[LETTERHEAD OF RATZKOVOSKY FRIED MANDOLA]

                         REPORT OF INDEPENDENT AUDITORS

                             To the Shareholders of
                               GALIL MEDICAL LTD.

      We have audited the accompanying consolidated balance sheets of Galil
Medical Ltd. - a company in the development stage (hereinafter the "Company")
and its subsidiary as of December 31, 1998, the balance sheets of the Company as
of December 31,1998 and 1997, the related consolidated statements of operations,
changes in shareholders' equity and cash flows for the year ended December
31,1998 and the related statements of operations, changes in shareholders'
equity and cash flows for the years ended December 31, 1998 and 1997. 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 generally accepted auditing
standards, including those prescribed by the Israeli Auditors' Regulations (Mode
of Performance), 1973 which do not differ in any significant respect from United
States generally accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement, either originating
within the financial statements themselves, or due to any misleading statement
included therein. 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 provide
a reasonable basis for our opinion.

      The aforementioned financial statements have been prepared on the basis of
the historical cost convention, adjusted to reflect the changes in the general
purchasing power of the Israeli currency - on the basis of the changes in the
exchange rate of the U.S. Dollar - in accordance with the opinions of the
Institute of Certified Public Accountants in Israel. Condensed nominal Israeli
currency data, on the basis of which the adjusted financial statements of the
Company were prepared, is presented in Note 21.

      In our opinion, based on our audits, the financial statements referred to
above - consolidated and company - present fairly, in all material respects, the
consolidated financial position of the Company and its subsidiary as of December
31, 1998 and the Company as of December 31, 1998 and 1997, the consolidated
results of their operations, changes in shareholders' equity and cash flows for
the year ended December 31, 1998, and the results of operations, changes in
shareholders' equity and cash flows for the years ended December 31, 1998 and
1997, in conformity with generally accepted accounting principles in Israel. As
applicable to the Company's financial statements, accounting principles
generally accepted in the United States and in Israel are substantially
identical in all material aspects (which differ in certain respects from those
followed in the United States - see Note 20 to the consolidated financial
statements).

      Without qualifying our opinion, as above, we would like to bring to your
attention that the Company is in the development stage, whereby its principal
activity in this period is the development of a system for the performance of
cryomedical treatments by means of freezing and/or thawing tissues, and the
Company has not yet derived significant revenues from the sale of said products.


/s/ RATZKOVSKY FRIED MANDOLA & CO.

RATZKOVSKY FRIED MANDOLA & CO.                                  Haifa, Israel
Certified Public Accountants (Israel)                           January 12, 1999