FISCHBEIN BADILLO WAGNER HARDING
                                909 Third Avenue
                            New York, New York 10022
                                 (212) 826-2000

                                                  July 1, 1999

VIA EDGAR
---------
Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, N.W.
Washington, D.C. 20549

     Re:  Genesis Development and Construction Ltd.
          Annual Report on Form 20-F/A (File No. 0-29078)
          ----------------------------------------------

Ladies and Gentlemen:

On behalf of Genesis  Development and Construction  Ltd.,  enclosed herewith for
filing is an Annual Report on Form 20-F/A, for the year ended December 31, 1998.

This Annual Report was filed yesterday,  via EDGAR, but, due to computer related
technical  difficulties,  was incomplete when it was received by the Commission.
At the  suggestion of Mr. Herb Scholl of the Division of Corporate  Finance,  we
are filing this Annual  Report a second time,  as Amendment  No. 1, so that this
filing will be deemed timely.

Please do not hesitate to call me if you have any questions.

                                   Very truly yours,


                                   Michael Sufott

Encl.

<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 Conformed Copy                   ___________

                                    FORM 20-F/A

         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1998
                           Commission File No. 0-29078
                                   -----------

                             GENESIS DEVELOPMENT AND
                                CONSTRUCTION LTD.
             (Exact name of Registrant as specified in its charter)
                                     Israel
                 (Jurisdiction of incorporation or organization)

                               10 Hashikma Street
                                 P.O. Box 70068
                               Haifa 31700, Israel
                               Tel: 972-4-824-4868
                               Fax: 972-4-824-5885
                    (Address of principal executive offices)

                    Securities registered or to be registered
                   pursuant to Section 12(b) of the Act: None

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

                       Units, each Unit consisting of one
                   Class A Ordinary Share, NIS 0.1 par value,
                       one Redeemable Class A Warrant and
                         one Redeemable Class B Warrant
                                (Title of Class)

                   Class A Ordinary Shares, NIS 0.1 par value
                                (Title of Class)

                           Redeemable Class A Warrants
                                (Title of Class)

                           Redeemable Class B Warrants
                                (Title of Class)

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

 Number of outstanding Class A Ordinary Shares as of December 31, 1998:
 2,361,000
 Number of outstanding Class B Ordinary Shares as of December 31, 1998:
 2,939,000

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

                                    Yes X No

            Indicate by check mark which financial statement item the
                        Registrant has elected to follow:

                                Item 17 X Item 18


<PAGE>
                                TABLE OF CONTENTS


                                     Part I

                                                                         Page

ITEM 1.  Description of Business........................................... 1
ITEM 2.  Description of Property...........................................17
ITEM 3.  Legal Proceedings.................................................17
ITEM 4.  Control of Registrant.............................................18
ITEM 5.  Nature of Trading Market..........................................19
ITEM 6.  Exchange Controls and Other Limitations
          Affecting Security Holders.......................................20
ITEM 7.  Taxation..........................................................21
ITEM 8.  Selected Financial Data...........................................22
ITEM 9.  Management's Discussion and Analysis of
          Financial Condition and Results of Operations....................24
ITEM 9A. Quantitative and Qualitative Disclosures
          About Market Risk................................................31
ITEM 10. Directors and Officers of the Registrant..........................33
ITEM 11. Compensation of Directors and Officers............................36
ITEM 12. Options to Purchase Securities From
          Registrant or Subsidiaries.......................................37
ITEM 13. Interest of Management In Certain Transactions....................37


                                     Part II

ITEM 14. Description of Securities To Be Registered........................39


                                    Part III

ITEM 15. Defaults Upon Senior Securities...................................39
ITEM 16. Changes In Securities, Changes
          In Security For Registered Securities And Use Of Proceeds........39


                                     Part IV

ITEM 17. Financial Statements..............................................40
ITEM 18. Financial Statements..............................................40
ITEM 19. Financial Statements and Exhibits.................................40


         Signatures........................................................40

<PAGE>

                           FORWARD-LOOKING STATEMENTS

         THE FORWARD-LOOKING  STATEMENTS  CONTAINED IN THIS REPORT,  CONCERNING,
AMONG OTHER  THINGS,  THE ABILITY OF THE COMPANY TO COMPETE IN THE ISRAELI  REAL
ESTATE INDUSTRY THE STRENGTH OF SUCH INDUSTRY,  AS WELL AS A MERGER  TRANSACTION
CONTEMPLATED BY THE COMPANY,  INVOLVE RISKS AND UNCERTAINTIES,  AND ARE SUBJECT,
AMONG OTHER THINGS, TO CHANGES IN THE ISRAELI ECONOMY, THE AVAILABILITY OF LAND,
AND THE CONTINUED  AVAILABILITY  OF RAW MATERIALS  AND LABOR.  FURTHERMORE,  THE
COMPANY OPERATES IN AN INDUSTRY SECTOR WHERE  SECURITIES  VALUES MAY BE VOLATILE
AND MAY BE  INFLUENCED  BY  ECONOMIC  AND OTHER  FACTORS  BEYOND  THE  COMPANY'S
CONTROL.  FURTHER INFORMATION  REGARDING THESE AND OTHER RISKS IS DESCRIBED FROM
TIME  TO  TIME  IN THE  COMPANY'S  FILINGS  WITH  THE  SECURITIES  AND  EXCHANGE
COMMISSION.

         The  translations  of certain New Israeli Shekel  ("NIS")  amounts into
dollars  appearing  in this  report  have been made for the  convenience  of the
reader at the exchange rate  prevailing at December 31, 1998 (NIS 4.16 = $1.00),
as  published  by the Bank of Israel.  Such dollar  amounts  have been  included
solely for the  convenience  of the reader  and  should  not be  construed  as a
representation  that the NIS amounts  actually  represent such dollar amounts or
could be converted into dollars at that rate.


                                     Part I
                                     ------

ITEM 1.   DESCRIPTION OF BUSINESS
-------   -----------------------

         General Overview:
         -----------------

         Genesis   Development  and   Construction   Ltd.   (together  with  its
subsidiaries,  the "Company",  unless the context requires otherwise) is engaged
in the  business of real estate  development  and  construction  management  for
residential and public  properties  primarily in Israel and to a limited extent,
through its foreign subsidiaries,  in Russia, Germany and the United States. The
Company acts as a general  contractor,  subcontracting  all of its  construction
activities  to  independent  subcontractors,  and manages  these  projects  with
on-site project managers and field engineers.  In addition,  the Company engages
in  the  sale  of  real  estate  development  rights  and  provides  consulting,
management  and financial  management  services in  connection  with real estate
activities conducted by other developers and contractors. Since the beginning of
1998 the Company has also engaged, through subsidiaries,  in the acquisition and
development of  income-producing  residential  properties for long term lease by
the Company to agencies of the Israeli government.  In May 1999 the Company sold
part of its  interests in such  properties, thereby  significantly  reducing the
level of its activity in this area.

          In May 1999 the Company  entered  into a Memorandum  of  Understanding
regarding  a  merger  transaction  with a  company  based in  Charleston,  South
Carolina,  and engaged in the business of providing  high-speed  Internet  cable
modem services. See "--Internet Cable Corporation Merger Transaction."

                                       1
<PAGE>
         The Company was  incorporated  in Israel in November 1992 and commenced
operations in July 1995.  In November  1996,  the Company  changed its name from
Schnapp  Equity  Limited  to  Genesis  Development  and  Construction  Ltd.  The
Company's  principal  executive offices are located at 10 Hasikma Street,  Haifa
31700, Israel, and its telephone number is 972-4-824-4868.  The Company conducts
its construction  activities  through its  subsidiaries.  All references in this
report to the  "Company"  shall  include  such  subsidiaries  unless the context
otherwise requires.

A.       Real Estate Development and Construction Business

         Over 90% of the land in Israel is owned by the  Government of the State
of Israel (the "Israeli  Government").  As a result, the rate of new development
and  construction  is  essentially  determined  by the Israeli  Government.  The
Israeli  Government  currently  awards  building  projects  primarily  through a
competitive  bidding  process in which  bidders  must  demonstrate,  among other
things,  the  quality of their work and their  ability to  complete  projects on
schedule  and in  accordance  with  specifications.  A  substantial  portion the
Company's projects in Israel have been awarded through,  and the Company intends
to  continue  to  participate  in,  this  competitive   bidding   process.   See
"--Residential Development and Construction Awards."

     The real estate  industry  in Israel has  undergone  rapid and  significant
expansion during the years 1990 to 1996. According to the Israeli Central Bureau
of  Statistics  (the  "ICBS"),   during  the  years  1990  through  1998  Israel
experienced an average  population growth of approximately  24%,  primarily as a
result of immigration from the countries formerly constituting the Soviet Union.
Although the rate of immigration  decreased since 1997, as reported by the ICBS,
immigration  has and  continues  to provide  the Israeli  economy  with a highly
educated and cost competitive labor force. See "--Conditions in Israel--Economic
Conditions" below.

          Since  1997,  the  Israeli  real  estate  market  has   experienced  a
recession,  resulting  in a  reduction  in demand and  prices and a decrease  of
construction  starts.  The demand for moderately  priced  housing,  which is the
Company's  main area of activity,  was also  adversely  affected by the economic
recession,  although to a lesser extent than the demand for luxury homes. Due to
the increased population,  the demand for public buildings,  such as educational
and community  centers,  is  relatively  stable at this time.  Accordingly,  the
Company is  presently  focusing its  construction  efforts in the area of public
buildings and on its Rehovot project.  See "--Real Estate  Projects--Residential
Projects--Pending  Projects" and "--Conditions in  Israel--Economic  Conditions"
below.

         Israel's limited supply of land requires the Israeli Government to make
efficient use of the resources  available in order to plan for its  continuously
growing  population.  The  percentage of  agriculture in Israel's gross domestic
product,  exports  and  employment  has fallen in recent  years and the  Israeli
Government is under pressure to re-zone agricultural land for urban development.
See "--Conditions in Israel--Political Conditions" below.

         The  policy  of  the  Israeli  Government  has  been  to  promote  home
ownership, both by making new land available to developers through a competitive
bidding process and by offering  various  entitlement  programs to purchasers of
residential  properties.  In addition,  Israel's  commercial mortgage banks have
become more  competitive and  sophisticated in recent years,  offering  flexible
residential mortgages to their customers as well as providing construction loans
and other financial  arrangements to developers.  However, the Israeli banks are
subject to certain limits imposed by directives  issued by the Israeli  Examiner
of Banks. See "Management's  Discussion and Analysis of Financial Conditions and
Results of Operation--Liquidity and Capital Resources."

                                       2
<PAGE>
        Real Estate Business Strategy:
        -----------------------------
         The Company has implemented a business strategy of focusing its efforts
on developing and managing the  construction  of moderately  priced  residential
properties,  such as apartment  buildings,  primarily  targeted to newly married
couples and immigrants  seeking to own their first home,  and public  buildings,
such as education and  community  centers.  The Israeli real estate  industry is
subject to changes  resulting from,  among other things,  economic and political
conditions. Accordingly, the Company adjusts its business strategies in the best
interests  of the  Company  to  address  such  changes  and  opportunities.  The
Company's business strategy includes the following key elements:

*    Conservative  bidding policies.  The Company attempts to minimize the risks
     associated with working  primarily  pursuant to contracts awarded through a
     competitive  bidding process by conducting  feasibility and market analyses
     covering all pertinent  aspects of its proposed  commitment under a project
     prior to submitting a bid. These studies include such technical  aspects as
     title and zoning characteristics,  marketing studies that review population
     and employment  trends,  schools,  transportation  access,  buyer profiles,
     sales  forecasts,  projected  profitability,  cash  requirements  and other
     factors. Prior to acquiring rights in land, market studies are completed to
     determine the needs of the targeted  customers and to determine whether the
     price of the underlying land rights enables the Company to meet those needs
     at an affordable price. The Company generally purchases rights in land only
     when it can project the  commencement  of  construction  and sales within a
     reasonable  time period.  The Company  utilizes its  engineers  and project
     managers  as  well as  outside  architects  and  consultants,  under  close
     supervision, to help prepare its bid proposals.

*    Joint ventures and other opportunities.  The Company utilizes joint venture
     partnerships and other  collaborative  arrangements with third parties as a
     means  to both  expand  its  market  opportunities  and  reduce  the  risks
     associated with its real estate activities. Such arrangements include sales
     by the Company of all or part of the rights to the land being  developed by
     the Company. The Company intends to identify and cultivate a wide source of
     potential joint venture or other partners.

*    Fixing  costs.  As  a  matter  of  policy,   the  Company  will  not  begin
     construction of a project (unless  otherwise  committed due to the terms of
     the bid) until a significant  portion of the  construction  costs have been
     established  through fixed  subcontractor  fees and,  where  feasible,  the
     Company has obtained a substantial  percentage of  commitments  to purchase
     the units to satisfy  itself  that  substantially  all of the units in each
     phase of  construction  will be sold. This minimizes the Company's risks by
     enabling the Company to quantify  with  reasonable  certainty  its ultimate
     income  flow from the  project  before  committing  any of its  capital and
     resources.

*    Expanding into International  Markets. The Company is currently involved in
     three  development  projects  outside of Israel.  Although the Company will
     continue to  concentrate  its real estate  activity in Israel,  the Company
     believes   that  looking   beyond  the  Israeli   real  estate   market  to
     international  markets may  increase  its  opportunities  for  growth.  The
     Company  is  examining  emerging  international  markets  with high  growth
     potential in which it can implement its  expertise.  The rate and timing of
     such  expansion  and the  locations of such  activities  will depend on the
     Company's evaluation of existing market conditions, estimated profitability
     and other factors.

                                       3
<PAGE>

         Residential Development and Construction Awards:
         -----------------------------------------------

         The Company's  residential  development  and  construction  projects in
Israel have been and are likely to continue to be obtained primarily through the
competitive  bidding and raffle processes described below which are conducted by
the various  authorities  of the Israeli  Government.  With respect to the small
percentage of land  (approximately  10%) not owned by the Israeli Government and
other land subject to long-term leases from the Israeli Government,  the Company
may seek  opportunities  to  purchase  rights in such land for  development  and
resale directly from private owners.

*    Competitive  bids for  selected  homebuyers.  In this  competitive  bidding
     process,   the  Israeli  Government   establishes   criteria  for  eligible
     homebuyers.  Developers  compete for these projects either by submitting an
     average  unit price at which they will agree to build and sell the units to
     the  homebuyers  or by submitting a price for the purchase of the rights to
     the land.  Under the  supervision  of the Israeli  Government,  the winning
     developer will conduct  marketing  activities to sell the units to eligible
     homebuyers  and will be required to enter into  contracts  with each of the
     homebuyers  to  build  a unit  within  the  general  guidelines  previously
     provided by the Israeli Government to the developer.  The developer retains
     all of the  proceeds  from the sale of the  units in the  project,  and the
     homebuyers own the rights to the units and the developed land. The costs of
     any  design  or  other   changes   requested   beyond   the   predetermined
     specifications  will be  borne  by the  homebuyer  based  upon  independent
     negotiations with the developer.

*    Competitive  bids  for  land.  In this  competitive  bidding  process,  the
     developers submit bids to acquire rights in a specific  undeveloped  parcel
     of land.  The winning  developer is  generally  required to pay the Israeli
     Government the purchase price for the rights in the land within a specified
     time period after  winning the bid.  With the  exception  of certain  basic
     guidelines,  the  developer  will not be  restricted as to the terms of its
     agreements   with  the   homebuyers  but  will  be  obligated  to  complete
     development and  construction by a specific date. The developer  undertakes
     its own marketing  efforts to sell the units, and will determine the number
     of  units,  the  unit  prices  and  the  unit  specifications,  all  within
     applicable  zoning  regulations  and the terms of the bid. The character of
     the  development of the land and the units will be determined by applicable
     zoning regulations.

*    Raffle awards. Another method for awarding residential real estate projects
     is where the Israeli Government predetermines the purchase price for rights
     in an undeveloped parcel of land and awards it to developers  pursuant to a
     raffle. In this situation,  there is no competitive bidding among potential
     developers  for the rights to develop  the land.  A winning  bidder will be
     subject to certain general  guidelines as to the terms of its  arrangements
     with  the  homebuyers,  and is  restricted  only  in the  character  of the
     development  of the land and units in  accordance  with  applicable  zoning
     regulations.

                                       4
<PAGE>
         Public Building Development and Construction Awards:
         ---------------------------------------------------

         Most of the Company's public building projects have been and are likely
to continue to be  obtained  through  framed  bidding  conducted  by the various
authorities  of  the  Israeli   Government.   The  Israeli  Government  and  its
authorities  and  municipalities,  in response to public  demand for  particular
types of  buildings,  such as art and science  centers,  schools or  gymnasiums,
request bids from developers for the construction of such buildings. The project
may be for the  development  and  construction  of a  specific  type  of  public
building  within a specific  region of Israel or throughout the entire  country.
The  design  and  other  specifications  are  either  set by the  requisitioning
governmental  authority before the commencement of the bidding process or by the
winning  developer  in  accordance  with  general  guidelines  supplied  by  the
requisitioning  governmental  authority.  Accordingly,  developers  are  able to
determine a fixed price to submit for the completion of the project.  Upon being
awarded a bid, the  developer  will be required to enter into a contract for the
construction  of the public  buildings  with the  governmental  authority  which
requisitioned  the  project  pursuant  to the terms of the  award.  The  winning
developer will be paid in advance or in a combination of partial advance payment
and  installment  payments of the balance at various stages of the  construction
process, depending upon the terms of the award.

                                       5
<PAGE>
Real Estate Projects:

Residential Projects - Completed Projects

         To date the Company has participated, either as a developer, contractor
or  consultant,  in ten  projects  that  have  been  completed,  comprising  467
residential  units. The following table sets forth information  concerning these
projects:

<TABLE>
<CAPTION>


                                                                                         Construction
     Project                            Location       Total Units(1)    Units Sold     Completion Date
     ----                               --------       -----------       ----------     ---------------
<S>                                        <C>               <C>             <C>             <C>

  As a Developer or general contractor
Acre..................................  Acre                24                24             8/97
Derech Hayam(2).......................  Haifa               12                11            10/97
Kiryat Tiv'on.........................  Kiryat Tiv'on       78                78            12/97
Kfar Yona.............................  Kfar Yona           34                34             6/98
Carmiel...............................  Carmiel             31                30            12/98
                                                           ===               ===
          Subtotal....................                     179               177

     As a Subcontractor
Kiryat Yona...........................  Kiryat Yona         65                n/a(4)         8/98
Modi'in(3)............................  Modi'in             85                n/a(4)        12/98
Dovrat................................  Afula               64                n/a(4)         3/99
                                                           ===
          Subtotal....................                     214

     As a Consultant or as Part
     of a Joint Venture
Yokne'am..............................  Yokne'am            50                50            12/97
Har Yona..............................  Nazareth            24                24            12/97
                                                           ===               ===
          Subtotal....................                      74                74
                                                           ===               ===

          TOTAL.......................                     467               251
</TABLE>

(1)  Units per project.
(2)  Including five Units given to the owner of the land as consideration for
     the right to develop the land.
(3)  Performance of preliminary work only.
(4)  The Company's participation as a subcontractor in these projects renders
     this information insignificant.
                                       6

<PAGE>
Residential Projects - Projects Under Construction

     As of  May  31,  1999,  the  Company  was  involved  in  three  residential
development  projects in Israel, in different planning,  zoning and construction
stages,  in which the Company  plans to build  approximately  1,255  residential
units.  Construction of 900 of such residential  units is subject to the receipt
of various  approvals and the Company does not anticipate  their  completion for
several  years.  There  is no  assurance  that these  pending  projects  will be
completed in the manner  contemplated  by the Company,  or at all. The following
table     sets     forth     information      concerning     these     projects:

<TABLE>
<CAPTION>


                                                                           Execution Date
     Project                              Total Units(1)    Units Sold      of Agreement
     -------                              -----------       ----------    ----------------
<S>                                             <C>             <C>             <C>

Rehovot(1)..........................           900             12               3/97

Kiryat Shmuel ......................            58             46              11/97
Carmiel(2)..........................           167              0              12/97
Rishon Lezion(3)....................           130             n/a             12/98
                                             =====             ===
               TOTAL................         1,255             58
</TABLE>

(1)      In   March  1997,   the   Company  was  awarded  by  the   Israel  Land
         Administration  rights to develop a parcel of approximately 19 acres in
         Rehovot,  in  central Israel.  The Company  estimates that this project
         will consist  of approximately 900 residential  units, in approximately
         residential  buildings, as well as public and commercial buildings. The
         completion  of this project is subject to the successful  evacuation of
         certain  tenants  that  reside on portions of the land and to approvals
         from governmental and municipal authorities.  The Company is currently
         offering 168  residential units for sale at this location, which are to
         be built in the first phase  of construction at this site.  Pursuant to
         the  terms  of   the  award,   the  Company  is  required  to  complete
         construction of the project by March 2002.

(2)      The Company is currently seeking approval from governmental authorities
         to increase the number of units in this project to 300.

(3)      In  December  1998 the  Company  was  engaged  by Shay Bar Real  Estate
         Investments  Ltd., an Israeli  publicly traded company ("Shay Bar"), to
         perform,  as  a  "turn-key"   contractor,   certain   construction  and
         renovation  work  on a building  purchased  by  Shay   Bar  in   Rishon
         Lezion,  in  connection  with the proposed  construction  of 130 studio
         apartments at the site.  In addition, the Company received $1.4 million
         for  consulting  and financial management services rendered to Shay Bar
         in connection with this project prior to December 1998.  The completion
         of construction  and renovation of  this  project is expected to be  in
         September  1999.  See  "Item  13--Interest  of  Management  in  Certain
         Transactions."

         Overseas Projects

         Rassnitz,  Germany:  In March 1997, the Company acquired a 36% interest
in a project for the development and construction of a residential  neighborhood
in Rassnitz,  Germany.  The Company  anticipates that a total of 250 residential
units will be built in this project. In April 1997, the Company purchased 21.87%
of the  outstanding  shares of the 64% partner in this project,  a subsidiary of
Engel,  giving the  Company an  aggregate  interest of 50% in this  project.  In
September  1997,  the Company  sold 50% of its  interest in this project to Shay
Bar.  Pursuant  to the terms of the  engagement,  the  Company  is  required  to
complete construction of the project in December 2002. In addition,  the Company
and Engel will each be entitled to 2% and 6%, respectively, of the revenues from
this  project in return for  management  financial  and  marketing  services  in
connection  with  the  development  of  the  site.  See  "Item  13--Interest  of
Management in Certain Transactions."

                                       7
<PAGE>
         Southampton,  New York:  In March  1997,  the  Company  acquired  a 50%
interest in a project for the development  and  construction of 33 single family
homes  situated  in  Southampton,   New  York.  Construction  of  the  necessary
infrastructure at this site is in its final stage.

         Moscow,  Russia: In April 1997 the Company acquired a 25% interest in a
project for the  renovation of an office  building in Moscow and for  additional
related construction.  In September 1997 the Company sold 50% of its interest in
this project to Shay Bar. The construction of the exterior of the building is in
its final stages and the Company  anticipates that it will be completed within a
few months.  The partners in this project are currently  seeking tenants.  After
tenants for a substantial portion of the building are secured,  the parties will
commence  work  on  the  interior  of the  building  according  to the  tenants'
specifications. See "Item 13--Interest of Management in Certain Transactions."

         Public Buildings Projects

         Mifal Hapayis Community Centers
         -------------------------------
         In February 1996,  pursuant to a bid conducted by Mifal Hapayis,  Engel
and  four  other  companies  were  awarded  projects  for  the  construction  of
approximately  75 identical art and science  centers on the grounds of different
municipalities   throughout  Israel.   Mifal  Hapayis  is  a  quasi-governmental
institution  which runs the Israeli  national  lottery and uses its revenues for
the benefit of the public, particularly for financing the construction of public
facilities. Pursuant to the bid, each of the winning companies will enter into a
contract  for  the   construction  of  an  art  and  science  center  with  each
municipality  which  approaches it pursuant to the terms of the award. In August
1995,  the Company  entered into an agreement with Engel pursuant to which Engel
was required to engage the Company as  subcontractor  for each of such  projects
for which it is  retained,  upon  substantially  the same terms as the  contract
entered into between Engel and the  municipality.  To date, the Company has been
engaged by Engel to act as subcontractor for the construction of 5 such centers,
four of which  were  completed  prior to  December  1998.  The fifth  project is
substantially  completed  and requires  only minor  additional  work. In October
1996, the Company  modified its agreement with Engel and released Engel from its
commitment  to engage the Company as a  subcontractor  for further Mifal Hapayis
projects.  See "Management's  Discussion and Analysis of Financial Condition and
Results of Operation--Relationship with Engel."

         Educational Buildings
         ---------------------
         In  June  1998,   the  Company   completed  the   construction,   as  a
subcontractor  for Engel,  of the second  phase of a school  building at a youth
village in Petach Tikva, which is near Tel Aviv. The first phase of this project
was completed in September 1997.

         Gymnasiums
         ----------
         Pursuant to a bid the Company won in August 1996, it  constructed  five
gymnasiums  for  different  municipalities,  the last of  which is in its  final
construction stages.

         Military Construction
         ---------------------
         In April 1998,  the Company was awarded a  construction  project by the
Israeli  Government's  Ministry  of  Defense.  In order to  participate  in this
project,  the Company  obtained a special  security  rating from the Ministry of
Defense,  which  will  enable it to  participate  in other  classified  military
projects in the future. See "Description of Business--Regulatory  Matters." This
project is under construction and its completion is planned for June 2001.

                                       8
<PAGE>
Other Real Estate Activities:
----------------------------

         Consulting, Management and Financial Management Services
         --------------------------------------------------------

         The Company provides  consulting,  management and financial  management
services for which it generally  receives a percentage of the net profits or the
revenues  generated  by the  project.  The  Company may act as a finder for bank
construction  loans and guarantees.  The Company believes that the experience of
its  management  qualifies  it to render a wide  array of  services  in the real
estate industry.

          Acquisition and Development of Income-Producing Residential Properties
          ----------------------------------------------------------------------

          In January 1998, the Company acquired interest in two properties,  one
in Bat-Yam and one in Tel-Aviv, through a former subsidiary in which the Company
owned a 50%  interest.  The Bat-Yam  property  was  renovated  and leased to the
Israeli Government's  Ministry of Absorption ("Ministry of Absorption") pursuant
to a five-year lease agreement.  The property in Tel-Aviv includes approximately
40  residential  units and is  designated  for rental  following  completion  of
renovation. In May 1999 the Company sold its interest in this project and in the
subsidiary,  through which the Company's interest was held, to the holder of the
remaining 50% interest in such subsidiary.

          In addition,  the Company  acquired rights to develop another property
in  Tel-Aviv,  where the Company  intends to  renovate  an existing  building to
create  200 to 225 small  residential  units,  which the  Company  will lease to
persons  referred by the Ministry of Absorption.  Approximately  20% of the rent
will be collected  from the tenants and the rest will be paid by the Ministry of
Absorption.  The Ministry of Absorption will pay the Company rent for all of the
Units,  whether  or not they are  occupied.  The  Company  has  entered  into an
agreement  with the Ministry of Absorption  regarding this  arrangement,  with a
five-year  term, and at the option of the Ministry of Absorption,  an additional
five-year  term.  In January  1998,  the  Company  sold a 20%  interest  in this
property to an unrelated party for total  consideration of $7 million. As of the
date of this report, this property is undergoing  renovation.  The original date
set for  completion  of the  renovation  in the  agreement  with the Ministry of
Absorption was May 1, 1999. Due to certain delays,  the parties reached a verbal
agreement,  according to which the building will be leased in phases,  the first
of which,  consisting of 58 Units, was completed in June 1999, and the remainder
is planned to be completed by September  30, 1999.  On June 30, 1999 the Company
executed an agreement with an unrelated party,  granting such party the right to
access the  property,  during a 90 day period,  for the purpose of assessing its
interest in acquiring rights in the property.

                                       9
<PAGE>
Subcontractors and Suppliers:
----------------------------
         The Company functions as a general  contractor,  subcontracting  all of
its construction  activities.  The Company manages these activities with on-site
supervisory employees such as project managers and field engineers. The services
of independent architectural, design, engineering and other consulting firms are
engaged to assist in  project  planning.  The  Company  does not have  long-term
contractual  commitments  with  its  subcontractors  or  consultants,   who  are
generally  selected on a  competitive  basis.  The Company  will retain  primary
responsibility  for the overall  project  performance.  The Company will also be
responsible  for  arranging  the  necessary  bank  financing,  for obtaining any
necessary permits for construction, and for obtaining adequate insurance for the
project.  The  subcontractor  is required to arrange for the necessary labor and
supplies and provide the necessary  equipment for the completion of the project.
The Company is substantially  dependent upon its  subcontractors to complete its
projects in a timely manner and in accordance with specifications.  Accordingly,
the  Company  is  subject  to  risks  such as  performance  delays,  substandard
construction and the financial  difficulties of the subcontractor.  Although the
Company's contracts with its subcontractors generally require the subcontractors
to obtain performance guarantees with respect to projects, the Company's present
policy does not always  require the  subcontractors  to provide the Company with
guarantees.   To  quantify   project  costs,   the  Company  seeks  to  fix  its
subcontracting  costs prior to the commencement of construction and to condition
certain obligations on the receipt of related payments due to the Company.

         The  building  industry  may from time to time  experience  fluctuating
prices  and supply  for raw  materials.  Cement is the  principal  raw  material
utilized in the  construction  of Israeli  homes and  buildings.  Nesher  Israel
Cement  Enterprises Ltd.  ("Nesher") is presently Israel's principal producer of
cement.  Most other  cement must be imported.  Although  the Israeli  Government
regulates the services and prices charged by monopolies such as Nesher, the lack
of  competition in the Israeli cement market may have an effect on cement prices
and, as a result,  the costs of  construction.  The  Company has no  contractual
commitments  with  suppliers  of  materials.  Other than Nesher,  the  Company's
business is not materially dependent upon any suppliers.

         Marketing and Sales:
         -------------------
         As soon as possible after winning a bid for a residential  project, the
Company  commences  its  marketing  efforts  to  sell  each of the  units  to be
constructed.  The  Company  markets its  residential  units  primarily  to newly
married  couples  and  immigrants  seeking to own their  first  home.  Each unit
purchaser  is  generally  required to provide a  downpayment  with  respect to a
specific  percentage of the unit purchase  price.  The  Company's  policy,  when
possible,  is to require sales  commitments  with respect to at least 50% of the
units before  engaging a subcontractor  or otherwise  committing any significant
capital to any phase of a project.  The  deposits  will  typically  provide  the
Company with sufficient capital for the commencement of the project. The Company
is  required  under  Israeli  law to  provide  the  unit  purchasers  with  bank
guarantees which cover an amount equal to the funds received by the Company from
such  purchasers.   See  "Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations--Liquidity and Capital Resources."

         Mortgage Financing and Governmental Entitlement Programs:
         --------------------------------------------------------
         There are two primary sources in Israel for obtaining financing for the
purchase of real property:  traditional bank and insurance company mortgages and
government entitlement programs. Bank mortgages in Israel are typical of most of
the world, providing for a long-term loan requiring monthly payments and secured
by a lien on the property.

                                       10
<PAGE>
         The Israeli  Government has  established  entitlement  programs for the
purpose of encouraging  home ownership.  Most entitlement  programs  relating to
home  ownership  are targeted to first time home buyers,  usually  newly married
couples and immigrants.  These programs provide for low-interest loans and small
grants.  The degree of  assistance  will depend upon the category of  population
(e.g.,  married,  immigrant,  number  of  children)  and  the  location  of  the
residential  unit.  Although  the policies of the various  entitlement  programs
change from time to time, they are presently  stable.  However,  there can be no
assurance  that the Israeli  Government's  policies in this area will not change
due to political,  economic or other  considerations.  Any such change of policy
could have a material adverse effect on the Company's results of operations.

         Competition:
         -----------
         The  real  estate  industry  in  Israel  is  highly  competitive,  with
developers  competing for customers,  desirable  properties  and financing.  The
Company  competes with numerous other firms,  ranging from regional and national
firms to small local companies.  In addition,  the Company competes with resales
of existing residential  properties by individuals,  financial  institutions and
others.

         As most land in Israel is owned by the Israeli Government,  most of the
Company's  projects in Israel are and will  continue  to be  obtained  primarily
through  public  bidding  processes.  The  Company  will be  required  to  place
competitive   bids  for   residential  and  public  projects  with  the  various
governmental  authorities.   Some  of  the  Company's  competitors  have  longer
operating  histories and greater  financial,  marketing and sales resources than
the Company, all of which may be necessary to qualify or pre-qualify for certain
government  project  awards and may hinder the  Company's  ability to bid for or
participate in such projects. There can be no assurance that the Company will be
successful  in  winning  projects  for which it  submits  bids or  otherwise  be
successful in competing in the Israeli real estate industry.

         Regulatory Matters:
         ------------------
         There are two  categories  of land in Israel.  "Freehold"  land,  which
constitutes  approximately  10% of all land in  Israel,  is owned  primarily  by
individuals and private legal entities, as well as by municipal and governmental
entities.  The Israeli  Government  and the Jewish  National Fund own all of the
remaining land. Through its administrative body, the ILA, the Israeli Government
grants  long-term  leases for the use of its land.  A basic  long-term  lease is
generally  for 49  years,  and may be  extended  by the  lessee  for  additional
successive 49-year periods.

         Real estate  development  and  construction  are heavily  regulated  in
Israel.  The Company and its  competitors  are subject to rules and  regulations
concerning  zoning,  building  design,  construction  and similar  matters which
impose  restrictive zoning and density  requirements.  Development plans usually
require  approval by three  municipal  and  governmental  bodies:  the municipal
authorities,  the regional authorities and the Israeli Government's  Ministry of
the Interior. Once a plan is approved by all required levels, the developer must
apply for a  construction  permit  for a  specific  project  from the  municipal
authorities.  The application  must be consistent  with the  development  scheme
established by the Ministry of the Interior and be approved by the municipal and
regional authorities. Each lot is zoned for a specific purpose. An applicant may
request a zoning  change.  A betterment  levy may be levied on rezoned  land. As
experience  in dealing with the  extensive  Israeli  planning  process is thus a
critical  success factor in real estate  development,  the Company  believes the
experience  of its  management  provides  it with the  ability to compete in its
markets.

                                       11
<PAGE>
         The Israeli  Government  owns and leases both developed and undeveloped
land.  Developed  land is leased to the  public by the ILA for an  amortized  or
annual fee. In order to lease undeveloped lands, a development agreement must be
entered into with the ILA pursuant to which the lessee undertakes to develop the
land in accordance  with certain  requirements,  and to complete the development
within a specified  time table.  If the  purported  lessee  fails to satisfy the
requirements  within  the  time  table,  the land  and any  improvements  may be
repossessed by the ILA. Lease fees for  undeveloped  land are payable to the ILA
for  the  full  lease  term in  advance  upon  the  signing  of the  development
agreement.

         Transfers of rights in  government-owned  land are normally  granted in
the ordinary  course upon payment to the ILA of a transfer  consent fee which is
calculated on the basis of the increase in value of the land, but without taking
into account any increase in value  resulting from  construction  by the lessee.
Sales of land rights  previously  purchased for  development  are not subject to
transfer consent fees.

         All Israeli general  contractors are required to be registered with the
Housing Ministry, and their registrations are classified within the range of C-1
to C-5. The financial scope of a contractor's  activities as well as the size of
projects to be  undertaken by it are subject to the  limitations  imposed by its
particular   classification.   Genesis   Performance  (1997)  Ltd.  and  Genesis
Construction  Performance (1994) Ltd., wholly owned subsidiaries of the Company,
possess a C-5  classification  which enable the Company to undertake projects of
an unlimited  financial scope and an unlimited  project size, as well as G-1 and
B-1  classifications,  which  enable  the  Company to  undertake  infrastructure
development,  road, sewage and drainage construction  projects. The registration
is  automatically  renewed  each year  unless  there is cause  for  non-renewal,
principally  due to  bankruptcy,  certain  criminal  offenses  or the failure to
maintain the requisite  qualified  personnel.  For purposes of maintaining  such
registration,  the Company  employs  two  professional  workers  approved by the
Israeli Contractor's Register.

         In addition,  the Company has obtained a special  security  rating from
the Israeli Government's Ministry of Defense, designated C-5*, which will enable
the Company to participate in classified  military  projects in the future.  See
"--Principal Projects--Public Buildings Projects--Military Construction."

         Employees:
         ---------
         At June 25, 1999, the Company had 29 full-time employees, including its
chief engineer, field engineers and administrative office employees. The Company
also utilizes  independent  field  engineers  from the localities of its various
projects.  The Company currently  utilizes and intends to continue to utilize an
independent  contractor  as its  projects  manager.  The Company  considers  its
relations with its employees to be good.  The Company  believes that its current
staff  of  employees  is  adequate  to meet its  present  needs.  The  Company's
construction  operations  are  conducted  through  independent   subcontractors,
thereby limiting the number of its employees. None of the Company's employees is
represented by a union. See "--Subcontractors and Suppliers" above.

         Israeli  law and orders of the Israeli  Government's  Ministry of Labor
and Welfare  contain  provisions  concerning  principally the length of the work
day, minimum daily wages, insurance for work-related accidents, determination of
severance  pay,  adjustments  of wages in  accordance  with  inflation and other
conditions of  employment.  The Company  generally  provides its employees  with
benefits and working conditions above the required  minimums.  See "Compensation
of Directors and Officers" below.

                                       12
<PAGE>
        There is  currently  no shortage  of labor in Israel for the  Company's
industry  due to a  readily  available  foreign  labor  force.  As a  result  of
restrictions on the entry of Palestinian workers, it is the Company's policy not
to  utilize  subcontractors  who employ any  workers  residing  within the zones
typically restricted as such. The Company currently relies on subcontractors who
employ  local and  foreign  workers.  The  Company  has a license  issued by the
Ministry of the Interior,  to employ foreign workers and deposited as collateral
security certain amounts with the Ministry of the Interior as a condition to its
employment of foreign  workers.  Such  collateral was deposited by a third party
that is  handling  all  procedures  related to foreign  workers on behalf of the
Company.  There can be no assurance that the Company will not  experience  labor
shortages in the future.  In recent years,  the Israeli  Government  has limited
issuing new licenses for foreign workers seeking employment in Israel.  Although
the Company  believes  that there is  presently a  sufficient  number of foreign
laborers to satisfy the  Company's  current  demands,  there can be no assurance
that the Israeli  Government will not respond to political and social conditions
with protectionist  measures such as the expulsion of existing foreign laborers,
or that as the Company's demand for workers increases there will be a sufficient
number of foreign and other  workers  available  to satisfy  such  demands.  The
increased  costs and delays in  construction  of projects  due to these  factors
could have an adverse effect upon the Company's  operations.  See  "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

         Conditions in Israel:
         --------------------
         The Company's  operations are currently  conducted  primarily in Israel
and  accordingly,  the Company is directly  affected by economic,  political and
military  conditions  in that  country.  The  operations of the Company could be
materially adversely affected if major hostilities involving Israel should occur
in the Middle East.

Political Conditions
--------------------
         Since the  establishment  of the  State of  Israel in 1948,  a state of
hostility has existed,  varying as to degree and  intensity,  between Israel and
its  Arab  neighbors.  Following  the  Six-Day  War in  1967,  Israel  commenced
administering  the  territories  of the West Bank and the Gaza Strip and,  since
December  1987,  increased  civil  unrest has existed in these  territories.  In
addition,  Israel has been the target of terrorist  activities  and attacks,  in
varying degrees of intensity.  Although,  as described below, Israel has entered
into  various  agreements  with  Arab  countries  and the  Palestine  Liberation
Organization  ("PLO") and various  declarations  have been signed in  connection
with efforts to resolve some of the aforementioned  problems,  no prediction can
be made as to whether a full resolution of these problems will be achieved or as
to the nature of any such  resolution.  To date,  these  problems have not had a
material adverse impact on the financial  condition or operation of the Company,
although there can be no assurance that  continuation of these problems will not
have such an impact in the future.

         In 1979, a peace  agreement  between  Israel and Egypt was signed under
which full political  relations were established;  however,  economic  relations
have been limited.

         In  September  1993,  a  breakthrough  occurred in  Israeli-Palestinian
relations. A joint  Israeli-Palestinian  Declaration of Principles was signed by
Israel  and  the  PLO  in  Washington,   D.C.,   outlining  interim  Palestinian
self-government  arrangements.  In May  1994,  Israel  and  the  PLO  signed  an
agreement in Cairo in which the principles of the September 1993  Declaration of
Principles  were  implemented.  In accordance  with this  agreement,  Israel has
transferred the civil  administration of the Gaza Strip, Jericho and other parts
of the West Bank to the Palestinian Self-Rule Authority and the Israeli army has
withdrawn  from some of these areas.  Since such  agreement,  Israel and the PLO
reached  several  others  agreements  for the  gradual  redeployment  of Israeli
military  forces  in the West  Bank  and the  transfer  of  certain  powers  and
governmental  responsibilities  to a Palestinian elected council with respect to
certain territories in the West Bank.

                                       13
<PAGE>
         In  October  1994,  Israel  and  Jordan  signed  a  peace  treaty  (the
"Treaty").  Following  the Treaty,  full  diplomatic  relations  between the two
countries have been  established.  In addition,  the Treaty expresses the mutual
desire of the parties for  economic  cooperation  and calls for both  parties to
lift economic barriers and discrimination  against each other and to act jointly
towards the removal of any  economic  boycotts by third  parties.  In  December,
1996,  Israel and Jordan signed a trade agreement  designed to liberalize  trade
between the two countries.

         On November 4, 1995, Prime Minister Yitzhak Rabin was assassinated by a
right wing zealot opposing the peace process, which was promoted by Mr. Rabin.

         To date, Israel has not entered into a peace treaty with either Lebanon
or Syria,  although it has conducted  certain  negotiations with Syria towards a
solution  of  the  hostility  between  them.  Furthermore,  notwithstanding  the
agreements and declarations  described  above, the relations  between Israel and
the PLO are not yet fully formalized.

         From time to time hostilities break out on Israel's border with Lebanon
between  Israel and  guerilla  groups  based in South  Lebanon.  Although  these
hostilities sometimes result in extensive damage to private property in northern
Israel,  including  areas  within  which the  Company  conducts  its real estate
activities,  the Company does not believe that the  operations  related to these
hostilities  will have  material  effect on the  Company's  assets or results of
operations.

         In the past few years there has been  certain  stagnation  in the peace
process in the Middle East. No prediction  can be made as to whether or how this
process will develop or what effect it may have on the Company. On May 17, 1999,
Mr.  Ehud Barak of the Labor  Party was  elected  as  Israel's  Prime  Minister.
According to Mr. Barak's declarations prior to his election,  the new government
will  attempt to speed up the peace  process  with the  Palestinians  and resume
negotiations with Syria.

Army Service
------------
         All male  adult  citizens  of Israel  under  the age of 51 are,  unless
exempt,  obligated  to perform  approximately  30 days of military  reserve duty
annually.  Additionally, all such citizens are subject to being called to active
duty at any time under  emergency  circumstances.  Some of the  employees of the
Company are  obligated to perform  annual  reserve  duty.  While the Company has
operated  effectively under these requirements in the past, no assessment can be
made of the full  impact of such  requirements  on the  Company  in the  future,
particularly if emergency circumstances occur.

Economic Conditions
-------------------
         Israel's  economy has been subject to numerous  destabilizing  factors,
including a period of rampant  inflation in the early to mid-1980s  that reached
an annual peak of 445%, low foreign  exchange  reserves,  fluctuations  in world
commodity  prices,  military  conflicts  and civil unrest among the  Palestinian
population. The Israeli government has, for these and other reasons,  intervened
in the economy by utilizing,  among other means,  fiscal and monetary  policies,
import duties,  foreign currency  restrictions and control of wages,  prices and
exchange rates. The Israeli government's monetary policy contributed to relative
price  and  exchange  rate  stability  during  most  of  1993  to  1997  despite
fluctuating  rates of economic growth and unemployment.  The Israeli  government
has in the past  periodically  changed its policies in all these  areas.  During
1997,  the monetary  policy of the Bank of Israel  changed in several  respects.
These changes included a decision of the Bank of Israel to reduce interest rates
and a move by the Bank of Israel  to reduce  its  intervention  in the  currency
markets to allow the NIS to trade more freely.  In addition,  the Bank of Israel
has adopted certain  measures to liberalize  foreign currency  regulations.  See
Item 6. An period of accelerated devaluation of the NIS has been one consequence
of these policy changes. Subject to further changes in policy, the NIS-US Dollar
exchange  rate may  fluctuate  more  widely in the future  than it has in recent
years.

                                       14
<PAGE>
         Since the beginning of 1998, the Israeli economy has been  experiencing
a recession,  resulting,  inter alia, in growing  unemployment rates, a very low
inflation rate and high interest rates. According to the ICBS, from 1994 through
1998,  Israel's GDP increased 6.8%,  7.1%,  4.7%,  2.7% and 2.0%,  respectively,
although the GDP growth per capita for 1997 and 1998 was negative.  In addition,
Israel has recently experienced an increase in its unemployment level. According
to data published by the ICBS,  average  unemployment  rates have increased from
6.7% and 7.7% of the  civilian  labor force in 1996 and 1997,  respectively,  to
8.6% in 1998.

         The  following  table sets forth,  for the periods  indicated,  certain
information  with respect to the CPI, the rate of inflation in Israel,  the rate
of  devaluation  of the NIS in Israel  and the rate of  inflation  adjusted  for
devaluation.
<TABLE>
<CAPTION>
                                        Israeli                            Inflation
                                        Inflation      Devaluation         Adjusted for
Year Ended December 31,       CPI(1)    Rate%(2)         Rate%(3)          Devaluation%(4)
-----------------------       ---       ---------      -----------         ---------------
<S>                           <C>          <C>             <C>                  <C>
1994......................    289.8        14.5             1.1                 13.3
1995......................    313.3         8.1             3.9                  4.0
1996......................    346.4        10.6             3.7                  6.7
1997......................    370.6         7.0             8.8                 (1.7)
1998......................    402.6         8.6            17.7                 (7.7)
</TABLE>

(1)  For  purposes  of this  table,  the CPI  figures use the 1987 CPI as a base
     equal to 100.  These  figures  are based on reports of the ICBS and are for
     December 31 of the respective years.
(2)  Inflation is the percentage change in the CPI between the last month of the
     period indicated and December of the preceding year.
(3)  Devaluation  is the  percentage  increase  in the value of the US Dollar in
     relation  to NIS during the period indicated.
(4)  Inflation  adjusted  for  devaluation is obtained  by dividing  the Israeli
     inflation rate plus 100 by the annualdevaluation rate plus 100, multiplying
     the result of such division by 100 and subtracting 100 from the result.

                                       15
<PAGE>
                         NIS/U.S. DOLLAR EXCHANGE RATE

                    At end of      Average
                    Period(1)      Rate(2)        High           Low
                    ---------      -------        ----           ---
1994..............    3.02           3.01         3.06           2.96
1995..............    3.14           3.01         3.18           2.94
1996..............    3.25           3.20         3.30           3.08
1997..............    3.54           3.60         3.61           3.53
1998..............    4.16           3.80         4.37           3.54


(1)  Exchange rate at period end is the Representative Rate as of December 31
     of the year indicated, as reported by the Bank of Israel.
(2)  Average  rate is the average of the daily  Representative Rates  during the
     year.


Assistance from the United States
---------------------------------
         The State of Israel  receives  a  significant  amount of  economic  and
military assistance from the United States,  averaging  approximately $3 billion
annually over the last several  years.  In addition,  in 1992, the United States
approved  the  issuance of up to $10 billion of loan  guarantees  during  United
States  fiscal  years  1993-1998  to help  Israel  absorb a large  influx of new
immigrants,  primarily from the republics of the former Soviet Union. In January
1998, Israel issued $1.44 billion of 30-year U.S. Government-backed bonds, which
was the last issue conducted as part of the U.S. Government guaranteed facility.
Israel has used the funds it has  borrowed in  1993-1998  to bolster its foreign
exchange reserves and to fund increased  investments,  mainly in infrastructure.
There is no assurance  that foreign aid from the United  States will continue at
or near  amounts  received in the past.  In January  1998,  Israeli and American
officials began discussions  concerning gradually ending the annual civilian aid
package of $1.2 billion.  If the grants for economic and military  assistance or
the United States loan guarantees are eliminated or reduced  significantly,  the
Israeli economy could suffer material adverse consequences.

B.       Merger with Cable Internet Corporation ("ICC")

         In May 1999 the Company  executed a Memorandum  of  Understanding  (the
"MOU") with Internet Cable Corporation  ("Internet Cable"), a broadband Internet
access provider incorporated under the laws of Nevada, whose shares are publicly
traded on the OTC/BB  (symbol  ICBL),  contemplating  a merger  between  the two
companies.  Pursuant to the MOU the shareholders of Internet Cable will exchange
their  stock for stock in a new US holding  company to be formed by the  Company
and  to  be  called  Internet  Cable   Corporation  (the  "New  Genesis").   The
shareholders of Internet Cable,  after giving effect to this  transaction,  will
own  approximately  59% of the issued and  outstanding  common  stock of the New
Genesis and, in  addition, may  receive  warrants to purchase additional shares.

         The  transaction  is subject to, among other  things,  appropriate  due
diligence,  execution  of  definitive  agreements,  approval  of both  boards of
directors, shareholders' meetings and fairness opinion letters. The MOU has been
presented to and  approved by the boards of directors of Internet  Cable and the
Company.
                                       16
<PAGE>
Internet Cable, headquartered in Charleston,  South Carolina, is in the business
of providing  high-speed Internet cable modem services.  The use of cable modems
for  Internet  access  provides  customers  the ability to  download  and upload
multi-media at speeds  hundreds of times faster than those of typical  telephone
modems.

         Negotiations  regarding the structure of the  transaction and the terms
of a definitive agreement are in progress.


ITEM 2.  DESCRIPTION OF PROPERTY
------   -----------------------

          In addition to rights in real estate  currently  held for  development
and sale, the Company owns office space for its corporate headquarters,  located
in Haifa in northern Israel.  The Company  purchased the rights to such space in
May 1996 for $126,250 and has since obtained a 15-year mortgage on the property.
Such  mortgage  bears  interest at the rate of 5.5% and requires  equal  monthly
payments of principal and interest, linked to adjustments in accordance with the
CPI. The Company has also leased  office space in a  neighboring  building.  The
term of such lease is for 60 months, commencing January 1997, with an option for
the Company to extend the lease for an additional 12 months.  The payments under
the lease are $550 per month.  In addition,  the Company has leased office space
in Rehovot,  in close  proximity to its residential  project located there.  See
"Item 1--Real Estate Projects--Residential  Projects." The term of such lease is
for 12 months,  commencing on December  1999,  with an option for the Company to
extend the lease for an additional 60 months.  The monthly  payments  under this
lease  are  $500.  The  Company's  U.S.  subsidiary,   Genesis  Development  and
Construction, Inc., has leased office space in New City, New York. This lease is
on a monthly  basis and the  payments  under the lease  approximate  $1,500  per
month. The Company's office space is adequate for its anticipated future needs.


ITEM 3.  LEGAL PROCEEDINGS
-------  -----------------

         There are no material legal proceedings pending to which the Company or
any of its property is subject and, to the  knowledge of the Company,  there are
no such proceedings threatened, except as described below.

          On October 22, 1998 Moshe Schnapp, the Company's president,  Eli Aran,
the  Company's  chairman,  and the Company  filed a Statement  of Claim  against
Israel Discount Bank Ltd. (the "Bank") in the Tel Aviv District  Court,  seeking
damages in the amount of $100 million. The suit relates to negotiations, between
Messrs.  Schnapp and Aran and the Bank,  concerning  the financing of a proposed
acquisition of a controlling  interest in a large Israeli energy and real estate
holding company. In June 1999, following the Company's notice to Messrs. Schnapp
and Aran that it would not bear any of the cost of  prosecuting  this claim,  it
was agreed that the Company  would remain a party to the suit but would not bear
any of such  costs and  would be  entitled  to only 5% of the net  amount of any
recovery.

          Substantially all of the Company's  construction contracts relating to
the Company's  projects for which it acts as the general contractor provide that
the Company is responsible for maintaining  and  supervising  each  construction
site. As general contractor,  the Company is liable for any damages to a project
and any injury  sustained by any person on a construction  site, and is required
to  obtain  sufficient  insurance,  including  insurance  for  property  damage,
personal  injury  and  workers  compensation.  Although  the  Company  currently
maintains  liability  and  workers  compensation  insurance  that it believes is
adequate as to both risk and amounts for each of its projects, successful claims
could  exceed the limits of the  Company's  insurance  and could have a material
adverse  effect on the  Company's  business,  financial  condition  or operating
results.  Moreover,  there can be no assurance  that the Company will be able to
obtain such insurance on commercially reasonable terms in the future or that any
such insurance will provide adequate coverage against potential claims.

                                       17
<PAGE>

          In addition,  a claim asserted  against the Company could be costly to
defend,  could  consume  management  resources  and could  adversely  affect the
Company's  reputation and business,  regardless of the merit or eventual outcome
of such claim.

ITEM 4.  CONTROL OF REGISTRANT
------   ---------------------
         The following  table sets forth certain  information as of May 31, 1999
with respect to the beneficial  ownership of the Company's  outstanding  Class A
Ordinary Shares, NIS 0.1 par value (the "Class A Ordinary Shares"),  and Class B
Ordinary Shares, NIS 0.1 par value (the "Class B Ordinary Shares",  and together
with the Class A Ordinary Shares, collectively the "Ordinary Shares") by (i) any
shareholder  known to the Company to  beneficially  own more than ten percent of
such  outstanding  shares and (ii) the  Company's  directors  and  officers as a
group.
<TABLE>
<CAPTION>
                                             Class A                   Class B
                                         Ordinary Shares           Ordinary Shares             Percentage of
                                         ---------------           ---------------               Vote as a
Name                                Number             %               Number          %      Single Class(1)
----                               -------            ---             --------        --     ----------------
<S>                                  <C>              <C>                <C>          <C>           <C>
Moshe Schnapp                         --              --         1,829,000 (2)        44.2         38.1

Eli Aran                           22,500 (3)          *         2,310,000 (4)        55.8         48.3

Dashwood International S.A.           __                __         550,000            13.3         11.5

All officers and directors
as group                          74,500 (5)           2.3       4,139,000(2)(4)     100           86.8
</TABLE>

*        Less than 1%.

(1)      For purposes of this  calculation,  the Class A Ordinary Shares and the
         Class B Ordinary  Shares are  treated  as a single  class.  The Class B
         Ordinary Shares are entitled to five votes per share, whereas the Class
         A Ordinary Shares are entitled to one vote per share.
(2)      Includes  1,200,000 Class B Ordinary Shares held by Ageret Sixteen (93)
         Ltd.,  an Israeli  corporation  wholly-owned  and  controlled  by Moshe
         Schnapp.  Also  includes  (i) 550,000  Class B Ordinary  Shares held by
         Dashwood  International  S.A.  ("Dashwood")  and  (ii)  79,000  Class B
         Ordinary Shares held by Allied Capital  Services,  LLC. Mr. Schnapp has
         sole voting  authority over such shares  pursuant to voting  agreements
         and is deemed to beneficially own such shares. Such voting arrangements
         will expire upon the  earlier to occur of (i)  September  30, 2001 with
         respect to the Dashwood shares, or October 23, 2001 with respect to the
         Allied  Capital  Services,  LLC shares,  and (ii) the date on which Mr.
         Schnapp ceases to be the chief executive officer of the Company.

                                       18
<PAGE>
(3)      Represents shares issuable upon currently  exercisable  options granted
         to Mr. Aran in his capacity as a  non-employee  director of the Company
         residing in the United States. See "Options to Purchase Securities from
         Registrant or Subsidiaries."
(4)      Includes  1,110,000 Class B Ordinary Shares held by Mr. Aran as trustee
         of a trust for the benefit of his wife,  Irit Aran, and 1,200,000 Class
         B Ordinary  Shares  issuable to Mr. Aran upon the exercise of an option
         granted to him. See "Item  12--Options to Purchase  Securities from the
         Registrant or Subsidiaries."
(5)      Includes (i) 45,000 shares issuable upon currently  exercisable options
         granted to non-employee directors of the Company residing in the United
         States. See "Item 12--Options to Purchase  Securities from Registrant,"
         (ii)  25,000  Class A Ordinary  Shares  issuable  upon  exercise of the
         redeemable  Class A Warrants (the "Class A Warrants")  acquired by Gary
         J. Strauss in a private placement  completed by the Company in November
         1996 and (iii) 4,500 Class A Ordinary Shares acquired by Mr. Strauss in
         the  Company's  initial  public  offering in January  1997.  Options to
         purchase  up to 700,000  Class A Ordinary  Shares  that were  issued in
         January 1998 were not exercised and therefore cancelled.

          As of May 31, 1999 the Company had 3,237,087  Class A Ordinary  Shares
outstanding, following a private placement of 850,000 Class A Ordinary Shares in
May 1999 and the  issuance  of  26,087  Class A  Ordinary  Shares  to  Rodmand &
Renshaw, Inc., a financial advisor engaged by the Company in connection with its
contemplated merger with ICC, See "Item 8- Management Discussion and Analysis of
Financial  Conditions  and Results of  Operations  Public  Offering  and Private
Placements."

          In connection with the litigation between the Company, Messrs. Schnapp
and Aran and  Israel  Discount  Bank  Ltd.,  the Bank  claims  to have a lien on
2,200,000 of the Company's  Class B Ordinary Shares  (1,200,000  owned by Agaret
Sixteen (93) Ltd. and 1,000,000  held by Eli Aran as trustee for his wife,  Irit
Aran),  which are deposited  with a bank in New York.  Messrs.  Schnaap and Aran
maintain  that such lien is not,  and never  was,  in force.  See "Item  3-Legal
Proceedings."

Performance Shares

         The Company's  Articles of Association  provide that 2,660,000  Class B
Ordinary  Shares (the  "Performance  Shares")  are subject to a share  deference
program  (the  "Deference  Program").  Pursuant to the  Deference  Program,  the
Performance  Shares would convert into "Deferred Shares" (having no rights other
than the right to receive an amount not in excess of the par value  thereof (NIS
0.1) upon  dissolution  of the Company) if the Company  does not attain  certain
earnings levels. Such earnings levels were attained in the Company's 1997 fiscal
year and all of the  Performance  Shares have been  released  from the Deference
Program.  See "Management's  Discussion and Analysis of Financial  Condition and
Results of  Operations--  Charge to Income as a Result of Release of Performance
Shares from Deference Program."


ITEM 5.  NATURE OF TRADING MARKET
------   ------------------------

          The  Company's  (i)  Units,  each  consisting  of one Class A Ordinary
Share,  one Class A Warrant (the "Class A Warrants") and one redeemable  Class B
Warrant (the "Class B Warrants"),  (ii) Class A Ordinary  Shares,  (iii) Class A
Warrants and (iv) Class B Warrants  (collectively  the  "Securities")  have been
quoted  separately on The Nasdaq  SmallCap Market  ("Nasdaq")  under the symbols
GDCUF,  GDCOF,  GDCWF and GDCZF,  respectively,  since the effective date of the
Company's  initial  public  offering (the  "Offering")  on January 30, 1997. The
following  table  sets  forth  the high and low sales  prices  of the  Company's
Securities for the periods indicated as reported by Nasdaq:

                                       19
<PAGE>

<TABLE>
<CAPTION>
Quarters Ended:                                        Class A
                                  Units            Ordinary Shares       Class A Warrants       Class B Warrants
                            ------------------ ---------------------- ---------------------- ---------------------
                              High     Low        High        Low       High        Low        High        Low
                            -------- --------- ----------- ---------- ---------- ----------- ---------- -----------
<S>                            <C>    <C>         <C>       <C>       <C>         <C>         <C>         <C>
June 30, 1998                 9 1/2   3 7/8      6 1/4      4 3/8     2 9/16      1 1/2         3/4         7/16

September 30, 1998            8 1/2   3 3/4      5 1/2      2 7/8     2 7/16      1 1/16      2 5/32      1 7/32

December 31, 1998             5 1/4   3          3 7/8      1 5/8     1             9/16      1 5/32        3/16

March 31, 1999                4 1/2   1 3/4      2 5/8      1 1/8     1             7/16        5/16        3/16
</TABLE>


ITEM 6.  EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
-------  ------------------------------------------------------------------

         The Bank of Israel  adopted  in 1998  measures  to  liberalize  foreign
currency  regulations.  The  implementation  of certain of these measures may be
subject to further legislation. Changes in the Israeli tax regulations may occur
as a result of these measures.  Pursuant to the Currency  Control Law, 1978, and
its  regulations,  as amended,  non-residents of Israel are permitted to convert
Israeli currency into freely  repatriable  U.S. US Dollars or other  non-Israeli
currency  and  transfer  such  currency  out  of  Israel,  including  converting
dividends  (if any) on the  Ordinary  Shares,  and any amounts  payable upon the
dissolution,  liquidation  or winding up of the affairs of the  Company,  at the
exchange rate prevailing at the time of conversion, provided that Israeli income
tax has been  paid or  withheld  with  respect  to such  amounts  to the  extent
applicable,  or an exemption from such payment or withholding  requirements  has
been obtained.

         Non-residents  of Israel may freely hold and trade the Ordinary Shares.
The ownership or voting of securities of the Company by  non-residents of Israel
is not  restricted in any way by the  Memorandum of  Association  or Amended and
Restated Articles of Association of the Company or by the laws of Israel, except
with  respect to transfer of shares to  residents  of  countries  which are in a
state of war with Israel.

         There can be no assurance that the above laws and regulations  will not
be altered or replaced in the future. Such changes could have a material adverse
effect on the holders of Ordinary Shares.

                                       20
<PAGE>

ITEM 7.  TAXATION
-------  --------
         Israeli  law  generally  imposes  a  capital  gains  tax on the sale of
securities and any other capital assets.  Commencing  January 1, 1996, the basic
tax rate applicable to companies is 36%. The maximum tax rate for individuals is
50%. These rates are subject to the  provisions of any applicable  bilateral tax
treaty. The treaty concerning taxation between the United States and Israel (the
"U.S.-Israel  Tax  Treaty") is  discussed  below.  Under  Israeli  law, the gain
attributable  to  inflation,  as opposed to real  economic  gain, is exempt from
capital gains tax.

         Individuals who are  non-residents of Israel are subject to a graduated
income tax on income  derived or accrued  from  sources in Israel or received in
Israel. Dividend distributions,  other than bonus shares (share dividends),  are
subject to a 25%  withholding  tax,  unless a  different  rate is  provided in a
treaty between Israel and the shareholder's  country of residence.  The withheld
tax is  the  final  tax in  Israel  on  dividends  paid  to  non-residents.  See
"U.S.-Israel Tax Treaty" below.

         A  non-resident  of Israel  who has  dividend  income  derived  from or
accrued in Israel,  from which tax was withheld at source,  is generally  exempt
from the duty to file tax returns in Israel in respect of such income,  provided
such  non-resident's  only  income  from  Israel  was  dividend  income and such
dividend  income  was not  derived  from a business  conducted  in Israel by the
taxpayer.

         Residents of the United States  generally will have  withholding tax in
Israel  deducted at source.  They may be entitled to a credit or  deduction  for
United States federal  income tax purposes in the amount of the taxes  withheld,
subject to  detailed  rules  contained  in United  States tax  legislation.  See
"U.S.-Israel Tax Treaty" below.

         Israel currently has no estate or gift tax.

         U.S.-Israel Tax Treaty
         ----------------------

         Pursuant  to  the  U.S.-Israel  Tax  Treaty,  the  sale,   exchange  or
disposition  of Class A Ordinary  Shares by a person who qualified as a resident
of the United  States  within the  meaning  of, and who is entitled to claim the
benefits afforded such resident by, the U.S.-Israel Tax Treaty,  which generally
includes  United  States  corporations,  United States  citizens,  and permanent
residents who maintain a permanent  home or habitual  abode in the United States
and who are not  resident in Israel for  purposes of Israeli tax  ("Treaty  U.S.
Resident")  will not be subject to the  Israeli  capital  gains tax unless  such
Treaty  U.S.  Resident,  being an  individual,  is present in Israel for periods
aggregating  183 days or more during the taxable  year,  or,  whether or not the
Treaty U.S.  Resident is an individual,  holds,  directly or indirectly,  shares
representing  10% or more of the voting power of the Company  during any part of
the 12-month period  preceding such sale,  exchange or  disposition,  subject to
certain  conditions.  A sale, exchange or disposition of Class A Ordinary Shares
by a Treaty U.S. Resident who holds, directly or indirectly, shares representing
10% or more of the voting power of the Company at any time during such preceding
12-month  period or who is  present  in Israel  for 183 days or more  during the
taxable  year would be subject to such  Israeli  tax, to the extent  applicable;
however,  under the  U.S.-Israel  Tax Treaty,  if such gain is taxable by Israel
because of ownership of 10% or more of the voting power of the Company, the gain
would be treated as foreign  source income for United States  foreign tax credit
purposes and such Treaty U.S.  Resident would be permitted to claim a credit for
such taxes against the United  States income tax imposed on such sale,  exchange
or  disposition,  subject to the  limitations  under the United  States  federal
income tax laws  applicable  to foreign tax  credits.  If the gain is taxable in
Israel because the selling Treaty U.S. Resident is an individual who was present
in Israel for 183 days or more  during the  taxable  year,  such  United  States
foreign  tax credit will only be  available  if the sale of the Class A Ordinary
Shares took place in Israel.  Under the U.S.-Israel Tax Treaty,  sales by Treaty
U.S.  Residents  of  Warrants  will not be taxable by Israel  unless the selling
Treaty U.S. Resident, being an individual,  is present in Israel for 183 days or
more during the taxable year.
                                       21

<PAGE>

         Under the U.S.-Israel Tax Treaty,  the maximum Israeli tax on dividends
paid to a Treaty  U.S.  Resident  is 25%.  The  U.S.-Israel  Tax Treaty  further
provides for a maximum tax rate of 12.5% on dividends paid to a U.S. corporation
owning 10% or more of the paying Israeli company's voting stock for, in general,
the  current and the  immediately  preceding  tax years of the Israeli  company,
provided the paying  Israeli  company meets certain  limitations  concerning the
amount of its dividend and interest income. The lower 12.5% rate applies only on
dividends from income not derived from certain enterprises  eligible for Israeli
tax  incentives  in the  applicable  period;  otherwise,  a 15% or 25% rate will
apply.

         Potential for Taxation as a Passive Foreign Investment Company
         --------------------------------------------------------------

         In the event  that the  Company  was  deemed  to be a  passive  foreign
investment company (a "PFIC") for purposes of the Internal Revenue Code of 1986,
as amended (the "Code"),  special  provisions of the Code would apply to certain
shareholders  of the Company and could impose adverse tax  consequences  on such
shareholders.  Generally  speaking,  a PFIC is defined as a foreign  corporation
that meets either of the following  conditions  for any taxable year: (i) 75% or
more of its gross  income,  including  the pro rata share of the gross income of
any  corporation  (U.S. or foreign) in which it owns an interest of at least 25%
(by value), is passive income; or (ii) at least 50% of its assets (averaged over
the year and determined  based upon fair market  value),  including the pro rata
share of the assets of any  corporation in which it owns an interest of at least
25% (by value),  are  considered to be held for the  production  of, or produce,
passive income.

          The  Company  believes  that it was not a PFIC  in  1997,  and it will
evaluate its status for 1998. The tests for determining  PFIC status are applied
annually and it is difficult to make accurate  predictions  of future income and
assets, each of which are relevant to this determination. Accordingly, there can
be no assurance that the Company will not become a PFIC.



ITEM 8.  SELECTED FINANCIAL DATA
-------  -----------------------

         The following selected consolidated  financial data for the years ended
December  31, 1996,  1997 and 1998 have been derived from the audited  financial
statements of the Company included  elsewhere in this report.  Such consolidated
financial data have been prepared in accordance  with Israeli GAAP which differs
in certain respects from U.S. GAAP. The following selected financial data should
be read in  conjunction  with the  Consolidated  Financial  Statements and Notes
thereto and other financial  information appearing elsewhere in this report. See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" and Note 29 of Notes to Consolidated Financial Statements.

                                       22
<PAGE>

Statement of Operations Data:
<TABLE>
<CAPTION>

                                                 Year Ended December 31,
                                                1996                1997                    1998
                                         -------------------   ----------------  --------------------------

                                                          Adjusted NIS                        Convenience
                                                           Thousands                        Translation to
                                                  (Except Share and Per Share Data)          $ Thousands
                                         -------------------------------------------------  ---------------
<S>                                             <C>              <C>             <C>              <C>
Revenues....................................       25,306          135,081         122,527           29,453
Cost of Revenues............................       22,221           96,395         107,201           25,769
Gross profit................................        3,085           38,686          15,326            3,684
Operating expenses..........................        2,433            7,726           9,672            2,325
Operating income............................          652           30,960           5,654            1,359
Net income..................................           53           25,209           2,626              631
Earnings (loss) per share(1)................         0.02             4.94            0.46             0.11
Weighted average number of shares(1)........    3,000,000        5,085,754       5,300,000        5,300,000

</TABLE>

Balance Sheet Data:
<TABLE>
<CAPTION>

                                                                           December 31,
                                         -------------------------------------------------------------------
                                                  1996              1997                     1998
                                         --------------------  ----------------  ---------------------------
                                                                                   (1)
                                                                                   (2)
                                                                                                 Convenience
                                                                                              Translation to
                                                          Adjusted NIS Thousands                 $ Thousands
                                         --------------------------------------------------   --------------
<S>                                                <C>             <C>            <C>               <C>
Working capital (deficit)......................    (1,890)          42,119         (50,632)         (12,171)

Total assets...................................    37,164          160,014         271,385           65,235

Total liabilities..............................    37,008           99,101         204,926           49,261
Retained earnings (accumulated loss)...........    (1,060)          24,148          26,591            6,391
Total shareholders' equity.....................       155           60,913          66,459           15,974
</TABLE>

--------------
(1)     Includes the  Performance  Shares.  For U.S.  GAAP  financial  reporting
        purposes,  the Performance  Shares would be excluded.  Accordingly,  the
        earnings per share for U.S. GAAP  reporting  purposes  would be NIS 0.76
        ($0.18) for the year ended  December 31, 1996,  the loss per share would
        be NIS 1.02  ($0.24)  for the year  ended  December  31,  1997,  and the
        earnings per share would be NIS 0.36 ($0.09) for the year ended December
        31, 1998. See Note 21 of Notes to Consolidated  Financial Statements for
        an explanation of the  determination  of the weighted  average number of
        shares outstanding used in computing net loss per share.



                                       23
<PAGE>

ITEM 9.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------  CONDITION AND RESULTS OF OPERATIONS
         -------------------------------------------------

         The following  discussion  and analysis  should be read in  conjunction
with "Item 8--Selected Financial Data" and the Consolidated Financial Statements
and Notes thereto appearing elsewhere in this report.

General:
-------
         The Company  operates its business  primarily in three  segments of the
Israeli  real  estate  industry:  (i)  development  and  construction,  (ii) the
provision  of  services  for  construction  projects  and (iii) the sale of real
estate  development  rights.  Since the beginning of 1998,  the Company has also
engaged in the  acquisition  and  development  of  income-producing  residential
properties  for long  term  lease by the  Company  to  agencies  of the  Israeli
government.  To date,  the Company's  revenues have been derived  primarily from
real estate  development and construction  activities and, to some extent,  from
the sale of real estate development  rights and from consulting,  management and
financial management services in connection with construction projects. Revenues
with respect to the Company's development and construction  activities have been
derived  pursuant to fixed price  contracts,  from which the Company  recognizes
revenue based upon the percentage of completion method. Revenues with respect to
the sale of real estate  development  rights are  recognized by the full accrual
method  when the sale is  consummated.  Revenues  with  respect  to  consulting,
management and financial management services are recognized to the extent of fee
revenue. See Note 2(j) of Notes to Consolidated Financial Statements.

         The Consolidated  Financial  Statements are prepared in accordance with
Israeli  GAAP  which,  as  described  in  detail  in  Note  29 of the  Notes  to
Consolidated Financial Statements, differ in certain respects from U.S. GAAP. In
particular, under Israeli GAAP, revenue derived from projects is recognized when
at least 90% of the  project is  completed  and at least 75% of the units in the
project are sold or 25% of the project is completed and all units in the project
are sold. Under U.S. GAAP, the Company would be able to recognize revenues for a
project when the project  expenditures are predictable and there is a reasonable
likelihood  of  completion.  Accordingly,  for  U.S.  GAAP  financial  reporting
purposes,  the Company may be able to report  revenues  with  respect to certain
projects earlier than it would in accordance with Israeli GAAP.

         Most of the Company's  current real estate projects in Israel have been
awarded to the Company or to third party  contractors  for whom the Company acts
as subcontractor  through competitive bidding processes conducted by the Israeli
Government. The Company acts as a general contractor,  subcontracting all of its
construction   work  to  independent   subcontractors.   The  Company  typically
negotiates  an up-front  flat fee with each of its  subcontractors  prior to the
commencement of a project. Accordingly, the Company is then able to estimate the
gross profit,  before  operating  expenses,  to be derived from a given project,
subject to the  Company's  ability to complete the project on schedule or at the
anticipated  cost and, in certain cases, to sell the units at the estimated unit
sales  prices.   Further,  most  of  the  Company's  contracts  contain  penalty
provisions in the event of a delay in the  completion  of a particular  project.
Such penalty  provisions require the Company to pay various amounts according to
the extent of the delay.  Penalty payments may reduce or eliminate the Company's
projected  gross  profit  on a  particular  project  or  result  in a loss.  See
"Description  of  Business--Principal  Projects."  In addition,  the Company may
experience  variability  in  revenues  on a  quarterly  basis as a result of the
timing of completion  of new projects and the recording of revenues  anticipated
to be derived from such projects for financial reporting purposes.

         The Company presently maintains its accounts and presents its financial
statements in NIS. All NIS amounts reflect the historical  amounts  adjusted for
changes in the general purchasing power of the NIS as measured by changes in the
CPI and compiled in the manner  explained in Note 2(b) of Notes to  Consolidated
Financial  Statements.  For convenience  purposes,  the financial data presented
herein  for the  years  ended  December  31,  1996,  1997 and  1998,  have  been
translated into dollars using the  representative  exchange rate on December 31,
1998 of NIS 4.16 = $1.00, as published by the Bank of Israel.  See  "Description
of Business--Conditions in Israel--Economic Conditions."

                                       24
<PAGE>

Relationship With Engel:
-----------------------

         Approximately 14% of the Company's revenues for the year ended December
31, 1998 were derived from projects  awarded to Engel, for which the Company was
engaged by Engel to act as a general  contractor.  Moshe Schnapp,  the Company's
President and Chief Executive Officer,  is the former Chief Executive Officer of
Engel.  Yaron Yenni, a director of the Company and its Chief  Financial  Officer
and Secretary,  was a director of Engel until December 1997. As a result of this
relationship,  the Company was in a position to enter into agreements with Engel
under which the Company would act as general contractor for contracts awarded to
Engel.  Engel,  whose shares are publicly  traded on the Tel-Aviv Stock Exchange
and on The Nasdaq National Market,  is one of the major real estate  development
and construction companies in Israel.

         Although  the Company  intends to  continue to do business  with Engel,
subcontracting  for Engel does no longer comprise such a significant  portion of
the  Company's  revenue as it did in the past.  As  indicated by the most recent
projects  awarded  to  the  Company,  the  Company  believes  that  it  now  has
independent  capabilities  to qualify for project  awards.  See  "Description of
Business--Principal  Projects."  The Company  intends to continue  focusing  its
efforts on directly  contracting  for real-estate  development and  construction
projects,  and the Company  will seek to obtain such  projects by  participating
directly  in  the  competitive   bidding  processes  conducted  by  the  Israeli
Government.  However,  there  can be no  assurance  that  the  Company  will  be
successful in competing for future bids  independently  of Engel.  The Company's
failure to obtain such bids would adversely effect its financial results.


Results of Operations During the Year Ended December 31, 1998 Compared to Fiscal
Year Ended December 31, 1997:
--------------------------------------------------------------------------------

         For the year ended December 31, 1998, the Company had total revenues of
approximately NIS 122.5 million ($29.5 million),  a decrease of NIS 12.5 million
($3.0  million),  or 9%,  compared to  approximately  NIS 135.0  million  ($32.5
million)  for the year  ended  December  31,  1997,  primarily  as a result of a
decrease  in  sales of real  estate.  Revenues  from  contracting  in 1998  were
approximately  NIS 91.2 million ($21.9  million),  a decrease of NIS 6.2 million
($1.5 million), or 6%, compared to NIS 97.4 million ($23.4 million) for the year
ended  December 31, 1997.  This decrease is primarily a result of the completion
of projects during 1998. The Company also had revenues of approximately NIS 25.4
million ($6.1 million) from the sale of real estate  development  rights and NIS
5.9 million ($1.4 million) from consulting activities.

           Total cost of revenues  amounted to  approximately  NIS 107.2 million
($25.8  million),  an  increase  of NIS 10.8  million  ($2.6  million),  or 11%,
compared to NIS 96.4 million  ($23.2  million)  for the year ended  December 31,
1997.  Gross profit,  as a percentage of total revenues,  decreased to 12.5% for
the year ended  December  31, 1998,  from 28.6% for the year ended  December 31,
1997,  primarily  as a result of an  increase in the cost of sale of real estate
rights.  Gross  profit  margins for  contracting  increased to 9.7% for the year
ended December 31, 1998, from 7.2% for the year ended December 31, 1997.

                                       25
<PAGE>

         Total operating expenses, including selling, general and administrative
expenses,  were  approximately NIS 9.6 million ($2.3 million) for the year ended
December  31, 1998,  an increase of NIS 1.9 million  ($0.5  million),  or 22.5%,
compared to NIS 7.7 million ($1.9 million) for the year ended December 31, 1997,
primarily as a result of an increase  the cost of vehicles  and of  professional
services.

         As  a  result  of  the  foregoing,   the  Company  had  net  income  of
approximately  NIS 2.6 million  ($0.7  million) for the year ended  December 31,
1998, a decrease of  approximately  NIS 22.6 million ($5.4 million),  or 89%, as
compared to NIS 25.2  million for the year ended  December 31, 1997 and earnings
per share of NIS 0.46  ($0.11) for the year ended  December 31, 1998, a decrease
of NIS 4.48 ($1.08) as compared to the year ended December 31, 1997.

          The differences  between U.S. GAAP and Israeli GAAP for the year ended
December  31,  1998  are  primarily  in  the  accounting  treatment  of  revenue
recognition and the presentation of severance  rights.  As a result,  under U.S.
GAAP the  Company  had a net  income  of  approximately  NIS 1.9  million  ($0.5
million)  and net  earnings  per share of NIS 0.36  ($0.09).  See Note 29 of the
Notes to the Consolidated Financial Statements.

Results of Operations During the Year Ended December 31, 1997
Compared to Fiscal Year Ended December 31, 1996
-------------------------------------------------------------

          For the year ended  December 31, 1997,  the Company had total revenues
of NIS 135.1 million  ($32.5  million),  an increase of NIS 109.8 million ($26.4
million) compared to NIS 25.3 million ($6.1 million) for the year ended December
31,  1996,  primarily  as a result of  increased  development  and  construction
activities  and the  sale of  real  estate  development  rights.  Revenues  from
contracting  were NIS 97.3  million ($23.4  million),  an  increase  of NIS 72.0
million ($17.3  million)  compared to NIS 25.3 million ($6.1) for the year ended
December 31, 1996. This increase is primarily a result of the Company's  ability
to  qualify  to  participate  in  tenders   independently  and  its  ability  to
participate in more tenders in 1997, due to its increased  capital resources and
longer operating  history.  During the initial phases of its operations in 1996,
the Company was limited in its ability to participate in tenders  independently,
due to its limited operating  history and capital  resources.  Accordingly,  the
Company acted as general contractor for Engel and other larger contractors,  who
submitted  winning  bids in tenders in which the  Company  was not  eligible  to
participate,  and  shared  the  revenues  from  these  projects  with such other
contractors.  The Company also had revenues of NIS 14.7 million  ($3.5  million)
from the sale of real estate development rights, NIS 20.4 million ($4.9 million)
from the sale of real estate development rights to related parties,  and NIS 2.6
million ($0.6 million) from  consulting,  activities  from which the Company did
not derive any revenues for the year ended Decembe 31, 1996.

          Total costs of revenues  amounted to NIS 96.4 million ($23.2 million),
an increase of NIS 74.2  million  ($17.8  million)  compared to NIS 22.2 million
($5.3  million)  for the year  ended  December  31,  1996.  Gross  profit,  as a
percentage of total revenues, increased to 28.6% for the year ended December 31,
1997, from 12.2% for the year ended December 31, 1997,  primarily as a result of
sales of real estate  development  rights which  generate  higher profit margins
than contracting. Gross profit margins for contracting decreased to 7.2% for the
year ended  December 31, 1997,  from 12.2% for the year ended December 31, 1996,
primarily as a result of certain projects that generated relatively lower profit
margins in 1997.

          Total   operating   expenses,    including   selling,    general   and
administrative  expenses, were NIS 7.7 million ($1.9 million) for the year ended
December 31, 1997, an increase of NIS 5.3 million ($1.3 million) compared to NIS
2.4 million ($0.6 million) for the year ended December 31, 1996,  primarily as a
result of the cost of additional  rented office  space,  professional  and other
fees incurred in connection  with new operations  and start-up costs  associated
with foreign operations.

          As a result of the  foregoing,  the Company had net income of NIS 25.2
million ($6.1  million) for the year ended December 31, 1997, an increase of NIS
25.2 million ($6.0  million) as compared to the year ended December 31, 1996 and
earnings per share of NIS 4.9 ($1.2) for the year ended  December  31, 1997,  an
increase of NIS 4.9 ($1.2) as compared to the year ended December 31, 1996.



                                       26
<PAGE>

          The differences  between U.S. GAAP and Israeli GAAP for the year ended
December 31, 1997 are  primarily in the  accounting  treatment of the release of
Program Shares from the Deferrence Program. For U.S. GAAP purposes,  the release
of Program Shares held by officers,  directors and employees of the Company from
the  Deferrence  Program is deemed  compensatory,  resulting  in a  compensation
expense of NIS 30.6 million  ($7.4  million).  As a result,  under U.S. GAAP the
Company  had a net loss of NIS 5.2  million  ($1.2  million)  and a net loss per
share of NIS 1.0 million ($0.2 million).  See "--Charge to Income as a Result of
Release of Performance Shares from Deferrence Program."

Public Offering and Private Placements:
--------------------------------------

         In February 1997, the Company  completed its initial public offering of
2,300,000  units,  consisting of 2,300,000  Class A Ordinary  Shares,  2,300,000
redeemable Class A Warrants and 2,300,000 redeemable Class B Warrants. The gross
proceeds  amounted to $11,500,000  and the net proceeds after offering  expenses
amounted to approximately $9,500,000.


          In May 1999, the Company issued to a group of investors  850,000 Class
A Ordinary Shares for total  consideration of $850,000 which was the fair market
value of such shares on the date of  issuance.  In  addition,  in May 1999,  the
Company issued to a financial advisor,  which the Company retained in connection
with its contemplated  merger with ICC, 26,087 Class A Ordinary Shares,  as part
of such financial advisor's compensation.

Liquidity and Capital Resources:
-------------------------------

         The Company's  business is capital  intensive and requires  substantial
up-front   expenditures  for  land  development   contracts  and   construction.
Accordingly, the Company requires a substantial amount of cash on hand and lines
of credit from banks to conduct its  business.  The Company has to date financed
its  working  capital  needs  on  a  project-by-project  basis,  primarily  from
construction  loans from banks,  private  fundings of equity and debt,  with the
proceeds  of the  Offering  and  with  proceeds  from  the  sale of real  estate
development  rights.  At December 31, 1998,  the Company had working  deficit of
approximately NIS 50.6 million ($12.2 million) and retained earnings of NIS 26.6
million ($6.4 million).

          The  Company's  working  deficit  for  December  31,  1998  included a
revolving  short-term bank loan of NIS 42 million  received for the financing of
the Income-Producing  residential  property in Tel-Aviv.  Upon the occurrence of
certain conditions, including the completion of the renovation of such property,
such short-term loan will be converted to an equivalent  long-term  credit line.
See "Item 1 - Real Estate  Development and  Construction  Activities-Other  Real
Estate Activities - Acquisition and Development of Income-Producing  Residential
Properties" and "Item 2-Description of Property."

         The Company typically  finances  residential  projects through customer
deposits  and  construction  loans.  Under  its  existing  policy,  the  Company
generally  will not  commence  substantial  construction  of a  project  until a
substantial  portion of the units have been sold to  homebuyers  and the Company
has received  downpayments or complete payments from the unit purchasers (unless
the term of the bid  demands  otherwise).  Under  Israeli  law,  the  Company is
required to secure the payments  received from unit  purchasers  with guarantees
until the project is completed.  The banks will generally require the Company to
deposit with the bank, promptly upon receipt,  all such funds received from unit
purchasers, and the bank will then release such amounts to the Company from time
to time as are needed for the completion of the project,  in accordance with the
determination of a project supervisor appointed by the bank. The financing banks
generally  will also require a lien on all of the Company's  rights with respect
to a project.  Such bank  financing may cover only a specific  percentage of the
project  costs.  Accordingly,  the Company may be required to obtain  additional
funds to complete the project.

                                       27

<PAGE>

         The Company also obtains bank financing for its public works  projects.
For certain of these  projects,  the Company will receive  payments from time to
time over the course of project  completion from the entity  requisitioning  the
work. In such cases,  the Company is generally  required to deposit such amounts
with a bank which  provides the entity with a guarantee  for such amount.  Funds
are released from the bank as needed in accordance with the  determination  of a
bank supervisor.  In addition,  the bank may issue  construction loans necessary
for the completion of the project.  The bank will also require a general lien on
the Company's rights with respect to the project.

         The Israeli  Examiner of Banks has issued  directives that are intended
to limit the overall amount of credit  extended to  contractors  and real estate
developers  to up to 20% of all loans  issued by the bank.  This  directive  has
created  difficulties  for  developers,  such as the Company,  in obtaining bank
financing for real estate  projects.  The Company  believes that this limitation
requires  banks  to  carefully  select  developers  to whom  they  will  provide
financing.

         At December 31, 1998, the Company had  outstanding  indebtedness in the
aggregate  amount of  approximately  NIS 122.2 million ($29.4  million) which is
secured by the Company's  rights under its projects,  including all  receivables
relating  to  the  projects  and  the  Company's  right  in  the  land  and  all
improvements  thereon.  Such  outstanding  indebtedness  bears interest at rates
ranging  from the prime  rate  minus  4.9% to prime  rate  plus  0.7%  and,  for
indebtedness  which is linked to the U.S. dollar, at the rate of 6.8% per annum.
Substantially  all of the Company's  present  outstanding  indebtedness to banks
with respect to its  projects is  guaranteed  by Moshe  Schnapp,  the  Company's
President and Chief Executive Officer.

         In August  1995,  the  Company  entered  into an  agreement  with Engel
pursuant to which Engel was required to engage the Company as the  subcontractor
for each project it was awarded in connection with the Mifal Hapayis project, as
described under "Description of Business--Principal  Projects." In October 1996,
the  Company  modified  its  agreement  with Engel and  released  Engel from its
commitment to engage the Company as  subcontractor in each Mifal Hapayis project
awarded in the future to Engel.  In  consideration  for such release,  Engel was
required  to pay the  Company  approximately  NIS  326,000  ($78,000)  for  each
subsequent Mifal Happayis project entered into by Engel, in exchange for certain
limited   services  to  be  provided  by  the  Company.   See   "Description  of
Business--Principal  Projects"  and Note 25 of Notes to  Consolidated  Financial
Statements.


                                       28
<PAGE>

         In March 1998,  the Company  sold a 20% interest in its project for the
renovation of a group of apartment  buildings in Tel-Aviv to an unrelated  group
of investors, for total consideration of approximately $6 million.

          The  Company's  offices in Haifa are subject to a 15-year  mortgage in
the amount of approximately NIS 386,000  ($93,000).  The mortgage bears interest
at the rate of 5.5% and is linked to adjustments in accordance  with the CPI. In
December  1996,  the Company  leased  additional  office space in a  neighboring
building in Haifa, for a term of five years commencing January 1997, for monthly
payments of NIS 2,000 ($500).  In addition,  the Company has leased office space
in Rehovot,  for the purpose of having close  supervision  over its  residential
project   located   there  (see  "Item  1--Real   Estate   Projects--Residential
Projects").  The  term of such  lease is for 12  months  with an  option  for 60
additional  months,  commencing  December 1998. The monthly  payments under this
lease  are  $500.  The  Company's  U.S.  subsidiary,   Genesis  Development  and
Construction, Inc., has leased office space in New City, New York. This lease is
renewed on a monthly  basis.  The Company is  committed  to monthly  payments of
$1,500 under this lease.

         The  Company is  required  to  provide  certain  amounts as  collateral
security to the Ministry of the Interior as a condition to employment of foreign
workers. A Portion of said collateral was provided by a third party that handles
all procedures related to the foreign workers on behalf of the Company.

         The  Company  from time to time  provides  guarantees  on behalf of and
loans to third  parties in  connection  with  borrowings  relating  to  projects
undertaken  by such third  parties,  for which the Company will be entitled to a
fee. At December  31,  1998,  the Company had  outstanding  guarantees  to third
parties in the aggregate principal amount of approximately NIS 44.3 million ($11
million).


Charge to Income as a Result of Release of Performance
Shares from Deference Program:
------------------------------------------------------

         In the year ended  December 31, 1997 the Company  attained the earnings
thresholds  required for the release of all of the  Performance  Shares from the
Deference  Program.  The release of Performance Shares held by Company officers,
directors,  employees  or  consultants  is  treated,  for  U.S.  GAAP  financial
reporting purposes, as a compensation expense of the Company.  Accordingly,  the
Company did not  recognize  any a non-cash  charge to earnings in its U.S.  GAAP
reconciliation for the year ended December 31, 1998.

                                       29

<PAGE>

Impact of Inflation and Devaluation on Results of Operations; Impact on Monetary
Assets and Liabilities:
--------------------------------------------------------------------------------

         For many years prior to 1986, the Israeli economy was  characterized by
high rates of inflation  and  devaluation  of the Israeli  currency  against the
dollar and other  currencies.  However,  since the  institution  of the  Israeli
Economic Program in 1985,  inflation,  while continuing,  has been significantly
reduced and the rate of devaluation has been substantially  diminished.  For the
calendar  years 1996,  1997 and 1998 the annual rate of  inflation in Israel was
approximately  10.6%,  7% and 8.6%,  respectively.  The  Company's  expenses are
primarily incurred in Israeli currency.  Because governmental policies in Israel
linked exchange rates to a weighted basket of foreign  currencies,  the exchange
rate  between the NIS and the dollar has  remained  more stable in recent  years
than in prior years,  except for an approximately 8.0% devaluation of the NIS in
the  fourth  quarter of 1998.  In 1998 the Bank of Israel  adopted  measures  to
liberalize  foreign  currency  regulations.  See  "Exchange  Controls  and Other
Limitations Affecting Security Holders."

         Substantially  all of the  Company's  contracts for the purchase of raw
materials  and for  construction  are linked to the Israeli  Building Cost Index
("BCI").  The BCI is an index which  reflects the costs of raw  materials in the
building  industry,  and the changes in such index reflect the  fluctuations  of
such costs.  The  Company's  agreements  to pay  subcontractors  as well as most
arrangements  providing for payments to the company are also generally linked to
the BCI.  Accordingly,  an increase in the rate of inflation in Israel would not
significantly  affect the Company's financial results. To the extent the Company
enters into  agreements  for  payments  by or to the  Company  which are instead
linked  to the CPI,  the  difference  in  fluctuations  of the two  indexes  may
adversely affect the Company's financial results.


Seasonality:
-----------

         As a result of various factors, including reduced work hours, vacations
and travel  abroad,  Israel  experiences  a  traditional  slow down of  business
activities  during the summer  months and a  recurring  decrease  in real estate
activities. In addition, the BCI is usually higher during the summer months than
the rest of the  year.  This  decrease  in real  estate  activity  is  generally
corrected by an increase in activity in the autumn and winter months.

                                       30

<PAGE>


Year 2000:
----------

         The Company is aware of its  obligation  to ensure that its  operations
(including the operations of its subsidiaries) will not be adversely affected as
a result of the anticipated Year 2000 computer problems,  which may be caused by
the use of date-sensitive programs that utilize only two digits to represent the
year.

          The Company has  completed a review of the Year 2000  preparedness  of
its internal information  technology systems, such as its accounting and billing
systems. As a result of the nature of the Company's activities,  its exposure to
the Year 2000 issue is limited  solely to internal  information  systems used in
the  Company's  operations.   The  Company  has  also  obtained  certifications,
concerning the Year 2000 readiness of critical  computerized  systems  affecting
the Company's operations, from the vendors of such systems.

          To date, no material  problems in the Company's  computerized  systems
have  been  detected.  Any  of  the  Company's  computerized  systems  requiring
adjustment  in  preparation  for Year  2000 can be  adjusted  without  incurring
material  additional cost. Taking the  aforementioned  into  consideration,  the
Company  has not yet  developed  a  contingency  plan for the  possible  adverse
effects of the Year 2000 issue on its internal systems. If the Company is forced
to change all of its information  technology  systems,  hardware and software in
order to achieve Year 2000 readiness,  management  estimates that the total cost
will not exceed $25,000.  The  above  notwithstanding,  it is not possible to be
certain  that the Year  2000  issue  will not have an  effect  on the  Company's
information technology systems.

         The  Chief  Financial   Officer  of  the  Company  is  responsible  for
addressing year 2000 issues. As substantially all of the Company's  subsidiaries
use the Company's  facilities and information  technology  systems,  the Company
does not foresee any material year 2000 problems in any of its subsidiaries.

         There can be no  assurance  that the  computer  systems of  third-party
service providers which affect the Company's operations,  including those of the
Israel Electric  Corporation,  the banks and the telephone company, will be Year
2000 compliant.


ITEM 9A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
--------  ----------------------------------------------------------

         The Company is routinely  exposed to market risk,  primarily changes in
interest rates,  inflation rates and  fluctuations in the NIS/US Dollar exchange
rates,  which may  adversely  affect its  results of  operations  and  financial
condition.  The  Company  seeks to  minimize  these  risks  through  its regular
operating  and financing  activities.  From time to time,  the Company  utilizes
derivative  financial  instruments  to reduce its exposure to  financial  market
risks. These instruments are used to hedge foreign currency, equity and interest
rate market  exposures  relating to  underlying  assets,  liabilities  and other
obligations.  The Company  does not use  derivative  financial  instruments  for
speculative or trading  purposes.  The Company's  accounting  policies for these
instruments  are  based on the  Company's  designation  of such  instruments  as
hedging  transactions.   The  criteria  the  Company  uses  for  designating  an
instrument as a hedge include its effectiveness in risk reduction and one-to-one
matching of derivative  instruments to underlying  transactions.  See Note 2o of
the Consolidated Financial Statements.

                                       31

<PAGE>

          The Company is exposed to potential credit related losses in the event
of default by other parties to certain  financial  instruments,  but it does not
expect any such defaults,  since all such parties have  investment  grade credit
ratings.

         As the  Company's  financial  statements  are  prepared  in NIS  and in
accordance  with Israeli  GAAP,  with a convenience  translation  to US Dollars,
Exchange rate fluctuations and large periodic  devaluation have an impact on the
US Dollar equivalent and period-to-period comparisons of the Company's financial
results.  A  devaluation  of the NIS in  relation to the US Dollar will have the
effect of decreasing the dollar value of any assets of the Company which consist
of NIS or receivables  payable in NIS (unless such receivables are linked to the
US Dollar).  Such a  devaluation  would also have the effect of reducing  the US
Dollar amount of any liabilities of the Company which are payable in NIS (unless
such  payables  are linked to the US Dollar).  Conversely,  any  increase in the
value  of the  NIS in  relation  to the US  Dollar  would  have  the  effect  of
increasing the US Dollar value of any unlinked NIS assets of the Company and the
US Dollar  value of any  unlinked  NIS  liabilities  of the  Company.  See "Item
1--Description of Business--Conditions in Israel--Economic Conditions" and "Item
9--Management's  Discussion  and Analysis of Financial  Condition and Results of
Operations--Impact of Inflation and Devaluation on Results of Operations."

         When the rate of inflation  exceeds the rate of  devaluation of the NIS
as compared to the US Dollar,  the US Dollar value of the Company's revenues and
expenses are  increased by an amount  determined by the amount by which the rate
of inflation  exceeds the rate of  devaluation  of the NIS as compared to the US
Dollar.  During years when the rate of devaluation of the NIS as compared to the
US Dollar exceeds the rate of inflation the opposite influence occurs.

          The  Company's  expenses and revenues are  primarily  incurred in NIS.
Some of the Company's  contracts  from which  revenues are derived are linked to
the CPI. Most of the Company's  construction  related  liabilities  as well as a
portion of the Company's accounts receivable are generally linked to the Israeli
Building  Cost Index (the "BCI").  The  difference  in  fluctuations  of the two
indexes may materially  adversely  affect the Company's  financial  results.  In
addition,  yearly increases in the US Dollar value of the items used to describe
the results of  operations  of the Company  that are derived from CPI linked (or
BCI  linked)  contracts  affect  year to year  comparisons.  To the  extent  the
Company's cash and cash equivalents exceed its short-term funding  requirements,
the  Company  may invest its excess  cash and cash  equivalents  in  longer-term
high-quality financial instruments.  Such investments,  if made, will be subject
to changes in interest rates.

         For the different  linkage terms of the Company's  monetary balances on
December 31, 1998, as compared to December 31, 1997, see Note 24 of the Notes to
the Consolidated Financial Statements.

                                       32

<PAGE>


ITEM 10.  DIRECTORS AND OFFICERS OF THE REGISTRANT
--------  ----------------------------------------

         The  following  table sets forth  certain  information  concerning  the
directors and executive officers of the Company.


Name                           Age                      Positions
----                           ---                      ---------

Eli Aran                        48       Chairman of the Board, President of the
                                         United States Subsidiary and Director

Moshe Schnapp                   37       President, Chief Executive Officer and
                                         Director

Yaron Yenni                     37       Chief Financial Officer, Secretary and
                                         Director

Shalom Rozenberg                37       Director

Gary J. Strauss                 45       Director

         The directors of the Company are appointed by its  shareholders  in the
annual general  meeting (the "Ordinary  General  Meeting") and hold office until
the next Ordinary  General Meeting which is held at least once in every calendar
year but not more than fifteen  months  after the holding of the last  preceding
Ordinary General Meeting.  In the intervals between Ordinary General Meetings of
the Company,  the Board of Directors may appoint new directors to fill vacancies
on or increase the number of members of the Board of Directors.  The appointment
and terms of office of all executive  officers of the Company are  determined by
the Board of Directors.  The terms of any employment arrangement with respect to
directors,  as well as officers who are also  directors of the Company,  must be
approved  pursuant  to a meeting of  shareholders.  Pursuant to the terms of the
Articles of Association of the Company, a majority of the Board of Directors and
executive officers of the Company must be residents of Israel.

         The  Company has agreed for a period of five years from the date of the
Offering,  if requested by the underwriter of the Offering (the  "Underwriter"),
to nominate a designee of the  Underwriter  to the Board of Directors.  To date,
the Underwriter has not selected such a designee.

         Eli Aran,  a founder of the  Company,  has served as a director  of the
Company  since  the  commencement  of its  operations  in July  1995  and as the
Chairman  of the  Board  since  November  1997.  Mr.  Aran has also  served as a
director and the President of Genesis  Development and  Construction,  Inc., the
Company's  United States  subsidiary,  since its formation in February  1997. In
addition,  Mr.  Aran  serves as a  director  of  Genesis  Europe  S.P.R.L.,  the
Company's Belgian  subsidiary,  A.B. Stone B.V. and Stipula I.B.V.  ("Stipula"),
the Company's Dutch  subsidiaries.  Since March 1991, Mr. Aran has served as the
Vice President of Apollon Contractors International, a United States real estate
development  and  construction  company  with  Israeli  and other  international
operations, with headquarters in New York City. From March 1991 to May 1994, Mr.
Aran was the manager of Enpollon  and Company,  L.P., a real estate  development
and construction  company with operations in Israel.  During such time, Mr. Aran
also served as a director of  Hatishbe  A.L.  Holdings  Ltd.,  a developer  of a
commercial shopping center in Israel.

                                       33

<PAGE>

         Moshe  Schnapp,  a founder of the Company,  has served as the Company's
President,  Chief Executive Officer and a director since the commencement of its
operations  in July 1995.  Mr.  Schnapp also served as the Chairman of the Board
until November  1997.  From October 1992 to June 1995, Mr. Schnapp served as the
Chief Executive  Officer of Engel, and served as the Chief Financial Officer and
a director of Engel from September 1990 to November 1992.

         Yaron Yenni has served as the  Company's  Chief  Financial  Officer and
Secretary  since  October  1996.  Mr. Yenni has also served as a director of the
Company from  October  1996 to January 1998 and since May 1998.  In January 1998
Mr.  Yenni  was  appointed  chief  executive  officer  of  Genesis  Construction
Performance  (94) Ltd., a subsidiary of the Company.  Mr. Yenni has been serving
as a director  of Shay Bar Real  Estate  Investments  Ltd.,  an  Israeli  public
company  trading on the Tel Aviv Stock  Exchange,  since August 1997.  Mr. Yenni
served as a director of Engel from November 1992 until December 1997, a director
of Israel Credit Lines Financial Services Ltd. from August 1997 until July 1998,
and from January 1995 to February 1997 he served as a director of Baumel Moshe &
Sons Ltd. Mr. Yenni, a certified public  accountant,  served as Internal Auditor
for Myrag Development  Israel Ltd., a public holding company with investments in
various Israeli  enterprises,  from March 1993 to October 1996. In addition,  he
served as an  independent  financial  consultant for various  Israeli  companies
until October 1996.

         Shalom  Rozenberg has served as a director of the Company since January
1997. Mr. Rozenberg engages in different private  businesses and Since June 1997
has served as an independent  consultant to Carmel Container Systems Limited, an
Israeli  packing  company  trading on the  American  Stock  Exchange,  and until
November 1994 served as its manager of sales,  marketing and  development in its
industrial  and  agricultural  divisions.  From April 1987 to October 1994,  Mr.
Rozenberg was a marketing manager at Molet Hogla, an Israeli chemicals  company,
with responsibility for northern Israel and chain stores throughout Israel.

          Gary J. Strauss has served as a director of the Company  since January
1997. Mr. Strauss has been engaged in the practice of real estate law in the New
York City area for  approximately  18 years.  Mr.  Strauss's  areas of  practice
include real estate financing, leasing and acquisitions.  Mr. Strauss has been a
sole practitioner for more than the past five years.

         There are no family  relationships  among the  officers or directors of
the Company.


Alternate Directors:
-------------------

         The  Company's  Articles of  Association  provide that any director may
appoint,  by  written  notice  to the  Company,  another  director  or any other
individual approved by the Board of Directors, to serve as an alternate director
for a specified  period of time. Such other director or individual may act as an
alternate  director,  and the same person may act as the  alternate  for several
directors,  and have a  corresponding  number of votes.  Any alternate  director
possesses  all of the power and  authority  of the  director  or  directors  who
appointed  such  alternate,  subject  to the  provisions  of the  instrument  of
appointment. Under a new Companies Law, which will replace the Israeli Companies
Ordinance  on February 1, 2000,  a person  already  serving as a director of the
Company  may not act as an  alternate  director,  nor may one  person  act as an
alternate director for more than one director of the Company.

                                       34

<PAGE>

Independent Directors; Approval of Certain Transactions; Audit Committee:
------------------------------------------------------------------------

         Pursuant to the listing requirements of the Nasdaq National Market, the
Company  has  appointed  two  independent  directors  and  established  an audit
committee comprised of three directors, including both independent directors.

         Under the Companies Ordinance, Publicly Held companies (as such term is
defined  therein)  are  required to appoint at least two public  directors  (the
"Public Directors") who have been approved by a statutory  committee  consisting
of the Chairman of the ISA, the  Chairman of the Tel-Aviv  Stock  Exchange and a
member of the Israeli  judiciary  who acts as a chairman of the  committee  (the
"Committee").   The  Companies  Ordinance  details  certain  standards  for  the
independence  of the Public  Directors.  These  directors  must be  residents of
Israel  and  unaffiliated  with  the  company,   its  principals  or  affiliated
companies.

         According  to the  Companies  Ordinance,  a company that is required to
nominate Public Directors must also appoint an audit committee,  comprised of at
least three  directors,  and including all of the Public  Directors  (the "Audit
Committee"),  as well as an internal controller (in accordance with the proposal
of the  Audit  Committee).  The role of the  internal  controller,  among  other
things,  is to examine whether the Company's actions comply with applicable law,
proper conduct and orderly business procedures.

         The  District  Court of Tel  Aviv,  Israel,  had ruled  that  companies
registered under the laws of Israel whose shares were offered to the public only
outside  of  Israel  were  nevertheless   required  to  comply  with  the  above
requirements  pursuant to the Company's  Ordinance.  An appeal was  subsequently
filed with the Supreme Court and,  pursuant to an agreement between the parties,
the Supreme  Court  overturned  the District  Court  decision in February  1997.
However,  the Supreme Court expressed no opinion regarding the subject matter of
the appeal,  and  therefore,  it is unclear  whether a court  would  require the
Company to appoint "public directors."

         The new Companies Law, which will become effective on February 1, 2000,
unequivocally  requires the Company to appoint two  independent  directors,  who
must be  residents  of  Israel  having  no  affiliation  with the  Company,  its
principals or controlling  shareholders for a period of at least two years. Such
independent  directors  will be appointed  by a special  majority of the general
meeting,  for a period of three  years  and may be  extended  for an  additional
period of three years.  The Companies Law also  requires the  appointment  of an
audit  committee,  comprised  of at least  three  directors  and  including  all
independent directors, as well as an internal auditor.

                                       35
<PAGE>


ITEM 11.  COMPENSATION OF DIRECTORS AND OFFICERS
-------   --------------------------------------

          During 1998, the Company paid  compensation in an aggregate  amount of
NIS 1,867,000  ($448,798)  to all of its  directors  and officers.  See "Certain
Transactions."

          Under  current  Company  policy,  directors  who are  employees of the
Company  receive no  compensation  for  serving on the Board,  and  non-employee
directors  residing in Israel receive only de minimus  compensation  pursuant to
the minimum  prescribed by Israeli law. Each  non-employee  director residing in
the United States receives $500 plus reimbursement of out-of-pocket expenses for
each Board meeting in which he participates.  In addition, subject to compliance
with the Companies  Ordinance,  non-employee  directors  are not precluded  from
serving the Company in any other capacity and receiving  compensation  therefor.
As  directors  are not eligible to  participate  in the  Company's  share option
plans, it is the policy of the Company that each non-employee  director residing
in the United States  receives  each year as an annual  retainer fee a five-year
option to  purchase up to 7,500  Class A Ordinary  Shares at an  exercise  price
equal to the fair market value  thereof on the date of grant.  As of the date of
this  report,  each of Messrs.  Aran and  Strauss  has  received  an option,  to
purchase  22,500 Class A Ordinary Shares  exercisable as follows:  7,500 options
expire  on  February  22,  2002 and are  exercisable  for $5 per  share , 15,000
options expire on November 9, 2002 and are exercisable for $4.25 per share,  and
the remaining  15,000  options expire on June 23, 2004 and are  exercisable  for
$5.25 per share.

         Israeli law generally  requires  severance  pay, which may be funded by
Managers'  Insurance,  described  below,  upon  the  retirement  or  death of an
employee or termination of employment without cause (as defined in the law). The
payments  thereto  amount  to  approximately  8.3%  of  wages  paid  during  the
employment period. Furthermore,  Israeli employees and employers are required to
pay predetermined sums to the National Insurance Institute,  which is similar to
the United States Social  Security  Administration.  Since January 1, 1995, such
amounts also include payments for national health insurance. The payments to the
National  Insurance  Institute are approximately 12% of wages (up to a specified
amount),  a portion of which are contributed by the Company  pursuant to Israeli
law requirements.

         A general  practice  followed  by the  Company,  although  not  legally
required,  is the contribution of funds on behalf of certain of its employees to
a fund known as  "Managers'  Insurance."  This fund  provides a  combination  of
savings plan,  insurance and severance pay benefits to the employee,  giving the
employee a lump sum payment upon  retirement  and securing the severance pay, if
legally  entitled,  upon termination of employment.  The Company decides whether
each  employee is entitled to  participate  in the plan,  and each  employee who
agrees  to  participate  contributes  an amount  equal to 5% of such  employee's
salary and the Company  contributes  between  13.3% and 15.8% of the  employee's
salary.


Employment Agreement:
--------------------

          The Company has entered into a three-year  employment  agreement  with
its President,  Moshe Schnapp, which expires on December 31, 1999. The agreement
provides for an annual base salary of $200,000,  plus a $50,000 bonus during any
year in which the Company  attains the minimum target for release of Performance
Shares   from  the   Deference   Program   for  such  year.   See   "Control  of
Registrant--Performance Shares." Mr. Schnapp's compensation may not be increased
during the initial  three-year term without the consent of the Underwriter.  The
agreement contains customary confidentiality and non-compete provisions.

                                     36

<PAGE>

         In December 1998 the Company entered into an employment  agreement with
its  Chairman  of the Board,  Eli Aran,  effective  as of  January 1, 1999,  and
expiring on December 31, 2003. The agreement  provides for an annual base salary
of $350,000.  The agreement contains customary  confidentiality  and non-compete
provisions.  If there is a change in the control of the  Company,  as defined in
the agreement, and Mr. Aran's employment is subsequently terminated,  he will be
entitled,  among  other  things,  to the  greater  of the  payments  due for the
remaining  term of the  agreement  or three  times his annual  compensation.  In
addition,  Mr.  Aran was  granted  options  to and  options  to  purchase  up to
1,200,000 Class B Ordinary Shares at an exercise price of $2.875 per share.



ITEM 12.  OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
-------   --------------------------------------------------------------

         In November  1996,  the Board of Directors  of the Company  adopted the
Schnapp Equity  Limited Share Option Plan (the "First Option Plan")  pursuant to
which  300,000  Class A Ordinary  Shares were  reserved  for  issuance  upon the
exercise of options  granted to employees of the Company.  In November 1997, the
shareholders of the Company approved the adoption of the Genesis Development and
Construction  Ltd.  Employee  Share Option Plan (the "Second  Share Option Plan"
and,  together  with the First Share Option  Plan,  collectively  the  "Employee
Option Plans"),  pursuant to which 400,000 Class A Ordinary Shares were reserved
for issuance  upon the exercise of options  granted to employees of the Company.
In December 1998 the Company adopted the Genesis  Development  and  Construction
Ltd. General Managers Option Plan (the "General Managers Option Plan"), pursuant
to which  1,000,000  Class A Ordinary Shares were reserved for issuance upon the
exercise  of  options  granted  to  general  managers  of  the  Company  or  its
subsidiaries.  All options  granted  under these option plans have expired after
none of them were exercised,  and all of them are currently  reserved for future
grant.

          Options to  purchase  up to 45,000  Class A Ordinary  Shares have been
granted  other than  pursuant  to the  Employee  Option  Plans,  or the  General
Managers Option Plan to non-executive directors and officers of the Company. See
"Item 11--Compensation of Directors and Officers."

          In May  1999 the  Company  entered  into an  agreement  with  Rodman &
Renshaw,  Inc. ("Rodman") for financial advisory services in connection with the
Company's  proposed merger with ICC (See Item  1B-Description of Business-Merger
with Cable  Internet  Corporation"),  pursuant  to which  Rodman  will be issued
34,783  Class A  Ordinary  Shares  upon the  occurrence  of certain  events,  in
addition  to 26,087  Class A Ordinary  Shares  issued to Rodman in May 1999.  In
addition,  in June 1999 the Company  entered into an agreement with an unrelated
company registered in Liberia,  which initiated the merger  transaction  between
the Company and ICC,  pursuant to which 200,000 Class A Ordinary  Shares will be
issued to such Liberian company upon consummation of the merger.

          On  November  16,  1998 the  Company  granted an option to Eli Aran to
purchase up to 1,200,000 Class B Ordinary Shares, at an exercise price of $2.875
per share, which will expire on November 15, 2001.

ITEM 13.  INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
-------   ----------------------------------------------

         During the initial phases of the Company's  operations,  Moshe Schnapp,
the Company's  President,  provided personal  guarantees to secure the Company's
obligations  to banks for  construction  loans and  guarantees  provided by such
banks  with  respect  to  projects.  At  December  31,  1998,  the  Company  had
outstanding indebtedness in the amount of approximately NIS 1,846,008 ($443,752)
which was  guaranteed by Mr.  Schnapp.  Mr. Schnapp has also provided a personal
guarantee with respect to the mortgage on the Company's executive offices in the
amount of NIS 346,647  ($83,328).  See "Management's  Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."

         In September  1997, the Company sold a 50% interest in Stipula,  one of
the Company's Dutch subsidiary  through which the Company holds its interests in
its Rassnitz  and Moscow  construction  projects,  to Shay Bar.  Yaron Yenni,  a
director of the  Company and its Chief  Financial  Officer  and  Secretary,  has
served as a director of Shay Bar since August 1997 and is the owner of 17.76% of
its  outstanding  share capital.  His father,  David Yenni,  is chairman and the
chief  executive  officer  of  Shay  Bar  and  is the  owner  of  17.20%  of its
outstanding  capital.  Shay  Bar  paid  $2,550,000  for its  interest,  of which
$1,800,000 was paid in September  1997,  $750,000 was paid in April 1998 and the
balance  of  $750,000  is due in  September  1999.  See  Note  27d of  Notes  to
Consolidated  Financial  Statements.  David  Yenni has served as an  independent
consultant to Stipula from August 1994 until December 1996.

                                       37

<PAGE>

         In June 1997,  the Company  agreed to sell a 54.9% limited  partnership
interest in its Rehovot construction project to a group of individual investors,
which  included  the  Company's  Chairman,  Eli Aran.  Mr. Aran  acquired a 3.2%
indirect interest in the project for total  consideration of $350,000.  Mr. Aran
paid $58,334 and delivered a promissory note in the principal amount of $175,000
on October 14, 1997 and paid the balance of $116,666 on December 31,  1997.  The
promissory  note  bears  interest  at an annual  rate of 8.5% and is  payable on
December 31, 2003. See Note 27c of Notes to Consolidated Financial Statements.

         The  Company  is owed  monies  by its  President  and  Chief  Executive
Officer, Moshe Schnaap. These amounts are linked to the CPI and bear interest at
the rate of 2% per annum. As of December 31, 1998 the amount owed by Mr. Schnaap
was  approximately  NIS 1.1 million,  of which NIS 0.32 million was paid in June
1999 and the balance will be by December 1999.

          In  November  1996,  Gary  J.  Strauss,  a  director  of the  Company,
purchased  $50,000  principal  amount of Bridge Notes and 25,000 bridge warrants
("Bridge Warrants") in the Company's November 1996 private placement. The Bridge
Notes were  repaid in full with the  proceeds  of the  Offering,  and the Bridge
Warrants  were  exchanged  on the closing of the Offering for an equal number of
the  Company's  redeemable  Class A  Warrants.  In  February  1997,  Mr.  Straus
purchased 4,500 Units in the Company's initial public offering.

         See "Options to Purchase  Securities from  Registrant or  Subsidiaries"
and  "Compensation  of  Directors  and  Officers--Employment  Agreement"  for  a
discussion  of the  options  granted  to the  Company's  non-employee  directors
residing in the United States and the employment  agreements between the Company
and Moshe Schnapp and Eli Aran.

          The  Company  received an option  from its  controlling  shareholders,
Messrs. Eli Aran and Moshe Schnapp, to participate in the purchase of one of the
largest energy holding companies in Israel,  pursuant to a winning bid submitted
by such  shareholders  in a tender for the  acquisition  of such energy  holding
company. The transaction was not consummated due to a default on the part of the
bank that had agreed to finance a portion of the purchase  price.  Consequently,
Messrs.  Aran and Schnaap,  together with the Company,  filed a law suit against
such bank. See "Item 3-Legal  Proceedings."  In June 1999, the Company  notified
Messrs.  Aran  and  Schnaap  that it does  not  wish  to bear  any of the  costs
associated with these legal proceedings, and therefore the claimants agreed that
the  Company  will not bear any such costs but will be entitled to 5% of the net
amounts, if any, recovered by the claimants in these proceedings.

          In March 1999,  the  Company  extended to Shay Bar a five year loan of
$3,000,000  bearing  interest  at the  Libor  rate.  The  loan is  secured  by a
guarantee  of  Shay  Bar's  foreign  subsidiary,  secured  by a  lien  on 50% of
Stipula's outstanding shares, which are held by a subsidiary of Shay Bar. If the
Company  exercises its right to demand the immediate  repayment of loan prior to
its maturity  date,  it will have the right to convert the repayment of the loan
to  shares  of Shay  Bar at a price of $1 per  share.  A  charge  on Shay  Bar's
registered and not-issued  share capital was registered in the Company's name to
secure such issuance.  Under certain conditions,  the loan agreement allows Shay
Bar to repay the loan by  transferring  its 50% interest in Stipula's  shares to
the  Company.  Yaron  Yenni,  a director of the Company and its Chief  Financial
Officer,  hold over 17% of Shay Bar's shares,  is a director of Shay Bar and the
son of its  Chairman of the Board.  See "Item  10-Directors  and Officers of the
Registrant."

         In June 1999, Shay Bar engaged the Company to perform  construction and
renovation  work on a  building  in Rishon  Lezion.  The  Company  was paid $3.9
million for these  services and as finder's  fees, as well as for consulting and
financial  management services regarding this project. See "Item 1A--Real Estate
Development and Construction Business--Real Estate Projects--Pending Projects."

                                       38

<PAGE>

                                     Part II
                                     -------

ITEM 14.  DESCRIPTION OF SECURITIES TO BE REGISTERED
-------   ------------------------------------------

         Not applicable.

                                    Part III
                                    --------

ITEM 15.  DEFAULTS UPON SENIOR SECURITIES
-------   -------------------------------

         None.


ITEM 16.  CHANGES IN SECURITIES, CHANGES IN SECURITY FOR
--------  REGISTERED SECURITIES AND USE OF PROCEEDS
          ----------------------------------------------
         None.


                                       39
<PAGE>
                                     Part IV
                                     -------

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

         See page F-1.


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

         Not Applicable.


ITEM 19.  FINANCIAL STATEMENTS AND EXHIBITS
-------   ---------------------------------

         (a) Financial Statements:

             See page F-1.

         (b) Exhibits:

               10.1 Employment Agreement between Genesis Development and
                    Construction Ltd. and Eli Aran.

               10.2 Genesis Development and Construction Ltd. General Managers
                    Option Plan

               23(a) Consent of Kost Forer and Gabbai



                                                     SIGNATURES

         Pursuant to the  requirements of Section 12 of the Securities  Exchange
Act of 1934, the Registrant  certifies that it meets all of the requirements for
filing on Form 20-F/A and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.



                                       GENESIS DEVELOPMENT AND CONSTRUCTION LTD.


                                       By: /s/Moshe Schnapp
                                           -------------------------------------
                                            Moshe Schnapp
                                           President and Chief Executive Officer


Dated:   July 1, 1999




                                       40
<PAGE>

           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                             AS OF DECEMBER 31, 1998


                      ADJUSTED TO THE NIS OF DECEMBER 1998




                                                         INDEX



                                                                     Page
                                                              ------------------

 Report of Independent Auditors                                       F-2

 Consolidated Financial Statements -
     in Adjusted New Israeli Shekels (NIS):

 -   Balance Sheets                                                   F-3

 -   Statements of Operations                                         F-5

 -   Statements of Changes in Shareholders' Equity                    F-6

 -   Statements of Cash Flows                                         F-7

 Notes to the Consolidated Financial Statements                       F-8


                                       F-1

<PAGE>



[OBJECT OMITTED]

                                  ERNST & YOUNG
                               KOST FORER & GABBAY





                      REPORT OF INDEPENDENT PUBLIC AUDITORS

                             To the Shareholders of

           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

We  have  audited  the  accompanying  consolidated  balance  sheets  of  Genesis
Development and  Construction  Ltd. ("the  Company") and its  Subsidiaries as of
December  31,  1998  and  1997,  and  the  related  consolidated  statements  of
operations, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1998. These financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial  statements based on our audits. We did not audit the
financial  statements of the foreign  wholly owned  subsidiaries  of the Company
which  statements  reflect total assets  constituting 20% and 20% as of December
31, 1998 and 1997, respectively, and total revenues constituting 1.5% and 26% of
the related consolidated revenues for the years ended December 31, 1998 and 1997
respectively. Those statements were audited by other auditors whose reports have
been  furnished to us, and our opinion,  insofar as it relates to data  included
for these subsidiaries, is based solely on the reports of the other auditors.

We conducted our audits in accordance with generally accepted auditing standards
in the United  States and  Israel,  including  those  prescribed  by the Israeli
Auditor's  Regulations (Mode of Performance)  1973. Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining on a test basis,  evidence  supporting the amounts and  disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audits and the reports of the other auditors  provide a reasonable basis for our
opinion.

The aforementioned  financial  statements have been prepared on the basis of the
historical costs adjusted to reflect the changes in the general purchasing power
of the Israeli  currency as required by Statements of the Institute of Certified
Public Accountants in Israel.

In our opinion,  based on our audits and the reports of the other auditors,  the
consolidated  financial  statements  referred to above  present  fairly,  in all
material  respects,  the consolidated  financial position of the Company and its
subsidiaries as of December 31, 1998 and 1997, and the  consolidated  results of
their  operations and cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles in
Israel which differ in certain respects from those followed in the United States
(see Note 29 to the financial statements).

Haifa, Israel                                     KOST, FORER & GABBAY
June 30, 1999                            A member of Ernst & Young International

                                       F-2
<PAGE>


           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
Adjusted in NIS of December 1998


<TABLE>
<CAPTION>
                                                                                   December 31,              December 31,
                                                                              1997            1998               1998
                                                                          -------------   -------------    ----------------
                                                                                                             Convenience
                                                                                                             translation
                                                                                                              (Note2b)
                                                                                  Adjusted NIS                  U.S.$
                                                                          -----------------------------    ----------------
                                                                                                 (In thousands)
<S>                                                                       <C>             <C>               <C>
ASSETS (Notes 20 and 22)

CURRENT ASSETS:
  Cash and cash equivalents                                                    15,149         13,698              3,293
  Bank deposits and marketable securities in restricted deposits
  (Note 3)                                                                     52,001         79,463             19,102
  Contract receivables (Note 4)                                                10,656          6,896              1,657
  Prepaid expenses and other accounts receivables (Note 5)                      6,119          3,013                724
  Related party receivables (Note 6)                                            6,793         13,200              3,173
  Property and apartments for sale (Note 7)                                       655          7,940              1,909
  Cost and estimated earnings in excess of billings on uncompleted
    contracts (Note 8)                                                         17,308         15,235              3,662
  Loans to affiliated companies (Note 9)                                        3,676          4,790              1,151
                                                                          -------------   -------------    ----------------
  Total current assets                                                        112,357        144,235             34,671
                                                                          -------------   -------------    ----------------

LONG-TERM RECEIVABLES AND DEPOSITS
  Related parties (Note 10)                                                     3,937          4,263              1,025
  Other (Note 10)                                                               8,307          8,696              2,091
                                                                          -------------   -------------    ----------------
                                                                               12,244         12,959              3,116
                                                                          -------------   -------------    ----------------

LONG-TERM INVESTMENTS
  Equity in Joint Ventures (Note 11)                                           13,853         27,116              6,518
  Land under development (Note 12)                                             18,390         19,000              4,567
                                                                          -------------   -------------    ----------------
                                                                               32,243         46,116             11,085
                                                                          -------------   -------------    ----------------

FIXED ASSETS (Note 13):
  Cost                                                                          3,607         69,054             16,599
  Less accumulated depreciation                                                  (437)          (979)              (236)
                                                                                                           ----------------
                                                                          -------------   -------------
  Total fixed assets                                                            3,170         68,075             16,363
                                                                          -------------   -------------    ----------------





                                                                          =============   =============    ================
                                                                              160,014        271,385             65,235
                                                                          =============   =============    ================
</TABLE>


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

                                       F-3
<PAGE>


           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
Adjusted in NIS of December  1998


<TABLE>
                                                                                  December 31,             December 31,
                                                                              1997            1998              1998
                                                                          -------------   -------------    ----------------
                                                                                                             Convenience
                                                                                                             translation
                                                                                                              (Note2b)
                                                                                  Adjusted NIS                  U.S.$
                                                                          -----------------------------    ----------------
                                                                                           (In thousands)
<S>                                                                       <C>              <C>             <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
  Bank credits and short-term loans (Note 14)                                   19,465         122,193              29,373
  Trade payables (Note 15)                                                      40,791          39,422               9,476
  Accrued expenses and other liabilities (Note 16)                               3,530          10,117               2,432
  Billings in excess of costs and estimated earnings on
    uncompleted contracts (Note 8)                                               3,427             598                 144
  Related parties (Note 17)                                                        123               -                   -
  Current maturities of long-term debt                                           2,902          22,537               5,417
                                                                          -------------   -------------    ----------------
  Total current liabilities                                                     70,238         194,867              46,842
                                                                          -------------   -------------    ----------------

LONG-TERM LIABILITIES
  Long-term loans, net of current maturities (Note 18)                          21,636           2,142                 515
  Deferred tax liabilities (Note 23d)                                            3,841           4,160               1,000
                                                                          -------------   -------------    ----------------
                                                                                25,477           6,302               1,515
                                                                          -------------   -------------    ----------------

SEVERANCE PAY, net  (Note 19)                                                       85             182                  44
                                                                          -------------   -------------    ----------------

MINORITY INTEREST                                                                3,301           3,575                 860
                                                                          -------------   -------------    ----------------

SHAREHOLDERS' EQUITY
  Share capital (Note 21)
 Authorized: 42,000,000 Class A Ordinary Shares of
    NIS 0.01 par value and 4,200,000 Class B Ordinary
    Shares of NIS 0.10 par value (1997: 3,000,000 Class B Ordinary
    Shares); Issued and outstanding: 2,311,000 Class A Ordinary
    Shares and 2,989,000 Class B Ordinary Shares                                   626             626                 150
 Additional paid-in capital                                                     36,139          36,139               8,687
 Cumulative foreign currency translation adjustments                                 -           3,103                 746
 Retained earnings                                                              24,148          26,591               6,391
                                                                          -------------   -------------    ----------------
 Total shareholders' equity                                                     60,913          66,459              15,974
                                                                          -------------   -------------    ----------------


                                                                          -------------   -------------    ----------------
                                                                               160,014         271,385              65,235
                                                                          =============   =============    ================
</TABLE>



The accompanying  notes are an integral part of the consolidated financial
statements
                                       F-4
<PAGE>



           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF OPERATIONS
 -------------------------------------------------------------------------------
 Adjusted in NIS of December 1998


<TABLE>
<CAPTION>
                                                                                For the year ended December 31,
                                                               ------------------------------------------------------------------
                                                                   1996             1997            1998              1998
                                                               -------------    -------------    ------------    ----------------
                                                                                                                   Convenience
                                                                                                                   translation
                                                                                                                    (Note 2b)
                                                                               Adjusted NIS                          U. S. $
                                                               ----------------------------------------------    ----------------
                                                                             (In thousands, except per share data)
<S>                                                            <C>              <C>              <C>
Revenues (Note 25a):
  Contracting                                                       25,306            97,356          91,182            21,919
  Sale of real estate development rights                                 -            14,716          25,407             6,107
  Sale of real estate development rights to related parties              -            20,360               -                 -
  Consulting                                                             -             2,649           5,938             1,427
                                                               -------------    -------------    ------------    ----------------
                                                                    25,306           135,081         122,527            29,453
                                                               -------------    -------------    ------------    ----------------
Cost of revenues (Note 25a):
  Contracting Costs                                                (22,221)          (90,312)        (85,265)          (20,496)
  Cost of sale of real estate development rights                         -            (1,630)        (21,511)           (5,171)
  Cost of sale of real estate development rights to related
    parties                                                              -            (4,453)              -                 -
Consulting costs                                                         -                 -            (425)             (102)
                                                               -------------    -------------    ------------    ----------------
                                                                   (22,221)          (96,395)       (107,201)          (25,769)
                                                               -------------    -------------    ------------    ----------------
Gross profit                                                         3,085            38,686          15,326             3,684
                                                               -------------    -------------    ------------    ----------------
Operating expenses:
Selling, administrative and general expenses (Note 25c)             (2,064)           (7,726)         (9,672)            2,325
Consulting fees to related party                                      (369)                -               -                 -
                                                               -------------    -------------    ------------    ----------------
Total operating expenses                                            (2,433)           (7,726)         (9,672)            2,325
                                                               -------------    -------------    ------------    ----------------
Operating income                                                       652            30,960           5,654             1,359
Financial income (expenses), net (Note 25d)                            289               855            (563)             (135)
Amortization of Bridge Notes issuance costs                           (888)             (917)              -                 -
                                                               -------------    -------------    ------------    ----------------
Income before income taxes                                              53            30,898           5,091             1,224
Income taxes (Note 23)                                                   -            (5,689)         (2,465)             (593)
                                                                                                 ------------    ----------------
                                                               -------------    -------------
Income after taxes                                                      53            25,209           2,626               631
Loss from affiliated companies                                           -                 -            (183)              (44)
                                                               =============    =============    ============    ================
Net income                                                              53            25,209           2,443               587
                                                               =============    =============    ============    ================
Earnings per share                                                  0.02             4.94             0.46             0.11
                                                               =============    =============    ============    ================
Weighted average number of shares                                3,000,000         5,085,754       5,300,000         5,300,000
                                                               =============    =============    ============    ================
</TABLE>


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

                                      F-5
<PAGE>



           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
Adjusted to the NIS of December 1998


<TABLE>
<CAPTION>
                                                                                 Accumulated
                                                                                   foreign        Retained
                                                                    Additional     currency       Earnings
                                                        Share         paid-in     translation    (Accumulated
                                                       Capital        capital     adjustments      deficit)          Total
                                                       -------       ---------   ------------    ------------       -------
                                                                          Adjusted NIS (In thousands)
                                                       --------------------------------------------------------------------
<S>                   <C>                              <C>          <C>             <C>          <C>            <C>
Balance as of January 1, 1996                                116           719             -         (1,114)         (279)
Net income                                                     -             -             -             53            53
Issuance of ordinary shares (a)                              238          (238)            -              -             -
                                                       -----------  ------------    ----------   -------------  -----------
Bridge warrants (Notes 21g)                                    -           381             -              -           381
Balance as of  December 31, 1996                             354           862             -         (1,061)          155
Issuance of shares to public net of offering
expenses                                                     272        35,277             -              -        35,549
  (Note 21 h)
Net income                                                     -             -             -         25,209        25,209
                                                       -----------  ------------    ----------   -------------  -----------

Balance as of  December 31, 1997                             626        36,139             -         24,148        60,913
Foreign currency translation adjustments                       -             -         3,103              -         3,103
Net income                                                     -             -             -          2,443         2,443
                                                       -----------  ------------    ----------   -------------  -----------

Balance as of  December 31, 1998                             626        36,139         3,103         26,591        66,459

                                                       ===========  ============    ==========   =============  ===========

                                                                    Convenience translation into U.S. Dollars
                                                       --------------------------------------------------------------------
                                                                                    (Note 2b)
                                                       --------------------------------------------------------------------
                                                                                  (In thousands)
                                                       --------------------------------------------------------------------
Balance as of  January 1, 1998                               150         8,687             -          5,804        14,641
Foreign currency translation adjustments                       -             -           746              -           746
Net income                                                     -             -             -            587           587
                                                       -----------  ------------    ----------   -------------  -----------

Balance as of  December 31, 1998                             150         8,687           746          6,391        15,974
                                                       ===========  ============    ==========   =============  ===========

</TABLE>

(a) Represents a 2.33 for one share dividend


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


                                       F-6
<PAGE>
           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Adjusted to the NIS of December 1998
<TABLE>
<CAPTION>
                                                                      For the year ended December 31,
                                                            --------------------------------------------------------------------
                                                                      1996             1997             1998              1998
                                                            --------------------------------------------------------------------
                                                                                                                  Convenience
                                                                                                                  translation
Cash flows from operating activities:                                  Adjusted NIS (In thousands)              (Note 2b) U.S.$
                                                            -------------------------------------------------- -----------------
<S>                                                           <C>               <C>               <C>               <C>
Net income                                                               53           25,209             2,443              587
Adjustments required to reconcile net income (loss) to cash
flows from operating activities:
    Gain on sale of marketable securities                             (237)            (583)           (1,730)            (416)
    Depreciation                                                        116              292               542              130
    Loss from affiliated companies                                        -                -               183               44
    Amortization of Bridge Notes issuance costs                         888              916                 -                -
     Provision for severance pay                                         36               49                97               23
     Erosion of principal of certain monetary items                     (79)            (190)            1,604              386
     Decrease (increase) in contract receivables                     (4,360)          (6,296)            3,760              904
     Decrease (increase) in prepaid expenses and other               (1,474)          (3,228)            3,106              747
       accounts receivables
     Increase in related party receivables                                -           (6,793)           (6,407)          (1,540)
     Increase in long-term receivables                                    -          (12,075)             (678)            (163)
     Increase (decrease) in trade payables                            7,780           32,978            (1,369)            (329)
     Increase in accrued expenses and other liabilities                 653            2,504             4,257            1,023
     Increase (decrease) in costs in excess of billings on            5,559          (21,796)             (756)            (182)
       uncompleted contracts
     Increase (decrease)  in related parties liabilities                  -              123              (123)             (30)
     Increase in deferred tax liabilities                                 -            3,842               319               77
                                                               --------------   --------------    -------------    -------------
Net cash provided by operating activities                             8,935           14,952             5,248            1,261
                                                               --------------   --------------    -------------    -------------
Cash flows from investing activities:
     Purchase of fixed assets                                          (881)          (2,140)          (63,117)         (15,172)
     Investment in cash and marketable securities in                (28,884)         (57,864)          (56,770)         (13,647)
      restricted deposit
     Proceeds from sale of  marketable securities                    12,401           23,835            31,038            7,461
     Short-term loan to a related party                                 200                -                 -                -
     Loan to an affiliated company                                        -           (3,676)           (1,114)            (268)
     Long-term deposits                                                   -             (170)              (37)              (9)
     Increase in Equity in Joint Ventures                                 -          (13,853)          (13,263)          (3,188)
     Increase in Land Under Development                                   -          (18,390)             (610)            (147)
     Increase in property for sale                                        -                -            (7,468)          (1,795)
                                                               --------------   --------------    -------------    -------------
Net cash used in investing activities:                              (17,164)         (72,257)         (111,341)         (26,765)
                                                               --------------   --------------    -------------    -------------
Cash flows from financing activities:
    Loan from shareholder repaid                                          -           (1,188)                -                -
    Short-term loan from related parties, net                        (1,688)               -                 -                -
    Issuance of share capital (including capital surplus)                 -           43,405                 -                -
    Long-term loans received                                            646           24,141             1,376              331
    Long-term loans paid                                                (39)            (152)           (2,839)            (682)
    Capital contributed by minority interest                              -            3,301               274               66
    Bank credits, net                                                 7,855           11,244           102,728           24,694
    Bridge Notes received                                             7,614                -                 -                -
    Bridge Notes repaid                                                   -           (7,614)                -                -
    Bridge notes issuance costs                                      (1,804)               -                 -                -
    Bridge warrants                                                     381                -                 -                -
    Offering expenses                                                (1,442)          (6,413)                -                -
                                                               --------------   --------------    -------------    -------------
Net cash provided by financing activities                            11,523           66,724           101,539           24,409
                                                               --------------   --------------    -------------    -------------
Effect of exchange rate changes on cash and cash equivalents              -                -             3,103              746
                                                               --------------   --------------    -------------    -------------
Net increase in cash and cash equivalents                             3,294            9,419            (1,451)            (349)
Cash and cash equivalents at beginning of period                      2,436            5,730            15,149            3,642
                                                               --------------   --------------    -------------    -------------
Cash and cash equivalents at the end of period                        5,730           15,149            13,698            3,293
                                                               --------------   --------------    -------------    -------------
Supplemental  disclosure of cash flows information:
  Cash paid during the year for:
       Interest                                                         560               61                67               16
                                                               =============    =============     ============     =============
       Income taxes                                                       -              135            1,423               342
                                                               =============    =============     ============     =============
Non-cash transactions:
----------------------
Accounts payable related to fixed assets                                  -                -            2,330               560
                                                               =============    =============     ============     =============
</TABLE>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
                                       F-7
<PAGE>
            GENESIS DEVELOPMENT AND CONTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1:-      GENERAL

          a.   Genesis Development and Construction Ltd. ("Genesis"), an Israeli
               corporation, was incorporated in 1992 and was inactive until July
               1, 1995, at which time it commenced its activity. Genesis and its
               subsidiaries operate in Israel, United States, Germany and Russia
               through its American and European subsidiaries  (collectively the
               "Company" unless the context otherwise requires).

          b.   Concentration of risks that may have a significant  impact on the
               Company are as follows:

               1.   Real Estate Industry
                    --------------------

                    The  real  estate   industry  in  Israel  is  cyclical   and
                    significantly   affected  by  changes  in  general  economic
                    conditions,  such as employment levels, availability of debt
                    financing, interest rates, levels of immigration, government
                    fiscal policies,  general and local economic conditions that
                    may affect the demand for public  buildings  and housing and
                    various  other  factors.  In  addition,  there is a  limited
                    quantities  of land  available  for  residential  and public
                    development  in Israel.  The real  estate  industry  is also
                    subject to the potential  for  significant  variability  and
                    fluctuations in real estate values. In addition, contractors
                    are subject to various risks,  many of which are outside the
                    control of the contractor. Such risks include the conditions
                    of supply  and  demand  in local  markets,  availability  of
                    government projects,  delays in construction schedules, cost
                    overruns and  availability  and cost of land,  materials and
                    labor.

                2.   Dependence on Suppliers
                     -----------------------

                     The  building  industry  may from  time to time  experience
                     fluctuating prices and supply for raw materials, as well as
                     shortages  of labor  and  other  materials.  Cement  is the
                     principal  raw  material  utilized in the  construction  of
                     Israeli   homes  and   buildings.   Nesher   Israel  Cement
                     Enterprises Ltd. ("Nesher") is presently Israel's principal
                     producer of cement.  Most other  cement  must be  imported.
                     Accordingly, the Company's business is materially dependent
                     upon Nesher for its cement.

                     The  construction  industry  employs  mainly  foreign labor
                     brought to Israel under  government  supervision.  Although
                     there is currently no shortage of labor in Israel, there is
                     no  assurance  as to the  continuing  availability  of such
                     foreign  labor. A shortage of such labor would cause delays
                     in construction of projects and a decrease in the Company's
                     profitability.

                3.   Dependence on Engel
                     -------------------

                     During the years ended  December 31,  1996,  1997 and 1998,
                     approximately  42%,  32%  and  14%,  respectively,  of  the
                     Company's  revenues  were derived  through  contracts  with
                     Yaakov Engel  Construction  Enterprise Company Ltd. and its
                     subsidiaries ("Engel"), pursuant to which the Company acted
                     as subcontractor  for projects  awarded to Engel.  Although
                     the  Company  intends  to  continue  to work with  Engel on
                     projects,  and to continue focusing its efforts on directly
                     contracting for real-estate  developments  and construction
                     projects (See Note 25a).

                                      F-8
<PAGE>

           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 1:-      GENERAL (continued)

          c.   The Year 2000:

               The Year 2000 issue arises because many computerized  systems use
               two digits rather than four to identify the year.  Data-sensitive
               systems  may  recognize  the Year 2000 as 1900 or some other date
               resulting  in  errors  when  information  using  the Year 2000 is
               processed.

               In addition, similar problems may arise in some systems which use
               certain dates in 1999 to represent  something  other than a date.
               The effects of the Year 2000 issue may be experienced before, on,
               or after  January 1, 2000,  and if not  addressed,  the impact on
               operations and financial reporting may range from minor errors to
               significant  system  failure which could affect an entity ability
               to conduct normal business operations.

               It is not  possible  to be certain  that all  aspects of the Year
               2000 issue  affecting the entity,  including those related to the
               efforts of  customers,  suppliers or other third  parties will be
               fully resolved.

          d.   Reclassification:

               The Company has  reclassified  certain 1997 amounts to conform to
               the 1998  presentation.  The  reclassifications  had no effect on
               previously reported net gain, shareholders equity or cash flows.

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES

          The  financial  statements  have  been  prepared  in  accordance  with
          generally accepted  accounting  principles  ("GAAP") in Israel,  which
          differ in certain  respects from those  followed in the United States,
          as described in Note 29. The significant  accounting  policies applied
          on a consistent basis are as follows:

          a.   Use of estimates:

               The  preparation  of  financial  statements  in  conformity  with
               generally accepted  accounting  principles requires management to
               make estimates and assumptions  that affect the amounts  reported
               in the financial  statements and their accompanying notes. Actual
               results could differ from those estimates.

          b.   Financial statements in adjusted Israeli currency:

               1.a) All figures in the  accompanying  financial  statements  are
                    presented in adjusted New Israeli  Shekels  (NIS) based upon
                    the  changes in the Israeli  Consumer  Price Index (CPI) and
                    adjusted to the NIS of December  1998  (published in January
                    1999).
                                       F-9

<PAGE>



           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------


NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (continued)

                    b)   The  financial  statements  are prepared in  accordance
                         with the Opinions of the Institute of Certified  Public
                         Accountants  in Israel (the  "Israeli  Institute")  and
                         based on the  accounts  of the  Company  maintained  in
                         nominal NIS.

                    c)   The  adjusted  amounts  of  non-monetary  assets do not
                         necessarily  represent  realizable or current  economic
                         value,  but only the original  historical cost of those
                         assets in terms of  adjusted  NIS.  The term  "cost" in
                         these financial  statements  signifies cost in adjusted
                         NIS.

                  2.a)   Non-monetary  items (mainly fixed assets,  construction
                         costs and shareholders'  equity items derived from cash
                         flow from shareholders) have been adjusted on the basis
                         of the CPI at the time the  related  transactions  were
                         carried out. The  components of the statement of income
                         relating to  non-monetary  items (mainly  depreciation)
                         have  been  adjusted  on the  same  basis  used for the
                         adjustment of the related balance sheet items.

                    b)   Investments   in    subsidiaries,    jointly-controlled
                         entities and affiliates, and the share in their results
                         of operations  for the reported  periods are determined
                         on the basis of the adjusted  financial  statements  of
                         those companies.

                    c)   Monetary  items  (items  whose  amounts in the  balance
                         sheet  reflect   current  or  realizable   values)  are
                         presented in the balance  sheet as of December 31, 1998
                         in their  nominal  amounts  (figures for the  preceding
                         periods have been adjusted to the December 1998 CPI).

                    d)   The components of the statements of operations  (except
                         for  financing)  relating to  transactions  carried out
                         during the period - revenues,  costs,  etc.,  have been
                         adjusted on a monthly  basis  according to the basis of
                         the  CPI at the  time  the  related  transactions  were
                         carried out. Erosion of monetary  balances  relating to
                         the  aforesaid   transactions   has  been  included  in
                         financial income or expenses.

                    e)   The components of the statement of operations  relating
                         to provisions  included in the balance  sheet,  such as
                         liability in respect of employee rights upon retirement
                         and provisions for vacation pay have been determined on
                         the basis of the changes in the balances of the related
                         balance sheet items after their relative cash flows are
                         taken into account.

                    f)   The financing component represents financial income and
                         expenses  in real  terms,  as well  as the  erosion  of
                         monetary items during the year.

                    g)   Current taxes on income  include the expense  resulting
                         from  the  erosion  in  value of  advance  payments  on
                         account of income taxes from payment date to the end of
                         the year.

                                       F-10
<PAGE>

         GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 2:-          SIGNIFICANT ACCOUNTING POLICIES (continued)

          3.   Convenience translation into U.S. dollars:

               The adjusted  financial  statements  as of December 31, 1998 have
               been  translated  into  U.S.  dollars  using  the  representative
               exchange rate of the U.S. dollar as at December 31, 1998 (U.S. $1
               - NIS 4.16), as published by the Bank of Israel. The translations
               were made solely for the convenience of the readers.

               It should be noted that the adjusted New Israeli  Shekel  figures
               do not  necessarily  represent  the current  cost  amounts of the
               various  elements  presented and that the translated  U.S. dollar
               figures  should not be  construed  as a  representation  that the
               Israeli  currency  amounts  actually   represent,   or  could  be
               converted into dollars.

          4.   Data  regarding  CPI,  Israeli  Building  Cost Index  ("BCI") and
               exchange rate of foreign currency:

               a)   Most of the Company's  contracts for construction are linked
                    to the Israeli BCI.  Set forth below is certain  information
                    concerning  the CPI, the BCI and rate of exchange  into U.S.
                    dollars:

<TABLE>
<CAPTION>
                                             Exchange rate of
                                              one U.S. dollar           CPI*)             BCI*)
                                            --------------------    --------------    --------------

<S>                                          <C>                    <C>               <C>
             At the end of the period:
                 December 1998                     NIS 4.160        166.3 points      175.9 points
                 December 1997                     NIS 3.536        153.1 points      165.7 points
                 December 1996                     NIS 3.251        143.1 points      153.0 points

             Changes during the period:
                  December 1998 (12 months)         17.65%              8.62%             6.16%
                  December 1997 (12 months)          8.77%              7.00%             8.30%
                  December 1996 (6 months)           3.70%             10.59%             8.05%

             Real  increase  (decrease)  in  the  CPI  and  BCI relative  to the  exchange  rate
               of the  dollar during the period:

                                                                    --------------    --------------
                                                                        CPI*)             BCI*)
                                                                    --------------    --------------
                  December 1998 (12 months)                            (7.7%)            (9.8%)
                  December 1997 (12 months)                            (1.6%)            (0.4%)
                  December 1996 (6 months)                              6.6%              4.2%
</TABLE>


                    *)   According to the CPI and BCI index for the month ending
                         on balance sheet date on an average basis of 1993 = 100
                         and of 1992 = 100, respectively.

                                       F-11
<PAGE>

           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (continued)

               b)   Assets and liabilities in foreign currency or linked thereto
                    are included in the  financial  statements  according to the
                    representative  exchange  rate as  published  by the Bank of
                    Israel on balance  sheet  date  (figures  for the  preceding
                    periods have been adjusted to the December 1998 CPI).

               c)   Assets and liabilities linked to the CPI are included in the
                    financial  statements according to the index, last published
                    prior to December 31, 1998.

               d)   Assets and liabilities linked to the BCI are included in the
                    financial  statements according to the index, last published
                    prior  to  December  31,  1998  (figures  for the  preceding
                    periods have been adjusted to the December 1998 CPI).

          5.   Adjustments of financial  statements on the basis of the exchange
               rate of foreign currency: The financial statements of the foreign
               subsidiaries,  which are operating  independently of the Company,
               are adjusted on the basis of the  exchange  rates of the relevant
               foreign   currency.   The  amounts   included  in  the  financial
               statements  of  those   companies   have  been  included  in  the
               consolidated  financial  statements as follows:

               *    At each  balance  sheet  date,  the  balance  sheet  and the
                    results of operations for the year then ended are translated
                    into NIS at the rate of  exchange  prevailing  at the end of
                    the year for each foreign currency (mainly the U.S. Dollar).

               *    Amounts  for  preceding  years  have  been  adjusted  to the
                    December  1998  CPI.  The   differences   arising  from  the
                    translation  into NIS, which includes related changes in the
                    Israeli CPI, is carried to the "cumulative  foreign currency
                    translation adjustments" component in shareholders' equity.

               c.   Principles of consolidation:
                    The consolidated  financial statements include the financial
                    statements  of  Genesis  and its wholly  owned  subsidiaries
                    listed  below.   Significant   inter-company   balances  and
                    transactions are eliminated in  consolidation.  Subsidiaries
                    included  in  consolidation:

<TABLE>
<CAPTION>
                                                             December  31, 1998 and 1997
                                                            ------------------------------
                                                               Voting         Rights to
                                                               Rights          Profits
                                                            ------------   ---------------
                                                                          %
                                                            ------------------------------

<S>                                                              <C>            <C>
      Genesis Construction Performance (1994) Ltd. ("GCP"),
        incorporated under the laws of Israel, and its
        wholly-owned subsidiary                                  100            100
      Schnapp TSLT Investments and Assets Ltd. incorporated
        under the laws of Israel, and its subsidiary             100            100
      Genesis Europe SPRL, incorporated under the laws of
        Belgium, and its subsidiaries                            100            100
      A. B. Stone B.V., incorporated under the laws of
        Netherlands, and its subsidiary                          100            100
      Genesis Development and Construction Inc. ("GDC USA"),
        incorporated under the laws of the State of Delaware,
        USA, and its subsidiary                                  100            100
</TABLE>

                                       F-12
<PAGE>


            GENESIS DEVELOPMENT AND CONTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 2:-  SIGNIFICANT ACCOUNTING POLICIES (continued)

          d.   Cash equivalents:

               The Company  considers all highly liquid  investments  originally
               purchased  with  maturities  of three  months  or less to be cash
               equivalents.

          e.   Short-term deposits:

               The Company  classifies  deposits  with  maturities  of more than
               three months and less than one year as short-term  deposits.  The
               short-term  deposits  are  presented  at  their  cost,  including
               accrued interest.

          f.   Marketable securities:

               Investments in marketable  securities  designated for sale in the
               short term ("current investments") are presented at market value.
               Investments  in marketable  securities not designated for sale in
               the  short-term  ("permanent  investment")  are presented at cost
               (debentures,  including accumulated  interest),  as long as there
               has not been a permanent decline in value.

               Current  investments that became permanent  investment due to the
               intention  of  the   management   not  to  realize  them  in  the
               short-term,  are  presented  as long-term  investments  at market
               value on the date this decision was made.

               Permanent   investments  in  marketable  securities  that  became
               current  investments  due to the  intention of the  management to
               realize  them in the  short-term,  are  presented at their market
               value. The difference between market value and cost is carried to
               the  statement  of income in the  period of  transfer  to current
               investment.

          g.   Investments in affiliates:

               The  investments in companies,  partnership  and joint  ventures,
               over  which  the  Company  can  exercise  significant   influence
               (generally,  entities  in which the  Company  holds 20% to 50% of
               ownership or voting rights) are presented using the equity method
               of accounting.

               The  significant  accounting  policies  of these  affiliates  are
               substantially the same as those used by the Company.

                                       F-13
<PAGE>

           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (continued)

          h.   Fixed assets:

               The  assets  are  stated at cost.  Cost of the  Income  Producing
               Residential  Property  includes interest  capitalized  during the
               period of renovation of the property,  calculated at the specific
               rates of interest on the sources used to finance the  investment,
               limited to the total  amount of  interest  cost  incurred  by the
               Company on a consolidated  basis (See Note 13).  Depreciation  is
               calculated  using the  straight-line  method  over the  estimated
               useful lives of the assets. The annual  depreciation rates are as
               follows:

                                                               %
                                                        ----------------
                      Office space                             4
                      Office furniture and equipment           7-20
                      Motor vehicles                          15


          i.   Revenue recognition:

               a.   Revenue  from fixed price  contracts  is  recognized  on the
                    percentage  of   completion   method.   The   percentage  of
                    completion  method is also used for condominium  projects in
                    which the Company is a real estate  developer  and all units
                    have been sold prior to the  completion  of the  preliminary
                    stage and at least 25% of the project has been carried out.

                    Percentage of  completion  is measured by the  percentage of
                    costs  incurred  to balance  sheet date to  estimated  total
                    costs.  Selling,   general,  and  administrative  costs  are
                    charged  to  expense  as  incurred.  Profit  incentives  are
                    included in revenues  when their  realization  is reasonably
                    assured.

                    Provisions for estimated losses on uncompleted  projects are
                    made  in  the  period  in  which   such   losses  are  first
                    determined,  in the amount of the estimated loss of the full
                    contract.

                    Differences  between estimates and actual costs and revenues
                    are  recognized  in the year in which such  differences  are
                    determined.

                    The  provision  for  warranties  is  provided  at a  certain
                    percentage of revenues,  based on the past experience of the
                    Company's management

                    The asset "cost and estimated earnings in excess of billings
                    on uncompleted  contracts" represents revenues recognized in
                    excess of amounts billed. The liability  "billings in excess
                    of costs and estimated  earnings on  uncompleted  contracts"
                    represents billings in excess of revenues recognized.

                                      F-14
<PAGE>

           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 2:-  SIGNIFICANT ACCOUNTING POLICIES (continued)

          i.   Revenue recognition: (continued)

               b.   Revenue from  projects  built for sale is  recognized on the
                    completed   contract  method  when  both  of  the  following
                    conditions have been met:

                    o at least 90% of the project has been completed, and

                    o at least 75% of the units in the project have been sold

               c.   Consulting  and  financial   services  contracts  to  manage
                    construction   activity  of  others,   including   financial
                    management,  are  recognized  only to the  extent of the fee
                    revenue.  The fee revenue is based on the profits  generated
                    by the  project and is  recognized  upon  completion  of the
                    project when the profit is known.

               d.   Profit  on sale of a  partial  interest  in real  estate  is
                    recognized  by  the  full  accrual  method  when  all of the
                    following criteria are met:

                    1.   The sale is consummated.

                    2.   The buyer's  initial  and  continuing  investments  are
                         adequate to  demonstrate  a  commitment  to pay for the
                         property

                    3.   The  Company's  receivable  is not  subject  to  future
                         subordination.

                    4.   The  Company  has  transferred  to the  buyer the usual
                         risks and rewards of ownership in a transaction that is
                         in substance a sale and does not require a  substantial
                         continuing  involvement in the property or the interest
                         sold.

                    5.   The Company does not have an option to  repurchase  the
                         interest rights in the project and the purchaser cannot
                         require the Company to repurchase  the interest  rights
                         in the project.

          j.   Advertising costs:

               The Company expenses advertising costs as incurred.


          k.   Deferred taxes:

               1.   Deferred  taxes  reflect  the  impact of  temporary  amounts
                    recognized  for tax  purposes  as well as tax  credit  carry
                    forwards and loss carry  forwards.  These deferred taxes are
                    measured  by  applying   currently   enacted  tax  rates.  A
                    valuation  allowance  reduces deferred tax assets when it is
                    "more  likely  than not" that  some  position  or all of the
                    deferred tax assets will not be realized.

               2.   Since undistributed  profits of Israeli  subsidiaries can be
                    distributed  tax free to the  Company,  no  deferred  income
                    taxes have been provided for the  realization of investments
                    in subsidiaries.

                                       F-14
<PAGE>

           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (continued)

          k.   Deferred taxes: (continued)

               3.   Taxes that would  apply in the event of the  realization  of
                    investments  in  foreign  subsidiaries  have been taken into
                    account in determining the deferred taxes.

               4.   The above  treatment  does not  differ  materially  from the
                    principles of FAS Statement No,. 109, "Accounting for Income
                    Taxes".

          l.   Concentration of risks:

               SFAS  No.  105,   "Disclosure  of  Information   About  Financial
               Instruments with Off-Balance-Sheet Risk and Financial Instruments
               with  Concentrations of Credit Risk",  requires disclosure of any
               significant off-balance-sheet and credit risk concentrations. The
               Company  has no  significant  of-balance-sheet  concentration  of
               credit risks such as foreign exchange contracts, option contracts
               or other foreign hedging arrangements.

               Financial  instruments  that  potentially  subject the Company to
               concentrations  of credit risks consist  principally  of accounts
               receivables derived from construction contracts of major customer
               (see Note 25a), bank deposits and marketable  securities and cash
               and cash  equivalents  deposited  in major banks in Israel and of
               investment  in  joint  venture.   Management  believes  that  the
               financial  institutions  that hold the Company's  investments are
               financially  sound, and  accordingly,  minimal credit risk exists
               with respect to these investments.

               The Company is exposed to  credit-related  losses in the event of
               non-performance by the  counterparties to financial  instruments,
               but it does not  expect  any  counterparties  to fail,  since all
               counterparties have investment credit ratings.

          m.   Basic and diluted earnings (loss) per share:

               Basic earnings (loss) per share is computed based on the weighted
               average  number of common  shares  outstanding  during each year.
               Diluted  earnings  per share is  computed  based on the  weighted
               average  number of common  shares  outstanding  during each year,
               plus  the  dilutive   potential  of  common   shares   considered
               outstanding during the year, in accordance with opinion NO. 55 of
               the Israeli Institute of Certified Public  Accountants which does
               not differ materially from FASB Statement No. 128,  "Earnings Per
               Share".

          n.   Segment reporting:

               The Company adopted SFAS No. 131,  "Disclosures About Segments of
               an Enterprise and Related  Information",  SFAS No. 131 supercedes
               SFAS No. 14,  replacing  the industry  segment  approach with the
               "management  approach",  whereby  companies  report financial and
               descriptive information about their operating segments. Operating
               segments are revenue - producing components of the enterprise for
               which separate financial  information is produced  internally and
               are subject to evaluation by the Chief operating  decision-marker
               in deciding how to allocate resources to segments (See Note 26).

                                       F-16
<PAGE>


           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (continued)

          o.   Derivative financial instruments:

               (1)  The Company  utilizes  derivative  financial  instruments to
                    reduce  its  exposure  to  financial  market  risks.   These
                    instruments are used to hedge foreign  currency,  equity and
                    interest  rate  market  exposures   relating  to  underlying
                    assets, liabilities and other obligations.  The Company does
                    not use derivative financial  instruments for speculative or
                    trading  purposes.  The  Company's  accounting  policies for
                    these instruments are based on the Company's  designation of
                    such instruments as hedging  transactions.  The criteria the
                    Company  uses  for  designating  an  instrument  as a  hedge
                    include its  effectiveness  in risk reduction and one-to-one
                    matching   of   derivative    instruments    to   underlying
                    transactions.   Gains  and   losses  on   currency   forward
                    contracts,  and options that are designated and effective as
                    hedges  of  anticipated  transactions,   for  which  a  firm
                    commitment has been attained, are deferred and recognized in
                    the  statement  of  operations  in the same  period that the
                    underlying  transactions  are  settled.  Gains and losses on
                    currency  forward  contracts,  options  and  swaps  that are
                    designated and effective as hedges of existing transactions,
                    are  recognized  in income  in the same  period as gains and
                    losses on the  underlying  transactions  are  recognized and
                    generally  offset.  Gains  and  losses  on  options  hedging
                    investments in  non-marketable  instruments are deferred and
                    recognized in the statement of operations in the same period
                    as the hedges  mature or when the  underlying  instrument is
                    sold,  whichever comes first.  Income or expense on swaps is
                    accrued  as an  adjustment  to  the  yield  of  the  related
                    investments or debt they hedge.

                    The Company is exposed to credit-related losses in the event
                    of   non-performance  by  the  counterparties  to  financial
                    instruments,  but it does not expect any  counterparties  to
                    fail,  since  all  counterparties   have  investment  credit
                    ratings.

               (2)  SFAS No.  107,  "Disclosure  About Fair  Value of  Financial
                    Instruments",  requires  disclosures about the fair value of
                    financial  instruments.  The  following  disclosures  of the
                    estimated  fair  value of  financial  instruments  have been
                    determined by the Company using available market information
                    and  valuation   methodologies   described  below.  However,
                    considerable  judgment is required  in  interpreting  market
                    data to develop the  estimates  of fair value.  Accordingly,
                    the estimates  presented herein may not be indicative of the
                    amounts that the company could  realize in a current  market
                    exchange.   The  use  of  different  market  assumptions  or
                    valuation  methodologies  may have a material  effect on the
                    estimated fair value amounts.

                    The   carrying   values   of  cash  and  cash   equivalents,
                    receivables,    bank   overdrafts   and   accounts   payable
                    approximate fair values due to the short-term  maturities of
                    these instruments.

                                       F-17
<PAGE>

           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (continued)

          The  following  methods  and  assumptions  were used by the Company in
          estimating its fair value disclosures for financial instruments:

          a.   Cash and cash equivalents:

               The carrying  amount  reported in the balance  sheet for cash and
               cash equivalents approximates its fair value.

          b.   Marketable securities in a restricted deposit:

               The  fair  value  for  marketable  securities  in the  restricted
               deposits is based on quoted market price.

          c.   Long and short-term debt:

               The  carrying  amounts  of the  Company's  borrowings  under  its
               short-term  revolving  credit  arrangements  and  long-term  debt
               approximate their fair value,  since they bear interest or linked
               to CPI.

          d.   Related party receivable

               The carrying  amount was estimated by discounting the future cash
               flows using rates currently available for cash deposits.

          e.   The carrying  amounts and fair value of the  Company's  financial
               instruments of December 31, 1998 are as follows:

<TABLE>
<CAPTION>
                                                                      Carrying
                                                                       Amount         Fair Value
                                                                     ------------    -------------
                                                                             Adjusted NIS
                                                                            (In thousands)
                                                                     -----------------------------

<S>                                                                     <C>               <C>
               Cash and cash equivalents                                  13,698            13,698
               Cash and marketable securities in restricted deposits      79,463            79,463
               Short-term loan                                             2,060             2,080
               Related party receivable                                    2,982             3,120
               Short-term debt                                           122,193           122,193
               Long-term debt                                              2,142             2,142
</TABLE>

                                       F-18
<PAGE>

           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (continued)

          p.   Impact of recently issued accounting standards:

               In June 1998,  the Financial  Accounting  Standards  Board issued
               Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
               "Accounting for Derivative  Instruments and Hedging  Activities".
               The Statement  establishes  accounting  and  reporting  standards
               requiring that every  derivative  instrument  (including  certain
               derivative  instruments  embedded in other contracts) be recorded
               in the balance sheet as either an asset or liability  measured at
               its fair  value.  The  Statement  requires  that  changes  in the
               derivative's  fair value be  recognized  currently  in  earnings,
               unless  specific  hedge  accounting  criteria  are  met.  Special
               accounting for qualifying hedges allows a derivative's  gains and
               losses to offset related results on the hedged item in the income
               statement,  and requires that a company must  formally  document,
               designate  and  assess the  effectiveness  of  transactions  that
               receive hedge accounting.  SFAS 133 is effective for fiscal years
               beginning after June 15, 1999, and must be applied to instruments
               issued,  acquired,  or substantively  modified after December 31,
               1997.  The Company does not expect the adoption of the accounting
               pronouncement to have a material effect on its financial position
               or results of operations.

NOTE 3:-      CASH AND MARKETABLE SECURITIES IN RESTRICTED DEPOSITS

               According to the construction loan agreements between the Company
               and various  banks,  all  receipts and  revenues  generated  from
               projects,  financed by these  various  banks,  are  deposited  in
               special  accounts.  As  of  December  31,  1998,  the  restricted
               deposits  comprise bank time deposits and  marketable  securities
               which are released to fund the  development of the projects.  The
               hypothecation,  exchange  or transfer  of the said  deposits  are
               subject to the approval of the banks.

<TABLE>
<CAPTION>
                                                                               December 31,              December 31,
                                                                           1997             1998             1998
                                                                       -------------    -------------    --------------
                                                                                                          Convenience
                                                                                                          translation
                                                                                                           (Note 2b)
                                                                               Adjusted NIS                 U.S. $
                                                                       ------------------------------    --------------
                                                                                       (In thousands)
<S>                                                                    <C>              <C>              <C>
                Bank time deposits                                          41,715           79,034             18,999
                Marketable debt securities                                  10,169              322                 77
                Equity securities                                              117              107                 26
                                                                       -------------    -------------    --------------

                                                                           52,001            79,463             19,102
                                                                       =============    =============    ==============
</TABLE>

                                       F-19
<PAGE>

           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 4: - CONTRACT RECEIVABLES

<TABLE>
<CAPTION>
                                                                               December 31,              December 31,
                                                                           1997             1998             1998
                                                                       -------------    -------------    --------------
                                                                                                          Convenience
                                                                                                          translation
                                                                                                           (Note 2b)
                                                                               Adjusted NIS                 U.S. $
                                                                       ------------------------------    --------------
                                                                                       (In thousands)
<S>                                                                             <C>                           <C>

                Billed
                  Completed contracts                                        1,778                -                -
                  Contracts in progress                                      7,901            2,060              495
                Unbilled                                                       244            3,659              879
                Notes receivable                                               733            1,177              283
                                                                       -------------    -------------    --------------
                                                                            10,656            6,896            1,657
                                                                       =============    =============    ==============

NOTE 5: - PREPAID EXPENSES AND OTHER ACCOUNTS RECEIVABLE

                                                                                December 31,              December 31,
                                                                             1997            1998             1998
                                                                         -------------    ------------    --------------
                                                                                                           Convenience
                                                                                                           translation
                                                                                                            (Note 2b)
                                                                                 Adjusted NIS                U.S. $
                                                                         -----------------------------    --------------
                                                                                         (In thousands)
                Short-term loans                                              2,724                -                -
                Short-term loan (a)                                           1,847            2,060              495
                Loan, as short-term deposit                                     621                -                -
                Prepaid expenses and other receivables                          462              953              229
                Advances to suppliers                                           465                -                -
                                                                         -------------    ------------    --------------
                                                                              6,119            3,013              724
                                                                         =============    ============    ==============

              a)  A short-term  loan was given to a third party and is linked to
                  the US dollar.  The loan bears no interest and is presented at
                  its discounted value. The loan was fully paid by March 1999.
</TABLE>

                                       F-20
<PAGE>



           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 6:- RELATED PARTY RECEIVABLES

<TABLE>
<CAPTION>
                                                                                   December 31,              December 31,
                                                                             1997              1998             1998
                                                                         --------------    -------------    --------------
                                                                                                             Convenience
                                                                                                             translation
                                                                                                              (Note 2b)
                                                                                  Adjusted NIS                 U.S. $
                                                                         -------------------------------    --------------
                                                                                          (In thousands)
<S>                                                                      <C>               <C>              <C>
               Unaffiliated Israeli Company:
                   - Sale of 50% of a subsidiary interest (a)                  5,515             2,982              717
                   - Consulting and financial management fees
                         receivable (b)                                            -             5,824            1,400
                   - Short-term loans (c)                                          -             3,325              799
               American Entity                                                 1,278                 -                -
               Shareholder (d)                                                     -             1,069              257
                                                                         --------------    -------------    --------------
                                                                               6,793            13,200            3,173
                                                                         ==============    =============    ==============
</TABLE>




              a)    In September 1997, the Company sold 50% of its interest in a
                    subsidiary to an unaffiliated  Israeli Company  ("UIC"),  in
                    consideration  of $3,300,000 of which $1,800,000 was paid in
                    September  1997 and  $750,000 in March 1998.  The  remaining
                    balance of $750,000 is to be paid by September  1999,  bears
                    no interest and is presented at its  discounted  value which
                    amounts  as of  December  31,  1998 to NIS  2,982  thousands
                    (equivalent to $717,000).

              (b)   During the period  from April to  November  1998 the Company
                    provided consulting and financial management services to UIC
                    for  the  acquisition  of  an  Income-Producing  Residential
                    property  in Rishon  Le-Zion  and for the  achievement  of a
                    long-term  lease  agreement  with the  Israeli  Government's
                    Ministry  of  Absorption   ("Ministry  of   Absorption")  in
                    consideration  of  $1,400,000  which is  fully  paid by June
                    1999.

              (c)   The Company has been engaged to arrange  credit lines to UIC
                    for the acquisition of the property in Rishon  Le-Zion.  The
                    Company was  required to advance  short-term  loans for this
                    project.  The loans are unlinked and bear  interest of 16.6%
                    per annum,  based on the prime rate interest as published by
                    the Bank of Israel. The loans were repaid by June 1999.

              (d)   This  receivable  includes legal fees paid by the Company on
                    behalf of its  principal  shareholder  relating to his claim
                    against an Israeli  Bank which failed to finance the winning
                    bid in a tender to acquire a controlling  interest in one of
                    the three  largest  oil ,  energy  and real  estate  holding
                    company in Israel.  The amount  receivable  is linked to the
                    CPI and bears interest of 2% per annum. An amount of NIS 320
                    thousands  was paid in June 1999 and the  remaining  balance
                    will be paid by December 1999.

                                       F-21
<PAGE>

           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 7:-      PROPERTY AND APARTMENTS FOR SALE

<TABLE>
<CAPTION>
                                                                                 December 31,              December 31,
                                                                             1997              1998             1998
                                                                         --------------    -------------    --------------
                                                                                                             Convenience
                                                                                                             translation
                                                                                                              (Note 2b)
                                                                                  Adjusted NIS                 U.S. $
                                                                         -------------------------------    --------------
                                                                                         (In thousands)
<S>                                                                      <C>               <C>              <C>
                Property for sale (a)                                                -           6,830            1,642
                Apartments for sale (b)                                            655           1,110              267
                                                                         --------------    -------------    --------------

                                                                                   655           7,940            1,909
                                                                         ==============    =============    ==============
</TABLE>

              (a) In January 1998, the Company  through its  subsidiary  jointly
                  owned  with  Engel   acquired   interests  in  two  properties
                  designated by the Company for  renovations and long-term lease
                  to the Israeli Government's  Ministry of Absorption ("Ministry
                  of  Absorption").  The Company  has  entered  into a five year
                  lease  agreement with the Ministry of Absorption  with respect
                  to one of these  properties,  granting options to the Ministry
                  of Absorption for additional five  year-terms.  The renovation
                  of one of these  properties was almost fully completed and the
                  renovating of the second property is not yet commenced.  After
                  balance sheet, the Company sold its  subsidiary's  interest to
                  Engel in consideration of approximately NIS 10.6 million.

              (b) At cost, lower than market value.

NOTE 8:- COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

<TABLE>
<CAPTION>
                                                                                 December 31,              December 31,
                                                                             1997              1998             1998
                                                                         --------------    -------------    --------------
                                                                                                             Convenience
                                                                                                             translation
                                                                                                              (Note 2b)
                                                                                  Adjusted NIS                 U.S. $
                                                                         -------------------------------    --------------
                                                                                         (In thousands)
<S>                                                                      <C>               <C>              <C>
        Cost incurred on uncompleted contracts                                 103,315          92,481           22,231
        Estimated earnings                                                       1,815           1,071              257
                                                                         --------------    -------------    --------------
                                                                               105,130          93,552           22,488
        Less: Billings to date                                                 (91,249)        (78,915)         (18,970)
                                                                         ==============    =============    ==============
                                                                                13,881          14,637            3,518
                                                                         ==============    =============    ==============

        Included  in  the  accompanying   balance  sheets  under  the  following
          captions:
        Costs and estimated earnings in excess of  billings on
          uncompleted contracts                                                17,308           15,235            3,662
        Billing in excess of costs and estimated earnings on
          uncompleted contracts                                                (3,427)            (598)             144
                                                                         ==============    =============    ==============
                                                                               13,881           14,637            3,518
                                                                         ==============    =============    ==============
</TABLE>

                                      F-22
<PAGE>


           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 9 -  LOANS TO AFFILIATED COMPANIES

<TABLE>
<CAPTION>
                                                                                 December 31,              December 31,
                                                                             1997              1998             1998
                                                                         --------------    -------------    --------------
                                                                                                             Convenience
                                                                                                             translation
                                                                                                              (Note 2b)
                                                                                  Adjusted NIS                 U.S. $
                                                                         -------------------------------    --------------
                                                                                         (In thousands)
<S>                                                                      <C>               <C>              <C>
               Short-term loan to Stipula B.V. (a)                             3,437             4,790            1,151
               Short-term loan to AS. (b)                                        239                 -                -
                                                                         --------------    -------------    --------------

                                                                               3,676             4,790            1,151
                                                                         ==============    =============    ==============
</TABLE>

              a)  The loan was given to Stipula I B.V. (A.B.  Stone  subsidiary)
                  to finance the  acquisition of a 21.87%  interest in the share
                  capital  of Engel  (see not  27e).  The loan is linked to U.S.
                  dollars , bears interest of 5% per annum, will mature no later
                  than December 31, 1999,  and is secured by a pledge on Stipula
                  I B.V. as collateral.

              b)  The loan was given to Alir Schnapp  Industrial  Buildings Ltd.
                  ("AS") to finance the acquisition of an industrial building in
                  Migdal  Haemek.  The loans was  linked to CPI and  matured  in
                  December 1998.
                  The Company released its share in AS which was immaterial.

                                       F-23
<PAGE>


           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 10- LONG-TERM RECEIVABLES AND DEPOSITS

<TABLE>
<CAPTION>
                                                                                 December 31,              December 31,
                                                                             1997              1998             1998
                                                                         --------------    -------------    --------------
                                                                                                             Convenience
                                                                                                             translation
                                                                                                              (Note 2b)
                                                                                  Adjusted NIS                 U.S. $
                                                                         -------------------------------    --------------
                                                                                          (In thousands)

<S>                                                                      <C>               <C>              <C>
            Notes receivables linked to U.S. dollar (a)                      11,522            12,480            3,000
             Unlinked notes receivables (b)                                      952               479              116
             Long-term bank deposits ( c )                                       170               207               50
                                                                         --------------    -------------    --------------
                                                                              12,644            13,166            3,166
             Less: current portion                                              (400)             (207)             (50)
                                                                         ==============    =============    ==============
                                                                              12,244            12,959            3,116
                                                                         ==============    =============    ==============
             The said balance was presented as follows:
               Related parties                                                 3,937             4,263            1,025
               Other                                                           8,307             8,696            2,091
                                                                         ==============    =============    ==============
                                                                              12,244            12,959            3,116
                                                                         ==============    =============    ==============
             Maturities:
              Second year                                                        226               207               50
              Third year                                                         226               113               27
              Fourth year                                                        101                 -                -
              Thereafter until 2012                                           11,691            12,639            3,039
                                                                         ==============    =============    ==============
                                                                              12,244            12,959            3,116
                                                                         ==============    =============    ==============
</TABLE>


          One. The Company has  long-term  receivables  (promissory  notes) from
               private US investors  relating to the sale of 55% interest in the
               Rehovot  Project (Note 27c).  The  principal of these  promissory
               notes,  which bear  interest  at the rate of 8.5% per annum,  are
               payable on December 31, 2003.  Accrued interest is payable on the
               last business day of each calendar quarter.


          Two. Unlinked notes  receivables are related to a completed project in
               Lev-Hasharon  and bear  interest  at an annual  rate of 17%.  The
               unlinked notes receivables are payable in 39 monthly installments
               of principal and interest, ending July 2001.


          Three. Long-term  bank  deposits  are   linked  to the  CPI,  and bear
               interest at an annual rate of 4%. These  deposits are  registered
               in the shareholders' name as a trustee for the Company and mature
               in 2012.

                                       F-24
<PAGE>



           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 11 -     EQUITY IN JOINT VENTURES

<TABLE>
<CAPTION>
                                                                             December 31,              December 31,
                                                                          1997            1998             1998
                                                                      -------------    ------------    --------------
                                                                                                        Convenience
                                                                                                        translation
                                                                                                         (Note 2b)
                                                                              Adjusted NIS                U.S. $
                                                                      -----------------------------    --------------
                                                                                      (In thousands)

<S>                                                                   <C>             <C>              <C>
                Rehovot project (a)                                          493          10,268             2,468

                Germany and Russian projects (b)                           7,007           8,980             2,159

                Southampton ( c )                                          6,353           7,868             1,891
                                                                      -------------   -------------    --------------

                                                                          13,853          27,116             6,518
                                                                      =============   =============    ==============
</TABLE>


              a)  The equity in Joint Venture in the Rehovot project  represents
                  the Company's shares in the costs  associated  directly to the
                  project, fully financed by bank loans. (See Note 27c).

              b)  The  Company  has sold 50% of its  interest  in the German and
                  Russian  projects to UIC. The remaining 50% represent the cost
                  of its  investment in the joint venture for each project.  The
                  German  project is expected to be completed by December  2002.
                  The Russian project is in final stage of the  construction and
                  being marketed.

              c)  GDC USA  acquired on May 6, 1997,  through its 51%  registered
                  partnership,  a  parcel  of land in  Southampton,  New York on
                  which to develop 33 single-family luxury homes. The project is
                  currently under site development.


NOTE 12-      LAND UNDER DEVELOPMENT

              In December 1997, the Company  acquired from Engel the rights to a
              parcel  of land in  North  of  Israel  on  which  to  develop  167
              residential  units, in  consideration  of  approximately  NIS 18.4
              million.  The Company is seeking  permission for approximately 300
              units. The project is currently under site development.

                                       F-24
<PAGE>

           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 13: - FIXED ASSETS
<TABLE>
<CAPTION>
                                                                                                      Income-
                                                                                                     Producing
                                                                                                    Residential
                                                                   Furniture                       Property Being
                                                                   and office        Office          Renovated
                                                 Vehicles (1)      Equipment         Space             (2)(3)           Total
                                                 -------------    -------------   -------------    ---------------    ---------
                                                                                  Adjusted NIS
                                                 ------------------------------------------------------------------------------
                                                                                 (In thousands)
<S>                                              <C>              <C>             <C>              <C>              <C>
               Balance as of
                December 31, 1997:
                Cost                                   2,223             784             600                -           3,607
                Accumulated depreciation                (315)            (83)            (39)               -            (437)
                                                 -------------    -------------   -------------    -------------    -----------
                Depreciated cost                       1,908             701             561                -           3,170
                                                 =============    =============   =============    =============    ===========
               Balance as of
                December 31, 1998:
                Cost                                   2,792           1,142             600           64,520          69,054
                Accumulated depreciation                (668)           (248)            (63)               -            (979)
                                                 -------------    -------------   -------------                     -----------
                                                                                                   =============
                Depreciated cost                       2,124             894             537           64,520          68,075
                                                 =============    =============   =============    =============    ===========

                                                                    Convenience Translation (Note 2a) U.S. $
                                                 ------------------------------------------------------------------------------
               Balance as of
                December 31, 1998
                Cost                                 671                 274             144           15,510          16,599
                Accumulated depreciation            (161)                (60)            (15)               -            (236)
                                                 -------------    -------------   -------------    -------------    -----------
                Depreciated cost                     510                 214             129           15,510          16,363
                                                 =============    =============   =============    =============    ===========
</TABLE>


          (1)  Including  vehicles  acquired under a long-term lease at the cost
               of adjusted NIS 793 thousands (1997: NIS 762 thousands).

          (2)  In January 1998, the Company acquired  interests in a property in
               Tel Aviv  designated for  renovation  and long-term  lease to the
               Ministry of  Absorption.  Such  property is a group of  apartment
               buildings which will contain  approximately 200 studio apartments
               after renovation.  The Company has entered into a five-year lease
               agreement  with the Ministry of  Absorption  granting  option for
               additional five  year-terms,  effective date of the completion of
               the renovation.

               The  registration  of the building at the title of the Company is
               still  pending  due certain  legal  procedures  to be  completed,
               mainly the cancellation of liens registered by third parties.  In
               the opinion of the Company's  management after  consultation with
               outside  legal  counsel,  the  registration  will be completed in
               1999.

          (3)  Includes  capitalized interest in the amount of NIS 1002 thousand
               as of December 31, 1998.

          (4)  Depreciation  expense  amounted  to NIS  116  thousand,  NIS  292
               thousands and NIS 542 thousands for the years ended  December 31,
               1996, 1997 and 1998 respectively.


                                      F-25
<PAGE>
           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 14: - BANK CREDITS AND SHORT-TERM LOANS
<TABLE>
<CAPTION>
      a.  Composed as follows:                Annual Interest Rates                December 31,             December 31,
                                            ---------------------------
                                               1997           1998            1997              1998             1998
                                            -----------    ------------   --------------    -------------    --------------
                                            -----------    ------------
                                                                                                              Convenience
                                                                                                              translation
                                                %               %                                              (Note 2b)
                                                                                   Adjusted NIS                 U.S. $
                                            -----------    ------------   -------------------------------    --------------
                                                                                           (In thousands)
<S>                                         <C>            <C>            <C>               <C>              <C>
      Bank credits - unlinked               15.2-17.5      9.6 - 15.2            11,653           33,261             7,995
      Bank credits-linked to the U.S.$ (1)        6.5        6.4 -7.1             7,812           88,932            21,378
                                                                          ==============    =============    ==============
                                                                                 19,465          122,193            29,373
                                                                          ==============    =============    ==============
</TABLE>

      (1) Includes a revolving  short-term  loan of NIS 42 million  received for
          the financing of the  Income-Producing  residential property (see note
          13).  After the balance  sheet date the Bank  authorized an equivalent
          long-term line credit to be executed under certain conditions.

      b.  As to pledges to secure bank credits, see Notes 20 and 22

NOTE 15:  TRADE PAYABLES
<TABLE>
<CAPTION>
                                                                                December 31,             December 31,
                                                                             1997             1998            1998
                                                                         -------------    -------------    ------------
                                                                                                           Convenience
                                                                                                           translation
                                                                                                             (Note 2b)
                                                                                 Adjusted NIS                 U.S. $
                                                                         ------------------------------    -------------
                                                                                          (In thousands)
<S>                                                                      <C>              <C>              <C>
               Accounts payable                                                36,013           26,479           6,366
               Notes payable                                                    4,778           12,943           3,110
                                                                         -------------    -------------    -------------
                                                                               40,791           39,422           9,476
                                                                         =============    =============    =============
</TABLE>

NOTE 16:- ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
<CAPTION>
                                                                                December 31,              December 31,
                                                                             1997             1998             1998
                                                                         -------------    -------------    -------------
                                                                                                           Convenience
                                                                                                           translation
                                                                                                             (Note 2b)
                                                                                 Adjusted NIS                 U.S. $
                                                                         ------------------------------    -------------
                                                                                         (In thousands)
<S>                                                                      <C>              <C>              <C>
               VAT and income tax payable                                     1,855            3,992               960
               Property betterment tax payable                                    -            2,147               516
               Other                                                          1,055            1,512               364
               Deferred income                                                    -            2,085               501
               Wages and related benefits                                       574              152                36
               Expenses payable                                                  46              229                55
                                                                         =============    =============    =============
                                                                              3,530           10,117             2,432
                                                                         =============    =============    =============
</TABLE>
                                       F-26
<PAGE>



           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 17:- RELATED PARTIES

<TABLE>
<CAPTION>
                                                                                December 31,              December 31,
                                                                             1997             1998             1998
                                                                         -------------    -------------    -------------
                                                                                                           Convenience
                                                                                                           translation
                                                                                                             (Note 2b)
                                                                                 Adjusted NIS                 U.S. $
                                                                         ------------------------------    -------------
                                                                                         (In thousands)

<S>                                                                      <C>              <C>              <C>
               Salary payable (See Note 27a)                                    123                -                 -

                                                                       =============    =============    =============
</TABLE>
NOTE 18:- LONG-TERM DEBT

<TABLE>
<CAPTION>
        a.  Composed as follows:                                                       December 31,              December 31,
                                                   1997             1998            1997             1998             1998
                                               -------------    -------------    ------------    -------------    -------------
                                                                                                                  Convenience
                                                                                                                  translation
                                                          Annual                                                    (Note 2b)
                                                     Interest rates %                    Adjusted NIS                U.S. $
                                               ------------------------------    -----------------------------    -------------
                                                                                                (In thousands)
<S>                                             <C>              <C>             <C>            <C>                <C>
        From a  leasing  company  - linked to
            the U.S. dollar                     3.8 - 7.5         3.8 -7.5                455             400             96
        From a leasing company - linked to
             the CPI                            6.6 - 7.7        6.6 - 7.7                225             139             33
        From bank - unlinked                       17.2             17.2                  149              76             18
        From bank - linked to the U.S. dollar   6.3 - 8.3        6.5 - 8.3             20,866          22,339          5,370
        From bank - linked to CPI*)              5.6-6.0         5.6 - 6.0              2,843           1,725            415
                                                                                 ------------    --------------    ------------
                                                                                       24,538          24,679          5,932
        Less current maturities                                                        (2,902)        (22,537)        (5,417)
                                                                                 ============    ==============    ============
                                                                                       21,636           2,142            515
                                                                                 ============    ==============    ============
</TABLE>


     *)   Includes NIS 346,647 (1997:  366,946)  collateralized by a mortgage on
          the Company's office space.

     b.   Aggregate maturities of long-term loans maturing serially from 1999 to
          2011:

     First year - current maturities       2,902        22,537        5,417
     Second year                          20,899         1,624          390
     Third year                              234           161           39
     Fourth year                             152            99           24
     Fifth year                               93            25            6
     Thereafter                              258           233           56
                                     ============= ============== =============
                                          24,538        24,679        5,932
                                     ============= ============== =============

     c.   As to pledges to secure loans see Note 22.

     d.   As to capital lease commitments see Note 20k.

                                       F-27
<PAGE>

           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 19: - SEVERANCE PAY

     The Company's  liability for severance pay for its  employees,  pursuant to
     Israeli Law, is fully provided for. Part of the liability is funded through
     insurance policies and severance pay fund.


                                        December 31,              December 31,
                                    1997            1998              1998
                                -------------   -------------    --------------
                                                                  Convenience
                                                                  translation
                                                                   (Note 2b)
                                        Adjusted NIS                U.S. $
                                -----------------------------    --------------
                                                (In thousands)
     Severance pay                     299             393                95
     Less: amount funded*             (214)           (211)              (51)
                                -------------   -------------    --------------

                                        85             182                44
                                =============   =============    ==============

     *)   The amount funded can be withdrawn under the provisions of the Law for
          Severance Pay.

     Severance pay expense for the years ended December 31, 1996,  1997 and 1998
     amounted to adjusted NIS 102, NIS 197, and NIS 97, respectively.


NOTE 20 :- CONTINGENT LIABILITIES AND COMMITMENTS

     All the amounts described in the following projects are approximate amounts
     and are linked to the Israeli BCI, unless stated otherwise.

     a)   Ministry of Defense

          In January 1998, the Company was engaged as the general contractor for
          the construction of a building in  consideration of approximately  NIS
          16  million.  The Company is  required  to  complete  construction  in
          January 2001,  otherwise a penalty amount of NIS 2,100 will be payable
          for each day of delay.  The Company expects to complete the project on
          time.

                                       F-28
<PAGE>

            GENESIS DEVELOPMENT AND CONTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 20:  CONTINGENT LIABILITIES AND COMMITMENTS (continued)

     b)   Rehovot:

          In March 1997,  the Company was awarded  rights to develop a parcel of
          land of  approximately  77,000 sq.m. in consideration of approximately
          NIS 2 million.  The  development  plan  requires  evictions,  a zoning
          change and the approval by the municipal and regional authorities. The
          Company has  received  in March 1998 the  rezoning  approval  from the
          regional council for the construction of approximately  900 units. The
          Company is committed to complete the development by March 2002.

     c)   Kiryat Shmuel:

          In November  1997,  the Company was engaged as the general  contractor
          for the  construction  of 58  residential  units in  consideration  of
          approximately NIS 27 million.  The Company has engaged a subcontractor
          to complete the entire project in consideration of NIS 23 million. The
          Company  is  required  to  complete  construction  of the  project  in
          December 1999,  otherwise a penalty amount of $ 500 for each unit will
          be payable for each month of delay.  The  Company  expects to complete
          the project on time.

     d)   Guarantees:

          The Company received an authorization to employ foreign workers by the
          Ministry  of  Interior.  In order to  secure  the  fulfillment  of the
          authorization's condition, the Company deposited, with the Ministry of
          Interior, notes payable in the amount of NIS 136,000.

     e)   Bank guarantees:

          In order to  guarantee  the proceeds on  apartments  sold and on other
          construction  projects,  the  Company  has  provided  bank  guarantees
          expiring upon the completion of the project.

                                                                Adjusted NIS
                                                            --------------------
                                                               (In thousands)

           1.  Bank guarantees under the Law of Apartment Sales    23,445
           2.  Bank guarantees as security for performance         20,890


                                       F-29
<PAGE>

           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 20:  CONTINGENT LIABILITIES AND COMMITMENTS (continued)

     f)   Contractors registration:

          GCP and its wholly owned subsidiary Genesis  construction  (1997) Ltd.
          have been registered in the Contractors  Registrar  Office as building
          contractors  for  projects  involving  unlimited  financial  scope and
          unlimited  size.  The  registration   depends  on  employment  of  two
          professional  workers  approved  by the  Contractors  Registrar.  This
          condition was fully met.

     i)   Capital lease:

          The Company  leased  vehicles  for periods  from May 1999 to September
          2002.  Following  is a summary of future  payments  under  capitalized
          lease:

                                                            Adjusted NIS
                                                            (In thousand)
                                                           ----------------

           Year ending December 31, 1999                          212
           Year ending December 31, 2000                          193
           Year ending December 31, 2001                          156
           Year ending December 31, 2002                           81
                                                             -----------
           Total capitalized lease payment                        642
           Imputed interest                                       147
                                                             -----------
           Present value of capitalized lease payments            495
           Current portion                                        163
                                                             ===========
           Long-term capitalized lease obligations                332
                                                             ===========


                                       F-30
<PAGE>


           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 20:  CONTINGENT LIABILITIES AND COMMITMENTS (continued)

     j)   Lease Commitments

          In December 1996, the Company leased  additional  office space as from
          January  1, 1997,  under  long-term  operating  lease  agreements.  In
          addition  the Company has leased an office  space in Rehovot,  for the
          supervision  over its project,  as from  January  1998 until  December
          2003. Following is a summary of future payments for these leases:

                                                         Adjusted NIS
                                                         (In thousands)
                                                        ----------------


             Year ending December 31, 1999                    111
             Year ending December 31, 2000                     50
             Year ending December 31, 2001                     50
             Year ending December 31, 2002                     25
             Year ending December 31, 2003                     25
                                                         -------------

                                                              261
                                                         =============


     k)   Litigation

          (i)  The Company is involved in legal and  administrative  proceedings
               and claims of various  types in the amount of  approximately  NIS
               4.7 million which are being  defended and handled in the ordinary
               course of business.  In the opinion of the  Company's  management
               after  consultations  with outside  legal  counsel,  the ultimate
               disposition  of  such  proceedings  will  not  have a  materially
               adverse effect on the Company's  consolidated  financial position
               or future  results  of  operations  over a  provision  of NIS 1.7
               million recorded by the Company.

          (ii) The  Company  filed  several  claims  for  approximately  NIS 5.9
               million  against  numerous  contractors  for  damages  caused  in
               several  projects and against  four  families for eviction in the
               Rehovot  project.  The litigation is still pending and no amounts
               have been recorded for contingent payments.

                                       F-31
<PAGE>

           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 21 :-    SHARE CAPITAL

          a.   Share Capital is Composed as follows:

<TABLE>
<CAPTION>
                                                    December 31, 1997              December 31, 1998
                                              Authorized        Issued &       Authorized        Issued &
                                                              Outstanding                      Outstanding
                                             -------------    -------------   -------------    -------------

<S>                                          <C>              <C>              <C>              <C>
                  Class A ordinary shares
                    NIS 0.10 par value        42,000,000       2,300,000       42,000,000       2,311,000
                                              ==========       =========       ==========       =========
                  Class B ordinary shares
                    NIS 0.10 par value         3,000,000       3,000,000        4,200,000       2,989,000
                                              ==========       =========       ==========       =========
</TABLE>

                  The Class A Ordinary  Shares  and the Class B Ordinary  Shares
                  are essentially  identical,  except that each Class A Ordinary
                  Share is entitled to one vote and each Class B Ordinary  Share
                  is entitled to five votes, and Class B Ordinary Shares have no
                  voting rights in regard to certain resolutions relating to the
                  amendment of the rights of the Class B Ordinary Shares.

          b.   Each Class B Ordinary share will  automatically be converted into
               one Class A Ordinary Share upon:

               i.   the death of the holder thereof (the "Original  Holder") or,
                    if such shares are subject to a  shareholders'  agreement or
                    voting  trust  agreement  granting  the  power to vote  such
                    shares to another  Original  Holder,  then upon the death of
                    such other Original Holder.

               ii.  the sale or transfer to any person other than the  following
                    transferees:

                    a.   a  trust  for  the  sole  benefit  of  members  of  the
                         transferors immediate family and which is controlled by
                         the transferor; and

                    b.   any other holder of Class B Ordinary Shares thereof; or

               iii. the  failure of the  Company to  achieve  net income  before
                    provision  for income taxes and  exclusive of  extraordinary
                    earnings  and charges to income  resulting  from the release
                    from the  Deference  Program of the  Performance  Shares (as
                    such terms are defined  below) as audited and  determined by
                    the Company's  independent  public accountants in accordance
                    with U.S. GAAP, as set forth in the  reconciliation  thereof
                    in the Company's  consolidated financial statements ("Pretax
                    Income") of at least  $1,000,000  (the "Target Pretax Income
                    Amount") for the year ending  December 31, 1998, or for each
                    of the succeeding  five years ending December 31, 2003 - the
                    failure of the Company to achieve  Pretax  Income  exceeding
                    the Target  Pretax  Income for the previous year by at least
                    10%.

                                       F-32
<PAGE>

            GENESIS DEVELOPMENT AND CONTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 21:  SHARE CAPITAL (continued)

          c.   The  Company's  Articles of  Association  provide that  2,660,000
               Class B Ordinary Shares (the "Performance Shares") are subject to
               a share deference program (the "Deferrence Program"). Pursuant to
               the Deferrence Program, the Performance Shares would convert into
               "Deferred  Shares"  (having  no  rights  other  than the right to
               receive  an amount  not in excess of the par value  thereof  (NIS
               0.1) upon  dissolution  of the  Company) if the Company  does not
               attain  certain  earnings  levels.   Such  earnings  levels  were
               attained  in  the  Company's  1997  fiscal  year  and  all of the
               Performance   Shares  have  been  released  from  the  Deferrence
               Program.

          d.   Share Option Plans

               The  Company has elected to follow  Accounting  Principles  Board
               Opinion  No. 25  "Accounting  for  Shares  Issued  to  Employees"
               (APB-25),  and related  interpretations  in  accounting,  for its
               employee  shares  potions   because,   as  discussed  below,  the
               alternative  fair  value  accounting   provided  for  under  FASB
               Statement No. 123, " Accounting  for  Share-Based  Compensation",
               requires  the  use of  option  valuation  models  that  were  not
               developed  for use in  valuing  employee  shares  options.  Under
               APB-25, since the exercise price of the Company's employee shares
               options equals the market price of the  underlying  shares on the
               date of grant, no compensation expense is recognized. The Company
               intends  to  continue  using the  measurement  prescribed  by APB
               Opinion  No.25,  and  accordingly,  this  pronouncement  will not
               affect the Company's financial position or results of operations.

               (1)  In  November  1996 and 1997 the  Board of  Directors  of the
                    Company adopted Share Option Plans pursuant to which 700,000
                    Class A Ordinary  shares were reserved for issuance upon the
                    exercise  of  options  to be  granted  to  employees  of the
                    Company.  The exercise price may not be less than 70% of the
                    average closing price, as reported by Nasdaq, of the Class A
                    Ordinary  Shares  during the 90  calendar  days prior to the
                    date of grant.  The Share Option Plans expire in  2016-2017.
                    As of  December  31,  1998,  the Company has not granted any
                    options to purchase Class A Ordinary Shares.

               (2)  In  December  1998,  the Board of  directors  of the Company
                    adopted a general  managers  option  plan  pursuant to which
                    1,000,000 Class A Ordinary Shares were reserved for issuance
                    upon the  exercise  of  options  to be  granted  to  general
                    managers  of the Company  and any of its  subsidiaries.  The
                    exercise  price  shall not be less  than 70% of the  average
                    closing price of the Class A Ordinary  Shares of the Company
                    during the 90 days which  preceded the date of exercise.  As
                    of  December  31,  1998,  the  Company  has not  granted any
                    options to purchase Class A Ordinary Shares.

               (3)  Each  director  residing in the United States will receive a
                    five-year  option to  purchase  up to 7,500 Class A Ordinary
                    Shares  at an  exercise  price  equal to 70% of the  average
                    closing price of the Class A Ordinary  Shares of the Company
                    during the 90 days which  precedes the date of exercise.  As
                    of December 31, 1998,  two  directors  received an option to
                    purchase 30,000 Class A Ordinary Shares at an exercise price
                    of $5 per share.

                                       F-33
<PAGE>


            GENESIS DEVELOPMENT AND CONTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 21:  SHARE CAPITAL (continued)


               (4)  In December  1998,  the Company  granted the Chairman of the
                    Board the right and the option  (the  "option")  to purchase
                    all or  any  part  of an  aggregate  of  1,200,000  Class  B
                    Ordinary  Share (the  "Shares").  The purchase  price of the
                    shares  payable upon full or partial  exercise of the option
                    is U. S. $ 2.875 per share.  The option may be  exercised at
                    any time prior to the  earlier of (i) the third  anniversary
                    of the date  thereof and (ii) the date on which the Chairman
                    ceases to be involved in the operations of the Company.  The
                    partial   exercise  of  the  Option   shall  not  cause  the
                    expiration,  termination  or  cancellation  of the remaining
                    unexercised portion thereof. Exercise of the Option shall be
                    for a whole number of shares and no functional  shares shall
                    be issued or delivered upon exercise of the Option.

               (5)  Pro-forma  information regarding net income and earnings per
                    share  is  required  by  Statement  No.  123,  and has  been
                    determined  assuming  the  Company  had  accounted  for  its
                    employee   shares   options  under  the  fair  value  method
                    prescribed  by that  statement.  The fair  value  for  these
                    options  was   estimated  at  the  date  of  grant  using  a
                    Black-Scholes  option  pricing  model,  with  the  following
                    weighted-average    assumptions    for   1998   and    1997,
                    respectively:  risk-free  interest  rates  of  5%,  and  6%;
                    dividend  yields of 0%;  volatility  factors of the expected
                    market price of the Company's  common shares of 0.776; and a
                    weighted-average expected life of the option of 3 years.

                    The  Black-Scholes  option valuation model was developed for
                    use in estimating the fair value of traded options that have
                    no  vesting  restrictions  and are  fully  transferable.  In
                    addition,  option  valuation  models  require  the  input of
                    highly subjective assumptions, including the expected shares
                    price  volatility.  Because the  Company's  employee  shares
                    options have  characteristics  significantly  different from
                    those of traded options, and since changes in the subjective
                    input  assumptions  can  materially  affect  the fair  value
                    estimate,  in management's  opinion,  the existing models do
                    not  necessarily  provide a reliable  single  measure of the
                    fair value of its employee shares options.

                    For purposes of pro-forma  disclosures,  the estimated  fair
                    value  of the  options  is  amortized  to  expense  over the
                    options' vesting period.

                                       F-34
<PAGE>



            GENESIS DEVELOPMENT AND CONTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 21:  SHARE CAPITAL (continued)

         The Company's pro-forma information is as follows:

                                                       1998            1997
                                                  --------------- --------------
                                                   NIS in thousands (except per
                                                          share amounts)
                                                  ------------------------------

          Net income as reported                       2,443          25,209
           Pro-forma net income (loss)                  (583)         25,143
           Pro-forma tax affect                            -              -
           Pro-forma earnings (loss) per share:
               Basic                                   (0.09)           4.93

          A  summary  of the  Company's  shares  option  activity,  and  related
          information is as follows:

<TABLE>
<CAPTION>
                                                       Year ended December 31,
                                         --------------------------------------------------
                                                  1998                        1997
                                         ---------------------        ---------------------
                                                   Number of options in thousands
                                         --------------------------------------------------
                                                       Weighted                    Weighted
                                                        average                    average
                                         Number of     exercise     Number of      exercise
                                          options        price       options        price
                                         ---------     --------     ---------     ---------
                                                           $                          $
                                                       --------                   ---------

<S>                                      <C>           <C>          <C>          <C>
          Outstanding - at the
              beginning of year             15,000         5                -             -
                Granted:
                  Class A                   15,000         5           15,000             5
                  Class B                1,200,000         2.875            -             -

          Outstanding - at the
             end of year
                  Class A                   30,000         5           15,000             5
                  Class B                1,200,000         2.875            -             -

          Exercisable options
                  Class A                   30,000         5           15,000             5
                  Class B                1,200,000         2.875            -             -
</TABLE>

                                       F-35
<PAGE>



            GENESIS DEVELOPMENT AND CONTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 21:      SHARE CAPITAL (continued)

          The weighted  average grant and date fair value of options granted for
          the years  ended  December  31,  1997 and 1998,  were  $0.49 and $0.72
          respectively.

               The  exercise  prices on the grant date that exceed  market price
               were as follows:

<TABLE>
<CAPTION>
                                                                     1997           1998
                                                                  ------------  ------------
<S>                                                                 <C>             <C>
                    Weighted - average exercises price              $ 5.00          $ 2.93

                    Weighted - average fair values on grant date    $ 0.49           $0.72
</TABLE>

               The  options  outstanding  as of  December  31,  1998,  have been
               separated into ranges of exercise prices, as follows:

                                                 Weighted
                                   Options      average,
                               outstanding as   remaining     Weighted
                                 of December   contractual     average
               Exercise Price     31, 1998        life      exercise price
               --------------  --------------  -----------  --------------

                       $ 5           30,000     3,5 years         $ 5

                   $ 2.875        1,200,000       3 years      $ 2.93


     e.   Bridge Warrants

          In November 1996 the Company  completed a bridge financing to which it
          issued Bridge warrants.  The Bridge  Warrants,  entitle the holders to
          purchase one Class A Ordinary Share  commencing one year from the date
          of their  issuance.  Upon the Bridge  Warrants were  exchanged for the
          Selling Securityholders'  Warrants, each of which are identical to the
          Class A Warrants  included in the Units.  The Selling  Securityholders
          have   agreed,   not  to   exercise   and  not  to  sell  the  Selling
          Securityholders' Warrants for a period of one year from the closing of
          the offering.

     f.   Issue of Shares within the framework of an IPO

          On January  30,  1997,  the Company  completed  an IPO  consisting  of
          2,300,000 units, each unit consisting of Class A Ordinary Shares,  one
          redeemable  Class A warrant at the price per unit price of $5. The net
          proceeds from the issuance amounted to NIS 35,549 thousands.

                                       F-36
<PAGE>

           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 21:  SHARE CAPITAL (continued)

     g.   Redeemable Warrants

          Within  the  framework  of  the  Company's  IPO,  the  Company  issued
          2,300,000 Redeemable Class A warrants and 2,300,000 Redeemable Class B
          warrants.

          Class A Warrants
          Each Class A Warrants  entitles the registered  holder to purchase one
          Class A Ordinary  share and one Class B Warrant,  at an exercise price
          of $6.50, until January 2002.  Beginning one year from the date of the
          IPO,  the Class A Warrants are  redeemable  by the Company on 30 days'
          prior  written  notice  at a  redemption  price  of $.05  per  Class A
          Warrant,  if the  "closing  price" of the  Company's  Class A Ordinary
          Shares for any 30  consecutive  trading days ending  within 15 days of
          the  notice  of  redemption  averages  in  excess  of $9.10  per share
          (subject to  adjustment  by the  Company,  in the event of any reverse
          stock split or similar events).

          Class B Warrants
          Each Class B Warrant  entitles the  registered  holder to purchase one
          Class A Ordinary  Share at an exercise price of $8.75 per share at any
          time after  issuance  until January 2002.  Beginning one year from the
          date of IPO, the Class B Warrants are  redeemable by the Company on 30
          days' prior written  notice at a redemption  price of $.05 per Class B
          Warrant, if the closing price of the Company's Class A Ordinary Shares
          for any 30  consecutive  trading  days  ending  within  15 days of the
          notice of redemption  averages in excess of $12.25 per share  (subject
          to adjustment by the Company, in the event of any reverse, stock split
          or similar  events).  Through  December 31, 1998, none of the Warrants
          have been exercised.

NOTE 22:- CHARGES

     a.   As collateral for capital lease  liabilities to a leasing  company,  a
          fixed charge has been placed on motor vehicles and equipment.

     b.   As  collateral  for a  liability  to a  mortgage  bank,  a pledge  was
          registered on the Subsidiary's office space.

     c.   As collateral  for  liabilities  to banks, a charge has been placed on
          short-term  deposit,  on marketable  securities,  on revenues from the
          projects  on  motor  vehicles,   on  income  -  producing  residential
          properties and on land rights.

     As of the balance  sheet  date,  the  balance of  liability  collateralized
     totals adjusted approximately NIS 124 million.

     d.   In order to cover legal fees  relating to the claim of the Company and
          its principal  shareholders  against an Israeli Bank (see note 27f), a
          floating  charge  have  been  placed  on all the  rights  of the claim
          results, if any.

                                      F-37
<PAGE>



           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 23:-     TAXES ON INCOME

     a.   Taxation of contractors:

          The  Income   Tax   Ordinance   (New   Version)   1961   ("Ordinance")
          distinguishes  between two types of contractors  performing  work over
          more than one year ("Progressive Works").

          (i)  a "customer contractor" initially reports income from progressive
               works in the tax year in  which  at  least  25% of the  predicted
               monetary  scope  or  the  quantitative   scope  of  the  work  is
               concluded.

          (ii) a "development  contractor"  reports his income  according to the
               "completion of work" method,  i.e. in the first tax year in which
               the building  receives a certificate of completion from the local
               authority.

          The ordinance provides rules for spreading  financing,  management and
          general  expenses  as well as  interest  expense  over the  period  of
          construction.

     b.   Tax benefits under the law for  encouragement  of capital  investment,
          1959 ("Law of Encouragement"):

          Income - producing  rental  properties were approved by the investment
          center  under the law of  encouragement.  The  Company is  entitled to
          accelerated  depreciation  rate of 20% per annum until 2001 and of 10%
          thereafter.  The income  derived  for the entire or partly sale of the
          property is subject to a corporate rate of 25%. The entitlement of the
          above benefits is conditional upon the Company's fulfilling by leasing
          the property for a minimum period of 5 years.

     c.   Measurement  of results for tax purposes are made in  accordance  with
          the Income Tax (Inflationary Adjustments) Law, 1985 (the "Inflationary
          Adjustments Law").

          In accordance with the  Inflationary  Adjustments Law, the results for
          tax  purposes  are  measured in real  terms,  in  accordance  with the
          changes in the Israeli CPI.

                                      F-38
<PAGE>


           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 23:- TAXES ON INCOME (continued)

     d.   Taxes on Income

          Taxes on Income included in the statements of operation:

                                  For the year ended December 31,
                  --------------------------------------------------------------
                      1996             1997             1998             1998
                  -------------   -------------   -------------    -------------
                                                                    Convenience
                                                                    translation
                                                                      (Note 2b)
                                   Adjusted NIS                        U.S. $
                  -----------------------------------------------  -------------
                                          (In thousands)
     Current:
       Israel                -        1,742                2,000             481
       Europe                -          106                  146              35

     Deferred:
       Israel          -              3,841                  319              77
                  =============    =============    =============   ============
                       -              5,689                2,465             593
                  =============    =============    =============   ============


     e.   Deferred tax:

          Deferred tax liabilities (assets) are composed of the following:

<TABLE>
<CAPTION>
                                                                   For the year ended December 31,
                                                       1996             1997             1998             1998
                                                   -------------    -------------    -------------    -------------
                                                                                                      Convenience
                                                                                                      translation
                                                                                                        (Note 2b)
                                                                    Adjusted NIS                         U.S. $
                                                   -----------------------------------------------    -------------
                                                                           (In thousands)
<S>                                                <C>              <C>               <C>             <C>
          Tax applied in the event of the
            distribution of income of foreign
            subsidiaries                                     -             3,841        4,160               1,000
          Difference between the reported
            income recognition and the tax
            reporting                                       50               385              -                 -
          Provision for severance pay,
            vacation and recreation                        (35)             (108)           (68)              (16)
          Net operating loss carry forward                (201)             (492)          (137)              (33)
                                                   -------------    -------------    -------------    -------------
                                                          (186)            3,626          3,955               951
          Valuation allowance *                            186               215            205                49
                                                   =============    =============    =============    =============
                                                             -             3,841          4,160             1,000
                                                   =============    =============    =============    =============
</TABLE>

          *)   The valuation allowances has been established for the full amount
               of the related deferred tax asset until realization is assured.

                                       F-39
<PAGE>



           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 23:-     TAXES ON INCOME (continued)

     f.   Tax loss carry forwards:

          At December  31,1998,  a foreign  subsidiary  has net  operating  loss
          carryforwards of approximately $169,000, which may be utilized against
          future taxable income through 2019.

     g.   Tax assessments:

          Final  assessments  have not yet been  received by the Company and its
          subsidiary since incorporation.

     h.   A reconciliation  of the theoretical tax expense,  assuming all income
          is taxed at the statutory rate applicable to income of the Company and
          the actual tax expense, is as follows:


<TABLE>
<CAPTION>
                                                                      For the year ended December 31,
                                                ---------------------------------------------------------------
                                                    1996             1997            1998             1998
                                                -------------    -------------   -------------    --------------
                                                                                                   Convenience
                                                                                                   translation
                                                                                                    (Note 2b)
                                                                Adjusted NIS                         U.S. $
                                                ----------------------------------------------    --------------
                                                                         (In thousands)
<S>                                             <C>              <C>             <C>              <C>
          Theoretical tax expense (benefit)
            computed at rate of 36%                     19           11,199            1,833             440
          Nondeductible expenses and
            others, net                                 18            1,218              846             204
          Exempt income                                  -           (6,805)            (351)            (84)
          Carryforward losses for which  no
            deferred taxes are recognized              (37)              77              137              33
                                                =============    =============   ==============    ============
          Actual tax expense                             -            5,689            2,465             593
                                                =============    =============   ==============    ============
</TABLE>

                                       F-40
<PAGE>



GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 24:- LINKAGE TERMS OF MONETARY BALANCES

<TABLE>
<CAPTION>
                                                December 31, 1997                December 31, 1998
                                 ----------------------------------   ---------------------------------------
                                  Foreign  Linked to                            Foreign    Linked to
                                 Currency Israel CPI Unlinked Total   Currency Israel CPI  Unlinked     Total
                                 -------- ---------- -------- -----   -------- ----------  --------     -----
                                                                 Adjusted NIS (In thousands)
                                 ----------------------------------------------------------------------------
<S>                              <C>      <C>         <C>      <C>    <C>        <C>        <C>       <C>
ASSETS
Cash and cash equivalents        12,948         -      2,201   15,149    12,749      918         31    13,698
Bank deposits and marketable
 securities in restricted
 deposits                        41,209         -     10,792   52,001    56,351   22,661        451    79,463
Contracts receivable                  -         -     10,656   10,656         -        -      6,396     6,896
Other  accounts receivables       1,847         -      3,810    5,657     2,060        -          -     2,060
Related party receivable          6,793         -          -    6,793     2,982        -     10,426    13,408
Loan to an affiliated company     3,676         -          -    3,676     4,790        -          -     4,790
                                -------  --------  ---------  -------  --------  -------    -------  --------
                                 66,473         -     27,459   93,932    78,932   23,579     17,804   120,315
                                =======  ========  =========  =======  ========  =======    =======  ========
Short-term loan and bank
  credit                          7,812         -     11,653   19,465    88,932        -     33,261   122,193
Trade payables                        -         -     40,791   40,791         -        -     39,422    39,422
Accrued expenses and other
  liabilities                         -         -      3,530    3,530         -        -     10,117    10,117
Shareholder                           -       123                 123         -        -        -           -
                                                           -
Long-term  liabilities
(including current               21,321     3,068        149   24,538    22,739    1,864         76    24,679
       maturities)
Severance pay                         -         -         85       85         -        -        182       182
                                -------  --------  ---------  -------  --------  -------    -------  --------
                                 29,133     3,191     56,208   88,532   111,671    1,864     83,058   196,593
                                =======  ========  =========  =======  ========  =======    =======  ========
</TABLE>


                                       F-41
<PAGE>


GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 25:- SELECTED STATEMENT OF OPERATIONS DATA

<TABLE>
<CAPTION>
                                                               For the year ended December 31,
                                                -----------------------------------------------------------------
a.  Major customers data:                           1996             1997             1998              1998
                                                -------------    -------------    --------------    -------------
                                                                                                    Convenience
                                                                                                    translation
                                                                                                     (Note 2b)
                                                                 Adjusted NIS                          U.S. $
                                                ------------------------------------------------    -------------
                                                                         (In thousands)
     Revenues from:
<S>                                             <C>             <C>               <C>               <C>
      Engel (see Note 20) (1)                          10,600          42,981            16,844           4,049
       LGES (see Note 20) (2)                               -          18,685             7,351           1,767
       American Entity (See Note 27d)(3)                    -          22,589                 -               -
       UIC (See Note 27e)(4)                                -          12,487                 -               -
         Others                                        14,706          38,339            98,332          23,637
                                                --------------   --------------   --------------    ------------
                                                       25,306         135,081           122,527          29,453
                                                ==============   ==============   ==============    ============

     (1) Percentage of total revenues                  41.9%           31.8%            13.7%          13.7%
                                                ==============   ==============   ==============    ============
       (2) Percentage of total revenues                    -        13.8%              6%                  6%
                                                ==============   ==============   ==============    ============
       (3) Percentage of total revenues                    -          16.7%             -                  -
                                                ==============   ==============   ==============    ============
       (4) Percentage of total revenues                    -           9.3%             -                  -
                                                ==============   ==============   ==============    ============


    Contracting costs:
     Engel projects (5)                                9,658           38,789            17,127            4,117
       LGES (6)                                            -           16,165             7,028            1,689
       American Entity (7)                                 -            2,475                 -                -
       UIC (8)                                             -            3,607                 -                -
     Others                                           14,479           35,359            83,046           19,963
                                                --------------   --------------   --------------    -------------
                                                      24,137           96,395           107,201           25,769
                                                ==============   ==============   ==============    =============

     (5) Percentage of total revenues                  38.1%        28.7%              16%              16%
                                                ==============   ==============   ==============    =============
      (6) Percentage of total revenues                     -        12.0%             6.5%              6.5%
                                                ==============   ==============   ==============    =============
      (7) Percentage of total revenues                     -         1.8%               -                -
                                                ==============   ==============   ==============    =============
      (8) Percentage of total revenues                     -         2.7%               -                -
                                                ==============   ==============   ==============    =============

b.   Revenues classified by geographical areas
       Israel                                         25,306          100,005           122,527           29,453
       Europe                                              -           35,076                 -                -
                                                --------------   --------------   --------------    -------------
                                                      25,306          135,081           122,527           29,453
                                                ==============   ==============   ==============    =============
</TABLE>

                                       F-42
<PAGE>

           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 25:- SELECTED STATEMENT OF OPERATIONS DATA (continued)

<TABLE>
<CAPTION>
                                                                               For the year ended December 31,
                                                               -----------------------------------------------------------------
                                                                   1996             1997             1998              1998
                                                               -------------    -------------    --------------    ------------
                                                                                                                    Convenience
                                                                                                                   translation
                                                                                                                    (Note 2b)
                                                                                Adjusted NIS                          U.S. $
                                                               ------------------------------------------------    ------------
                                                                                        (In thousands)
<S>                                                            <C>              <C>              <C>               <C>
               c.   Selling, administrative and general
                     expenses include:

                     Advertising costs                                   17              65              189             45
                                                               =============    =============    ==============    =============

                     Rental expense                                       6              41              272             65
                                                               =============    =============    ==============    =============



               d.  Financial  income (expenses)
                   Erosion of monetary items and other, net            (218)        (1,699)              5,147          1,237
                   Interest income, including gain on
                      marketable securities                           1,071          5,402              17,705          4,256
                   Foreign exchange gain                                113            484               3,370
                                                                                                                          810
                     Interest expenses:
                     Long-term loans                                    (56)          (116)             (1,018)          (245)
                     Short-term loans and bank credits                 (621)        (3,216)            (25,767)        (6,193)
                                                               -------------    -----------    ----------------   -------------

                                                                        289            855                 563           (135)
                                                               =============    ===========    ================   =============
</TABLE>

                                       F-43

<PAGE>

           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

NOTE 26:-     OPERATING SEGMENTS DATA

The Company is engaged in three segments of the real estate industry:

              (1) development and construction
              (2) real estate sales transactions
              (3) provision of consulting,  management and financial  management
                  services in connection with construction activity of others.

              The following  data present the revenues,  expenditures  and other
              operating data of the Company's operating segments:

<TABLE>
<CAPTION>
                                                                         Year ended December 31, 1998
                                                             ----------------------------------------------------
                                                             Development    Real estate
                                                                 &             sales
                                                             Construction   transactions    Services       Total
                                                             ------------   ------------    --------     ---------
                                                                           Adjusted NIS in thousands
                                                             ----------------------------------------------------
<S>                                                               <C>          <C>              <C>        <C>
                Revenues from external customers                 91,182        25,407         5,938       122,527
                                                             ==========    ==========     =========    ==========
                Operating earnings according to segments          5,917         3,896         5,513        15,326
                                                             ==========    ==========     =========
                Joint general expenses                                                                      9,672
                                                                                                       ----------
                Total operating expenses                                                                    5,654
                                                                                                       ==========
                Financial expenses                                                                         26,785
                                                                                                       ==========
                Financial income                                                                           26,222
                                                                                                       ==========
                Loss from affiliated companies                                                                183
                                                                                                       ==========
                Taxes on income                                                                             2,465
                                                                                                       ==========
                Gain for the year                                                                           2,443
                                                                                                       ==========

                Joint segment assets                                                                       68,075
                                                                                                       ==========
                Joint depreciation                                                                            542
                                                                                                       ==========
                Investments in equity method investees                                                     27,116
                                                                                                       ==========
                Joint expenditure for segment assets                                                       63,117
                                                                                                       ==========
</TABLE>




                                       F-44

<PAGE>
           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

NOTE 26:-     OPERATING SEGMENTS DATA (continued)

<TABLE>
<CAPTION>
                                                                         Year ended December 31, 1997
                                                              ----------------------------------------------------
                                                             Development    Real estate
                                                                 &             sales
                                                             Construction   transactions    Services       Total
                                                             ------------   ------------    --------     ---------
                                                                           Adjusted NIS in thousands
                                                             ----------------------------------------------------
<S>                                                              <C>            <C>            <C>         <C>

                Revenues from external customers                 97,356        35,076         2,649       135,081
                                                             ==========    ==========     =========    ==========
                Operating earnings according to segments          7,044        28,993         2,649        38,686
                                                             ==========    ==========     =========
                Joint general expenses                                                                      7,726
                                                                                                       ----------
                Total operating expenses                                                                   30,960
                                                                                                       ==========
                Financial expenses                                                                          5,031
                                                                                                       ==========
                Financial income                                                                            5,886
                                                                                                       ==========
                Amortization of Bridge note issuance                                                          917
                                                                                                       ==========
                Taxes on income                                                                             5,689
                                                                                                       ==========
                Gain for the year                                                                          25,209
                                                                                                       ==========

                Joint segment assets                                                                        3,170
                                                                                                       ==========
                Joint depreciation                                                                            292
                                                                                                       ==========
                Investments in equity method investees                                                     13,853
                                                                                                       ==========
                Joint expenditure for segment assets                                                        2,139
                                                                                                       ==========
</TABLE>
<TABLE>
<CAPTION>
                                                                         Year ended December 31, 1996
                                                             ----------------------------------------------------
                                                             Development    Real estate
                                                                 &             sales
                                                             Construction   transactions    Services       Total
                                                             ------------   ------------    --------     ---------
                                                                           Adjusted NIS in thousands
                                                             ----------------------------------------------------
<S>                                                              <C>            <C>            <C>        <C>
                Revenues from external customers                 25,306             -             -        25,306
                                                             ==========    ==========     =========    ==========
                Operating earnings according to segments        (22,221)            -             -       (22,221)
                                                             ==========    ==========     =========
                Joint general expenses                                                                     (2,433)
                                                                                                       ----------
                Total operating expenses                                                                  (24,654)
                                                                                                       ==========
                Financial expenses                                                                           (896)
                                                                                                       ==========
                Financial income                                                                            1,185
                                                                                                       ==========
                Amortization of Bridge notes issuance costs                                                  (888)
                                                                                                       ==========
                Gain for the year                                                                              53
                                                                                                       ==========

                Joint segment assets                                                                        1,322
                                                                                                       ==========
                Joint depreciation                                                                            116
                                                                                                       ==========
                Investments in equity method investees                                                          -
                                                                                                       ==========
                Joint expenditure for segment assets                                                          881
                                                                                                       ==========
</TABLE>

                                      F-45
<PAGE>

           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

NOTE 27:-  TRANSACTIONS WITH RELATED PARTIES

              a.  Employment agreement with the Company's President

                  In  November  1997,  the  Company  entered  into a  three-year
                  employment  agreement with its  President,  which is to become
                  effective upon the closing of Bridge Financing of the Company.
                  The agreement  provides for an annual base salary of $200,000,
                  plus a $50,000  bonus  during  any year in which  the  Company
                  meets the minimum  target for release of Program  Shares (Note
                  21c) for such year.  If such  target for any given year is not
                  met,  the  president  will be  required to convert his Class B
                  ordinary  shares with a market value of $ 50,000 into deferred
                  shares.

                  The  Company  has paid to the  President  and a member  of his
                  family salaries and related charges  amounting to adjusted NIS
                  367 thousands and NIS 1,076  thousands and NIS 1,104 thousands
                  for  the  years  ended  December  31,  1996,  1997  and  1998,
                  respectively.

              b.  Employment agreement with the Company's Chairman

                  In  December  1998  the  Company  entered  into an  employment
                  agreement  with its  Chairman  of the Board,  effective  as of
                  January 1, 1999,  and  expiring  on  December  31,  2003.  The
                  agreement provides for an annual base salary of $350,000 and a
                  bonus  compensation  equal to $50,000,  for each $1,000,000 of
                  net income for such fiscal year (determined  according to U.S.
                  GAAP  in the  Company's  audited  financial  statements).  The
                  agreement contains customary  confidentiality and non-complete
                  provisions.  If  there  is a  change  in  the  control  of the
                  Company,  as defined in the  agreement,  and the employment of
                  the Chairman is subsequently  terminated,  he will be entitled
                  among other things, to the greater of the payments due for the
                  remaining  term of the  agreement  or three  times his  annual
                  compensation.

                  The Company, through its subsidiary,  has paid to the Chairman
                  of the Board,  salaries  and related  charges  amounted to NIS
                  -none,  NIS 451  thousands and NIS 763 thousands for the years
                  ended December 31, 1996, 1997 and 1998, respectively.

              c.  Rehovot project

                  In March  1997 the  Company  was  awarded  rights to develop a
                  parcel of land of approximately  77,000 sq.m. in consideration
                  of NIS 2 million.  Under the development  agreement  signed in
                  July 1998 between the Company and the Israeli Land Authorities
                  (ILA),  the Company is  responsible  of the  evictions  and is
                  committed to complete the development  plan and the project by
                  March 2002.  In June 1997,  the  Company,  through its foreign
                  subsidiary,  has sold to 13  private US  investors  ("American
                  Entity") a 55%  interest  of the project in  consideration  of
                  $6,000,000 of which  $3,000,000 was paid in December 1997; the
                  remaining balance is covered by promissory  notes,  bearing an
                  annual interest rate of 8.5% and payable in December 2003. The
                  American  Entity  includes the Chairman of the Board and eight
                  members of the Company's U.S. Counsel, who acquired a 3.2% (in
                  consideration   of   $350,000)   interest   and  a  15.6%  (in
                  consideration of $1,700,000) interest in the total development
                  rights, respectively.

                                       F-46
<PAGE>
           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

NOTE 27:-   TRANSACTIONS WITH RELATED PARTIES (continued)

               c. Rehovot project (continued)

                  The  Company  and  the  American  Entity  signed  also a joint
                  venture agreement ("the  Partnership") for the construction of
                  the project.  According  to the joint  venture  agreement  the
                  Company  will  receive  9.09% of the  Partnership's  profit as
                  entrepreneur's fee. The remaining  partnership's  profits will
                  be allocated as follows:

                     i.  The  first  $9,000,000 of  the  net Partnership profits
                         shall be allocated to the American Entity.
                     ii. The   remaining  net  Partnership  profits   shall  be
                         allocated  to  the  partners on a pro rata basis in the
                         Partnership.

                  Partnership losses shall be allocated to the partners on a pro
                  rata basis in the  partnership.  The  American  Entity is also
                  required  to prepay  the  principal  amount of the  promissory
                  notes  in an  amount  equal to  their  pro  rata  share of any
                  partnership distributions.

                  The above  transaction was reflected in the 1997  consolidated
                  financial statements as a related party transaction.

              d.  Germany and Russian project

                  In  April  1997  the  Company   acquired   through  its  Dutch
                  subsidiary  A.B.  Stone B.V.  ("AB  Stone")  all the shares of
                  STIPULA I B.V.  ("STIPULA"),  a Dutch company in consideration
                  of  $2,000,000.  STIPULA is engaged  in a joint  venture  with
                  Engel  in  a  project  in  Germany  for  the  construction  of
                  approximately  250  residential  units  and in  another  joint
                  venture  with two Israeli  companies in a project in Russia to
                  erect an office building. In 1997, the Company provided a loan
                  to STIPULA of $1,500,000 in order to complete the  acquisition
                  of 50% interest in the project in Germany.  In September  1997
                  AB Stone sold 50% of its share in  STIPULA to an  unaffiliated
                  Israeli  Company ("UIC") traded on the Tel Aviv Stock Exchange
                  in consideration of $3,300,000 of which $1,800,000 was paid in
                  September  1997 and  $750,000  in April  1998.  The  remaining
                  balance is to be paid by September 1999.

                  This  transaction was executed with UIC in which the father of
                  the  Company's  CFO is holding  approximately  25% interest in
                  UIC, is acting as Chairman of UIC Board and the  Company's CFO
                  is a member of the Board of UIC.

                  The  above   transaction   was  also  reflected  in  the  1997
                  consolidated   financial   statements   as  a  related   party
                  transaction.

                                       F-47
<PAGE>
            GENESIS DEVELOPMENT AND CONTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

NOTE 27:-   TRANSACTIONS WITH RELATED PARTIES (continued)

              e.    Consulting agreement with American Entity (see c above)

                    Pursuant to consulting  agreement became  effective  January
                    1998,  the  Company   retained  the  American  Entity  as  a
                    consultant which possesses the know-how,  experience and the
                    financial and economic  ability to facilitate the successful
                    completion  of the project in  Rehovot,  for the period of 6
                    years.

                    The Company shall pay to the American  Entity a compensation
                    at the  rate of $175 per hour  for  services  rendered.  The
                    minimum compensation payable shall be $20,000 per month.

                    In 1998, the Company paid $360,000 for the services rendered
                    by the American Entity.

              f.    Rishon Le-Zion project:

                    During the period  from April to  November  1998 the Company
                    provided consulting and financial management services to UIC
                    for  the  acquisition  of  an  Income-Producing  Residential
                    property  in Rishon  Le-Zion  and for the  achievement  of a
                    long-term lease agreement with the Ministry of Absorption in
                    consideration of $1,400,000.

                    The above  transaction  was reflected in the 1998  financial
                    statements as a related party transaction (see d above).

                    The Company was also engaged to renovate the above  property
                    to be executed in 1999 in consideration of $2,500,000.

              g.    Claim against an Israeli Bank:

                    The Company  and its  principal  shareholders  filed a claim
                    against an Israeli  Bank which failed to finance the winning
                    bid in a tender to acquire a controlling  interest in one of
                    the  three  largest  oil,  energy  and real  estate  holding
                    company   in   Israel.   As   agreed   with  the   principal
                    shareholders,  the  Company  will not  participate  in legal
                    costs and will be  entitled to 5% of the claim  results,  if
                    any.

                                      F-48
<PAGE>
           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

NOTE 28:-     SUBSEQUENT EVENTS

              a.  Loan to UIC:

                  On March 25,  1999,  the  Company has granted to UIC a loan of
                  $3,000,000  bearing interest of the Libor and payable in March
                  2004.  The loan is secured  by a  guarantee  of UIC's  foreign
                  subsidiary,  by a lien on shares  of  STIPULA  in which  UIC's
                  foreign  subsidiary  is holding 50% interest and by a floating
                  charge on UIC's assets.

                  UIC is  entitled  to pre-pay  at any time the  entire  loan or
                  partly  without  penalty.  The Company shall request the early
                  pre-payment  under certain  events.  In this case, the Company
                  will be entitled to convert the loan into  ordinary  shares of
                  UIC at the rate of one ordinary share for one dollar.

              b. Allotment of 850,000 Class A Ordinary shares:

                  On May 4, 1999 the Board of Directors decided that the Company
                  will  issue  850,000  Class A  Ordinary  shares  as a  private
                  placement  at a price per share  equal to $ 1 per  share.  The
                  shares  will be  issued  as soon as  practicable  and  will be
                  registered for trading within 120 days of the date hereof.

              c.  Merger:

                  On May 20,  1999 the Company and  Internet  Cable  Corporation
                  ("ICC"),  a  broadband   internet   provider,   announced  the
                  execution of a memorandum of  understanding  pursuant to which
                  the  shareholder of ICC will exchange their stock for stock in
                  a new US holding company to be formed by the Company and to be
                  called Internet Cable Corporation.

                  The   Shareholders   of  ICC,  after  giving  effect  to  this
                  transaction,   will  own   approximately  59%  of  issued  and
                  outstanding common stock of the Company and, in addition, will
                  receive  warrants to purchase our  additional 8 million shares
                  exercisable at $2.375.

                  The transaction is subject to, among other things, appropriate
                  due diligence, execution of definitive agreements, approval of
                  both board of directors and shareholders  meeting and fairness
                  opinion  letters.  The  memorandum of  understanding  has been
                  presented to and approved by the board of directors of ICC and
                  the Company.

              d.  Option to Engel

                  On June 30, 1999,  the Company has granted to Engel the option
                  to acquire the entire  shares or partly of a subsidiary  which
                  owned the  Income-Producing  Residential  Property  which will
                  contain approximately 200 studio apartments (See note 13). The
                  consideration  was not negotiated.  The option is valid for 90
                  days until September 30, 1999.

                                      F-49
<PAGE>
           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

              e.  Issuance of shares related to the Merger

                  In May  1999  the  Company  entered  into  an  agreement  with
                  consultants for the financial  advisory services in connection
                  with the Company's proposed merger with ICC, pursuant to which
                  the  consultants  will be  issued  additional  34,783  Class A
                  Ordinary  Shares upon the  occurrence  of certain  events,  in
                  addition to 26,087 Class A Ordinary Shares issued in May 1999.

                  In June 1999 the Company  entered  into an  agreement  with an
                  unrelated  company,  which  initiated  the merger  transaction
                  between the Company and ICC, pursuant to which 200,000 Class A
                  Ordinary Shares will be issued to such unrelated  company upon
                  consummation of the merger.


NOTE 29:-   EFFECT OF  MATERIAL  DIFFERENCES BETWEEN ISRAEL AND U.S. GAAP ON THE
            FINANCIAL STATEMENTS

              a.  The consolidated  financial  statements of the Company conform
                  with accounting principles generally accepted in Israel, which
                  differ in certain significant  respects from those followed in
                  the United States, as described below:

                  1. Effect of inflation:

                     The  Company,   in   accordance   with  the  Israeli  GAAP,
                     comprehensively includes the effects of price level changes
                     in the  accompanying  financial  statements as described in
                     Note 2a. Such  Israeli  accounting  principles  measure the
                     effects of price level changes in the inflationary  Israeli
                     economy and, as such,  this is considered a more meaningful
                     presentation  than financial  reporting based on historical
                     cost for Israeli and U.S. accounting purposes. As permitted
                     by the U.S.  Securities and Exchange  commission  rules for
                     foreign   private   issuers  whose   financial   statements
                     comprehensively  include  the effects of  inflation,  price
                     level   adjustments   have   not  been   reversed   in  the
                     accompanying    reconciliation   of   Israeli    accounting
                     principles to U.S. accounting principles.

                  2. Revenue recognition:

                     According  to the  Israeli  GAAP,  the  Company  recognizes
                     revenue as follows:

                     a)  Completed contract method

                         Revenue from  projects  built for sale is recognized on
                         the  completed   contract   method  when  both  of  the
                         following conditions have been met:
                         - at least 90% of the project has been completed, and
                         - at least  75% of the  units in the  project  have
                           been sold.

                                      F-50
<PAGE>
           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

NOTE 29:-   EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAEL AND U.S. GAAP
            ON THE  (continued)

                          Under the U.S. GAAP the completed contract accounting
                          is acceptable:

                         -When  financial  position  and  results of  operations
                          would not differ  significantly  from those that would
                          result from using percentage-of-completion accounting.

                         -When there are inherent  hazards  relating to contract
                          conditions   or  general   factors  that  would  raise
                          questions  about a  company's  ability  to  accurately
                          estimate a contract.

                     b)  Percentage of completion method:
                         Revenue from fixed prices construction  contracts,  and
                         from  buildings  where all units  have  been  sold,  is
                         recognized  on the  percentage  of  completion  method.
                         Revenue is recognized where at least 25% of the project
                         has been carried out.

                     According to U.S. GAAP, the percentage-of-completion method
                     is applicable when all of these conditions are met:

                     -  The contractor can  make reasonably dependable estimates
                     -  The  contract  includes  provision  that  specify  both
                        parties'   enforceable   rights   regarding  goods  and
                        services to  be provided as  received,  consideration to
                        be exchanged, and  the  manner and terms of settlements.
                     -  Both  buyer and  contractor can  be  expected to satisfy
                        their  obligation under the contract terms.

                     Earned  revenue is the amount of gross  profit  earned on a
                     contract  for a  period  plus  the  costs  incurred  on the
                     contract  during the period.  Cost of earned revenue is the
                     cost incurred  during the period.  Gross profit earned on a
                     contract  is computed by  multiplying  the total  estimated
                     gross  profit  on  the  contract  by  the   percentage   of
                     completion.  The  percentage of completion is determined by
                     measuring  progress  toward  completion  in  terms  of cost
                     incurred to date to estimated  total contract  costs.  When
                     the  current  estimates  of  total  contract  revenues  and
                     contract  cost  indicate a loss, a provision for the entire
                     loss on the contract is recognized.

                     The   percentage-of-completion   is  also   applicable   if
                     individual  units in  condominium  projects  are being sold
                     separately and all following criteria are met:
                     -  Construction    is    beyond   a   preliminary    stage
                     (construction   is  not  beyond  a  preliminary   stage  if
                     engineering  and design  work,  execution  of  construction
                     contracts,  site clearance and preparation,  excavation and
                     completion of the building foundation are incomplete).
                     -  The  buyer  is committed  to  the extent of being unable
                     to require a refund except for non-delivery of the unit.
                     -  Sufficient  units  have   already  been  sold  to assure
                     that  the  entire   property  will  not  revert  to  rental
                     property.
                     -  Sales prices are collectible.
                     -  Aggregate  sales  proceeds  and  costs can be reasonably
                     estimated.

                                       F-51
<PAGE>
           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

NOTE 29:-   EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAEL AND U.S. GAAP ON THE
            FINANCIAL STATEMENTS (continued)

                     Certain  Company's  projects  are  beyond  the  preliminary
                     stage,  but  not  beyond  the  completion  of 25% of  those
                     projects.

                  3. Accrued severance pay, net:

                     The amounts  funded in regard to  liabilities in respect of
                     employee   rights  upon   retirement  are  presented  as  a
                     deduction   from  the   liabilities  in  Note  14.  Whereas
                     according  to U.S.  GAAP,  such  amounts  funded  would  be
                     presented in the balance sheet as long-term assets.

                  4. Treatment of Program Shares under Deference Program

                     Under Israeli accounting principles,  the Deference Program
                     (see  Note  21c)  does  not  require  the   recognition  of
                     compensation  expense. The Company has decided not to adopt
                     the measurement requirements of FAS No. 123 for purposes of
                     this  reconciliation.  However,  for  the  purpose  of this
                     reconciliation  between  Israeli  GAAP and U.S.  GAAP  (APB
                     Opinion No.  25),  the  Deference  Program  arrangement  is
                     accounted  for as a variable  stock award plan.  Therefore,
                     the  release  from the  Deference  Program  of the  Program
                     Shares held by  officers,  directors  and  employees of the
                     Company is deemed compensatory.  Accordingly,  compensation
                     expenses  will be  measured  based on the fair value of the
                     shares at each balance sheet date for the period or periods
                     during which such shares are, or become  probably of being,
                     released from  Deference  program.  The total  compensation
                     expense will be amortized over the vesting period.

                     The Company attained in 1997 all of the earnings thresholds
                     required for such release of all  Performance  shares.  The
                     compensation  expense  was  calculated  on the basis of the
                     market  price of the  Company's  stock as of  December  31,
                     1997.

                  5. Consideration of Foreign subsidiaries

                     Under Israeli GAAP,  the results of operations for the year
                     are translated into NIS at the rate of exchange  prevailing
                     at the end of the year for each foreign currency.

                     Under U.S. GAAP,  such  translation  into NIS is calculated
                     using the annual  average rate of exchange for each foreign
                     currency.

                                      F-52
<PAGE>
           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

NOTE 29:-   EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAEL AND U.S. GAAP ON THE
            FINANCIAL STATEMENTS (continued)

                  6. Treatment of marketable securities:

                     Marketable securities designated for sale in short-term are
                     carried at market value, which is not materially  different
                     from their cost.

                     Under U.S. GAAP, these  investments have been designated as
                     marketable  securities  available  for sale and recorded in
                     the balance sheet at their current market value. Unrealized
                     gains and losses are  recorded in a separate  component  of
                     shareholders' equity.

                  7. Earnings (Loss) per share:

                     Under  Israeli GAAP,  earning  (loss) per share is computed
                     based on the  weighted  average  number of Ordinary  shares
                     outstanding during the period, including Program Shares.

                     Under U.S.  GAAP,  the Program  Shares under the Deferrence
                     Program are excluded  from the weighted  average  number of
                     shares  outstanding  during  each  period  presented.   For
                     purposes  of  computing  earnings  per share,  the  Program
                     shares are treated as unissued shares through  December 31,
                     1997 as their  issuance is  contingent  upon the  Company's
                     attainment of specified earning levels.

                     As stated above,  the Performance  shares were released and
                     the  computation  of  earning  per share for the year ended
                     December 31, 1997 is based on the weighted  average  number
                     of ordinary  shares  outstanding  including  Program shares
                     released.

                  8. Extraordinary item

                     Under  Israeli  GAAP,  the  authorization  of Bridge  notes
                     issuance costs is included in financial expenses.

                     Under U.S. GAAP the above amortization  should be presented
                     as  an  extraordinary   item  and  the  1997  figures  were
                     reclassified.

                  9. Comprehensive income

                     Comprehensive income included all transactions,  events and
                     circumstances  that cause a change in equity  from  sources
                     other than investments by owners or distribution to owners.

                                       F-53
<PAGE>
           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

NOTE 29: -  EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAEL AND U.S. GAAP ON
              THE FINANCIAL STATEMENTS (continued)

              b.  The effect of the material differences between the Israeli and
                  the U.S.  GAAP of the above  mentioned  items on the financial
                  statements is as follows:

                  1.     On consolidated statements of income.
<TABLE>
<CAPTION>

                                                                                  For the year ended December 31,
                                                                    -------------------------------------------------------------
                                                                       1996           1997            1998             1998
                                                                    ------------   ------------    -----------    ---------------
                                                                                                                   Convenience
                                                                                                                   translation
                                                                                                                    (Note 2b)
                                                                                  Adjusted NIS                        U.S. $
                                                                    ------------------------------------------    ---------------
                                                                             (In thousands, except earnings per share)
<S>                                                                      <C>           <C>             <C>              <C>

                           Net income as reported,
                             according to the Israeli GAAP                  53         25,209          2,443               587
                           Unrealized gain on marketable
                             securities                                   (107)          (201)           305                73
                           Estimated earnings on projects beyond
                             a preliminary stage and less 25% of
                             the construction wage                         287            479           (888)             (213)
                           Compensation expense related to
                             performance shares released                     -        (30,650)             -                 -
                           Reclassification of amortization of
                             Bridge notes issuance costs                     -            916              -                 -
                           Adjustments from foreign currency
                              translation                                    -              -             28                 7
                                                                    ------------   ------------    -----------    ---------------

                           Net income (loss) according to the U.S.
                             GAAP before extraordinary items               258         (4,247)         1,888               454
                           Extraordinary item:
                           Amortization of Bridge Notes issuance
                             costs                                           -           (916)             -                 -
                                                                    ============   ============    ===========    ===============
                           Net income (loss) according to the
                             U.S .GAAP                                     258         (5,163)         1,888               454
                                                                    ============   ============    ===========    ===============
                           Basic earnings (loss) per ordinary share:
                           As reported, according to the Israeli
                             GAAP                                          0.02           4.94           0.46               0.11
                                                                    ============   ============    ===========    ===============
                           As per the U.S. GAAP
                           Income (loss) before extraordinary
                             item                                          0.76        (0.84)           0.36                0.09
                           Extraordinary item                            -             (0.18)          -                       -
                                                                    ------------   ------------    -----------    ---------------
                           Net income (loss)                            0.76           (1.02)           0.36                0.09
                                                                    ============   ============    ===========    ===============
                           Weighted average number of shares
                             outstanding under the U.S. GAAP          340,000       5,085,754       5,300,000           5,300,000
                                                                    ============   ============    ===========    ===============
</TABLE>

                                       F-54

<PAGE>
<TABLE>
<CAPTION>
           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

NOTE 29: -  EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAEL AND U.S. GAAP ON
              THE FINANCIAL STATEMENTS (continued)

              2. On Balance Sheet Items.

                                                             December 31, 1997                 December 31, 1998        December 31,
                                                                                                                             1998
                                                  -----------------------------------  ------------------------------  -------------
                                                                                                                        Convenience
                                                     As                   As per        As                    As per    translation
                                                  reported  Adjustment  U.S. GAAP   Reported   Adjustment   U.S. GAAP   (Note 2b)
                                                  --------  ----------  ---------   --------   ----------   ----------  ------------
                                                                            Adjusted NIS (In thousands)                    U.S.$
                                                  --------------------------------------------------------------------  ------------
<S>                                                    <C>       <C>          <C>          <C>       <C>       <C>         <C>

     Cost and estimated earnings in excess of
      billings on uncompleted contracts (1)         17,963       (153)     17,810      15,235       (81)     15,154        3,643
     Severance pay funds (2)                             -        214         214           -       211         211           51
     Total assets                                  160,014         61     160,075     271,385       130     271,515       65,268
     Billings in excess of costs and estimated
      earnings on uncompleted contracts (1)          3,427       (764)      2,663         598         -         598          144
     Severance pay liability (2)                        85        214         299         182       211         393           95
     Share capital and Paid-in capital (3)          36,765     30,650      67,415      36,765    30,650      67,415       16,206
     Unrealized gain on marketable securities            -        308         308           -        13          13            3
     Accumulative foreign currency translation
       adjustments (4)                                   -          -           -       3,103       (28)      3,075          739
     Retained earnings (accumulated loss)           24,148    (30,347)     (6,199)     26,591   (30,716)     (4,125)        (992)
     Total Shareholders' Equity                     60,913        611      61,524      66,459       (81)     66,378       15,956

   (1)  Recognition of estimated  earnings on projects  beyond a preliminary
        stage, but not beyond the completion of 25% of those projects.

   (2) Amounts invested with severance pay funds shown separately.

   (3) Compensation expense related to performance shares released.

   (4) Adjustment of foreign currency translation.
</TABLE>

                                       F-55
<PAGE>
           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

NOTE 29: -  EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAEL AND U.S. GAAP ON
            THE FINANCIAL STATEMENTS (continued)

              3. Additional disclosure regarding comprehensive income:

                  a. Comprehensive income
<TABLE>
<CAPTION>
                                                                                For the year ended December 31,
                                                               ------------------------------------------------------------------
                                                                   1996             1997            1998              1998
                                                               -------------    -------------    ------------    ----------------
<S>                                                                 <C>             <C>              <C>              <C>
                                                                                                                   Convenience
                                                                                                                   translation
                                                                                                                    (Note 2b)
                                                                               Adjusted NIS                           U.S.$
                                                               ----------------------------------------------    ----------------
                                                                                        (In thousands)
                       Net income (loss) according to
                         U.S. GAAP                                     258          (5,163)            1,888               454
                                                               -------------    -------------    ------------    ----------------
                       Other comprehensive income, after tax:
                       Adjustments from translations of
                         financial statements of investees               -               -               (28)               (7)
                       Unrealized gains from security                  107             201              (305)              (73)
                       Related tax effect allocated to other
                         comprehensive income                            -               -               100                 -
                                                               -------------    -------------    ------------    ----------------
                       Total other comprehensive income,
                         after tax                                     107             201              (233)              (80)
                                                               -------------    -------------    ------------    ----------------
                       Total comprehensive income (loss)               365          (4,962)            1,655               374
                                                               =============    =============    ============    ================

                  b. Related tax effects  allocated  to each  component  of other
                     comprehensive income:

                                                                                                Tax
                                                                        Before-tax            benefit          Net-of-tax
                                                                          amount             (expense)           amount
                                                                       --------------      --------------     --------------
                                                                                    Adjusted NIS in thousands
                                                                       -----------------------------------------------------
                       For the year ended 1998:
                       ------------------------
                       Foreign currency translation adjustments                (28)                 10                (18)
                                                                       --------------      --------------     --------------
                       Unrealized holding gains arising during
                         the period                                             13                  (4)                 9
                       Less: reclassification adjustment for gains
                         realized in net income                               (318)                 94               (224)
                                                                       --------------      --------------     --------------
                       Net unrealized gains                                   (305)                 90               (215)
                                                                       --------------      --------------     --------------
                       Other comprehensive income                             (333)                100               (233)
                                                                       ==============      ==============     ==============

</TABLE>
                                       F-56

<PAGE>
           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

NOTE 29: -  EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAEL AND U.S. GAAP ON
            THE FINANCIAL STATEMENTS (continued)

              b.  Related  tax  effects  allocated  to each  component  of other
                  comprehensive income (continued)
<TABLE>
<CAPTION>
                                                                                                 Tax
                                                                        Before-tax            benefit          Net-of-tax
                                                                          amount             (expense)           amount
                                                                       --------------      --------------     --------------
                                                                                    Adjusted NIS in thousands
                                                                       -----------------------------------------------------
<S>                                                                        <C>                 <C>                 <C>
                       For the year ended 1997:
                       -----------------------
                       Foreign currency translation adjustments                  -                   -                  -
                                                                       --------------      --------------     --------------
                       Unrealized holding gains arising during
                       the period                                              308                   -                308
                       Less: reclassification adjustment for gains
                       realized in net income                                 (107)                  -               (107)
                       Net unrealized gains                                    201                   -                201
                                                                       --------------      --------------     --------------
                       Other comprehensive income                              201                   -                201
                                                                       ==============      ==============     ==============

                                                                                                Tax
                                                                        Before-tax            benefit          Net-of-tax
                                                                          amount             (expense)           amount
                                                                       --------------      --------------     --------------
                                                                                    Adjusted NIS in thousands
                                                                       -----------------------------------------------------
                       For the year ended 1996:
                       -----------------------
                       Foreign currency translation adjustments                  -                   -                  -
                                                                       --------------      --------------     --------------
                       Unrealized holding gains arising during
                       the period                                              107                   -                107
                       Less: reclassification adjustment for gains
                       realized in net income                                    -                   -                  -
                       Net unrealized gains                                    107                   -                107
                                                                       --------------      --------------     --------------
                       Other comprehensive income                              107                   -                107
                                                                       ==============      ==============     ==============

</TABLE>

                                       F-57
<PAGE>
           GENESIS DEVELOPMENT AND CONSTRUCTION LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

NOTE 29: -  EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAEL AND U.S. GAAP ON
              THE FINANCIAL STATEMENTS (continued)

              c. Accumulated other comprehensive income balances:
<TABLE>
<CAPTION>

                                                                                                Accumulated
                                                                   Foreign      Unrealized         other
                                                                   currency      gains on      comprehensive
                                                                    items       securities        income
                                                                 ------------- -------------- ----------------
                                                                           Adjusted NIS in thousands
                                                                 ---------------------------------------------
<S>                                                                   <C>          <C>              <C>

                    Balance (deficit) as of January 1, 1996:               -             -              -
                      Current period change                                -           107            107
                                                                      ----------   -----------    -----------
                    Balance (deficit) as of December 31, 1996:             -           107            107
                      Current period change                                -           201            201
                                                                      ----------   -----------    -----------
                    Balance (deficit) as of December 31, 1997:             -           308            308
                    Current period change                                (18)         (215)          (233)
                                                                      ----------   -----------    -----------
                    Balance (deficit) as of December 31, 1998            (18)           93             75
                                                                      ==========   ===========    ===========



</TABLE>

              4. Additional disclosure regarding marketable securities:

                  The following is a summary of available-for-sale securities as
presented on December 31, 1998 pursuant to provisions of FASB Statement No. 115:

<TABLE>
<CAPTION>


                                                                                As reported                 As reported
                                                                     Gross        in these                    in these
                                                                   unrealized    financial     Estimated     financial
                                                        Cost          gain       statements    fair value    statements
                                                       ------      ----------   ------------   ----------  ------------
                                                                                                            Convenience
                                                                                                            translation
                                                                                                             (Note 2b)
                                                                        Adjusted NIS                             U.S. $
                                                       --------------------------------------------------   ------------
                                                                       (In thousands)
<S>                                                      <C>          <C>            <C>            <C>          <C>
                    Available-for-sale
                    securities:
                      Short-term debentures                131              (9)          322           322            77
                      Shares                               132              22           154           154            37
                                                       -------          ------       -------        ------         -----
                                                           463              13           476           476           114
                                                       =======          ======       =======        ======

</TABLE>
<PAGE>

                                 EXHIBIT INDEX



Exhibit Number      Description                   Sequential Page No.
-------------       -----------                   -------------------


10.1                Employment Agreement

10.2                General Managers Option Plan

23(a)               Consent of Independent Auditors