                           | 46,341  |      |  | 31,082  |  
|Treasury shares, at cost (December 31, 2007
  and 2006 - 5,401,025 shares)                                                                                                                                                                               |  |                           | (32,300 | )    |  | (32,300 | )
|                                                                                                                                                                                                                                                         |  |                           |         |      |  |         |  
|T o t a l  shareholders equity                                                                                                                                                                                                                          |  |                           | 345,914 |      |  | 285,034 |  
|                                                                                                                                                                                                                                                         |  |                           |         |      |  |         |  
|                                                                                                                                                                                                                                                         |  |                           | 446,628 |      |  | 319,572 |  
|                                                                                                                                                                                                                                                         |  |                           |         |      |  |         |  

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

F-4

---

---

SCAILEX CORPORATION LTD.CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                                                                        |  |                           |        |      |  |        |   |  |         |  
|----------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ------ | ---- |  | ------ | - |  | ------- | -
|                                                                                                                        |  | Year ended December 31    |       
|                                                                                                                        |  |                           |       
|                                                                                                                        |  | 2007                      |        | 2006 |  | 2005   |  
|                                                                                                                        |  |                           |        |      |  |        |  
|                                                                                                                        |  | U.S. dollars in thousands |       
|                                                                                                                        |  | (except per share data)   |       
|                                                                                                                        |  |                           |       
|                                                                                                                        |  |                           |        |      |  |        |   |  |         |  
|GENERAL AND ADMINISTRATIVE EXPENSES                                                                                     |  |                           | (3,570 | )    |  | (2,955 | ) |  | (2,964  | )
|FINANCIAL INCOME,net                                                                                                    |  |                           | 2,580  |      |  | 13,202 |   |  | 4,283   |  
|OTHER INCOME, net                                                                                                       |  |                           | 10,823 |      |  | 3,141  |   |  | 917     |  
|                                                                                                                        |  |                           |        |      |  |        |   |  |         |  
|INCOME BEFORE TAXES ON INCOME                                                                                           |  |                           | 9,833  |      |  | 13,388 |   |  | 2,236   |  
|INCOME TAX BENEFITS (TAXES ON INCOME)(note 8)                                                                           |  |                           |        |      |  | (1,502 | ) |  | 94      |  
|SHARE IN RESULTS OF ASSOCIATED COMPANY(including gain from sale of the associated
  company in 2005 of $2,981 thousand) |  |                           |        |      |  |        |   |  | 2,876   |  
|MINORITY INTEREST IN LOSS (INCOME) OF A SUBSIDIARY                                                                      |  |                           | 3,979  |      |  | (478   | ) |  |         |  
|                                                                                                                        |  |                           |        |      |  |        |   |  |         |  
|NET INCOME FROM CONTINUING OPERATIONS                                                                                   |  |                           | 13,812 |      |  | 11,408 |   |  | 5,206   |  
|NET INCOME FROM DISCONTINUED OPERATIONS,net of taxes and minority interests                                             |  |                           | 1,447  |      |  | 11,135 |   |  | 100,932 |  
|                                                                                                                        |  |                           |        |      |  |        |   |  |         |  
|NET INCOME                                                                                                              |  |                           | 15,259 |      |  | 22,543 |   |  | 106,138 |  
|                                                                                                                        |  |                           |        |      |  |        |   |  |         |  
|                                                                                                                        |  |                           |        |      |  |        |   |  |         |  
|EARNING PER SHARE (EPS) - BASIC:                                                                                      |  |                           |        |      |  |        |   |  |         |  
|Continuing operations                                                                                                   |  |                           | 0.36   |      |  | 0.30   |   |  | 0.14    |  
|Discontinued operations                                                                                                 |  |                           | 0.04   |      |  | 0.29   |   |  | 2.65    |  
|                                                                                                                        |  |                           |        |      |  |        |   |  |         |  
|                                                                                                                        |  |                           | 0.40   |      |  | 0.59   |   |  | 2.79    |  
|                                                                                                                        |  |                           |        |      |  |        |   |  |         |  
|                                                                                                                        |  |                           |        |      |  |        |   |  |         |  
|EPS - DILUTED:                                                                                                        |  |                           |        |      |  |        |   |  |         |  
|Continuing operations                                                                                                   |  |                           | 0.36   |      |  | 0.30   |   |  | 0.14    |  
|Discontinued operations                                                                                                 |  |                           | 0.04   |      |  | 0.29   |   |  | 2.55    |  
|                                                                                                                        |  |                           |        |      |  |        |   |  |         |  
|                                                                                                                        |  |                           | 0.40   |      |  | 0.59   |   |  | 2.69    |  
|                                                                                                                        |  |                           |        |      |  |        |   |  |         |  
|WEIGHTED AVERAGE NUMBER OF SHARES USED IN COMPUTATION OF EPS (in thousands):                                            |  |                           |        |      |  |        |   |  |         |  
|Basic                                                                                                                   |  |                           | 38,164 |      |  | 38,066 |   |  | 38,066  |  
|                                                                                                                        |  |                           |        |      |  |        |   |  |         |  
|Diluted                                                                                                                 |  |                           | 38,207 |      |  | 38,156 |   |  | 38,134  |  
|                                                                                                                        |  |                           |        |      |  |        |   |  |         |  

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

F-5

---

---

SCAILEX CORPORATION LTD.CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY

|                                                             |  |                                                 |       |                   |  |                                            |  |                                               |        |                   |  |                                |   |  |         |   |  |         |  
|------------------------------------------------------------ |  | ----------------------------------------------- | ----- | ----------------- |  | ------------------------------------------ |  | --------------------------------------------- | ------ | ----------------- |  | ------------------------------ | - |  | ------- | - |  | ------- | -
|                                                             |  | Share
  capital                                 |       | Capital
  surplus |  | Accumulated
  other
  comprehensive
  loss |  | Retained
  earnings
  (Accumulated
  deficit) |        | Treasury
  shares |  | Total
  shareholders
  equity |  
|                                                             |  |                                                 |       |                   |  |                                            |  |                                               |        |                   |  |                                |  
|                                                             |  | U. S.   d o l l a r s   i n   t h o u s a n d s |      
|                                                             |  |                                                 |      
|                                                             |  |                                                 |       |                   |  |                                            |  |                                               |        |                   |  |                                |   |  |         |   |  |         |  
|BALANCE AT JANUARY 1, 2005                                   |  |                                                 | 6,205 |                   |  | 278,295                                    |  |                                               | (327   | )                 |  | (97,599                        | ) |  | (32,300 | ) |  | 154,274 |  
|CHANGES DURING THE YEAR ENDED DECEMBER 31, 2005:             |  |                                                 |       |                   |  |                                            |  |                                               |        |                   |  |                                |   |  |         |   |  |         |  
|Net income                                                   |  |                                                 |       |                   |  |                                            |  |                                               |        |                   |  | 106,138                        |   |  |         |   |  | 106,138 |  
|Other comprehensive loss, in respect of:                     |  |                                                 |       |                   |  |                                            |  |                                               |        |                   |  |                                |   |  |         |   |  |         |  
|Available-for-sale securities, net                           |  |                                                 |       |                   |  |                                            |  |                                               | (783   | )                 |  |                                |   |  |         |   |  | (783    | )
|                                                             |  |                                                 |       |                   |  |                                            |  |                                               |        |                   |  |                                |   | 
|Total comprehensive income                                   |  |                                                 |       |                   |  |                                            |  |                                               |        |                   |  |                                |   |  |         |   |  | (783    | )
|                                                             |  |                                                 |       |                   |  |                                            |  |                                               |        |                   |  |                                |   | 
|Stock - based compensation from options granted to employees |  |                                                 |       |                   |  | 1,974                                      |  |                                               |        |                   |  |                                |   |  |         |   |  | 1,974   |  
|                                                             |  |                                                 |       |                   |  |                                            |  |                                               |        |                   |  |                                |  
|BALANCE AT DECEMBER 31, 2005                                 |  |                                                 | 6,205 |                   |  | 280,269                                    |  |                                               | (1,110 | )                 |  | 8,539                          |   |  | (32,300 | ) |  | 261,603 |  
|CHANGES DURING THE YEAR ENDED DECEMBER 31, 2006:             |  |                                                 |       |                   |  |                                            |  |                                               |        |                   |  |                                |   |  |         |   |  |         |  
|Net income                                                   |  |                                                 |       |                   |  |                                            |  |                                               |        |                   |  | 22,543                         |   |  |         |   |  | 22,543  |  
|Other comprehensive income, in respect of:                   |  |                                                 |       |                   |  |                                            |  |                                               |        |                   |  |                                |   |  |         |   |  |         |  
|Available-for-sale securities, net                           |  |                                                 |       |                   |  |                                            |  |                                               | 183    |                   |  |                                |   |  |         |   |  | 183     |  
|Held-to-maturity securities amortization                     |  |                                                 |       |                   |  |                                            |  |                                               | 337    |                   |  |                                |   |  |         |   |  | 337     |  
|                                                             |  |                                                 |       |                   |  |                                            |  |                                               |        |                   |  |                                |   | 
|Total comprehensive income                                   |  |                                                 |       |                   |  |                                            |  |                                               |        |                   |  |                                |   |  |         |   |  | 520     |  
|                                                             |  |                                                 |       |                   |  |                                            |  |                                               |        |                   |  |                                |   | 
|Payment made by shareholders to senior employees             |  |                                                 |       |                   |  | 274                                        |  |                                               |        |                   |  |                                |   |  |         |   |  | 274     |  
|Stock - based compensation from options granted to employees |  |                                                 |       |                   |  | 94                                         |  |                                               |        |                   |  |                                |   |  |         |   |  | 94      |  
|                                                             |  |                                                 |       |                   |  |                                            |  |                                               |        |                   |  |                                |  
|BALANCE AT DECEMBER 31, 2006                                 |  |                                                 | 6,205 |                   |  | 280,637                                    |  |                                               | (590   | )                 |  | 31,082                         |   |  | (32,300 | ) |  | 285,034 |  
|                                                             |  |                                                 |       |                   |  |                                            |  |                                               |        |                   |  |                                |  
|CHANGES DURING THE YEAR ENDED DECEMBER 31, 2007:             |  |                                                 |       |                   |  |                                            |  |                                               |        |                   |  |                                |   |  |         |   |  |         |  
|Net income                                                   |  |                                                 |       |                   |  |                                            |  |                                               |        |                   |  | 15,259                         |   |  |         |   |  | 15,259  |  
|Other comprehensive income, in respect of:                   |  |                                                 |       |                   |  |                                            |  |                                               |        |                   |  |                                |   |  |         |   |  |         |  
|Available-for-sale securities, net                           |  |                                                 |       |                   |  |                                            |  |                                               | 45,043 |                   |  |                                |   |  |         |   |  | 45,043  |  
|Held-to-maturity securities amortization                     |  |                                                 |       |                   |  |                                            |  |                                               | 156    |                   |  |                                |   |  |         |   |  | 156     |  
|                                                             |  |                                                 |       |                   |  |                                            |  |                                               |        |                   |  |                                |   | 
|Total comprehensive income                                   |  |                                                 |       |                   |  |                                            |  |                                               |        |                   |  |                                |   |  |         |   |  | 45,199  |  
|                                                             |  |                                                 |       |                   |  |                                            |  |                                               |        |                   |  |                                |   | 
|Exercise of options to ordinary shares                       |  |                                                 | 4     |                   |  | 412                                        |  |                                               |        |                   |  |                                |   |  |         |   |  | 416     |  
|Stock - based compensation from options granted to employees |  |                                                 |       |                   |  | 6                                          |  |                                               |        |                   |  |                                |   |  |         |   |  | 6       |  
|                                                             |  |                                                 |       |                   |  |                                            |  |                                               |        |                   |  |                                |  
|BALANCE AT DECEMBER 31, 2007                                 |  |                                                 | 6,209 |                   |  | 281,055                                    |  |                                               | 44,609 |                   |  | 46,341                         |   |  | (32,300 | ) |  | 345,914 |  
|                                                             |  |                                                 |       |                   |  |                                            |  |                                               |        |                   |  |                                |  

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

F-6

---

---

SCAILEX CORPORATION LTD.CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                                              |  |                           |          |      |  |         |   |  |         |  
|------------------------------------------------------------------------------------------------------------- |  | ------------------------- | -------- | ---- |  | ------- | - |  | ------- | -
|                                                                                                              |  | Year ended December 31    |         
|                                                                                                              |  |                           |         
|                                                                                                              |  | 2007                      |          | 2006 |  | 2005    |  
|                                                                                                              |  |                           |          |      |  |         |  
|                                                                                                              |  | U.S. dollars in thousands |         
|                                                                                                              |  |                           |         
|                                                                                                              |  |                           |          |      |  |         |   |  |         |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                         |  |                           |          |      |  |         |   |  |         |  
|Net income from operations                                                                                    |  |                           | 15,259   |      |  | 22,543  |   |  | 106,138 |  
|Adjustments to reconcile net income from operations to net cash
  provided by (used in) operating activities: |  |                           |          |      |  |         |   |  |         |  
|Income and expenses not involving
  cash flows:                                                               |  |                           |          |      |  |         |   |  |         |  
|Gain
  from sale/Share in results of associated companies, net                                                |  |                           |          |      |  |         |   |  | (3,668  | )
|Minority
  interest in income (loss) of a subsidiary                                                          |  |                           | (3,979   | )    |  | 478     |   |  |         |  
|Depreciation                                                                                                  |  |                           | 16       |      |  | 3       |   |  | 4       |  
|Amortization
  of deferred stock compensation                                                                 |  |                           | 6        |      |  | 94      |   |  | 20      |  
|Write-down
  of investment in investee companies                                                              |  |                           |          |      |  | 660     |   |  |         |  
|Accrued
  severance pay, net                                                                                  |  |                           | (36      | )    |  | 40      |   |  | 4       |  
|Deferred
  income taxes, net                                                                                  |  |                           |          |      |  | 1,260   |   |  | (551    | )
|Interest
  and CPI linkage on loans/capital note from minority shareholders in a
  subsidiary                 |  |                           | 6,957    |      |  |         |   |  |         |  
|Payment
  made by shareholders to senior employees                                                            |  |                           |          |      |  | 274     |   |  |         |  
|Loss (gain) from sale of securities                                                                           |  |                           | (71      | )    |  | 531     |   |  | 59      |  
|Gain
  from sale of investment at cost                                                                        |  |                           | (134     | )    |  | (1,327  | ) |  |         |  
|Bonds
  interests Income, net                                                                                 |  |                           | 542      |      |  | (29     | ) |  |         |  
|Other
  income from dividend paid by investment at cost                                                       |  |                           |          |      |  | (1,800  | ) |  |         |  
|Changes in operating asset and liability items:                                                               |  |                           |          |      |  |         |   |  |         |  
|Decrease
  (Increase) in other receivables                                                                    |  |                           | (2,447   | )    |  | (145    | ) |  | 277     |  
|Increase
  (decrease) in accounts payable and accruals                                                        |  |                           | 494      |      |  | 245     |   |  | 540     |  
|Changes in asset and liability items of discontinued operations                                               |  |                           | 4,896    |      |  | 1,848   |   |  | (75,905 | )
|                                                                                                              |  |                           |          |      |  |         |   |  |         |  
|Net cash provided by operating activities                                                                     |  |                           | 21,503   |      |  | 24,675  |   |  | 26,918  |  
|                                                                                                              |  |                           |          |      |  |         |   |  |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                         |  |                           |          |      |  |         |   |  |         |  
|Acquisition of available-for-sale securities                                                                  |  |                           | (242,640 | )    |  |         |   |  | (13,233 | )
|Acquisition of held-to-maturity marketable securities                                                         |  |                           |          |      |  | (18,998 | ) |  |         |  
|Proceeds from sale of available-for-sale securities                                                           |  |                           | 13,072   |      |  | 5,000   |   |  | 8,972   |  
|Maturity of securities held-to-maturity                                                                       |  |                           | 34,042   |      |  | 15,000  |   |  |         |  
|Proceeds from sale of cost method investment                                                                  |  |                           |          |      |  | 1,327   |   |  |         |  
|Purchase of fixed assets                                                                                      |  |                           | (700     | )    |  | (6      | ) |  | (11     | )
|Proceeds from sale of investments in discontinued operations                                                  |  |                           |          |      |  |         |   |  | 199,164 |  
|Proceeds from disposal of associated company                                                                  |  |                           |          |      |  |         |   |  | 3,000   |  
|Distribution of funds from cost method investment                                                             |  |                           | 533      |      |  | 2,890   |   |  | 1,006   |  
|Investment in associated companies and cost method investments                                                |  |                           |          |      |  | (625    | ) |  | (325    | )
|Net cash used in discontinued operations                                                                      |  |                           | (227     | )    |  | (5,019  | ) |  | (13,974 | )
|                                                                                                              |  |                           |          |      |  |         |   |  |         |  
|Net cash provided by (used in) investing activities                                                           |  |                           | (195,920 | )    |  | (431    | ) |  | 184,599 |  
|                                                                                                              |  |                           |          |      |  |         |   |  |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                         |  |                           |          |      |  |         |   |  |         |  
|Proceeds from exercise of options to ordinary shares                                                          |  |                           | 416      |      |  |         |   |  |         |  
|Loans/capital note received/paid by a subsidiary, net                                                         |  |                           | 53,936   |      |  |         |   |  |         |  
|Net cash used in discontinued operations                                                                      |  |                           | (6,250   | )    |  | (34,180 | ) |  | (43,154 | )
|                                                                                                              |  |                           |          |      |  |         |   |  |         |  
|                                                                                                              |  |                           |          |      |  |         |   |  |         |  
|Net cash provided by (used in) financing activities                                                           |  |                           | 48,102   |      |  | (34,180 | ) |  | (43,154 | )
|                                                                                                              |  |                           |          |      |  |         |   |  |         |  
|                                                                                                              |  |                           |          |      |  |         |   |  |         |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                          |  |                           | (126,315 | )    |  | (9,936  | ) |  | 168,363 |  
|                                                                                                              |  |                           |          |      |  |         |   |  |         |  
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                                                |  |                           | 244,319  | *    |  | 254,255 | * |  | 85,892  |  
|                                                                                                              |  |                           |          |      |  |         |   |  |         |  
|                                                                                                              |  |                           |          |      |  |         |   |  |         |  
|CASH AND CASH EQUIVALENTS AT END OF YEAR                                                                      |  |                           | 118,004  | *    |  | 244,319 | * |  | 254,255 | *
|                                                                                                              |  |                           |          |      |  |         |   |  |         |  
|                                                                                                              |  |                           |          |      |  |         |   |  |         |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                                             |  |                           |          |      |  |         |   |  |         |  
|Income taxes paid net of refunds                                                                              |  |                           | 3,469    |      |  | 2,633   |   |  | 123     |  
|                                                                                                              |  |                           |          |      |  |         |   |  |         |  

|  |                                                                                                                                                                                                                                                      
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Cash and cash equivalents includes
cash and cash equivalents classified on the Companys balance sheet under
Current assets of discontinued operations of $6,644,000 $7,352,000 and
$54,493,000, on December 31, 2007, 2006 and 2005, respectively.

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

F-7

---

---

SCAILEX CORPORATION LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|         |         
|-------- | --------
|NOTE 1  | GENERAL:

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | Nature of operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | Continuing operation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | Scailex
  Corporation Ltd. (The Company) is a public company incorporated in Israel
  whose shares are listed for trading on The Tel Aviv Stock Exchange (TASE)
  and are quoted in the OTC Bulletin Board (OTCBB) in the United States. The
  Companys offices are located in Herzliya Pituach, Israel.                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | The
  controlling shareholder of the Company is Israel Petrochemicals Enterprises
  Ltd., which holds 50.06% of the Companys issued and outstanding share
  capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | Since August
  2006, the Company has been operating in one business sector  managing the
  Companys assets and searching for investments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | b. | Discontinued operations:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | In the past,
  the Company operated, directly and through its subsidiaries (the Group), in three business
  segments, which have been sold over the course of the past years, the last
  such sale being consummated in 2006. Consequently, operating results of these
  three segments have been reported in these financial statements as
  discontinued operations in accordance with Statement of Financial Accounting
  Standards (SFAS) No. 144 Accounting for the Impairment or Disposal of
  Long-Lived Assets, (SFAS 144) and the Company has reclassified its results
  of operations, and the related assets and liabilities and cash flows for the
  prior periods in accordance with provisions of SFAS 144.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | The Company
  has revised the 2005 statements of cash flows to exclude cash and cash
  equivalents, attributable to discontinued operations, from the line item Net
  cash provided by (used in) discontinued operation Such amounts are now
  included in cash and cash equivalents at beginning of the year and cash
  and cash equivalents at end of year.                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | The three
  business segments that have been discontinued are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | 1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | High-Speed
  Digital Printing segment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | On January
  5, 2004, the Company completed the sale of substantially all of the assets,
  liabilities and operations of its indirect wholly-owned subsidiary Scailex
  Digital Printing Inc. (SDP) related to its High-Speed Digital Printing
  Business, including most of the distribution channels that served SDP, to Eastman
  Kodak Company (Kodak), for $250 million in cash (in addition $12 million
  was retained at SDP following the transaction). Pursuant to the agreement, a
  $25 million was held in escrow, of which (i) $15 million was released in
  February 2004; (ii) $5 million was released in January 2005; and (iii) the
  remaining $5 million was released in January 2006.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | In December
  2004, following the conclusion of tax audit by the United States Internal
  Revenue Services (IRS) in the consolidated companies SDP and Scitex
  Development Corp. (SDC), SDPs parent company (a wholly owned subsidiary of
  the Company), for the years 1992 to 1996, the Company filed an application
  for refunds of federal taxation in respect of amended tax reports for the
  years 1994, 1995 and 1997.                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | In the year
  2005, the Company recorded tax income in respect of the tax refunds as
  aforesaid, in the amount of $7.8 million. In July 2006, the Company
  received the tax refunds, as aforesaid, in the amount of $12.6 million
  and as a result, it recorded further tax income in the amount of
  $4.8 million. The tax income has been recorded under income from
  discontinued operations.                                                                                                                                                                                                                                                                                                       

F-8

---

---

SCAILEX CORPORATION LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

|         |                    
|-------- | -------------------
|NOTE 1  | GENERAL(continued):

| |                                                                                                                            |                                                                                                                         | 
| | -------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | 
| |                                                                                                                            | On July
  2006, SDC and SDP (both of which were registered in the State of
  Massachusetts in the USA) were liquidated.
| |                                                                                                                            |                                                                                                                         | 
| | The current
  liabilities of SDP classified as discontinued operation in the Consolidated
  Balance Sheets are as follows:

|                                             |  |                           |       |      |  |       | 
|-------------------------------------------- |  | ------------------------- | ----- | ---- |  | ----- | 
|                                             |  | Year ended December 31    |      
|                                             |  |                           |      
|                                             |  | 2007                      |       | 2006 | 
|                                             |  |                           |       |      | 
|                                             |  | U.S. dollars in thousands |      
|                                             |  |                           |      
|                                             |  |                           |       |      |  |       | 
|Liabilities                                  |  |                           |       |      |  |       | 
|Other
  payables (mainly income tax payable) |  |                           | 9,364 |      |  | 9,506 | 
|                                             |  |                           |       |      |  |       | 
|T o t a l   liabilities                      |  |                           | 9,364 |      |  | 9,506 | 
|                                             |  |                           |       |      |  |       | 

| |                                                                   
| | ------------------------------------------------------------------
| | Net income
  from the discontinued operations of SDP is as follow:

|                          |  |                           |    |      |  |       |  |  |       | 
|------------------------- |  | ------------------------- | -- | ---- |  | ----- |  |  | ----- | 
|                          |  | Year ended December 31    |   
|                          |  |                           |   
|                          |  | 2007                      |    | 2006 |  | 2005  | 
|                          |  |                           |    |      |  |       | 
|                          |  | U.S. dollars in thousands |   
|                          |  |                           |   
|                          |  |                           |    |      |  |       |  |  |       | 
|Other income, net         |  |                           | 89 |      |  | 93    |  |  | 966   | 
|                          |  |                           |    |      |  |       |  |  |       | 
|                          |  |                           |    |      |  |       |  |  |       | 
|Income tax
  benefit      |  |                           |    |      |  | 4,614 |  |  | 7,800 | 
|                          |  |                           |    |      |  |       |  |  |       | 
|Net income
  for the year |  |                           | 89 |      |  | 4,707 |  |  | 8,766 | 
|                          |  |                           |    |      |  |       |  |  |       | 

F-9

---

---

SCAILEX CORPORATION LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

|         |                     
|-------- | --------------------
|NOTE 1  | GENERAL (continued):

| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 2) | Wide Format
  Digital Printing Segment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  |    | On November
  1, 2005, the Company completed the sale of substantially all of the assets
  and the liabilities of the business of Scailex Vision (Tel-Aviv) Ltd
  (Scailex Vision). (formerly Scitex Vision Ltd.), a majority-owned
  subsidiary of the Company, to Hewlett-Packard Company (HP). Under the terms
  of the agreement, HP paid approximately $230 million in cash to Scailex
  Vision (subject to certain adjustments under the agreement), of which $23
  million was retained in escrow for 24 months to cover possible
  indemnification claims and $1 million was retained for 12 months to cover
  possible tax payments related to 2005. As a result, the Company recognized
  during 2005, a net income of approximately $92 million from discontinued
  operations. In addition, the Company has agreed to assign its rights to the
  Scitex trade name to HP, and agreed to change its corporate name (and
  accordingly, the Company changed its name to Scailex Corporation Ltd.). In
  April 2006, HP paid Scailex Vision an additional amount of approximately
  $6.6 million in respect of the adjustment of the purchase price, as
  determined in accordance with the sale agreement. As a result of this
  additional consideration, the Company recognized an additional gain in the
  amount of $2.8 million (net of minority and related tax payments) under gain from discontinued operations
  in the statement of income for the year ended December 31, 2006.
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  |    | Related to
  the escrow account, an amount of $1 million was released to Scailex Vision
  account on November 10, 2006. During 2006-2007, till the end of the escrow
  period, HP filed a number of claims with the trustee for the receipt of the
  sum of approximately $15.8 million out of the said total sum of $23 million that
  was deposited in the escrow account. Consequently, an amount of $8.7 million
  (including accrued interest) was released in November 2007 and the remaining
  amount of $15.8 million was left to cover the claims filed by HP. Scailex
  Vision has rejected these claims and has filed its objection with the trustee
  and the parties agreed on an arbitration procedures to solve the dispute, in
  accordance with the sale agreement. In May 2008, in accordance with the
  arbitrator decision, an additional amount of $7.8 million was released to
  Scailex Vision, see note 11(3).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  |    | On February
  9, 2006, Scailex Vision distributed cash dividend equivalent to the amount
  available for distribution, following the conclusion of the transaction for
  the sale of the assets to HP. The amount of the net accumulated dividend that
  was distributed amounted to approximately $135 million (of which
  $101 million was received by the Company), by way of the payment of
  $0.80 per share to each of the shareholders and $0.39 per option
  warrant to each of the holders of the option warrants (constituting the net
  amount less the exercise price).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  |    | On February
  5, 2007, Scailex Vision reduced its share capital with the Courts approval
  (dated January 29, 2007), and distributed an additional dividend to its
  shareholders of $20 million (of which $14.3 million were received by the
  Company).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  |    | See details
  in note 11.6 for additional dividend distributed by Scailex Vision post
  balance sheet date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  |    | On January
  23, 2007, Scailex Vision and Scailex Vision International Ltd. (a wholly
  owned subsidiary of Scailex Vision) signed tax assessment agreements with the
  Israeli Tax Authorities, for tax years 2001- 2005. As a result of the
  assessments, the Company recorded a gain from the reduction of tax provisions
  in the amount of $3.1 million under discontinued operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

F-10

---

---

SCAILEX CORPORATION LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

|         |                     
|-------- | --------------------
|NOTE 1  | GENERAL (continued):

| |                                                                                                                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                
| | ----------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                           |  | In May 2008,
  Scailex Vision and Scailex Vision International Ltd. signed tax assessment
  agreements for the tax years 2006-2007.                                                                                                                                                                                                                                                            
| |                                                                                                                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                           |  | At December
  31, 2007 and 2006, the remaining cash and assets classified as discontinued
  operations are estimated to be used for future payment of the related
  liabilities of the discontinued operations. At December 31, 2007 and 2006, the
  remaining liabilities classified as discontinued operation represent
  liabilities for payments of transaction expenses and related taxes.
| |                                                                                                                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                
| | The assets
  and liabilities of Scailex Vision classified as discontinued operation in the
  Consolidated Balance Sheets, are as follows:

|                                               |  |                           |        |      |  |        | 
|---------------------------------------------- |  | ------------------------- | ------ | ---- |  | ------ | 
|                                               |  | December 31               |       
|                                               |  |                           |       
|                                               |  | 2007                      |        | 2006 | 
|                                               |  |                           |        |      | 
|                                               |  | U.S. dollars in thousands |       
|                                               |  |                           |       
|                                               |  |                           |        |      |  |        | 
|Assets                                         |  |                           |        |      |  |        | 
|Current assets:                                |  |                           |        |      |  |        | 
|Cash                                           |  |                           | 6,644  |      |  | 7,352  | 
|Other receivables                              |  |                           | 5,199  |      |  | 14,906 | 
|                                               |  |                           |        |      |  |        | 
|T o t a l   current assets                     |  |                           | 11,843 |      |  | 22,258 | 
|                                               |  |                           |        |      |  |        | 
|                                               |  |                           |        |      |  |        | 
|Liabilities                                    |  |                           |        |      |  |        | 
|Current liabilities                            |  |                           | 5,335  |      |  | 10,876 | 
|Minority interest in discontinued operation    |  |                           | 6,508  |      |  | 11,382 | 
|                                               |  |                           |        |      |  |        | 
|T o t a l  liabilities and
  minority interest |  |                           | 11,843 |      |  | 22,258 | 
|                                               |  |                           |        |      |  |        | 

| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | Revenues and
  net income from the discontinued operations of Scailex Vision are as follow:

|                                                         |  |                           |      |      |  |        |   |  |         |  
|-------------------------------------------------------- |  | ------------------------- | ---- | ---- |  | ------ | - |  | ------- | -
|                                                         |  | Year ended December 31    |     
|                                                         |  |                           |     
|                                                         |  | 2007                      |      | 2006 |  | 2005   |  
|                                                         |  |                           |      |      |  |        |  
|                                                         |  | U.S. dollars in thousands |     
|                                                         |  |                           |     
|                                                         |  |                           |      |      |  |        |   |  |         |  
|Revenues                                                 |  |                           |      |      |  |        |   |  | 126,964 |  
|Cost of
  revenues                                       |  |                           |      |      |  |        |   |  | 73,778  |  
|                                                         |  |                           |      |      |  |        |   |  |         |  
|Gross profit                                             |  |                           |      |      |  |        |   |  | 53,186  |  
|Operation
  expenses                                     |  |                           |      |      |  |        |   |  | 40,797  |  
|                                                         |  |                           |      |      |  |        |   |  |         |  
|Operating
  income                                       |  |                           |      |      |  |        |   |  | 12,389  |  
|Financial
  income (expense), net                        |  |                           | 139  |      |  | (131   | ) |  | (506    | )
|Other
  income, net                                      |  |                           | 113  |      |  | 3,877  |   |  | 123,049 |  
|                                                         |  |                           |      |      |  |        |   |  |         |  
|Income
  before taxes on income                          |  |                           | 252  |      |  | 3,746  |   |  | 134,932 |  
|Income tax
  benefit (Taxes on income)                   |  |                           | 106  |      |  | 4,379  |   |  | (963    | )
|                                                         |  |                           |      |      |  |        |   |  |         |  
|                                                         |  |                           | 358  |      |  | 8,125  |   |  | 133,969 |  
|Minority
  interests in income of discontinued operation |  |                           | (101 | )    |  | (2,370 | ) |  | (37,334 | )
|                                                         |  |                           |      |      |  |        |   |  |         |  
|Net income                                               |  |                           | 257  |      |  | 5,755  |   |  | 96,635  |  
|                                                         |  |                           |      |      |  |        |   |  |         |  

| |                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In 2007, 2006 and 2005, the
  Company recognized a gain of $0.2 million, $2.8 million and $92.3 million,
  respectively, on the said sale (net of minority interest and related taxes).

F-11

---

---

SCAILEX CORPORATION LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

|         |                     
|-------- | --------------------
|NOTE 1  | GENERAL (continued):

| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 3) | The
  Continuous Ink-Jet Digital Printing for Industrial Applications segment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  |    | On August 4,
  2006, an agreement was signed between the Company and the senior management
  of Jemtex InkJet Printing Ltd. (hereinafter  Jemtex), pursuant to which
  the Company sold the majority of its holdings in Jemtex to two of Jemtexs
  senior managers. Consequently, the Companys stake in Jemtex was reduced from
  approximately 75% to 15%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  |    | Within the
  framework of the sale agreement, out of the total of some $9.7 million in
  convertible loans that the Company provided to Jemtex over the course of the
  years, the Company converted convertible loans totaling some $6.7 million
  into shares in Jemtex. Pursuant to the conditions of the sale agreement, the
  outstanding balance of the loans, a total of $3 million, was repayable over a
  period of 5 to 7 years, unless the Company was paid $1 million by January 4,
  2007, in which case, the said payment will be considered full repayment of
  all of the loans. The sum of $1 million (plus interest) was paid to the Company
  on January 4, 2007, subsequent to Jemtexs engagement in an investment
  agreement with a third-party investor. The said receipt was recognized in the
  books as income in 2007.                                                                                                                                                                                                                   
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  |    | The
  conditions of the sale agreement signed with Jemtexs Management were amended
  within the scope of the investment agreement, inter alia, as follows: the
  Company waived the vast majority of its veto rights vested in it pursuant to
  Jemtexs Articles of Association, and the Companys rights to receive
  information were restricted; it was agreed that the protection afforded to
  the Company to retain its 15% holding of Jemtexs equity on a fully diluted
  basis would remain in effect until August 2009; thereafter, the Company would
  retain in part its right vis-à-vis the Management of Jemtex to receive at
  least $3 million of the assets earmarked for distribution pursuant to terms
  determined in the agreement. The Company received an option to invest $3
  million in Jemtex based on a company value of $20 million, and it was also
  agreed that this option would remain in effect until and including August 3,
  2009. The Company estimates the value of this option at the date granted at a
  de-minims value.
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  |    | Subsequent
  to the aforementioned sale agreement and the reduction in the percentage of
  holding, the Company discontinued consolidating Jemtexs financial statements
  with its consolidated financial statements and Jemtexs activities were
  classified as discontinued operations. The balance of the investment in
  Jemtex as at the end of 2007 is zero.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

F-12

---

---

SCAILEX CORPORATION LTD.NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)

|         |                     
|-------- | --------------------
|NOTE 1  | GENERAL (continued):

| |                                                                              
| | -----------------------------------------------------------------------------
| | Net income
  (loss) from the discontinued operations of Jemtex is as follows:

|                                      |  |                           |       |      |  |        |   |  |        |  
|------------------------------------- |  | ------------------------- | ----- | ---- |  | ------ | - |  | ------ | -
|                                      |  | Year ended December 31    |      
|                                      |  |                           |      
|                                      |  | 2007                      |       | 2006 |  | 2005   |  
|                                      |  |                           |       |      |  |        |  
|                                      |  | U.S. dollars in thousands |      
|                                      |  |                           |      
|                                      |  |                           |       |      |  |        |   |  |        |  
|Research
  & development expenses     |  |                           |       |      |  | (1,235 | ) |  | (2,549 | )
|Marketing
  expenses                  |  |                           |       |      |  | (31    | ) |  | (55    | )
|Administrative
  and general expenses |  |                           |       |      |  | (278   | ) |  | (660   | )
|Amortization
  of intangible assets   |  |                           |       |      |  | (722   | ) |  | (1,215 | )
|Financing
  expenses (income)         |  |                           |       |      |  | (17    | ) |  | 10     |  
|Income from
  repayment of loan       |  |                           | 1,000 |      |  |        |   |  |        |  
|                                      |  |                           |       |      |  |        |   |  |        |  
|Net income
  (loss)                   |  |                           | 1,000 |      |  | (2,283 | ) |  | (4,469 | )
|                                      |  |                           |       |      |  |        |   |  |        |  

| |  |    |                                                                                                                                                                                              
| |  | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 4) | Other income
  from discontinued operations                                                                                                                                                  
| |  |    |                                                                                                                                                                                              
| |  |    | In the year
  ended December 31, 2006, the Company recorded an income of $3 million from
  discontinued operation, which was sold in the year 2000 due to beneficial
  final tax assessments.

|         |                                 
|-------- | --------------------------------
|NOTE 2  | SIGNIFICANT ACCOUNTING POLICIES:

| |    |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -- | -------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | General:
| |    |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | 1)       | Risk factors
  and concentration                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |          | As of
  December 31, 2007, the Company and its subsidiaries are subject to various
  risks, including but not limited to: (i) business and industry risks like
  diversification of the business and uncertainty as to a prospective business
  model of the Company; changes in domestic and foreign economic and market
  conditions and classification as investment company under US securities laws;
  (ii) financial risks such as currency fluctuations, credit
  risks, decreases in the value of its financial investments and
  classification as a passive foreign investment company for US tax law
  purpose; and (iii) risks related to operations in Israel like political,
  economic and military instability in Israel or the Middle East. See also note
  9 for financial instruments and other risks.
| |    |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | 2)       | Functional
  currency                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |          | The U.S.
  dollar is the functional currency for the Company and its subsidiaries.
  Monetary accounts maintained in currencies other than the U.S. dollar
  (principally cash and liabilities) are remeasured using the representative
  foreign exchange rate at the balance sheet date. Operational accounts and non
  monetary balance sheet accounts are measured and recorded at the rate in effect
  at the date of the transaction. The effects of foreign currency remeasurement
  are reported in current operations and have not been material to date.                                                                                                                                                                                                                                                       

F-13

---

---

SCAILEX CORPORATION LTD.NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)

|         |                                             
|-------- | --------------------------------------------
|NOTE 2  | SIGNIFICANT ACCOUNTING POLICIES (continued):

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | 3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Use of
  estimates in the preparation of financial statements                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | The
  preparation of financial statements in conformity with generally accepted
  accounting principles requires management to make estimates and assumptions
  that affect the reported amounts of assets and liabilities and disclosure of
  contingent assets and liabilities at the dates of the financial statements
  and the reported amounts of revenues and expenses during the reporting years.
  Actual results could differ from those estimates.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | 4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Accounting
  principles                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | The
  consolidated financial statements have been prepared in accordance with
  accounting principles generally accepted in the United States of America                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | b. | Principles  of consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | The
  consolidated financial statements include the accounts of the Company and its
  subsidiaries. Intercompany balances and transactions have been eliminated in
  consolidation.                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | c. | Cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | The Company
  and its subsidiaries consider all highly liquid investments, with an original
  maturity of three months or less at time of investment, that are not
  restricted as to withdrawal or use, to be cash equivalents.                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | d. | Investments in marketable securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | Pursuant to
  SFAS No. 115, Accounting for Certain Investments in Debt and Equity
  Securities, part of the Companys investments in marketable securities has
  been designated as held-to-maturity and part of it has been classified as
  available-for-sale.                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | Investments
  classified as available-for-sale are reported at fair value with unrealized
  gains and losses, net of related tax, recorded as a separate component of
  comprehensive income in shareholders ́ equity until realized. Dividend,
  Interest and amortization of premiums and discounts for available-for-sale
  securities and gains and losses on securities sold are included in financial
  income. For all investment securities, unrealized losses that are other than
  temporary are recognized in net income.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | In the
  fourth quarter of 2005, the Company decided to hold some securities to
  maturity and changed some of the classifications to held-to-maturity in
  accordance with the policy of the Company, the unrealized holding gain or
  loss at the date of the change in classification continues to be reported as
  a separate component of comprehensive income in shareholders equity, but is
  being amortized over the remaining life of the security as an adjustment of
  yield.                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | Investment
  in marketable securities - which are to be held-to-maturity - are stated
  at amortized cost with the addition of computed interest accrued as of the
  balance sheet date (such interest represents the computed yield on cost from
  acquisition to maturity). Interest and amortization of premium or discount
  for those debt securities are carried to financial income or expenses.                                                                                                                            

F-14

---

---

SCAILEX CORPORATION LTD.NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)

|         |                                               
|-------- | ----------------------------------------------
|NOTE 2  | SIGNIFICANT ACCOUNTING POLICIES
  (continued):

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | e. | Other non-current investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | These
  investments are carried at cost, net of write-down for decrease in value,
  which is not of a temporary nature.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | f. | Investments in associated companies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | Associated
  companies are companies over which significant influence is exercised, but
  which are not consolidated subsidiaries, and are accounted for by the equity
  method, net of write-down for decrease in value, which is not of a temporary
  nature. The excess of cost of investment in associated companies over the
  Companys share in their net assets at date of acquisition (excess of cost
  of investment) represents amounts attributed to know-how and technology. The
  excess of cost of investment is amortized over a period of 5 years,
  commencing in the year of acquisition.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | g. | Property and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | Property and
  equipment are carried at cost and are depreciated by the straight-line method
  over their estimated useful life.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | Annual rates
  of depreciation are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|                                               |  |  | %      | 
|---------------------------------------------- |  |  | ------ | 
|                                               |  |  |        | 
|                                               |  |  |        | 
|Leasehold
  improvements                       |  |  | 7      | 
|Furniture, supplies
  and electronic equipment |  |  | 7 - 15 | 
|Computers
  and software                       |  |  | 33     | 

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | The residual
  value and the estimate useful life of the fixed assets are reviewed by the
  Company and adjusted as needed on every balance-sheet date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | h. | Intangible assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | Intangible
  assets that consist of technology are presented at cost in discontinued
  operations and are amortized by the straight-line method over the estimated
  useful life of 5 years.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | i. | Impairment of long-lived assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | FAS 144
  Accounting for the Impairment or Disposal of Long-Lived Assets (FAS 144),
  requires that long-lived assets including certain intangible assets, to be
  held and used by an entity be reviewed for impairment whenever events or
  changes in circumstances indicate that the carrying amount of the assets may
  not be recoverable. Under FAS 144, if the sum of the expected future
  cash flows (undiscounted and without interest charges) of the long-lived
  assets is less than the carrying amount of such assets, an impairment loss
  would be recognized, and the assets would be written down to their estimated
  fair values.

F-15

---

---

SCAILEX CORPORATION LTD.NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)

|         |                                               
|-------- | ----------------------------------------------
|NOTE 2  | SIGNIFICANT ACCOUNTING POLICIES
  (continued):

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | j. | Deferred income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | Deferred
  taxes are determined utilizing the asset and liability method based on the
  estimated future tax effects of differences between the financial accounting
  and tax bases of assets and liabilities under the applicable tax laws.
  Deferred income tax provisions and benefits are based on the changes in the
  deferred tax asset or tax liability from period to period. Valuation
  allowances are provided for deferred tax assets when it is more likely than
  not that all or a portion of the deferred tax assets will not be realized.
  The Company may incur an additional tax liability in the event of an
  intercompany dividend distribution by non-Israeli subsidiaries.         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | k. | Comprehensive income (loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | SFAS
  No. 130, Reporting Comprehensive Income (SFAS 130), establishes
  standards for the reporting and presentation of comprehensive income, its
  components and accumulated balances in a full set of general purpose
  financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | The
  Companys component of comprehensive income (loss), in addition to the loss
  for the year, includes unrealized gains and losses on available-for-sale
  securities and currency translation adjustments of non-dollar currency
  financial statements of a subsidiary.                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | l. | Treasury shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | Companys
  shares held by the Company, are presented as a reduction of shareholders
  equity, at their cost to the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | m. | Stock based compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | Prior to
  January 1, 2006, the Company accounted for employees stock-based
  compensation under the intrinsic value model in accordance with Accounting
  Principles Board Opinion No. 25, Accounting for Stock Issued to
  Employees (APB 25) and related interpretations. In accordance with SFAS
  No. 123, Accounting for Stock-Based Compensation (SFAS 123), as
  amended by SFAS No. 148, Accounting for Stock-Based
  CompensationTransition and Disclosure, the Company disclosed pro forma
  information, assuming the Company had accounted for employees stock-based
  compensation using the fair value-based method defined in SFAS 123.                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | Effective
  January 1, 2006, the Company adopted SFAS No. 123 (revised 2004),
  Share-based Payment (SFAS 123(R)). SFAS 123(R) supersedes APB
  25 and related interpretations and amends SFAS No. 95, Statement of
  Cash Flows. SFAS 123(R) requires that awards classified as equity
  awards be accounted for using the grant-date fair value method. The fair
  value of stock options is determined based on the number of shares granted
  and the price of the Companys common stock, and determined based on the
  Black & Scholes option-pricing models, net of estimated forfeitures. The
  Company estimated forfeitures based on historical experience and anticipated
  future conditions.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | In
  March 2005, the Securities and Exchange Commission (SEC) issued Staff
  Accounting Bulletin No. 107 (SAB 107). SAB 107 provides supplemental
  implementation guidance on SFAS 123(R), including guidance on valuation
  methods, inventory capitalization of stock-based compensation cost, income
  statement effects, disclosures and other issues. SAB 107 requires stock-based
  compensation to be classified in the same expense line items as cash
  compensation. The Company has applied the provisions of SAB 107 in its
  adoption of SFAS 123(R).                                                                                                                                        

F-16

---

---

SCAILEX CORPORATION LTD.NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)

|         |                                             
|-------- | --------------------------------------------
|NOTE 2  | SIGNIFICANT ACCOUNTING POLICIES (continued):

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company
  elected to recognize compensation cost for option granted with service
  conditions that has a graded vesting schedule using the graded vesting
  attribution method.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | The Company
  elected to adopt the modified prospective transition method permitted by
  SFAS 123(R). Under this transition method, the Company implemented SFAS 123(R)
  as of the first quarter of 2006 with no restatement of prior periods. The
  valuation provisions of SFAS 123(R) apply to new awards and to awards
  modified, repurchased or cancelled after January 1, 2006. Additionally,
  compensation cost for the portion of awards for which the requisite service
  has not been rendered that are outstanding as of January 1, 2006 are
  recognized over the remaining service period using the grant-date fair value
  of those awards as calculated for pro forma disclosure purposes under
  SFAS 123.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | In
  November 2005, the Financial Accounting Standards Board (FASB) issued
  Staff Position No. SFAS 123(R)-3, Transition Election Related to
  Accounting for Tax Effects of Share-Based Payment Awards. The Company has
  elected to adopt the alternative transition method provided in the FASB Staff
  Position for calculating the tax effects of stock-based compensation pursuant
  to SFAS 123(R).                                                                                                                                                                                                                                                                                                              
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | As of
  January 1, 2006, the cumulative effect of the Companys adoption of
  SFAS 123(R) was not material.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

F-17

---

---

SCAILEX CORPORATION LTD.NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (continued)

|         |                                               
|-------- | ----------------------------------------------
|NOTE 2  | SIGNIFICANT ACCOUNTING POLICIES
  (continued):

| |  |                                                                                                                                                                                                                                                                                            
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The
  following table illustrates the effect on net income (loss) and earring (loss)
  per share for the years ended December 31, 2005 assuming the Company and its
  subsidiaries had applied the fair value recognition provisions of FAS 123 to
  its stock-based employee compensation:

|                                                                                                                                                              |  |                                                         |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------- | ------- | -
|                                                                                                                                                              |  | Year ended
  December 31                                |        
|                                                                                                                                                              |  |                                                         |        
|                                                                                                                                                              |  | 2005                                                    |        
|                                                                                                                                                              |  |                                                         |        
|                                                                                                                                                              |  | U.S. dollars in thousands
  (except for per share data) |        
|                                                                                                                                                              |  |                                                         |        
|                                                                                                                                                              |  |                                                         |         |  
|Net income (loss) from continuing
  operations - as reported                                                                                                  |  |                                                         | 5,206   |  
|Add: stock based employee compensation
  expenses,included in reported net loss from continuing operations                                                    |  |                                                         | 20      |  
|Deduct: stock based employee compensation
  expenses determined under fair value method                                                                       |  |                                                         | (95     | )
|                                                                                                                                                              |  |                                                         |         |  
|Pro-forma net income (loss) from continuing
  operations                                                                                                      |  |                                                         | 5,131   |  
|                                                                                                                                                              |  |                                                         |         |  
|Net income from discontinued operations -
  as reported                                                                                                       |  |                                                         | 100,932 |  
|Add: stock based employee compensation
  expenses,included in reported net income from discontinued operations (net of
  minority interest and related taxes) |  |                                                         | 1,954   |  
|Deduct: stock based employee compensation
  expenses determined under fair value method (net of minority interest and
  related taxes)                        |  |                                                         | (3,434  | )
|                                                                                                                                                              |  |                                                         |         |  
|Pro-forma net income from discontinued
  operations                                                                                                           |  |                                                         | 99,452  |  
|                                                                                                                                                              |  |                                                         |         |  
|Pro-forma net income                                                                                                                                          |  |                                                         | 104,583 |  
|                                                                                                                                                              |  |                                                         |         |  
|                                                                                                                                                              |  |                                                         |         |  
|Basic EPS - as reported:                                                                                                                                      |  |                                                         |         |  
|Continuing operations                                                                                                                                         |  |                                                         | 0.14    |  
|Discontinued operations                                                                                                                                       |  |                                                         | 2.65    |  
|                                                                                                                                                              |  |                                                         |         |  
|Net income                                                                                                                                                    |  |                                                         | 2.79    |  
|                                                                                                                                                              |  |                                                         |         |  
|Basic Pro-forma EPS:                                                                                                                                          |  |                                                         |         |  
|Continuing operations                                                                                                                                         |  |                                                         | 0.14    |  
|Discontinued operations                                                                                                                                       |  |                                                         | 2.61    |  
|                                                                                                                                                              |  |                                                         |         |  
|Net income                                                                                                                                                    |  |                                                         | 2.75    |  
|                                                                                                                                                              |  |                                                         |         |  
|                                                                                                                                                              |  |                                                         |         |  
|Diluted EPS- as reported:                                                                                                                                     |  |                                                         |         |  
|Continuing operations                                                                                                                                         |  |                                                         | 0.14    |  
|Discontinued operations                                                                                                                                       |  |                                                         | 2.55    |  
|                                                                                                                                                              |  |                                                         |         |  
|Net income                                                                                                                                                    |  |                                                         | 2.69    |  
|                                                                                                                                                              |  |                                                         |         |  
|Diluted Pro-forma EPS:                                                                                                                                        |  |                                                         |         |  
|Continuing operations                                                                                                                                         |  |                                                         | 0.14    |  
|Discontinued operations                                                                                                                                       |  |                                                         | 2.51    |  
|                                                                                                                                                              |  |                                                         |         |  
|Net income                                                                                                                                                    |  |                                                         | 2.65    |  
|                                                                                                                                                              |  |                                                         |         |  

F-18

---

---

SCAILEX
CORPORATION LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

|         |                                             
|-------- | --------------------------------------------
|NOTE 2  | SIGNIFICANT ACCOUNTING POLICIES (continued):

| |    |                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | n. | Earning (loss) per share (EPS)                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                           
| |    | Basic EPS
  are computed based on the weighted average number
  of shares outstanding during each year excluding the treasury
  shares held by the Company. Diluted EPS reflects the increase in the weighted
  average number of shares outstanding that would result from
  the assumed exercise of options, calculated using the treasury-stock-method.
| |    |                                                                                                                                                                                                                                                                                                                                                           
| | o. | Revision of prior years statements of cash flows                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                           
| |    | The 2005
  statement of cash flows were revised to separately disclose the operating,
  investing, and financing portions of the cash flows attributable the
  Companys discontinued operations. The Company had previously reported these
  amounts on a combined basis.                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                           
| | p. | Capital notes from minority shareholder                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                           
| |    | Capital
  notes from minority shareholders that are unlinked and bears no interest are
  initially recognized at fair values with the difference is classified in
  minority interests. Subsequently, the notes are carried at amortized cost.                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                           
| | q. | Reclassifications                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                           
| |    | Certain
  comparative figures have been reclassified to conform to the current year
  presentation.                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                           
| | r. | Recently issued accounting pronouncements:                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | 1)                                                                                                                                                                                                                                                                                                                                                         | In
  February 2007, the FASB issued FASB No. 159, The Fair Value Option
  for Financial Assets and Financial LiabilitiesIncluding an Amendment of FASB
  Statement No. 115.This standard permits an entity to choose to measure
  many financial instruments and certain other items at fair value. Most of the
  provisions in FASB No. 159 are elective; however, the amendment to FASB
  No. 115, Accounting for Certain Investments in Debt and Equity
  Securities, applies to all entities with available-for-sale and trading
  securities. The fair value option established by FASB No. 159 permits
  all entities to choose to measure eligible items at fair value at specified
  election dates. A business entity will report unrealized gains and losses on
  items for which the fair value option has been elected in earnings (or
  another performance indicator if the business entity does not report
  earnings) at each subsequent reporting date. The fair value option:
  (a) may be applied instrument by instrument, with a few exceptions, such
  as investments otherwise accounted for by the equity method; (b) is
  irrevocable (unless a new election date occurs); and (c) is applied only
  to entire instruments and not to portions of instruments. FASB No. 159
  is effective as of the beginning of an entitys first fiscal year that begins
  after November 15, 2007. The Company does not expect the adoption of
  FASB No. 159 to have a material impact on its consolidated financial
  statements.
| |    |                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | 2)                                                                                                                                                                                                                                                                                                                                                         | In December
  2007, the FASB issued FASB 141(R), Business Combinations of which the
  objective is to improve the relevance, representational faithfulness, and
  comparability of the information that a reporting entity provides in its
  financial reports about a business combination and its effects. The new
  standard requires the acquiring entity in a business combination to recognize
  all (and only) the assets acquired and liabilities assumed in the
  transaction; establishes the acquisition-date fair value as the measurement
  objective for all assets acquired and liabilities assumed; and requires the
  acquirer to disclose to investors and other users all of the information they
  need to evaluate and understand the nature and financial effect of the
  business combination.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

F-19

---

---

SCAILEX
CORPORATION LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|         |                                             
|-------- | --------------------------------------------
|NOTE 2  | SIGNIFICANT ACCOUNTING POLICIES (continued):

| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 3) | In December
  2007, the FASB issued FASB 160 Noncontrolling Interests in Consolidated
  Financial Statementsan amendment of ARB No.51 of which the objective is to
  improve the relevance, comparability, and transparency of the financial
  information that a reporting entity provides in its consolidated financial
  statements by establishing accounting and reporting standards by requiring
  all entities to report noncontrolling (minority) interests in subsidiaries in
  the same wayas equity in the consolidated financial statements. Moreover,
  Statement 160 eliminates the diversity that currently exists in accounting for
  transactions between an entity and noncontrolling interests by requiring they
  be treated as equity transactions.                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |    | Both FASB
  141(R) and FASB 160 are effective for fiscal years beginning after December
  15, 2008. The Company does not believe that adoption of these standards will
  have any impact on its financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | 4) | In March
  2008, the Financial Accounting Standards Board (the FASB) issued Statement
  of Financial Accounting Standards No. 161, Disclosures about Derivative
  Instruments and Hedging Activities (SFAS 161). SFAS 161 changes the
  disclosure requirements for derivative instruments and hedging activities.
  The Company will be required to provide enhanced disclosures about (a) how
  and why derivative instruments are used, (b) how derivative instruments and
  related hedged items are accounted for under Statement of Financial
  Accounting Standards No. 133, Accounting for Derivative Instruments and
  Certain Hedging Activities (SFAS 133), and its related interpretations,
  and (c) how derivative instruments and related hedged items affect the
  Companys financial position, financial performance, and cash flows. This
  statement is effective for financial statements issued for fiscal years and
  interim periods beginning after November 15, 2008. The Company is currently
  evaluating the requirements of SFAS 161 and has not yet determined the impact
  of adoption, if any, on its financial position, results of operations or cash
  flows.

|         |                                  
|-------- | ---------------------------------
|NOTE 3  | INVESTMENTS AND FINANCIAL ASSETS:

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | In May 2005,
  the Company received approximately $1 million as a return on investment from
  Dor Venture Capital (Dor). As a result, the Company recognized a gain of
  $0.8 million presented in other income. During 2006, the Company received
  approximately $0.3 million as a return on investment, and invested in Dor
  approximately $0.6 million. As of December 31, 2006, the Company wrote-off
  the investment in Dor in the amount of $0.7 million following the Companys
  decision to discontinue its investments in this fund.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | As of
  December 31, 2007, the balance of this investment is zero.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | b. | During the
  first quarter of 2006, the Company received a cash distribution of $2.6
  million from Real Time Image Ltd. (RTI) following the sale of RTIs
  operations in 2005, and recorded income of $1.8 million. After the cash
  distribution, there was cash retained in escrow, most of which ($0.5 million)
  was paid to the Company in August 2007. The Company generated gain of $0.1
  million that is presented as other income.                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | As of
  December 31, 2007, the balance of this investment is zero.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | c. | On November
  9, 2006, XMPie Inc. was sold to Xerox Corporation for approximately $48
  million. The Companys share of the proceeds was $1.5 million, of which $1.3
  million was received in December 2006 and recognized as a gain of $1.3
  million in other income. The remaining amount of $0.2 million was held in
  trust and partially ($0.1 million) received by the Company in May 2008.                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | As of
  December 31, 2007, the balance of this investment is zero.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

F-20

---

---

SCAILEX
CORPORATION LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|         |                                             
|-------- | --------------------------------------------
|NOTE 3  | INVESTMENTS AND FINANCIAL ASSETS(continued):

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | d. | On January
  8, 2007, the Company, in cooperation with a foreign company  Linura Holding
  AG (Linura) founded a subsidiary under the name of Petroleum Capital
  Holdings Ltd. (PCH) (80.1% held by the Company and 19.9% held by Linura)
  for the purpose of acquiring shares through it of Oil Refineries Ltd. (ORL)
  through an offer of sale by the State of Israel.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | Within the
  scope of the agreement with Linura, reciprocal options were given to the
  Company and Linura for the purchase each others stake under certain
  conditions as set forth in the agreement between the parties. In light of the
  difficulties in obtaining a control permit for ORL, the parties reached an
  agreement on March 13, 2008, pursuant to which the Company decided to
  purchase Linuras holdings in PCH in such manner that PCH will become a
  wholly owned subsidiary of the Company and the PCH shareholders agreement
  became invalid. For details about the invalidation of the agreement with
  Linura subsequent to the balance-sheet date, see note 11(2) of these
  financial statements.                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | On February
  18, 2007, the Company and PCH (Scailex Group) signed a binding memorandum
  of agreements with the Israel Corporation Ltd. (the Israel Corporation),
  whereby PCH and the Israel Corporation would submit joint offers in the offer
  for sale under a State of Israel prospectus for the sale of 56% of ORLs
  shares (44% of ORLs shares were sold several days earlier to institutional
  investors). Within the scope of the public offer for sale as stated, the
  Israel Corporation purchased 36.8% and PCH purchased 9.2%, for a total of
  some 46% of ORLs issued share capital, for the inclusive consideration of
  some $725.8 million. The share purchase in the offer for sale was effected
  according to a company value of approximately $1.6 billion, and a share value
  of $0.79 per share.                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | During 2007,
  PCH purchased additional shares of ORL on the TASE, for a total of some $97.5
  million (at an average price of $0.77 per share). As a result of said
  purchases, PCH holds some 15.76% of ORLs issued share capital. Nonetheless,
  the rights in ORL are restricted until and subject to the receipt of all
  regulatory approvals, as specified hereunder:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | In
  accordance with the provisions of the Government Companies Order (Declaration
  of the States Vital Interests in Oil Refineries Ltd.), 2007, (the Vital
  Interests Order), the holding of control over ORL or a means of control over
  ORL at rates requiring approval pursuant to the Vital Interests Order (24%
  and more) require reporting to the Israel Antitrust Commissioner and the
  filing of an application to the ministers (the Prime Minister and the
  Minister of Finance) for approval of the holding within 48 hours. As long as
  approval is not given to control or hold a means of control at rates
  requiring approval (24% and more), as the case may be, no right may be
  exercised in ORL by virtue of the purchased shares, including with regard to
  dividends, the appointment of directors and officeholders, and the right to
  vote at a general meeting of ORL shareholders, so far as such rights relates
  to holding ORL shares at a rate not exceeding 24%.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | Within the
  scope of the resolution to privatize ORL, it was determined that, during the
  privatization of ORL, expression would be given to conditions prescribed by
  the Commissioner in his position papers as attached to the privatization resolution.
  In accordance with the notification of the Israel Antitrust Authority dated
  February 6, 2007, on February 25, 2007, PCH, together with the Israel
  Corporation, submitted a merger notice and an application for approval of the
  merger to the Israel Antitrust Authority. On March 27, 2007, PCH received the
  decision of the Antitrust Commissioner to approve the merger of ORL, the
  Israel Corporation and PCH, conditionally (regarding the activities of the
  companies, Rotem Amfert Negev Ltd., a company of the Israel Chemicals group,
  and Carmel Olefins Ltd., a company of the ORL group).                                                                                                                           

F-21

---

---

SCAILEX
CORPORATION LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|         |                                             
|-------- | --------------------------------------------
|NOTE 3  | INVESTMENTS AND FINANCIAL ASSETS(continued):

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The
  investment in ORL was financed by the Company and Linura through
  interest-bearing dollar loans repayable at any time with the parties
  consent. On August 9, 2007, PCHs board of directors and shareholders
  approved an amendment to the shareholders agreement with Linura of December
  21, 2006 (the Amendment to the Shareholders Agreement). The Amendment to
  the Shareholders Agreement prescribed the conditions of the loans given by
  PCHs shareholders, inter alia, that loan sums denominated in US dollar are
  to bear dollar interest from the investment date until August 9, 2007, and
  that subsequent to August 9, 2007, these loans are to be converted into New
  Israeli Shekel NIS and capital notes issued in respect thereof. The capital
  notes are to be repaid in NIS, free of interest, linkage differentials and
  revaluation, and, in any event, will not be effected before January 1, 2009.                                                                                                                                                                                                                                        
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | In
  accordance with new terms of the notes, as stated above, and due to the
  revaluation of the shekel, exchange rate differentials total some $5.7
  million. These expenses have been allocated to the minority shareholders
  share in PCH.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | The change
  in the original terms of the loan is considered modification of notes terms
  that requires extinguishment and the recognition of new debt at fair value,
  the Company recognized the capital notes at their fair values being their
  present value using the commensurate discount rate to similar loans. The
  difference between the balance of the capital notes on the basis of present
  value, and their book value before the change, was recognized as an
  investment in the Companys share capital. The Company records interest
  expenses in its books according to the effective interest method until the
  first repayment date (see also Note 2p).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Whereas the
  Scailex Group and the Israel Corporation were of the opinion that the best
  interests of ORL require control thereof as soon as possible, and that the
  Israel Corporation, which had been a material shareholder in ORL until
  February 2006, could obtain the control permit pursuant to the Government
  Companies Order faster than PCH could obtain it, and in light of the demands
  for additional particulars, on May 10, 2007, the Israel Corporation and the
  Scailex Group agreed to terminate the memorandum of agreements, and in lieu
  thereof, the Israel Corporation issued a letter of undertaking (the Letter
  of Undertaking) to the Scailex Group, enabling the Israel Corporation to
  submit a separate application to receive the ministers approval to control
  and operate a means of control in ORL. Concurrently, the Scailex Group and
  the Israel Corporation agreed on the wording of a joint control agreement,
  which is to be signed between them upon receipt of the requisite regulatory
  approvals (the Requisite Approvals), and which was attached as an appendix
  to the Letter of Undertaking (the Control Agreement).
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | The Letter
  of Undertaking enabled the Israel Corporation and PCH to submit separate
  applications to the Government Companies Authority to obtain the ministers
  approval. On June 27, 2007, the Israel Corporation received the ministers
  approval.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Pursuant to
  the notification of the Prime Minister and the Minister of Finance, on
  October 26, 2007, the 60-day period elapsed since the last date on which PCH
  submitted additional particulars in relation to the control permit. Pursuant
  to the Vital Interests Order, the answer of the Prime Minister and the
  Minister of Finance in relation to PCHs application for a control permit was
  supposed to have been issued by that date. A temporary arrangement was
  proposed to the competent authority during the contacts between PCH and the
  State authorities, pursuant whereto, shares of two foreign entities, who are
  directly and indirectly holding PCH, Linura and the Alder Group (in relation to
  whom questions had been raised by the competent authority), would be held in
  escrow until the final decision on the matter of the permit.                                                                                                                                                                                                                                                                                                             

F-22

---

---

SCAILEX
CORPORATION LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|         |                                             
|-------- | --------------------------------------------
|NOTE 3  | INVESTMENTS AND FINANCIAL ASSETS(continued):

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On November
  22, 2007, the authoritys answer was received, pursuant to which, the
  proposed arrangement, whether temporary or permanent, does not provide a
  solution to the States difficulty in agreeing to PCHs application for a
  control permit. In light of the authoritys answer as stated, agreement was
  reached between the Company and Linura, whereby Linura would completely exit
  PCH, so that all share capital and controlling shares of PCH would be held
  solely by the Company, see note 11(2). It was further proposed that the Alder
  Group would cancel the lien that it has on a portion of the shares of the
  control group.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | On February
  21, 2008, the response of the Government Companies Authority was received,
  pursuant to which it would be possible to consider PCH application for
  control of ORL jointly with the Israel Corporation, only if the influence of
  the Alder Group, directly or indirectly, on the control in PCH, both as a
  material shareholder in Modgal Industries Ltd. (Modgal, which is the
  controlling shareholder of PCH, through corporations under its control), and
  as a creditor, would be completely removed.                                                                                                                             
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | Following
  the response, it was advised that, in light of that stated, the apparent
  position, that of recommending to the Prime Minister and the Minister of
  Finance that PCHs application for the control permit should be rejected, was
  presented to the State Attorney General.                                                                                                                                                                                                                                                                                                                                                                       
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | The Company
  reported to Modgal and updated it about the said response. In its response to
  the Company, Modgal stated that, in its opinion, the position of the
  competent authority was extremely unreasonable. It was further stated that
  Modgal and its controlling shareholders were examining possible alternatives
  to resolve the problem, but that there is no certainty that they will succeed
  in formulating a solution that meets the excessive requirements of the
  competent authority.                                                                                                                                                   
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | Concurrently,
  and in response to the above response of the Ministry of Justice, the Company
  made representations to the State Attorney-General through its attorney with
  the aim of understanding the competent authoritys view of difficulties and
  in an attempt to find a solution to these difficulties. For this purpose, the
  Company requested an urgent meeting to discuss the matter and to examine
  possible solutions. It is emphasized, nonetheless, that there is no certainty
  that PCH will succeed in proposing a solution that will enable the competent
  authority to grant the Control Permit.                                    
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | On October
  22, 2007, PCH received a dividend from ORL at the sum of $0.035 per share,
  which totaled some $10.7 million. The Company recorded the entire dividend as
  income in the fourth quarter of 2007. Additional dividend received after
  balance sheet date, please see note 11(7).                                                                                                                                                                                                                                                                                                                                                                  
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | Subsequent
  to the balance sheet date, in April 10, 2008 the Company signed on an
  agreement to sell its entire holdings in PCH to IPE, see note 11(5).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | Accounting
  for the shares of ORL prior to receiving the permit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | Before receiving
  the permit the Company cannot vote and exercise its rights as shareholder of
  ORL. As such, the investment in ORL is presented as available-for-sale, with
  unrealized gains and losses recognized in other comprehensive income (OCI)
  at the shareholders equity. As of December 2007 the balance of unrealized
  gain (net of related taxes) in ORL recognized in OCI was $55.8 million (The
  Companys portion in this OCI was $44.7 million). A dividend in the amount
  $10.7 million that was received from ORL was recognized as other income in
  the financial statements (for more information see note 10a(2)).             

F-23

---

---

SCAILEX
CORPORATION LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|         |                       
|-------- | ----------------------
|NOTE 4  | PROPERTY AND EQUIPMENT

| |                                                                         | 
| | ----------------------------------------------------------------------- | 
| | Grouped by
  major classifications, the assets are composed as follows:

|                                  |  |                           |     |      |  |    | 
|--------------------------------- |  | ------------------------- | --- | ---- |  | -- | 
|                                  |  | December 31               |    
|                                  |  |                           |    
|                                  |  | 2007                      |     | 2006 | 
|                                  |  |                           |     |      | 
|                                  |  | U.S. dollars in thousands |    
|                                  |  |                           |    
|                                  |  |                           |     |      |  |    | 
|Equipment & furniture             |  |                           | 224 |      |  | 3  | 
|Leasehold
  improvements          |  |                           | 465 |      |  | 10 | 
|Computers
  & software            |  |                           | 97  |      |  | 73 | 
|                                  |  |                           |     |      |  |    | 
|                                  |  |                           | 786 |      |  | 86 | 
|Less -
  accumulated depreciation |  |                           | 90  |      |  | 74 | 
|                                  |  |                           |     |      |  |    | 
|                                  |  |                           | 696 |      |  | 12 | 
|                                  |  |                           |     |      |  |    | 

| |                                                                                                                                                | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------- | 
| | Depreciation
  of property and equipment from continuing operations totaled $16,000, $3,000
  and $4,000 in 2007, 2006 and 2005, respectively.

|         |                                 
|-------- | --------------------------------
|NOTE 5  | EMPLOYEE RIGHTS UPON RETIREMENT:

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | Israeli
  labor laws and agreements require the payment of severance pay upon dismissal
  of an employee or upon termination of employment in certain circumstances.
  The liability is based upon the length of service and the latest monthly
  salary (one months salary for each year worked), and is mainly funded
  through monthly payments by the Company and its Israeli subsidiaries to
  severance pay and pension funds as well as insurance companies.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | The Company
  records the long-term obligation as if it was payable at each balance sheet
  date on an undiscounted basis.                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | b. | Severance
  pay and defined contribution plan expenses totaled $62,000, $69,000 and
  $26,000, in 2007, 2006 and 2005, respectively.                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | With respect
  to the Companys employees, as of December 31, 2007, the Company expects to
  contribute approximately $35,000 in respect of severance pay for the year
  ending December 31, 2008.                                                                                                                                                                                                                                                                  

F-24

---

---

SCAILEX
CORPORATION LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|         |                                        
|-------- | ---------------------------------------
|NOTE 6  | COMMITMENTS AND CONTINGENT LIABILITIES:

| |    |                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | Commitments:                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                         
| |    | 1)                                                                                                                                                                                                                                                       | On December
  14, 2006, the Company signed an agreement with third parties for the rental
  and management of offices in Herzliya Pituach, as of January 1, 2007 for a
  period of 5 years, with an option to extend the lease for an additional 10
  years. The option will be granted five times, for two years each, and, in any
  case, the total additional rental periods will not exceed ten years. The
  option will be exercisable as long as the Company does not send written
  notice to the lessor no later than 90 days prior to expiration of the rental
  period that it is not exercising the option.                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                          | Annual rent
  and management fees will total approximately $100 thousand, linked to the
  Consumer Price Index. The rent will be increased at the beginning of each
  year by 1.8% compared to the rent paid for the last month in the previous
  years lease. If the lease extension option is exercised, the rent will be
  determined according to the market prices for similar premises, but, in any
  case, will not be less than the rent paid for the last month before the
  beginning of the relevant extended rental period. To secure said payments,
  the Company issued a non-recourse bank guarantee of $25 thousand.                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                          | The future
  lease payments amount to approximately $100 thousands annually, stated in NIS
  and linked to the Consumer Price Index.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | 2)                                                                                                                                                                                                                                                       | On March 20,
  2007, the Companys Audit Committee and Board of Directors approved the
  engagement of the Company in a management agreement with Globecom Investments
  Ltd. (Globecom),
  a private company under the control of Mr. Eran Schwartz, pursuant whereto
  Globecom will provide the services of Mr. Eran Schwartz as the active
  Chairman of the Companys Board of Directors as from the beginning of his
  term of office in July 2006. This agreement was approved by the Companys
  shareholders at an extraordinary general meeting of the Company held on April
  30, 2007 (the Management Agreement). Pursuant to the Management Agreement,
  the scope of the services will be determined according to the Companys
  actual needs, and the inclusive monthly cost that the Company will pay to
  Globecom in respect of the services will total approximately $25 thousands,
  in NIS linked to the Consumer Price Index.
| |    |                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                          | In addition,
  Globecom and Mr. Eran Schwartz will be granted indemnification, excalpation
  and insurance upon terms similar to those granted to other office holders of
  the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                          | On December
  31, 2007, the Companys Shareholders at a General Meeting resolved to approve
  the extension of the Management Agreement until the end of six months
  following notice of termination by the Company or by Globecom, as the case
  may be.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | 3)                                                                                                                                                                                                                                                       | For details
  on the agreement with the Israel Corporation Ltd.  see note 3d.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | b. | Contingent liabilities:                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | The Company has several other claims in various legal processes, the
  majority of which are claims of long standing. The Company does not believe
  that the settlement or removal of these claims will result any material
  liability to the Company.
| |    |                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | As for the
  claim relating the Scailex Vision transaction  see note 1b2 and note 11(3).                                                                                                                                                               

F-25

---

---

SCAILEX
CORPORATION LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|         |                      
|-------- | ---------------------
|NOTE 7  | SHAREHOLDERS EQUITY:

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | Share capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    | 1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | The
  Companys shares are quoted on the OTCBB under the symbol SCIXF.OB, and are
  traded on TASE.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | On December
  31, 2007, the Companys share closed on the OTCBB and TASE at $9.95 and
  approximately $9.97 (in NIS), respectively. The share prices were not
  adjusted to the dividend paid by the Company at May 22, 2008, see note 11(4).                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | 2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | The number
  of registered shares of the Company increased from 48 million shares to 60
  million shares, at the recommendation of the Company Board of Directors, and
  in accordance with the resolution of the Companys General Meeting of
  December 31, 2007. The registered share capital of the Company was increased
  by 12 million ordinary shares of NIS 0.12 nominal (par) value each, so that
  the Companys registered share capital is now NIS 7.2 million, divided into
  60 million ordinary shares of NIS 0.12 nominal value each. Pursuant to this
  resolution, the said General Meeting approved an amendment to the Company
  Articles of Association and Memorandum of Association.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | 3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | The number
  of shares stated as issued and outstanding - 43,579,388 shares at December
  31, 2007 and 43,467,388 at 2006 and 2005 - includes, at December 31, 2007 and
  2006, 5,401,025 shares repurchased by the Company and held by the Company or
  by a trustee. These shares bear no voting rights or rights to cash dividends.                                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | 4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | During
  February 2007, two officers of the Company exercised options to purchase an
  aggregate of 112,000 shares of the Company at an exercise price of $3.70 per
  share. As a result of the exercise, 112,000 shares were issued and added to
  the Companys issued share capital. On the day of exercise, Israel
  Petrochemical Enterprises Ltd., the parent company purchased the said shares,
  through a wholly owned subsidiary, from the officers.                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | b. | Stock option plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | 2001 and 2003 Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | In December
  2001, the Companys shareholders approved the adoption of the Companys 2001
  Stock Option Plan (2001 Plan), designed primarily for employees and
  directors of the Company and its subsidiaries. In December 2003, the
  Companys shareholders approved the adoption of the Companys 2003 Share
  Option Plan (2003 Plan), designed for employees, directors and consultants
  of the Company who are Israeli residents, and also approved an increase in
  the aggregate number of shares reserved for issuance under the 2001 Plan from
  an initial 750,000 shares to 1,900,000 shares, with all such reserved shares
  being available for issuance under either the 2001 Plan or the 2003 Plan.
  Option awards may be granted under the 2001 Plan until November 5, 2011 and
  under the 2003 Plan until November 23, 2013. Terms of the options granted
  under the plans, such as length of term, exercise price, vesting and
  exercisability, are determined by the board of directors. The maximum term of
  an option may not exceed ten years. Each option can be exercised to purchase
  one share having the same rights as other ordinary shares of the Company.

F-26

---

---

SCAILEX
CORPORATION LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|         |                                  
|-------- | ---------------------------------
|NOTE 7  | SHAREHOLDERS EQUITY (continued):

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| |  | The 2003
  Plan is designed to be governed by the terms stipulated by Section 102 of the
  Israeli Income Tax Ordinance. Inter alia, these terms provide that the
  Company will be allowed to claim, as an expense for tax purposes, the amounts
  credited to the employees as a benefit in respect of shares or options
  granted under the plan. The amount allowed as an expense for tax purposes, at
  the time the employee utilizes such benefit, is limited to the amount of the
  benefit that is liable to tax as labor income, in the hands of the employee;
  all being subject to the restrictions specified in Section 102 of the Income
  Tax Ordinance.                                                                                                                                                                                                       
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 
| |  | On September
  20, 2004, the board of directors resolved to grant two senior employees of
  the Company options under the 2003 Plan to purchase an aggregate amount of
  168,000 shares of the Company at an exercised price of $3.70 per share. The
  fair value of one share at the day of grant was $4.11. The options vest
  ratably over three years and are exercisable for ten years until September
  20, 2014. Any options not exercised by then will expire. The deferred stock
  compensation is amortized over the vesting period using the straight-line
  method. The compensation costs of $23,000, $94,000 and $6,000 are presented
  under general and administrative expenses in 2005, 2006 and 2007
  respectively. Since 2006 the Company recorded additional amounts as stock-based
  compensation due to the adoption of SFAS 123(R), see also note 2m.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 
| |  | In the years
  ended December 31, 2007 and 2006, no options were granted under either the
  2001 Plan or 2003 Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 
| |  | On February
  19, 2007, options were exercised for purchase of 112,000 shares. See note
  7a2.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 
| |  | A summary of
  the status of the Companys plans at December 31, 2007, 2006 and 2005, and
  changes during the years ended on those dates, is presented below:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

|                                         |  |                        |           |                                 |       |        |  |                                 |           |        |      |                                 |  |  |           |   |       |  | 
|---------------------------------------- |  | ---------------------- | --------- | ------------------------------- | ----- | ------ |  | ------------------------------- | --------- | ------ | ---- | ------------------------------- |  |  | --------- | - | ----- |  | 
|                                         |  | Year ended December 31 |          
|                                         |  |                        |          
|                                         |  | 2007                   |           | 2006                            |       | 2005   | 
|                                         |  |                        |           |                                 |       |        | 
|                                         |  | Number                 |           | Weighted average exercise price |       | Number |  | Weighted average exercise price |           | Number |      | Weighted average exercise price | 
|                                         |  |                        |           |                                 |       |        |  |                                 |           |        |      |                                 | 
|                                         |  |                        |           | $                               |       |        |  | $                               |           |        |      | $                               | 
|                                         |  |                        |           |                                 |       |        |  |                                 |           |        |      |                                 | 
|                                         |  |                        |           |                                 |       |        |  |                                 |           |        |      |                                 |  |  |           |   |       |  | 
|Options outstanding at beginning of year |  |                        | 193,000   |                                 | 4.68  |        |  |                                 | 346,754   |        | 6.91 |                                 |  |  | 519,922   |   | 8.09  |  | 
|Changes during the year:                 |  |                        |           |                                 |       |        |  |                                 |           |        |      |                                 |  |  |           |   |       |  | 
|Granted                                  |  |                        |          |                                 |      |        |  |                                 |          |        |     |                                 |  |  |          |   |      |  | 
|Exercised                                |  |                        | (112,000  | )                               | 3.7   |        |  |                                 |           |        |      |                                 |  |  |           |   |       |  | 
|Forfeited and canceled                   |  |                        | (9,500    | )                               | 11.66 |        |  |                                 | (153,754  | )      | 9.71 |                                 |  |  | (173,168  | ) | 10.46 |  | 
|                                         |  |                        |           |                                 |       |        |  |                                 |           |        |      |                                 |  |  |           |   |       |  | 
|Options outstanding at end of year       |  |                        | 71,500    |                                 | 5.28  |        |  |                                 | 193,000   |        | 4.68 |                                 |  |  | 346,754   |   | 6.91  |  | 
|                                         |  |                        |           |                                 |       |        |  |                                 |           |        |      |                                 |  |  |           |   |       |  | 
|Options exercisable at end of year       |  |                        | 71,500    |                                 | 5.28  |        |  |                                 | 137,000   |        | 5.08 |                                 |  |  | 234,754   |   | 8.44  |  | 
|                                         |  |                        |           |                                 |       |        |  |                                 |           |        |      |                                 |  |  |           |   |       |  | 
|Options available for future awards      |  |                        | 1,732,000 |                                 |       |        |  |                                 | 1,732,000 |        |      |                                 |  |  | 1,732,000 |   |       |  | 
|                                         |  |                        |           |                                 |       |        |  |                                 |           |        |      |                                 |  |  |           |   |       |  | 

F-27

---

---

SCAILEX
CORPORATION LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|         |                                  
|-------- | ---------------------------------
|NOTE 7  | SHAREHOLDERS EQUITY (continued):

| |  |                                                                                                                                                                                                                                                                                                                                                       | 
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| |  | The weighted
  average fair value of options granted during 2004 was $1.69.                                                                                                                                                                                                                                                                          
| |  |                                                                                                                                                                                                                                                                                                                                                       | 
| |  | The weighted
  average fair value of each option grant is estimated on the date of grant
  using the Black & Scholes option-pricing model with the following
  weighted average assumptions: risk-free interest rate of 3.1%; dividend
  yields of zero; expected life of the options of approximately three years;
  and expected volatility of 52%.
| |  |                                                                                                                                                                                                                                                                                                                                                       | 
| |  | The expected
  volatility is based on a historical volatility, by statistical analysis of
  the daily share price for periods corresponding the options expected term.
  The expected term is expected length of time until expected date of
  exercising the options, based on expected employees exercise behavior.                              
| |  |                                                                                                                                                                                                                                                                                                                                                       | 
| |  | As of
  December 31, 2007, there was no unrecognized compensation cost related to
  non-vested share-based compensation arrangements granted under the plans.                                                                                                                                                                                        
| |  |                                                                                                                                                                                                                                                                                                                                                       | 
| |  | The
  following table summarizes information about options under the Companys
  plans outstanding at December 31, 2007:                                                                                                                                                                                                                             

|                            |  |                                               |  |                                             |  |                                 |      |                                              |  |                                   |       |  |  |        |  |  |       | 
|--------------------------- |  | --------------------------------------------- |  | ------------------------------------------- |  | ------------------------------- | ---- | -------------------------------------------- |  | --------------------------------- | ----- |  |  | ------ |  |  | ----- | 
|Options outstanding         |  | Options exercisable                           | 
|                            |  |                                               | 
|Range of 
  exercise prices |  | Number 
  outstanding at December 31, 
  2007 |  | Weighted average remaining contractual life |  | Weighted average exercise price |      | Number 
  exercisable at December 31,
  2007 |  | Weighted average exercise
  price |      
|                            |  |                                               |  |                                             |  |                                 |      |                                              |  |                                   |      
|$                           |  |                                               |  | Years                                       |  | $                               |      |                                              |  | $                                 |      
|                            |  |                                               |  |                                             |  |                                 |      |                                              |  |                                   |      
|                            |  |                                               |  |                                             |  |                                 |      |                                              |  |                                   |      
|3.70                        |  |                                               |  | 56,000                                      |  |                                 | 6.72 |                                              |  |                                   | 3.70  |  |  | 56,000 |  |  | 3.70  | 
|10.00                       |  |                                               |  | 6,500                                       |  |                                 | 1.0  |                                              |  |                                   | 10.00 |  |  | 6,500  |  |  | 10.00 | 
|11.69                       |  |                                               |  | 9,000                                       |  |                                 | 1.0  |                                              |  |                                   | 11.69 |  |  | 9,000  |  |  | 11.69 | 
|                            |  |                                               |  |                                             |  |                                 |      |                                              |  |                                   |       |  |  |        |  |  |       | 
|                            |  |                                               |  | 71,500                                      |  |                                 |      |                                              |  |                                   | 5.48  |  |  | 71,500 |  |  | 5.48  | 
|                            |  |                                               |  |                                             |  |                                 |      |                                              |  |                                   |       |  |  |        |  |  |       | 

F-28

---

---

SCAILEX CORPORATION LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

|         |                             
|-------- | ----------------------------
|NOTE 8  | TAXES ON INCOME (continued):

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | The Company and its Israeli subsidiary:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | Measurement of results for tax purposes under the Income Tax (Inflationary Adjustments) Law, 1985 (the Inflationary
  Adjustments Law)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | Under this
  law, results for tax purposes are measured in real terms, in accordance with the
  changes in the Israeli CPI, or in the exchange rate of the dollar for a
  foreign investors company. The Company and its Israeli subsidiaries
  elected to measure their results on the basis of the changes in the Israeli
  CPI.                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | On February
  26, 2008, the Income Tax Act (Inflationary Adjustments) (Amendment no. 20)
  (Limit of the Period of Incidence), 2008 (the Amendment) passed during the
  third reading in the Knesset,
  pursuant whereto, the inception of the Inflationary Adjustments Act shall
  terminate after the 2007 tax year, and, as of the 2008 tax year, the
  provisions of that Act will no longer apply, with the exception of the
  transitional provisions whose purpose is to prevent distortions in the tax
  calculations.                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | Pursuant to
  the Amendment, as of the 2008 tax year, the adjustment of income for tax
  purposes to a real measurement basis shall no longer be calculated.
  Furthermore, depreciation of fixed assets and carry-forward losses for tax
  purposes will no longer be linked to the index, so that these sums shall be
  adjusted up until the index of the end of the 2007 tax year, and linkage to
  the index shall be discontinued thereafter.                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | Tax rates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | The income of the Company and its Israeli subsidiaries is taxed at
  the regular rate. Through December 31, 2003, the corporate tax was 36%. In
  July 2004, Amendment No. 140 to the Income Tax Ordinance was enacted. One of
  the provisions of this amendment is that the corporate tax rate is
  to be gradually reduced from 36% to 30%. In August 2005, a further amendment
  (No.147) was published, which makes a further revision to the corporate tax
  rates prescribed by Amendment No.140. As a result of the aforementioned
  amendments, the corporate tax rates for 2004 and thereafter are as follows:
  2005  34%, 2006  31%, 2007  29%, 2008  27%, 2009  26% and for 2010 and
  thereafter  25%.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | b. | Non-Israeli subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | The
  non-Israeli subsidiaries are taxed under the laws of their countries of
  residence.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | c. | Carryforward tax losses and deductions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | Carryforward
  tax losses and deductions of the Company and its subsidiaries, including
  capital losses and losses from realization of marketable securities
  approximated $497 million at December 31, 2007. Most of the carryforward
  amounts are available indefinitely with no expiration date. The Company did not record deferred taxes
  in respect of these losses, since it does not anticipate that these losses
  will be utilized in the foreseeable future.                                                                                                                                                                                                                                               

F-29

---

---

SCAILEX CORPORATION LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

|         |                             
|-------- | ----------------------------
|NOTE 8  | TAXES ON INCOME (continued):

| |    |                       
| | -- | ----------------------
| | d. | Deferred income taxes:

|                                                                                                                   |  |                           |          |      |  |          |   |  |          |  
|------------------------------------------------------------------------------------------------------------------ |  | ------------------------- | -------- | ---- |  | -------- | - |  | -------- | -
|                                                                                                                   |  | December 31               |         
|                                                                                                                   |  |                           |         
|                                                                                                                   |  | 2007                      |          | 2006 |  | 2005     |  
|                                                                                                                   |  |                           |          |      |  |          |  
|                                                                                                                   |  | U.S. dollars in thousands |         
|                                                                                                                   |  |                           |         
|                                                                                                                   |  |                           |          |      |  |          |   |  |          |  
|Computed in respect of the following:                                                                              |  |                           |          |      |  |          |   |  |          |  
|Carryforward tax losses and
  credits                                                                              |  |                           | 124,250  |      |  | 109,750  |   |  | 136,946  |  
|Available-for-sale financial
  assets*                                                                             |  |                           | 8,930    |      |  |          |   |  |          |  
|Investments                                                                                                        |  |                           |          |      |  |          |   |  | 4,191    |  
|                                                                                                                   |  |                           |          |      |  |          |   |  |          |  
|                                                                                                                   |  |                           | 133,180  |      |  | 109,750  |   |  | 141,137  |  
|L e s s   - valuation allowance
  (attributed mainly to loss carryforwards and expenses deductible upon
  payment) |  |                           | (124,250 | )    |  | (109,750 | ) |  | (139,877 | )
|                                                                                                                   |  |                           |          |      |  |          |   |  |          |  
|                                                                                                                   |  |                           | 8,930    |      |  |          |   |  | 1,260    |  
|                                                                                                                   |  |                           |          |      |  |          |   |  |          |  
|Deferred income taxes are included in the balance sheets as:                                                       |  |                           |          |      |  |          |   |  |          |  
|Current assets                                                                                                     |  |                           |          |      |  |          |   |  | 1,260    |  
|                                                                                                                   |  |                           |          |      |  |          |   |  |          |  
|Non current assets                                                                                                 |  |                           | 8,930    |      |  |          |   |  |          |  
|                                                                                                                   |  |                           |          |      |  |          |   |  |          |  

* presented
against the OCI and not against the statement of operations.

| |    |                                                                
| | -- | ---------------------------------------------------------------
| | e. | Income (loss) before taxes on income from continuing operation:

|                                           |  |                           |       |      |  |        |  |  |       |  
|------------------------------------------ |  | ------------------------- | ----- | ---- |  | ------ |  |  | ----- | -
|                                           |  | Year ended December 31    |      
|                                           |  |                           |      
|                                           |  | 2007                      |       | 2006 |  | 2005   | 
|                                           |  |                           |       |      |  |        | 
|                                           |  | U.S. dollars in thousands |      
|                                           |  |                           |      
|                                           |  |                           |       |      |  |        |  |  |       |  
|The Company
  and its Israeli subsidiaries |  |                           | 9,833 |      |  | 11,438 |  |  | (447  | )
|Non-Israeli
  subsidiaries                 |  |                           |       |      |  | 1,950  |  |  | 2,683 |  
|                                           |  |                           |       |      |  |        |  |  |       |  
|                                           |  |                           | 9,833 |      |  | 13,388 |  |  | 2,236 |  
|                                           |  |                           |       |      |  |        |  |  |       |  

| |    |                                                                                        
| | -- | ---------------------------------------------------------------------------------------
| | f. | Taxes on income included in the statements of operations -
  from continuing operation:

| |  |    |            
| |  | -- | -----------
| |  | 1) | As follows:

|                           |  |                           |  |      |  |       |  |  |      |  
|-------------------------- |  | ------------------------- |  | ---- |  | ----- |  |  | ---- | -
|                           |  | Year ended 
  December 31 | 
|                           |  |                           | 
|                           |  | 2007                      |  | 2006 |  | 2005  | 
|                           |  |                           |  |      |  |       | 
|                           |  | U.S. dollars in thousands | 
|                           |  |                           | 
|                           |  |                           |  |      |  |       |  |  |      |  
|Current:                   |  |                           |  |      |  |       |  |  |      |  
|Israeli                    |  |                           |  |      |  | 242   |  |  | 185  |  
|Non-Israeli                |  |                           |  |      |  |       |  |  | 272  |  
|                           |  |                           |  |      |  |       |  |  |      |  
|                           |  |                           |  |      |  | 242   |  |  | 457  |  
|                           |  |                           |  |      |  |       |  |  |      |  
|Deferred,
  see e. above - |  |                           |  |      |  |       |  |  |      |  
|Non-Israeli                |  |                           |  |      |  | 1,260 |  |  | (551 | )
|                           |  |                           |  |      |  |       |  |  |      |  
|                           |  |                           |  |      |  | 1,502 |  |  | (94  | )
|                           |  |                           |  |      |  |       |  |  |      |  

F-30

---

---

SCAILEX CORPORATION LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

|         |                             
|-------- | ----------------------------
|NOTE 8  | TAXES ON INCOME (continued):

| |  |    |                                                                                                                                                                                                       
| |  | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 2) | Following is
  a reconciliation of the theoretical tax expense, assuming all income is taxed
  at the regular tax rate applicable to Israeli corporations (see a. above) and
  the actual tax expense:

|                                                                                                                                  |  |                           |         |      |  |         |   |  |        |  
|--------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ------- | ---- |  | ------- | - |  | ------ | -
|                                                                                                                                  |  | Year ended December 31    |        
|                                                                                                                                  |  |                           |        
|                                                                                                                                  |  | 2007                      |         | 2006 |  | 2005    |  
|                                                                                                                                  |  |                           |         |      |  |         |  
|                                                                                                                                  |  | U.S. dollars in thousands |        
|                                                                                                                                  |  |                           |        
|                                                                                                                                  |  |                           |        
|Profit (loss) before taxes on income                                                                                              |  |                           | 9,833   |      |  | 13,388  |   |  | 2,236  |  
|                                                                                                                                  |  |                           |         |      |  |         |   |  |        |  
|Theoretical tax expense (tax benefit) on
  the above amount                                                                       |  |                           | 2,852   |      |  | 4,150   |   |  | 760    |  
|Decrease in taxes resulting from different
  tax rates  net                                                                      |  |                           |         |      |  | 78      |   |  | (175   | )
|Decrease in taxes arising from exempted
  income                                                                                  |  |                           | (3,100  | )    |  |         |   |  |        |  
|Change in valuation allowance                                                                                                     |  |                           | 14,500  |      |  | (30,127 | ) |  | (5,889 | )
|Changes in deferred taxes resulting from
  carryforward tax losses                                                                |  |                           | (14,500 | )    |  | 27,196  |   |  | 4,082  |  
|Increase (decrease) in taxes resulting from
  prior years                                                                         |  |                           |         |      |  | 50      |   |  |        |  
|Increase (decrease) in taxes arising from
  differences between non-dollar currencies income and dollar income, net, and
  other* |  |                           | 248     |      |  | 155     |   |  | 1,128  |  
|                                                                                                                                  |  |                           |         |      |  |         |   |  |        |  
|Tax benefit (taxes on income) in the
  consolidated statements of operations                                                      |  |                           |        |      |  | 1,502   |   |  | (94    | )
|                                                                                                                                  |  |                           |         |      |  |         |   |  |        |  

| |   |                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | * | Resulting
  mainly from the difference between the changes in the Israeli CPI (the basis
  for computation of taxable income of the Company and its Israeli
  subsidiaries, see a. above) and the changes in the exchange rate of Israeli
  currency relative to the dollar.

F-31

---

---

SCAILEX CORPORATION LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

|         |                             
|-------- | ----------------------------
|NOTE 8  | TAXES ON INCOME (continued):

| |    |                                                                                                                                                                                    
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | g. | Tax assessments:                                                                                                                                                                   
| |    |                                                                                                                                                                                    
| |    | The Company
  has received, or is considered to have received, final tax assessments
  through the 2002 tax year.                                                                  
| |    |                                                                                                                                                                                    
| |    | Scailex
  Vision and Scailex Vision International Ltd. (a wholly owned subsidiary of
  Scailex Vision) have received final tax assessments up to and including the
  2007 tax year.
| |    |                                                                                                                                                                                    
| |    | Related to
  tax assessments of the US subsidiaries, see note 1b(1).                                                                                                               

|         |                                           
|-------- | ------------------------------------------
|NOTE 9  | FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:

| |    |                                                                                                                                                                                                                                                                                                                                                                                   
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | Concentrations of credit risks                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                   
| |    | At December
  31, 2007 and 2006, the Company and its subsidiaries held cash and financial
  assets, most of which were deposited with major U.S and Israeli banks. Part
  of the financial assets held by the Company is debt securities of the U.S.
  Treasury and highly rated corporations. The Company considers the inherent
  credit risks on these securities to be remote.
| |    |                                                                                                                                                                                                                                                                                                                                                                                   
| | b. | Cash Management and Fair value of financial instruments                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                   
| |    | The
  financial instruments of the Company and its subsidiaries consist mainly of
  cash and cash equivalents, marketable securities and short-term investments.                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                   
| |    | In view of
  their nature, the fair value of the financial instruments included in working
  capital is usually identical or close to their carrying amount.                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                   
| |    | As to the
  fair value of held-to-maturity securities-see note 10                                                                                                                                                                                                                                                                                                                 

|          |                                               
|--------- | ----------------------------------------------
|NOTE 10  | SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:

| |                 |                                                                    
| | --------------- | -------------------------------------------------------------------
| | Balance sheets:
| |                 |                                                                    
| | a.              | Information on securities available-for-sale and held for maturity:

| |  |    |                                                                                                                                      
| |  | -- | -------------------------------------------------------------------------------------------------------------------------------------
| |  | 1) | Held-to-maturity
  securities:                                                                                                       
| |  |    |                                                                                                                                      
| |  |    | At December
  31, 2007 and 2006 the amortized cost basis, aggregate fair value and
  unrealized holding gains and losses, as follows:

|                                 |  |                             |        |                         |  |                      |  |                     |      |   |  |   | 
|-------------------------------- |  | --------------------------- | ------ | ----------------------- |  | -------------------- |  | ------------------- | ---- | - |  | - | 
|                                 |  | Amortized 
  Cost*          |        | Aggregate 
  Fair Value |  | Unrealized 
  Losses |  | Unrealized 
  Gains |     
|                                 |  |                             |        |                         |  |                      |  |                     |     
|                                 |  | $   i n   t h o u s a n d s |       
|                                 |  |                             |       
|                                 |  |                             |        |                         |  |                      |  |                     |      |   |  |   | 
|December 31,
  2007:             |  |                             |        |                         |  |                      |  |                     |      |   |  |   | 
|U.S. Treasury notes and agencies |  |                             | 10,919 |                         |  | 11,034               |  |                     | (115 | ) |  | 0 | 
|                                 |  |                             |        |                         |  |                      |  |                     |      |   |  |   | 
|                                 |  |                             |        |                         |  |                      |  |                     |      |   |  |   | 
|December 31,
  2006:             |  |                             |        |                         |  |                      |  |                     |      |   |  |   | 
|U.S. Treasury notes and agencies |  |                             | 44,509 |                         |  | 44,780               |  |                     | (271 | ) |  | 0 | 
|                                 |  |                             |        |                         |  |                      |  |                     |      |   |  |   | 

F-32

---

---

SCAILEX CORPORATION LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

|          |                                                           
|--------- | ----------------------------------------------------------
|NOTE 10  | SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):

| |     |                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | --------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                   | It is
  expected that the debt securities would not be settled at a price less than
  the amortized cost of the investment. Since the Company has the capability,
  and intends, to hold this investment until a recovery of fair value, which
  may be maturity, it does not consider the investment in these debentures to
  be other-than-temporarily impaired at December 31, 2007.
| |     |                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                        
| | (*) | Not
  including amounts of interest receivable of $92 thousands and
  $361 thousands at December 31, 2007 and 2006, respectively.
| |     |                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                        
| |     | 2)                                                                                                                                | Available-for-sale
  securities:                                                                                                                                                                                                                                                                                                                                                       

|                              |  |                             |         |                        |  |                          |  |                           |      |   |  |         | 
|----------------------------- |  | --------------------------- | ------- | ---------------------- |  | ------------------------ |  | ------------------------- | ---- | - |  | ------- | 
|                              |  | Amortized 
  Cost           |         | Gross Unrealized Gains |  | Gross Unrealized Losses* |  | Estimated 
  Fair Value** |     
|                              |  |                             |         |                        |  |                          |  |                           |     
|                              |  | $   i n   t h o u s a n d s |        
|                              |  |                             |        
|                              |  |                             |         |                        |  |                          |  |                           |      |   |  |         | 
|December 31, 2007:            |  |                             |         |                        |  |                          |  |                           |      |   |  |         | 
|Corporate
  bonds             |  |                             | 997     |                        |  |                         |  |                           | (3   | ) |  | 994     | 
|Marketable
  securities (ORL) |  |                             | 243,637 |                        |  | 64,770                   |  |                           |     |   |  | 307,410 | 
|                              |  |                             |         |                        |  |                          |  |                           |      |   |  |         | 
|                              |  |                             | 243,634 |                        |  | 64,770                   |  |                           | (3   | ) |  | 308,404 | 
|                              |  |                             |         |                        |  |                          |  |                           |      |   |  |         | 
|                              |  |                             |         |                        |  |                          |  |                           |      |   |  |         | 
|December 31, 2006:            |  |                             |         |                        |  |                          |  |                           |      |   |  |         | 
|Corporate
  bonds             |  |                             | 14,302  |                        |  | 6                        |  |                           | (325 | ) |  | 13,983  | 
|                              |  |                             |         |                        |  |                          |  |                           |      |   |  |         | 

|     |  |                                                                                                                                                                                                                                                                                                                                                                         
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(*)  |  | As of December 31, 2007, the Company held
  investments in available-for-sale securities with unrealized holding losses
  totaling $117,000. Realized losses in 2007 were approximately $472,000
  (including amortization of comprehensive loss related to held-to-maturity
  securities as described in note 2d), compared to 2006 that were approximately
  $337,000.
|     |  |                                                                                                                                                                                                                                                                                                                                                                         
|(**) |  | Not
  including amounts of interest receivable of $7 thousands and
  $275 thousands at December 31, 2007 and 2006 respectively.                                                                                                                                                                                                                                         

F-33

---

---

SCAILEX CORPORATION LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

|          |                                                           
|--------- | ----------------------------------------------------------
|NOTE 10  | SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):

| |  |    |                                                                            
| |  | -- | ---------------------------------------------------------------------------
| |  | 3) | The
  marketable securities are presented in the balance sheets as follows:

|                              |  |                |         |      |  |        | 
|----------------------------- |  | -------------- | ------- | ---- |  | ------ | 
|                              |  | December 31    |        
|                              |  |                |        
|                              |  | 2007           |         | 2006 | 
|                              |  |                |         |      | 
|                              |  | $ in thousands |        
|                              |  |                |        
|                              |  |                |         |      |  |        | 
|Among
  current assets:       |  |                |         |      |  |        | 
|Held-to-maturity securities*  |  |                | 2,091   |      |  | 21,991 | 
|Available-for-sale securities |  |                | 308,411 |      |  | 14,258 | 
|                              |  |                |         |      |  |        | 
|                              |  |                | 310,502 |      |  | 36,249 | 
|As long-term
  investments:   |  |                |         |      |  |        | 
|Held-to-maturity securities*  |  |                | 8,922   |      |  | 22,879 | 
|                              |  |                |         |      |  |        | 
|                              |  |                | 319,424 |      |  | 59,128 | 
|                              |  |                |         |      |  |        | 

|                                            |  |  |        |  |  |        | 
|------------------------------------------- |  |  | ------ |  |  | ------ | 
|* The above
  securities mature as follows: |  |  |        |  |  |        | 
|                                            |  |  |        |  |  |        | 
|2007                                        |  |  |       |  |  | 21,991 | 
|2008                                        |  |  | 2,091  |  |  | 12,965 | 
|2009                                        |  |  | 8,922  |  |  | 8,922  | 
|2010                                        |  |  |        |  |  | 992    | 
|                                            |  |  |        |  |  |        | 
|                                            |  |  | 11,013 |  |  | 44,870 | 
|                                            |  |  |        |  |  |        | 

F-34

---

---

SCAILEX CORPORATION LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

|          |                                                           
|--------- | ----------------------------------------------------------
|NOTE 10  | SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):
|          |                                                           
|          | Statements of operations:                                 

|                                                 |  |                           |         |      |  |        |   |  |       |  
|------------------------------------------------ |  | ------------------------- | ------- | ---- |  | ------ | - |  | ----- | -
|                                                 |  | Year ended December 31    |        
|                                                 |  |                           |        
|                                                 |  | 2007                      |         | 2006 |  | 2005   |  
|                                                 |  |                           |         |      |  |        |  
|                                                 |  | U.S. dollars in thousands |        
|                                                 |  |                           |        
|                                                 |  |                           |         |      |  |        |   |  |       |  
|b.     Financial income, net:                    |  |                           |         |      |  |        |   |  |       |  
|Interest income                                  |  |                           | 7,789   |      |  | 13,766 |   |  | 4,470 |  
|Loss on trading marketable securities, net       |  |                           | (163    | )    |  | (384   | ) |  | (84   | )
|Bank charges and interest expenses               |  |                           | (268    | )    |  | (87    | ) |  | (48   | )
|Other (including foreign exchange losses,
  net) |  |                           | *(4,778 | )    |  | (93    | ) |  | (55   | )
|                                                 |  |                           |         |      |  |        |   |  |       |  
|                                                 |  |                           | 2,580   |      |  | 13,202 |   |  | 4,283 |  
|                                                 |  |                           |         |      |  |        |   |  |       |  

| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| | * | $5.7 million
  out of which related to capital notes issued by a subsidiary to its minority
  shareholders and they are quote in NIS.

|                                                   |  |  |        |  |  |       |   |  |     | 
|-------------------------------------------------- |  |  | ------ |  |  | ----- | - |  | --- | 
|c.     Other income, net:                          |  |  |        |  |  |       |   |  |     | 
|Write-down of investment in cost                   |  |  |        |  |  | (660  | ) |  |     | 
|Gain from sale of investment in cost               |  |  |        |  |  | 1,327 |   |  |     | 
|Distribution of funds from cost method  investment |  |  | 134    |  |  | 1,800 |   |  | 793 | 
|Dividend received from available-for-sale
  assets |  |  | 10,689 |  |  |       |   |  |     | 
|Other                                              |  |  |        |  |  | 674   |   |  | 124 | 
|                                                   |  |  |        |  |  |       |   |  |     | 
|                                                   |  |  | 10,823 |  |  | 3,141 |   |  | 917 | 
|                                                   |  |  |        |  |  |       |   |  |     | 

| | d. | Transactions with Related Parties
| | -- | ---------------------------------

| |  |    |                                                                                                                                                                                                                                                                                                                                           
| |  | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 1) | In 2006, the
  CEO and the CFO of the Company received a payment of $250 thousands and $20
  thousands, respectively, directly from the former Company controlling
  shareholders. Such compensation is presented in the statements of changes in
  shareholders equity for 2006 as Payment made by shareholders to senior
  employees.
| |  |    |                                                                                                                                                                                                                                                                                                                                           
| |  | 2) | See note
  7a(2).                                                                                                                                                                                                                                                                                                                         
| |  |    |                                                                                                                                                                                                                                                                                                                                           
| |  | 3) | See note
  6a(2).                                                                                                                                                                                                                                                                                                                         

F-35

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---

SCAILEX CORPORATION LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

|          |                   
|--------- | ------------------
|NOTE 11  | SUBSEQUENT EVENTS:

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | On February 21, 2008, the Company received the Government Companies
  Authoritys response on the matter of receipt of the ORL Control Permit,
  pursuant whereto the apparent position was presented to the State Attorney
  General of recommending that the Prime Minister and the Minister of Finance
  reject PCHs application to receive the ORL Control Permit. Further to the
  communications that PCH has been conducting with the Competent Authority, on
  May 19, 2008, PCH forwarded an outline for a transaction that it received
  from Modgal to the Competent Authority for its examination The outline is for
  a transaction in relation to which negotiations are currently being conducted
  on the basis of agreements in principle formulated between the controlling
  shareholders of Modgal and the Alder Group regarding the contracting of a
  binding agreement, the outcome of which, if carried out, will be that the
  Alder Group shall cease to be an indirect shareholder of PCH (subject to
  put/call options, which, if exercised, will vest the Alder Group directly
  with up to 14.75% of IPEs issued share capital), and the Alder Group shall
  also cease to be a creditor of PCHs controlling shareholders.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | 2. | Further to
  the agreements regarding Linuras relinquishing its 19.9% stake in PCH, on
  March 13, 2008, the Company and Linura reached an agreement whereby the
  Company purchased Linuras entire holdings in PCH for the consideration of a
  total of $57.2 million, and received, by way of assignment, the capital note
  that PCH had issued to Linura. The consideration was paid in a single payment
  on March 26, 2008. After acquisition of Linuras PCH shares, PCH became a
  wholly owned subsidiary of the Company, and the PCH shareholders agreement
  became invalid.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | At the first quarter of 2008, the Company generated a capital gain of
  approximately $6.5 million, and the Companys equity increased by
  approximately $9.7 million (including the said capital gain).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | 3. | Pursuant to
  the agreement from 2005 for the sale of the majority of the assets and
  operations of Scailex Vision to HP, $23 million (the Sum in Escrow) was
  deposited with a trustee to secure HPs indemnification rights. On May 5,
  2008, a settlement agreement was signed between Scailex Vision and HP, which
  concludes the reciprocal claims between the parties in relation to the Sum in
  Escrow.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | Within the
  scope of the settlement agreement, HP and Scailex Vision agreed that, out of
  the total balance of the funds remaining in escrow, the sum of about $7.8
  million is being released to Scailex Vision, the sum of about $7.4 million is
  being released to HP, while the balance, in the sum of approximately $0.6
  million, is to remain in escrow to secure a particular claim in respect
  whereof HP is entitled to indemnification.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | It was
  further agreed that Scailex Vision shall be entitled to receive additional
  sums from HP in the event that HP shall succeed in the appeal that it filed
  against the tax authority in Mexico on the matter of tax assessments. Scailex
  Vision shall be entitled to receive 75% of any payment that HP receives in
  relation to that appeal, subject to the stipulation that the sum that HP
  shall transfer to the Company shall not exceed about $3.9 million (plus
  interest). Scailex Vision undertook to assume half of the litigation expenses
  in respect of the said appeal; it has no material exposure in respect of
  these expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | As a result
  of the settlement agreement, the provisions relating to HPs claims were
  updated, and Scailex Vision generated, in 2008, a profit of some $2.4
  million; the Companys share of this profit is about $1.7 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | 4. | On April 10,
  2008, the Companys Board of Directors approved the distribution of a cash
  dividend in the sum of $44.9 million, after determining that the distribution
  meets the legal tests for a distribution, pursuant to the Companies Law, 5759
   1999; the dividend was distributed in cash to the Companys shareholders on
  May 22, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

F-36

---

---

SCAILEX CORPORATION LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

|          |                              
|--------- | -----------------------------
|NOTE 11  | SUBSEQUENT EVENTS(continued):

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. | On April 10, 2008, after the approval of the Companys Audit Committee and Board of
Directors, the Company entered into an agreement with Petrochemicals for the sale of all
of PCHs issued share capital. The said agreement was approved by a General Meeting
of Companys shareholders on May 29, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | In
  consideration for the purchase of the PCH shares, the capital notes issued by
  PCH in respect of funds that its shareholders had injected into PCH, the
  assignment of the Companys rights pursuant to a rental agreement under which
  it rents its offices in Herzliya, as well as the rights of the Company and
  PCH pursuant to a Letter of Undertaking from the Israel Corporation Ltd.
  dated May 10, 2007, Petrochemicals shall pay a total of approximately $338
  million to the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | In addition,
  on April 10, 2008, Petrochemicals entered into an agreement with Suny Electronics
  Ltd. (Suny) for the sale to Suny of Petrochemicals entire stake in the
  Company, constituting 50.06% of the Companys then issued and outstanding
  share capital, so that Petrochemicals shall cease to be a shareholder of the
  Company, while Suny shall become the Companys controlling shareholder.
  Within the scope of such agreement, Suny undertook, inter alia, to cause the
  Company to purchase directors and officers liability run-off insurance,
  with such cover as is customary in the market, for directors and officers
  holding office in the Company and in its subsidiaries on the date of signing
  of such agreement, for six to seven years, to the extent possible, for an
  inclusive sum insured per event and for the period of $30 million, and for an
  inclusive premium that is not to exceed $0.6 million for the entire said
  period.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | The closing
  and consummation of the said PCH sale agreement and the closing and
  consummation of the said Suny agreement are to take place simultaneously,
  with each transaction being interdependent upon the other.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | The
transactions are expected to close during the next few days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | 6. | On April 18,
  2008, following approval by the Board of Directors of Scailex Vision, a 78.6%
  subsidiary of the Company, the General Meeting of Shareholders of Scailex
  Vision approved the distribution of a dividend to its shareholders at the
  inclusive sum of $25 million, equating to not more than the sum of NIS 92.5
  million on the date of the distribution.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | Scailex
  Vision applied to the Court for approval to pay the dividend, and received
  such approval at June 2, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | The dividend
  was distributed in cash to Scitex Visions shareholders on June 4, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | 7. | On May 20,
  2008, PCH received a dividend from ORL in the sum of $0.035 per share, which
  totaled approximately to $11.2 million (at which time PCH was wholly held by
  the Company).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

F-37

---

---

# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders of SCAILEX CORPORATION LTD.

We have audited the consolidated
balance sheets of Scailex Corporation Ltd. (the Company) and its subsidiaries
as of December 31, 2006 and the related consolidated statements of operations,
changes in shareholders equity and cash flows for each of the two years in the
period ended December 31, 2006. These financial statements are the responsibility of
the Companys Board of Directors and management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance
with standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by the Companys Board of Directors and management, as
well as evaluating the overall financial statement presentation. We believe that our
audits and the report of the other independent registered public accounting firm provide a
reasonable basis for our opinion.

In our opinion, based on our audits,
the consolidated financial statements referred to above present fairly, in all material
respects, the consolidated financial position of the Company and its subsidiaries as of
December 31, 2006 and the consolidated results of operations and cash flows for each
of the two years in the period ended December 31, 2006, in conformity with accounting
principles generally accepted in the United States of America.

As discussed in note 1 to the
consolidated financial statements, the Company changed the manner in which it accounts for
share-based compensation effective January 1, 2006 to conform with FASB Statement of
Financial Accounting Standards No. 123 (revised 2004), Share-Based
Payment.

|                 |                                    
|---------------- | -----------------------------------
|Tel-Aviv, Israel | Kesselman & Kesselman              
|June 17, 2007    | Certified Public Accountants (Isr.)

F-38

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---