COMMISSION FILE NO. 0-28996

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                            -----------------------
                                    FORM 20-F

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

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

                           ELBIT MEDICAL IMAGING LTD.
             (Exact Name of Registrant as Specified in its charter)

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

                     13 MOZES STREET, TEL-AVIV 67442, ISRAEL
                    (Address of principal executive offices)

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

                              Title of each class:

                                      NONE

                   Name of each exchange on which registered:

                                      NONE

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

                  ORDINARY SHARES, NIS 1.0 PAR VALUE PER SHARE

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

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

                                      NONE

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

            Indicate the number of outstanding shares of each of the
               issuer's classes of capital or common stock as of
             the close of the period covered by the annual report:
                 23,146,820 SHARES, NIS 1.0 PAR VALUE PER SHARE

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 |_|    ITEM 18 |X|


<PAGE>


                                TABLE OF CONTENTS

                                                                            Page

              Inclusion of information about Elscint Limited...................1
ITEM 1.       Identity of Directors, Senior Management and Advisors............1
ITEM 2.       Offer Statistics and Expected Timetable..........................1
ITEM 3.       Key Information..................................................1
ITEM 4.       Information on the Company......................................19
ITEM 5.       Operating and Financial Review and Prospects....................54
ITEM 6.       Directors, Senior Management and Employees......................74
ITEM 7.       Major Shareholders and Related Party Transactions...............81
ITEM 8.       Financial Information...........................................84
ITEM 9.       Offer and Listing...............................................90
ITEM 10.      Additional Information..........................................91
ITEM 11.      Quantitative and Qualitative Disclosure
              About Market Risks.............................................107
ITEM 12.      Description of Securities Other than Equity Securities.........115
ITEM 13.      Defaults, Dividend Arrearages and Delinquencies................115
ITEM 14.      Material Modifications to the Rights of Security
              Holders and Use of Proceeds....................................115
ITEM 15.      Controls and Procedures........................................115
ITEM 16.      [Reserved].....................................................116
ITEM 17.      Financial Statements...........................................116
ITEM 18.      Financial Statements...........................................116
ITEM 19.      Exhibits.......................................................117


                                      (ii)

<PAGE>

CURRENCY TRANSLATION

         For the  reader's  convenience,  some  financial  information  has been
translated  from New  Israeli  Shekels  ("NIS") to the U.S.  dollar ("$" or U.S.
dollar),  using the  representative  exchange  rate as  published by the Bank of
Israel as of December 31, 2002 ($1.00 = NIS 4.737). The dollar amounts reflected
in these  convenience  translations  should  not be  construed  as  representing
amounts  that  actually can be received or paid in dollars or  convertible  into
dollars (unless otherwise indicated),  nor do such convenience translations mean
that the NIS amounts (i) actually  represent the  corresponding  dollar  amounts
stated, or (ii) could be converted into dollars at the assumed rate. The Federal
Reserve Bank of New York does not certify for customs purposes a buying rate for
cable transfers in NIS.  Therefore all information about exchange rates is based
on the Bank of Israel rates.

INCLUSION OF INFORMATION ABOUT ELSCINT LIMITED

         We have included in this annual report  certain  information  about our
subsidiary,  Elscint Limited  ("Elscint"),  an Israeli company listed on the New
York Stock Exchange.  Such  information is taken from Elscint's annual report on
Form 20-F for the year ended December 31, 2002, as filed with the Securities and
Exchange  Commission  (the  "SEC") on June 30,  2003 and should not be deemed as
representing full and complete  information about Elscint.  For more information
about Elscint's operations, please refer to Elscint's annual report.

                                     PART I

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

         Information not required in an Annual Report on Form 20-F

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE

         Information not required in an Annual Report on Form 20-F

ITEM 3.  KEY INFORMATION

SELECTED FINANCIAL DATA

         The  selected  financial  data of Elbit  Medical  Imaging  Ltd. and its
subsidiaries  (together,  "EMI," the "Company,"  "our Company," "we" or "us") is
found in our 2002  Consolidated  Financial  Statements and is set forth below in
table  format.  The 2002  Consolidated  Financial  Statements  were  prepared in
accordance with Israeli generally accepted accounting  principles ("GAAP"),  and
audited by Brightman  Almagor & Co., a firm of certified  public  accountants in
Israel and a member of Deloitte & Touche ("Brightman Almagor"). We are providing
you with a copy of the 2002 Consolidated Financial Statements, related notes and
other financial  information  included  therein,  which you should read together
with the following table.  Since October 1, 1999,  EMI's functional  currency is
the NIS.

         The 1999,  2000,  2001 and 2002  information  is  presented  in NIS.  A
convenience  translation  to U.S.  dollars  is  presented  for  2002.  The  data
presented  in  this  report  includes  information  for  1998,  which  has  been
translated  to NIS from its original  presentation  in previous  reports in U.S.
dollars.

         Our consolidated  financial statements have been prepared in accordance
with Israeli GAAP, which differs in significant respects from U.S. GAAP. We have
summarized  principal  differences  relevant to us between Israeli GAAP and U.S.
GAAP in Note 26 to our consolidated  financial statements included in Item 18 of
this annual report.  You should read the information in the following  tables in
conjunction   with  "Operating  and  Financial  Review  and  Prospect"  and  the
consolidated  financial  statements  and  Notes  to the  consolidated  financial
statements included in Item 18 of this annual report.


<PAGE>


                      CONSOLIDATED STATEMENTS OF OPERATIONS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                                  FOR THE YEAR ENDED DECEMBER 31
                                                      2002    2002 (1)   *2001 (1)  *2000 (2)   *1999 (2)   1998 (3)

                                               CONVENIENCE
                                               TRANSLATION
                                                       US $        NIS         NIS        NIS         NIS        NIS
                                                  THOUSANDS  THOUSANDS   THOUSANDS  THOUSANDS   THOUSANDS  THOUSANDS
<S>                                               <C>         <C>         <C>         <C>         <C>         <C>
  REVENUES
  Commercial-centers operations                   60,195     285,151     134,752      28,117          --          --
  Hotel operations and management                 44,468     210,650     141,901     108,089      27,765          --
  Long-term projects                                 325       1,538      10,223      20,367          --          --
                                               ---------------------------------------------------------------------
                                                 104,988     497,339     286,876     156,573      27,765          --
                                               ---------------------------------------------------------------------
  COSTS OF REVENUES
  Commercial-centers operations                   32,274     152,887      67,926      12,917          --          --
  Hotel operations and management                 41,673     197,407     128,653      93,050      25,670          --
  Long-term projects                                 300       1,419       7,452      18,245          --          --
                                               ---------------------------------------------------------------------
                                                  74,247     351,713     204,031     124,212      25,670          --
                                               ---------------------------------------------------------------------
  GROSS PROFIT                                    30,741     145,626      82,845      32,361       2,095          --
  Initiation costs of projects                     3,578      16,949       5,969       2,819          --          --
  Research and development expenses, net           6,122      29,001      24,663      26,566      31,721          --
  Marketing  and selling expenses                  6,036      28,591       8,469       2,257          --          --
  General and administrative expenses             18,938      89,711      63,456      55,026      55,466      13,023
                                               ---------------------------------------------------------------------
                                                  34,674     164,252     102,557      86,668      87,187      13,023
                                               ---------------------------------------------------------------------

  OPERATING LOSS BEFORE FINANCIAL INCOME, NET     (3,933)    (18,626)    (19,712)    (54,307)    (85,092)    (13,023)
  Financial income (expenses), net                (1,171)     (5,545)    103,510      33,189      64,192      38,592
                                               ---------------------------------------------------------------------
  OPERATING INCOME (LOSS) AFTER FINANCIAL
    INCOME (EXPENSES), NET                        (5,104)    (24,171)     83,798     (21,118)    (20,900)     25,569


  Other income (expenses), net                     2,045       9,687      34,731     (15,899)      9,664          --
                                               ---------------------------------------------------------------------
  INCOME (LOSS) BEFORE INCOME TAXES               (3,059)    (14,484)    118,529     (37,017)    (11,236)     25,569
  Income taxes                                     4,671      22,128      13,857      18,907       9,047       2,784
                                               ---------------------------------------------------------------------
  INCOME (LOSS) AFTER INCOME TAXES                (7,730)    (36,612)    104,672     (55,924)    (20,283)     22,785
  Equity in earnings (losses) of investee
    companies, net                                  (624)     (2,962)     (9,899)     (3,303)        832      16,387
  Minority-interest in results of
    subsidiaries, Net                              5,269      24,960      (6,029)     15,161     (11,428)    (14,911)
                                               ---------------------------------------------------------------------
  INCOME (LOSS) FROM CONTINUING OPERATIONS        (3,085)    (14,614)     88,744     (44,066)    (30,879)     24,261
  Income (loss) from discontinued
    operations, net                               11,780      55,804      19,119      28,341     (20,963)    421,763
                                               ---------------------------------------------------------------------
  NET INCOME (LOSS) FOR THE YEAR                   8,695      41,190     107,863     (15,725)    (51,842)    446,024
                                               =====================================================================
  EARNINGS (LOSS) PER SHARE - (IN NIS)
  Basic EPS:
  From continuing operations                       (0.14)      (0.66)       4.00       (1.99)      (1.40)       1.12
  From discontinued operations                      0.52        2.50        0.86        1.28       (0.94)      19.59
                                               ---------------------------------------------------------------------
  Earnings (loss) per share                         0.38        1.84        4.86       (0.71)      (2.34)      20.71
                                               ---------------------------------------------------------------------
  Diluted EPS                                       0.36        1.75        4.08
                                               =====================================================================
</TABLE>

                 * Reclassified - see Note 23A to the financial
                     statements included in Item 18 below.

----------
1  Audited by Brightman Almagor.

2  Audited by Brightman  Almagor and Somech Chaikin - a firm of certified public
   accountants  in Israel  and a member of KPMG  International,  who were  joint
   auditing  accountants  with  Brightman  Almagor  during these years  ("Somech
   Chaikin").

3  Audited by Luboshitz  Kasierer & Co., a firm of certified public  accountants
   in Israel and an affiliate of Ernst & Young.


                                      -2-
<PAGE>

<TABLE>
<CAPTION>

INCOME STATEMENT DATA
AS PER U.S. GAAP (*):
DATA IN NIS ADJUSTED AS AT 12/2003                                             YEAR ENDED DECEMBER 31,
                                                                          -------------------------------

                                                           CONVENIENCE
                                                           TRANSLATION          2002          2001 (**)        2000 (**)
                                                           DECEMBER 31, 2002

                                                                   $                          ADJUSTED NIS
<S>                                                          <C>             <C>               <C>             <C>
   A) NET INCOME (LOSS) AND COMPREHENSIVE INCOME:

   Net (loss) according to U.S. GAAP (in
   thousands)                                                 5,970           28,279          (21,518)         (25,307)

   Total comprehensive income (loss) (in thousands)
   according to U.S. GAAP                                    30,845          146,115           16,689          (12,127)

   Basic (loss) per ordinary share as per
   U.S. GAAP                                                   0.26             1.26            (0.96)           (1.14)

   Diluted loss per ordinary share as per U.S. GAAP           (0.29)           (1.38)           (0.98)           (1.14)

   Weighted average of number of shares and share
   equivalents under U.S. GAAP (thousands)                   22,337           22,337           22,224           22,087
</TABLE>



(*)  For further information as to the main differences between Israeli and U.S.
     GAAP, as applicable to the Company's financial  statements,  see Note 26 to
     the attached financial statements, included in Item 18 below.
(**) Restated - see Note 26A(8) to the financial  statements included in Item 18
     below.


                                      -3-
<PAGE>

SELECTED BALANCE SHEET DATA** (INCLUDING AS PER U.S. GAAP):
<TABLE>
<CAPTION>

                                                                                             DECEMBER 31,
                                                 2002            2002         *2001             *2000         *1999         *1998
                                              CONVENIENCE
                                              TRANSLATION         NIS          NIS               NIS           NIS           NIS
                                              US$ THOUSANDS    THOUSANDS    THOUSANDS         THOUSANDS     THOUSANDS     THOUSANDS
<S>                                             <C>           <C>           <C>               <C>           <C>           <C>
   Current Assets                                 217,638     1,030,964     1,153,946           870,317     1,401,003     2,229,205
   Long term investments and receivables           96,507       457,162       486,218           581,744       544,999            --
   Hotels, commercial centers and other
      fixed assets                                880,188     4,169,532     2,913,040         1,881,456       791,467        18,682
   Other assets and deferred expenses              15,712        74,427        61,760            40,480        28,322        23,491
   Assets related to discontinued
      operations                                   24,094       114,135       203,190           309,998       312,408       642,878
                                                -----------------------------------------------------------------------------------
   Total                                        1,234,137     5,846,220     4,818,154         3,683,995     3,078,199     2,914,256


   Current Liabilities                            409,120     1,938,038     1,643,513         1,039,297       749,164       473,290
   Long-term liabilities                          468,243     2,218,112     1,474,722         1,120,049       511,765        49,110
   Liabilities related to discontinued
      operations                                   23,669       112,120       258,731           271,687       433,534       820,446
   Minority interest                              104,710       496,020       506,810           476,941       493,958       482,123
   Shareholders' equity                           228,395     1,081,930       934,378           776,021       889,778     1,089,287
                                                -----------------------------------------------------------------------------------

   Total                                        1,234,137     5,846,220     4,818,154         3,683,995     3,078,199     2,914,256

   Total assets according to U.S. GAAP          1,292,666     6,123,361     4,864,612(**)     3,704,296     3,376,956     2,914,256
   Total liabilities according to U.S. GAAP     1,084,599     5,137,748     4,031,945(**)     2,930,024     2,488,656     1,824,969

   Total shareholders equity according to
      U.S. GAAP                                   208,067       985,613       832,667(**)       774,272       888,300     1,089,287
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(*)  Reclassified - see note 23A to the financial statements included in Item 18
     below.
(**) Restated - see Note 26A(8) to the financial  statements included in Item 18
     below.

EXCHANGE RATES

         The exchange rate between the NIS and U.S. dollar published by the Bank
of Israel was NIS 4.373 to the dollar on May 31,  2003.  The  exchange  rate has
fluctuated  during the six months of December  2002 through May 2003 from a high
of NIS 4.924 to the dollar to a low of NIS 4.373 to the dollar. The high and low
exchange  rates  between  the NIS and the U.S.  dollar  during the six months of
December  2002 through May 2003,  as  published  by the Bank of Israel,  were as
follows:

MONTH                       HIGH                     LOW
--------------------------- ------------------------ ------------------------
                            1 U.S. dollar =          1 U.S. dollar =
--------------------------- ------------------------ ------------------------

December 2002               4.791 NIS                4.632 NIS
January 2003                4.898 NIS                4.769 NIS
February 2003               4.924 NIS                4.810 NIS
March 2003                  4.858 NIS                4.687 NIS
April 2003                  4.671 NIS                4.521 NIS
May 2003                    4.577 NIS                4.373 NIS


                                      -4-
<PAGE>


         The average  exchange rate between the NIS and U.S.  dollar,  using the
average of the  exchange  rates on the last day of each month during the period,
for each of the five most recent fiscal years was as follows:

PERIOD                                                EXCHANGE RATE

January 1, 1998 - December 31, 1998                   3.810 NIS/$1
January 1, 1999 - December 31, 1999                   4.154 NIS/$1
January 1, 2000 - December 31, 2000                   4.067 NIS/$1
January 1, 2001 - December 31, 2001                   4.219 NIS/$1
January 1, 2002 - December 31, 2002                   4.738 NIS/$1


FORWARD LOOKING STATEMENTS

         This annual report on Form 20-F contains "forward-looking"  statements,
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities  Exchange Act of 1934, as amended (the "1934 Act")
(collectively, the "Safe Harbor Provisions'"). These are statements that are not
historical  facts and include  statements  about our  beliefs and  expectations.
These statements contain potential risks and  uncertainties,  and actual results
may differ significantly. Forward-looking statements are typically identified by
the words "believe,"  "expect,"  "intend,"  "estimate" and similar  expressions.
Such statements  appear in this annual report and include  statements  regarding
the intent,  belief or current  expectation of EMI or its directors or officers.
Actual results may differ materially from those projected,  expressed or implied
in the  forward-looking  statements  as a result of various  factors  including,
without limitation, the factors set forth below under the caption "Risk Factors"
(we refer to these  factors as  "Cautionary  Statements").  Any  forward-looking
statements contained in this annual report speak only as of the date hereof, and
we caution  potential  investors not to place undue reliance on such statements.
We undertake no obligation to update or revise any  forward-looking  statements.
All subsequent written or oral forward-looking  statements attributable to us or
persons  acting on our behalf are expressly  qualified in their  entirety by the
Cautionary Statements.

RISK FACTORS

         We have made some  statements  in this annual  report  about our future
activities  that may or may not come  true.  Factors,  over  which we have no or
limited control, may affect our actual performance and results of operations and
may cause  them to be  different  from  what we  present  to you in this  Annual
Report.

         Our  statements  in this Annual  Report are accurate to the best of our
knowledge  and belief as of the date of this  document is filed with the SEC. We
take no responsibility to publicly update or revise such statements.

         EMI's activities are divided into three principal fields:  (i) shopping
and entertainment malls; (ii) the hotel business conducted by Elscint; and (iii)
holdings in venture capital  investments,  primarily the image guided  treatment
business  through  our  subsidiary  InSightec  -  Image  Guided  Treatment  Ltd.
("InSightec"),  and investments by Elscint in bio-technology  companies.  EMI is
subject to risks in all of these fields of activity.



                                      -5-
<PAGE>

RISKS RELATING TO THE SHOPPING AND ENTERTAINMENT MALLS BUSINESS

         SUITABLE  LOCATIONS  ARE  CRITICAL  TO THE  SUCCESS OF A  SHOPPING  AND
         ENTERTAINMENT MALL

         The choice of suitable  locations for the  development  of the shopping
and  entertainment  mall  projects is an important  factor in the success of the
individual projects.  Ideally, such sites should be located: (i) within the city
center, with well-developed  transportation  infrastructures  (road and rail) in
close proximity to facilitate customer access; and (ii) within a local area with
sufficient population to support the malls. We cannot be certain that we will be
able to find sites in the target cities which meet these criteria, either at all
or at viable prices.

         ZONING   RESTRICTIONS  AND  LOCAL  OPPOSITION  CAN  DELAY  OR  PRECLUDE
         CONSTRUCTION OF A MALL

         Sites which meet our criteria must be zoned for  commercial  activities
of the type contained in shopping and  entertainment  malls.  In those instances
where the existing zoning is not applicable or in which the zoning has yet to be
determined,  it will be  necessary  to  apply  for and  obtain  required  zoning
classifications.  This  procedure may be protracted,  particularly  in countries
where the  bureaucracy is cumbersome and  inefficient,  and we cannot be certain
that it will be  completed  with  sufficient  speed to enable  the malls to open
ahead of the  competition  or at all.  Opposition  by local  residents to zoning
and/or building permit applications may also cause considerable delays.

         THE LEGAL AND  GOVERNMENTAL  ENVIRONMENT  IN EASTERN  EUROPE MAY NOT BE
         HOSPITABLE TO US

         The civil law legal  system in many  Eastern  European  countries is in
some  instances  rigid  and  slow  to  adapt  itself  to the  requirements  of a
western-orientated  business  operation.  Some,  but not all,  countries  in the
former  communist  bloc  have  been  slow to  adapt  their  commercial  codes to
accommodate western business  practices,  and some legal and commercial concepts
and instruments which are customary in the west are either not recognized by, or
are contrary to, local laws.

         In some Eastern European  countries,  the bureaucracy is cumbersome and
inefficient.  This presents  certain  risks,  particularly  in  determining  the
validity of our title to the sites to be acquired for project  development,  and
in the  registration  of title  acquired  by us  under  contract.  In  addition,
obtaining  the  necessary  permits,  including  building  permits and  operation
permits, may be delayed due rigid bureaucratic procedures.

         WE DEPEND ON SUBCONTRACTORS TO CONSTRUCT OUR MALLS

         We rely on  subcontractors  for all of our construction and development
activities.   We  cannot  be  certain  that  we  will  be  able  to  enter  into
subcontracting arrangements on terms acceptable to us or at all. The competition
for the services of quality  subcontractors may cause delays in construction and
subcontracting  arrangements may be on less favorable terms than would otherwise
be available,  which may result in increased development and construction costs.
By relying on  subcontractors we become subject to a number of risks relating to
these entities, such as quality of performance, work ethics, performance delays,
construction  defects  and the  financial  stability  of the  subcontractors.  A
shortage of workers would have a detrimental effect on us and our subcontractors
and hence on our ability to conclude the  construction  phase on time and within
budget.  We generally  require our  subcontractors to provide bank guarantees in
our  favor  to  financially   secure  their   performance.   In  the  event  the
subcontractor  fails to perform,  the bank guarantees provide a monetary payment
to us; however,  the guarantees do not obligate the  subcontractors  to complete
the project and may not adequately  cover our costs of completing the project or
the lost profits  during the period while  alternative  means of completing  the
project are sought.



                                      -6-
<PAGE>

         COMPETITION IS INCREASING RAPIDLY IN EASTERN EUROPE

         The  retail and  entertainment  industry  in Eastern  Europe is rapidly
becoming  more  competitive,  with a number  of  developers  (particularly  from
Germany and France) becoming active in our target areas.  While their activities
in the past have tended to  concentrate  on  "power-centers,"  the  shopping and
entertainment  mall concept we promote is gaining  increasing  popularity due to
its potentially high yields.  Developers compete not only for patrons,  but also
for desirable  properties,  financing,  raw  materials,  qualified  contractors,
experienced system  consultants,  expert marketing agents and skilled labor. The
public  bidding  process  is  subject  to  intense  competition  and some of our
competitors have longer operating  histories and greater  resources than us, all
of which  may  limit  our  ability  to  obtain  such  projects.  There can be no
assurance  that we will be  successful  in winning  tenders  which we bid for or
which are awarded pursuant to fixed price tenders or will otherwise  continue to
be successful in competing in Eastern European.

         WE WILL REQUIRE ADDITIONAL FINANCING TO EXPAND

         The  industry  in which we compete is capital  intensive  and  requires
substantial  up-front   expenditures  for  land  acquisition,   development  and
construction  costs.  Accordingly,  we require  substantial  amounts of cash and
construction financing from banks for our operations.  We cannot be certain that
such  external  financing  would be available  on favorable  terms or at all. In
addition,  construction  loan agreements  generally  permit the draw down of the
loan funds against the  achievement  of  pre-determined  construction  and space
leasing milestones. If we fail to achieve these milestones,  the availability of
the  loan  funds  may  be  delayed,  thereby  causing  a  further  delay  in the
construction  schedule.  If we are not successful in obtaining financing to fund
our planned projects and other expenditures, our ability to undertake additional
development  projects  may be limited  and our  future  profits  and  results of
operations could be materially adversely affected.

         We  regularly   obtain   construction   loans  from  banks   (including
guarantees) for our development projects.  The availability and terms upon which
such  financing may be obtained are material to our  operations and there can be
no certainty that such financing,  if available,  will be on terms acceptable to
us.  Furthermore,  fluctuations in interest rates may adversely affect the terms
of financing available from banks.

         DELAYS IN THE  COMPLETION  OF  CONSTRUCTION  PROJECTS  COULD AFFECT OUR
         SUCCESS

         An important  element in the success of our shopping  mall  projects is
the short  construction  time  (generally  8 to 12 months  from the  receipt  of
building permits, depending on the size of the project), and our ability to open
the  malls  ahead  of  competition,  particularly  in  cities  which do not have
shopping and  entertainment  malls of the type  constructed by us. This makes us
subject to a number of risks relating to these  activities  including  delays in
obtaining zoning and other approvals, the unavailability of materials and labor,
the abilities of  sub-contractors  to complete work competently and on schedule,
the  surface  and  subsurface  condition  of the land  underlying  the  project,
environmental uncertainties,  extraordinary circumstances or acts of god as well
as  ordinary  risks of  construction  that may  hinder or delay  the  successful
completion  of  a  particular  project.  In  addition,   under  our  development
contracts,  we have  deadlines  for most of our  projects  (subject  to  limited
exceptions).  If  construction  of a project does not proceed in accordance with
our schedule, we may in some instances be required to pay penalties based on the
extent and time of the delay.  The failure to complete a  particular  project on
schedule  or on budget  may have a  material  adverse  effect  on our  business,
prospects, results of operations or financial condition.

         WE MAY BECOME DEPENDENT ON CERTAIN SUPPLIERS

         The  building  industry  may from time to time  experience  fluctuating
prices and shortage in the supply of raw materials as well as shortages of labor
and other materials.  The failure to obtain sufficient  amounts of raw materials


                                      -7-
<PAGE>

and to retain  efficient  employees  on terms  acceptable  to us may result in a
material adverse effect on the results of our operations.

         WE ARE  DEPENDENT  ON  ENGAGING  THIRD  PARTIES  TO  ENTER  INTO  LEASE
         AGREEMENTS,  AND ON OBTAINING  AND RETAINING  ATTRACTIVE  HIGH CUSTOMER
         TRAFFIC LOCATIONS

         We are  dependent on our ability to engage third  parties to enter into
new leases and renew  existing  leases on  favorable  terms and may find it more
expensive to engage such third parties to enter into such leases during  periods
when  market  rents  are  increasing,  or  when  general  consumer  activity  is
decreasing.  If a  significant  portion of our  existing  leases  were to expire
during such a period, we may experience a decline in rental incomes,  or find it
more expensive to continue to operate the shopping and  entertainment  malls. We
seek agreements in principal with anchor tenants (such as the operators of movie
theaters,  supermarkets,  department  stores,  electrical  appliances stores and
video and gaming arcades),  either generally or on a property-by property basis,
prior to entering into a formal lease.  The termination of a lease by any anchor
tenant may  materially  adversely  affect the Company.  The failure of an anchor
tenant to abide by these  agreements  may cause  delays,  result in a decline in
rental incomes (temporary or long term) and may create difficulties in finding a
suitable replacement tenant.

         OUR  RESULTS OF  OPERATIONS  FLUCTUATE  DUE TO THE  SEASONALITY  OF OUR
         BUSINESS

         A weak holiday  shopping  season  (generally,  the Christmas and Easter
seasons)  may  adversely  affect  our  profitability.  The annual  revenues  and
earnings of the tenants that lease space in our shopping and entertainment malls
are  substantially  dependent upon the amount of patron traffic,  both generally
and particularly during peak shopping periods. As a result, changes in the level
of traffic in  shopping  and  entertainment  malls  during  this  period  have a
disproportionate effect on the annual results of operations of the entities that
lease space in our  shopping  and  entertainment  malls,  which may affect their
ability to meet their rental obligations.

         GENERAL ECONOMIC CONDITIONS IN A REGION WILL AFFECT OUR TENANTS

         If an economic  recession occurs, the demand and rents for neighborhood
and  community  shopping and  entertainment  malls could  decline and  adversely
affect  our  financial  condition  and  results  of  operations.  Our  financial
condition  and results of  operations  could also be  adversely  affected if our
tenants are unable to make lease payments or fail to renew their leases.

         ENVIRONMENTAL ISSUES ARE BECOMING OF INCREASING SIGNIFICANCE IN EASTERN
         EUROPE

         There is  increasing  awareness  of  environmental  issues  in  Eastern
Europe.  This may be of critical  importance in areas previously occupied by the
Soviet Army. While we generally insist upon receiving an environment report as a
condition for purchase,  or alternatively conduct environmental tests during our
due diligence investigations,  we cannot be certain that all sites acquired will
be free of  environmental  pollution.  Should that  eventuality  arise,  it will
adversely affect our ability to construct,  develop and operate the shopping and
entertainment  mall on the relevant  site,  and may cause us to suffer  expenses
needed to clean up the polluted site.

RISKS RELATING TO THE HOTEL BUSINESS OF ELSCINT

         We have  summarized  below certain  material  risk factors  relating to
Elscint's  hotel  business.  For full  information  as to the risks  involved in
Elscint's  operations,  please refer to Elscint's annual report on Form 20-F for
the year ended December 31, 2002.



                                      -8-
<PAGE>

         THE  LODGING   INDUSTRY   MAY  BE  AFFECTED  BY  ECONOMIC   CONDITIONS,
         OVERSUPPLY,  TRAVEL  PATTERNS,  WEATHER  AND  OTHER  CONDITIONS  BEYOND
         ELSCINT'S  CONTROL WHICH MAY ADVERSELY  AFFECT  ELSCINT'S  BUSINESS AND
         RESULTS OF OPERATIONS

         The lodging  industry may be adversely  affected by changes in national
or local economic conditions and other local market conditions. Elscint's hotels
in Johannesburg, Budapest and Bucharest may be subject to the risk of oversupply
of hotel  rooms,  as well as  risks  resulting  from  economic  instability  and
political uncertainty.  Elscint is subject to various risks related to Elscint's
operations in Europe,  including economic and political  instability,  political
and criminal  corruption and the lack of experience and  unpredictability of the
civil  justice  system.  Other  general  risks that may affect  Elscint's  hotel
business are changes in travel patterns, extreme weather conditions,  changes in
governmental  regulations  which  influence or determine  wages,  workers  union
activities,  land acquisition prices or construction costs,  changes in interest
rates,  the availability of financing for operating or capital needs, or changes
in real estate tax rates and other current operating expenses.

         COMPETITION  IN THE  LODGING  INDUSTRY  COULD HAVE A  MATERIAL  ADVERSE
         EFFECT ON  ELSCINT'S  BUSINESS  AND  RESULTS  OF  OPERATIONS

         The hotel business is highly  competitive,  particularly in those areas
where there is an over-supply of rooms.  Competitive factors within the industry
include:

         o    convenience of location and accessibility to business centers;

         o    room rates;

         o    quality of accommodations;

         o    name recognition;

         o    quality and nature of service and guest facilities provided;

         o    reputation;

         o    reservation systems; and

         o    the supply and availability of alternative lodging.

         Elscint  intends to develop or acquire most of its hotels in geographic
locations  where other hotels are or may be located.  Many of these  competitors
have greater financial  resources and better brand name recognition than Elscint
does, and may have more established  relationships with prospective franchisers,
representatives  in the  construction  industry and other parties engaged in the
lodging industry.  We cannot be sure that new or existing competitors of Elscint
will not significantly reduce their rates or offer greater convenience, services
or amenities or  significantly  expand or improve hotels in the markets in which
Elscint  currently or may subsequently  compete,  thereby  materially  adversely
affecting Elscint's business and results of operations.

         ACQUIRING, DEVELOPING AND RENOVATING HOTELS INVOLVES SUBSTANTIAL RISKS,
         AND ELSCINT CANNOT BE CERTAIN OF THE SUCCESS OF ANY FUTURE PROJECTS

         Part of  Elscint's  growth  strategy  is to  develop  new hotels and to
acquire and redevelop old or under-performing hotels. Acquiring,  developing and
renovating hotels involves substantial risks, including:



                                      -9-
<PAGE>

         o    costs  exceeding  Elscint's  budget  or  amounts  agreed  to  with
              contractors,  because  of  several  factors,  including  delays in
              completion of construction;

         o    competition  for  acquisition of suitable  development  sites from
              competitors which may have greater financial resources;

         o    the failure to obtain zoning and construction permits;

         o    unavailability of financing on favorable terms;

         o    the failure of  Elscint's  hotels to earn  profits  sufficient  to
              service debt incurred in construction or renovation, or at all;

         o    labor and workers' union legal requirements;

         o    relationships with and performance by contractors;

         o    changes  in   governmental   rules,   regulations,   planning  and
              interpretations; and

         o    changes in general economic and business conditions.

         We cannot be certain that present or future  development  or renovation
by Elscint will be successful.  For successful  growth,  Elscint must be able to
acquire  hotels on attractive  terms and integrate the acquired  hotels into its
existing  operations.  For acquired hotels Elscint must consolidate  management,
operations,  systems,  personnel and  procedures,  which may not be  immediately
possible  due to  collective  labor  agreements  or other  legal or  operational
obstacles.  Any  substantial  delays  or  unexpected  costs in this  integration
process could  materially  affect  Elscint's  business,  financial  condition or
results of operations. We cannot be certain that Elscint's newly acquired hotels
will  perform as  expected  or that  Elscint  will be able to  realize  any cost
savings.

         ELSCINT EXPECTS TO GROW INTERNALLY AND THROUGH  ACQUISITIONS AND IT MAY
         NOT BE ABLE TO MANAGE SUCH GROWTH

         Elscint  expects to grow internally and through  acquisitions.  Elscint
expects to spend  significant  time and effort in (i) renovating or refurbishing
existing hotels, (ii) identifying,  completing and integrating  acquisitions and
(iii)  developing new properties.  Any future growth in Elscint's  business will
impose  significant  added   responsibilities  on  members  of  its  management,
including  the  need  to  identify,  recruit  and  integrate  new  managers  and
executives.  We cannot be certain  that  Elscint  will be able to  identify  and
retain additional  management and other professional  personnel with appropriate
qualifications or at all.

         ELSCINT HAS SIGNIFICANT CAPITAL NEEDS AND ADDITIONAL  FINANCING MAY NOT
         BE AVAILABLE

         The  development,  renovation  and  maintenance  of hotels are  capital
intensive. As part of Elscint's growth strategy it intends to acquire,  renovate
and  redevelop  additional  hotels and to develop  new  hotels.  To pursue  this
strategy, Elscint will be required to obtain additional capital in the future to
meet its expansion  plans. In the past Elscint  financed its growth through bank
loans at prevailing  market rates. (See "Item 5 - Operating and Financial Review
and  Prospects  - Loans -  Elscint").  In  addition,  in order for its hotels to
remain  competitive they must be maintained and refurbished on an ongoing basis.
Elscint may obtain needed capital from cash on hand,  including  reserves,  cash
flow from  operations  or from  financing,  including  borrowing  from banks and
others.  Elscint may also seek  financing from other sources or enter into joint
ventures and other collaborative arrangements in connection with the acquisition
or  development of hotel  properties.  We cannot be certain that Elscint will be
able to raise any additional  financing on advantageous terms on a timely basis,
which may affect its ability to  construct  or acquire  additional  hotels,  and
Elscint may  experience  delays in its planned  renovation or maintenance of its
hotels.



                                      -10-
<PAGE>

         ELSCINT'S MANAGEMENT AGREEMENTS MAY RESTRICT ITS HOTEL BUSINESS AND ITS
         MAINTENANCE, AND MAY BE TERMINATED

         All of the  operating  hotels in which  Elscint has an interest  (other
than the Shaw Park Plaza Hotel) are either directly or indirectly operated under
management agreements with Park Plaza Hotels Europe, Ltd. ("Park Plaza").

         Park Plaza is the franchisee for certain  territories under territorial
license and franchise  agreements  with Park Inn  International  Worldwide Hotel
Group,  which  entitles  Park Plaza to use the "Park Plaza"  tradename.  Elscint
expects to derive  substantial  benefits from its strategic  alliances with Park
Plaza.  However,  any significant  decline in the reputation of Park Plaza or in
its ability to ensure the performance of Elscint's hotels at anticipated  levels
could adversely affect Elscint's results of operations.  Also, if for any reason
Park Plaza loses its principal  franchise,  Elscint will  automatically lose its
ability to use the Park Plaza name and other benefits, in which case Elscint may
suffer  in the  areas of brand  name  recognition,  marketing,  and  centralized
reservations  systems  provided by Park Plaza,  which, in turn, could materially
affect Elscint's results of operations.  Furthermore,  we cannot be certain that
Elscint  will be able to  obtain  alternative  management  services  of the same
standard on similar or better terms.  In addition,  the agreement for each hotel
usually  contains  specific  standards for, and restrictions and limitations on,
hotel operation and maintenance.  These standards,  restrictions and limitations
may conflict with Elscint's priorities, and impose capital demands upon Elscint.
In addition,  Park Plaza may alter its standards or hinder Elscint's  ability to
improve or modify its hotels. In order to comply with Park Plaza's requirements,
or  alternatively  to change a franchise  affiliation for a particular hotel and
disassociate  itself from the "Park Plaza"  tradename,  Elscint may be forced to
incur significant costs or make capital improvements.

         THE RESULTS OF OPERATIONS OF ELSCINT'S  HOTEL DIVISION MAY BE ADVERSELY
         IMPACTED BY EXCHANGE RATE FLUCTUATIONS AND INFLATION

         The  revenues of Elscint's  hotel  division,  as well as its  operating
expenses,  capital expenses and debt payments,  are generally denominated in the
currency  in which each asset is located.  Therefore,  any  fluctuations  in the
exchange  rates between these  currencies and the NIS may have an adverse effect
on the  reporting  of the results of  Elscint's  hotel  division as reflected in
Elscint's  Consolidated  Financial  Statements,  which are  reported in NIS. The
reporting of Elscint's  operations that do not have revenues and expenses in the
same currency will be affected by currency fluctuations.  While Elscint seeks to
mitigate  the  impact on the  results  of its  operations  of a NIS  devaluation
(including  by  linking  financing  transactions  specifically  to the  relevant
operating  currency),  we cannot be certain  that  Elscint will be able to do so
successfully.

         THE VALUE OF ELSCINT'S INVESTMENT IN THE HOTEL PROPERTIES IS SUBJECT TO
         VARIOUS RISKS RELATED TO OWNERSHIP AND OPERATION OF REAL PROPERTY

         Elscint's  investment  in the hotel  properties  is  subject to varying
degrees of risks related to the ownership  and operation of real  property.  The
intrinsic value of Elscint's hotels and income from the hotels may be materially
adversely affected by:

         o    changes  in global and  national  economic  conditions,  including
              global or national recession;

         o    a general or local slowdown in the real property market;

         o    political  or  natural  events  that may have a  material  adverse
              effect on the hotel industry;

         o    competition from other lodging facilities;



                                      -11-
<PAGE>

         o    material  changes in operating  expenses,  including real property
              tax systems or rates;

         o    changes in the availability, cost and terms of financing;

         o    the effect of present or future environmental laws;

         o    the ongoing need for capital improvements and refurbishments; and

         o    material changes in governmental rules and policies.

RISKS RELATING TO ELSCINT'S ENTERTAINMENT AND COMMERCIAL CENTER IN
HERZLIA, ISRAEL

         We have  summarized  below  certain risk factors  relating to Elscint's
entertainment  and  commercial  center.  For full  information as to such risks,
please refer to Elscint's annual report on Form 20-F for the year ended December
31, 2002.

         THERE ARE MANY COMPETING ENTERTAINMENT AND COMMERCIAL CENTERS

         There are several  entertainment  and  commercial  centers in Israel in
general, and specifically in the greater Tel Aviv area (which includes Herzlia).
There are two  operational  shopping  centers within  approximately 1 to 3 miles
from the location of Elscint's  entertainment and commercial center. These other
centers compete for customers as well as for third party retailers and operators
to lease space in such centers.  There can be no assurance  that Elscint will be
successful in competing with the other entertainment and commercial centers.

         ELSCINT IS  DEPENDENT  ON  ENGAGING  THIRD  PARTIES TO ENTER INTO LEASE
         AGREEMENTS, AND ON OBTAINING AND RETAINING HIGH CUSTOMER TRAFFIC

         Elscint  is  dependent  on its  ability  to induce  food and  commodity
retailers and entertainment  service providers to enter into leases for units in
its  entertainment  and  commercial  center,  or to  renew  existing  leases  on
favorable  terms.  There  is also  active  competition  to  attract  tenants  to
commercial areas and other locations  suitable for  entertainment and commercial
centers. The general economic recession in Israel may also deter businesses from
entering into new lease  agreements or renewing  existing lease  agreements,  or
from incurring the costs required to fit out their rented units in an acceptable
manner. If a significant  portion of Elscint's  existing leases expire,  Elscint
may find it more  expensive  or less  profitable  to  continue  to  operate  its
entertainment and commercial center.

         THE QUARTERLY RESULTS OF OPERATIONS OF THE ENTERTAINMENT AND COMMERCIAL
         CENTER MAY FLUCTUATE DUE TO THE SEASONALITY OF ITS BUSINESS AND GENERAL
         CONDITIONS IN ISRAEL

         A weak  holiday  shopping  season would  adversely  affect the center's
profitability. The annual revenues and earnings of the entities that have leased
or will lease space in the  entertainment  and commercial  center, as well as of
prospective lessees,  are substantially  dependent upon the amount of traffic in
Elscint's  entertainment  and  commercial  center  during the  holiday  shopping
periods, which may affect their ability to satisfy their rental obligations.  As
a result,  changes  in the  level of  traffic  in  Elscint's  entertainment  and
commercial center during this period may have a  disproportionate  effect on the
annual  results of  operations  of the  entities  that lease space in  Elscint's
entertainment and commercial center, which may give rise to tenants going out of
business,  defaulting  on their lease  agreements  or otherwise  being unable to
fulfill their  obligations  towards  Elscint,  which may have a material adverse
effect on Elscint's  business.  In addition,  patron  traffic during the periods
immediately   following   peak  holiday   seasons  are   traditionally   slower.
Furthermore,  general economic recession in Israel, as well as the deteriorating
security  situation in the Middle East and terrorist attacks on civilian targets
in Israel  could cause a slowdown in customer  traffic and  consumer  purchasing
patterns.



                                      -12-
<PAGE>

         ACCESS TO THE COMMERCIAL AND ENTERTAINMENT CENTER MAY BECOME CONGESTED

         Vehicular access to the commercial and  entertainment  center is liable
to be  congested  during  peak  periods.  The  main  access  route  from the Tel
Aviv-Haifa  highway runs  through a popular  entertainment  area which  attracts
numerous visitors,  principally at night. The same area accommodates many office
and commercial  buildings which creates  increased traffic flow at the beginning
and end of the working  day.  The patrons of the  commercial  and  entertainment
center may encounter traffic congestion  problems in reaching the center,  which
may  adversely  affect the number of customers  visiting the center.  Elscint is
exploring various solutions designed to alleviate access difficulties (including
the provision of shuttle services from the nearby Herzlia railway terminal).

         A  DECISION  OF AN  ISRAELI  COURT  MAY  CAUSE  DELAYS  IN THE  GENERAL
         DEVELOPMENT OF THE PROJECT THAT INCLUDES  ELSCINT'S  ENTERTAINMENT  AND
         COMMERCIAL CENTER

         An Israeli court has determined  that the zoning plan applicable to the
Herzlia  Marina  project  permits the  construction  of resort  units and not of
residential  units.  This  decision  is not  final  and  an  appeal  by  various
developers is still pending. While this issue does not directly affect Elscint's
entertainment and commercial  center,  any delays in the general  development of
the  project  caused by the  resolution  of this  matter  may affect the flow of
consumers to the area.

RISKS RELATING TO EMI'S HOLDINGS IN VENTURE CAPITAL OPERATIONS AND ELSCINT'S
BIO-TECHNOLOGY INVESTMENT

         START-UP OPERATIONS MAY BE HIGH-RISK VENTURES

         Investments  in  start-up  operations  may involve  high  risks.  These
investments are generally directed at providing a bridge between the preliminary
concept/proto-type  stage and the manufacturing and marketing stages. Success of
start-up  investments  is  generally a function  of the  quality of  management,
success in tests  carried out during the research  and  development  phase,  the
quality of the product or service,  its  relative  added value in the market and
the timing of its  launching.  Start-up  companies  are subject to various risks
generally  encountered  by new  enterprises,  including  delayed  or  protracted
research and  development  programs,  acceptance of product in the market place,
regulatory  approvals and the need for additional  financing  which might not be
available.  While both EMI and Elscint use  considerable  efforts to investigate
the integrity and potential of their investments,  we cannot be certain that the
professional assessments made at the time of investment as to the quality of the
concept or the proto-type will prove correct,  or that there will be an adequate
return  on  investment,  if at all,  nor can we be  certain  that the  timing of
realizing the profits from the investments will be optimal.

         OUR AND ELSCINT'S  INVESTMENTS IN START-UP COMPANIES ARE SPECULATIVE IN
         NATURE AND WE MAY NEVER  REALIZE  ANY  REVENUES  OR  PROFITS  FROM SUCH
         INVESTMENTS

         We cannot be certain  that our and  Elscint's  investments  in start-up
companies will result in revenues or profits.  Our and Elscint's success depends
upon the ability to select start-up companies that are ultimately successful. As
of the  date of this  report,  none of the  start-up  companies  in  which we or
Elscint invested has generated operating revenues sufficient to pay dividends to
us.  Economic,  governmental,  regulatory  and industry  factors  outside our or
Elscint's  control  affect  each of such  companies.  If such  companies  do not
successfully  implement  their  business  plans  with the  assistance  of our or
Elscint's experience and methodologies,  then we will not be able to realize any
profits from such  investments.  There are also material  risks  relating to the
businesses of the companies in which we or Elscint invest. Accordingly,  our and
Elscint's  ability to realize  profits from such  investments  will be dependent
upon the management and operations of the companies, the success of the research
and  development  activities of such  companies,  the timing of the marketing of
their products and numerous other factors beyond our or Elscint's control.



                                      -13-
<PAGE>

         DEVELOPMENT   PERIODS  OF  PRODUCTS  OR  MARKETABLE   SERVICES  MAY  BE
         PROTRACTED

         The period of time which may elapse  between the initial  stage and the
stage of development of marketable products or services, especially in the field
of  bio-technology  conducted  by  Gamida  in  which  Elscint  invests,  may  be
protracted.  Concept-to-market  capability  development may exceed five years in
some  instances,  during  which  time  substantial  capital  investments  may be
required.  Unforeseen delays in the projected research and development timetable
may cause additional  delays. We cannot be certain that the products or services
developed by the companies in which we or Elscint invest,  once developed,  will
achieve the projected degree of market penetration, or that competitive products
will not have reached the market prior  thereto,  nor can we be certain that the
profits from such  products or services  will be adequate in light of the extent
and period of the required investments.

         CLINICAL  TESTING OF  BIO-TECHNOLOGY  AND MEDICAL DEVICE PRODUCTS UNDER
         DEVELOPMENT REQUIRES FDA APPROVAL

         Products in the bio-technology and the medical device field are subject
to clinical  tests,  either in compliance  with the  requirements  of the United
States Food and Drug Administration (the "FDA") or the requirements of competent
regulatory  authorities in other  countries where target markets are identified.
In order to  initiate  clinical  studies in humans,  the prior  approval  of the
regulatory authorities must be obtained. In some circumstances,  applications to
market such products may be denied,  or the award of permission  may be delayed.
The  inability  of our or  Elscint's  investee  companies  to commence  clinical
studies  in a  timely  manner  may have a  negative  impact  on their  projected
time-to-market  factors.  Failure to obtain such approvals could have a material
adverse effect on the companies, and thus on our and Elscint's investments.

         In the event that our or  Elscint's  investee  companies  are unable to
obtain such  regulatory  approvals in any  potential  market,  then they will be
unable to market  their  products.  While we have no reason to believe that such
approvals will not be obtained,  it should be noted that they are a prerequisite
to the  marketing of the products of the investee  companies in all of the major
target markets.

         PHYSICIANS MAY NOT UTILIZE AND MAY OPPOSE NEW PRODUCTS OR  TECHNOLOGIES
         OF OUR AND ELSCINT'S INVESTEE COMPANIES

         Certain  products or  services  developed  by any of our and  Elscint's
investee  companies may  fundamentally  change the treatment of various  medical
conditions.  Physicians  may be reluctant to use such products or services,  and
may prefer to apply other methods of treatment. If such products or services are
not  utilized by  physicians,  our and  Elscint's  investments  in the  relevant
investee companies may not materialize.

         THE PRODUCTS AND SERVICES OF OUR AND ELSCINT'S  INVESTEE  COMPANIES MAY
         FACE COMPETITION

         Products and services of our and Elscint's  investee companies may face
competition  from  alternative  sources.  There are various  competitors  in the
fields in which our and Elscint's investee  companies are engaged,  many of whom
have greater financial resources than our and Elscint's investee companies,  and
have  well  developed  marketing  networks  which  our  and  Elscint's  investee
companies  currently  lack.  In  addition,  even if our and  Elscint's  investee
companies begin to market their products prior to their competitors,  neither we
nor Elscint can be certain that competing products will not attain a significant
market share.  Finally,  several  competitors enjoy high brand name recognition,
which our and Elscint's  investee  companies lack. (See "Item 4 - Information on
the Company - Competition - EMI -Venture Capital Investments").


                                      -14-
<PAGE>


         OUR AND ELSCINT'S  INVESTEE  COMPANIES  REQUIRE  STRATEGIC  PARTNERS TO
         MARKET THEIR PRODUCTS

         In order to penetrate the U.S. and European markets, it is essential to
find  well-positioned  and  well-known  strategic  partners with high brand name
recognition in the market place. Such strategic partners would provide worldwide
or extensive territorial marketing, sales and other services for the products of
our  and  Elscint's  investee  companies.   Failure  to  establish  a  strategic
partnership  of this type  could have an  adverse  effect on the  success of the
products,  since the lack of brand name  recognition,  geographical  distance to
important  target markets and the lack of an  established  marketing and service
infrastructure  would severely hamper the efforts of our and Elscint's  investee
companies to achieve a significant and early market presence.

         OUR AND  ELSCINT'S  INVESTEE  COMPANIES  MAY BE  REQUIRED TO DEFEND ANY
         POTENTIAL INFRINGEMENT OF THEIR PATENTS

         Infringement  of the  registered  and pending  patents of any of our or
Elscint's investee companies by unauthorized competitors may result in competing
products using the technology of our or Elscint's investee  companies.  While we
expect our and Elscint's  investee  companies to  vigorously  challenge any such
violations with all legal rights and processes available to them, neither we nor
Elscint  can be  certain  that  such  litigation  will  either  be  successfully
concluded or concluded  with  sufficient  expedition to mitigate the damage.  In
addition, the costs of pursuing these remedies is often high.

         THE PRODUCTS AND SERVICES OF OUR AND ELSCINT'S INVESTEE COMPANIES COULD
         INFRINGE THE  INTELLECTUAL  PROPERTY  RIGHTS OF OTHERS,  CAUSING COSTLY
         LITIGATION AND THE LOSS OF SIGNIFICANT RIGHTS

         Our and  Elscint's  investee  companies  are  subject  to the risk that
others may assert  claims that they have  infringed  the  claimants'  current or
future intellectual property rights. Any claims, with or without merit, could be
time-consuming, result in costly litigation, prevent or cause delays, in product
shipment or require our or Elscint's investee companies to enter into royalty or
licensing agreements,  any of which could harm their business. Patent litigation
in particular has complex  technical issues and inherent  uncertainties.  In the
event that an infringement  claim against our or Elscint's investee companies is
successful  and they cannot  obtain a license on  acceptable  terms or license a
substitute  technology or redesign their products to avoid  infringement,  their
business could be harmed.

RISKS RELATING TO THE IMAGE GUIDED TREATMENT BUSINESS

         INSIGHTEC REQUIRES VOLUNTEERS TO TEST ITS PRODUCT UNDER DEVELOPMENT

         The principal  product of InSightec is the ExAblate  2000, an MR guided
Focused Ultrasound (FUS) system which has received  regulatory  approval for the
treatment  of uterine  fibroids  in Europe and Israel.  The system is  presently
still undergoing  clinical trials and beta-site testing for the uterine fibroids
treatment  in the  U.S.  as  well as for  several  other  clinical  applications
worldwide at various medical  institutions in North America,  Europe and Israel.
In order to complete these trials in compliance with the FDA requirements, it is
necessary  to recruit  volunteers  to undergo the  treatment  offered by the new
product,  subject to the strict  guidelines  imposed by regulatory  authorities.
InSightec's inability to attract volunteers in sufficient numbers will result in
delays in obtaining  regulatory  approvals,  which may have an adverse impact on
projected time-to-market factors.



                                      -15-
<PAGE>

         DELAYS IN OBTAINING  REIMBURSEMENT  BY HEALTH  PROVIDERS FOR THE USE OF
         INSIGHTEC'S  PRINCIPAL PRODUCT MAY ADVERSELY EFFECT INSIGHTEC'S ABILITY
         TO SELL THE PRODUCT IN EUROPE

         Although  InSightec's  principal  product  has  been  approved  for the
commercial treatment of uterine fibroids in Europe and Israel, any delays in the
approval by the health providers in different countries of reimbursement for the
use of such product may adversely affect InSightec's ability to sell the product
as well as its, and therefore EMI's, results of operations.

         SURGEONS MAY NOT UTILIZE AND MAY OPPOSE INSIGHTEC'S NEW TECHNOLOGY

         The HIFUS  product,  applied in  conjunction  with  magnetic  resonance
imaging systems, creates a product that may be described as a "thermal scalpel,"
which may be used by surgeons and interventional  radiologists to non-invasively
detect,  monitor and destroy tissues and organs under direct real-time  magnetic
resonance  image guidance.  Although we believe that use of InSightec's  product
will  fundamentally  change the treatment of various medical  conditions such as
breast tumors,  uterine fibroids and brain tumors,  surgeons may be reluctant to
use such  technology,  and instead  elect to use current  methods of  treatment,
which may result in our inability to realize our investment in InSightec.

         INSIGHTEC'S  PRODUCT  MAY  FACE  COMPETITION  AND IT  DOES  NOT  HAVE A
         RECOGNIZABLE BRAND NAME

         InSightec's product faces competition from alternative minimal invasive
surgery (MIS) and competing HIFUS products. There are a number of competitors in
these  fields,  although we are not aware of any that have  reached  InSightec's
stage of clinical trials and beta-site testing and, to our knowledge,  none have
obtained regulatory  approval.  However,  even if InSightec begins to market its
product prior to its  competitors,  competing  products may attain a significant
market share. In addition,  several  competitors  enjoy high domestic brand name
recognition, which InSightec presently lacks.

         PATIENTS MAY SEEK LEGAL REDRESS IF TREATMENTS ARE UNSUCCESSFUL OR CAUSE
         BODILY HARM

         As the developer and  manufacturer  of the HIFUS system,  InSightec may
face claims for compensation in the event that treatments administered using the
system are unsuccessful or cause bodily harm to patients. While InSightec adopts
customary  legal  tools to limit its  liability  in such  instances,  an adverse
judgement  awarding  actual or punitive  damages  could have a material  adverse
effect both on the financial  standing of InSightec and on its ability to market
its products.

RISKS RELATING TO ISRAEL

         SECURITY AND ECONOMIC CONDITIONS IN ISRAEL MAY AFFECT OUR OPERATIONS

         We are  incorporated  under Israeli law and our  principal  offices are
located  in  Israel.  Political,  economic  and  security  conditions  in Israel
directly affect our operations.  Since the  establishment of the State of Israel
in 1948,  various armed  conflicts  have taken place between Israel and its Arab
neighbors and a state of hostility,  varying in degree and intensity, has led to
security and economic  problems  for Israel.  Israel  signed a peace treaty with
Egypt in 1979 and a peace  treaty  with  Jordan in 1994.  As of the date of this
annual  report,  Israel has not entered into any peace  agreement  with Syria or
Lebanon.  Since 1993 several  agreements have been signed between Israel and the
Palestinians,  but a final agreement has not been achieved.  Since October 2000,
there  has  been a  marked  increase  in  hostilities  between  Israel  and  the
Palestinians,  characterized by terrorist attacks on civilian  targets,  suicide
bombings and military incursions into areas under the control of the Palestinian
Authority,  all of which have adversely  affected the peace process,  placed the
Israeli  economy  under  significant  stress,  and  have  negatively  influenced
Israel's relationship with several Arab countries. In addition, some neighboring
countries,  as  well  as  certain  companies  and  organizations,   continue  to
participate  in a boycott of Israeli firms and others doing business with Israel
or with Israeli  companies.  Restrictive  laws,  policies or practices  directed
towards  Israel  or  Israeli  businesses  could  have an  adverse  impact on the
expansion of our business.  In addition,  we could be adversely  affected by the
interruption or curtailment of trade between Israel and its trading partners,  a
significant increase in the rate of inflation,  or a significant downturn in the
economic or financial condition of Israel.



                                      -16-
<PAGE>

         MANY OF OUR DIRECTORS,  OFFICERS AND EMPLOYEES ARE OBLIGATED TO PERFORM
         ANNUAL MILITARY RESERVE DUTY IN ISRAEL.  WE CANNOT ASSESS THE POTENTIAL
         IMPACT OF THESE OBLIGATIONS ON OUR BUSINESS

         Our  directors,  officers and employees who are male adult citizens and
permanent  residents  of  Israel  under  the  age of 49,  including  some of our
directors and officers, are, unless exempt, obligated to perform annual military
reserve  duty and are  subject to being  called to active duty at any time under
emergency circumstances. The deteriorating security situation in the Middle East
has  caused,  and will  continue  to cause in the  foreseeable  future,  a sharp
increase in the army reserve obligations of those of our directors, officers and
employees  who are subject to such  reserve duty  obligations.  Although we have
operated  effectively  under these  requirements in the past,  including  during
recent  hostilities with the Palestinians and the Iraq War, we cannot assess the
full impact of these  requirements  on our  workforce or business if  conditions
should change,  and we cannot predict the effect of any increase or reduction of
these requirements on us.

         AN INCOME TAX REFORM IN ISRAEL MAY  ADVERSELY  AFFECT OUR  SHAREHOLDERS
         AND US

         Effective as of January 2003, the Israeli Parliament has enacted a wide
ranging reform of the Israeli income tax system. These tax reforms have resulted
in  significant  changes to the  Israeli tax  system,  and may have  adverse tax
consequences for our shareholders and us. (See "Item 10 - Additional Information
- Taxation - Reform of Taxes on Income in Israel".)

         IT MAY BE  DIFFICULT  TO  ENFORCE A U.S.  JUDGMENT  AGAINST  US AND OUR
         OFFICERS  AND  DIRECTORS  OR TO ASSERT U.S.  SECURITIES  LAWS CLAIMS IN
         ISRAEL OR SERVE PROCESS ON US AND SUBSTANTIALLY ALL OF OUR OFFICERS AND
         DIRECTORS

         All of our executive  officers and directors are  non-residents  of the
United States,  and a substantial  portion of our assets and the assets of these
persons are located  outside the United States.  Therefore,  it may be difficult
for an investor, or any other person or entity, to enforce a U.S. court judgment
based upon the civil liability provisions of the U.S. federal securities laws in
an  Israeli  court  against us or any of those  persons or to effect  service of
process  upon  these  persons  in the  United  States.  Additionally,  it may be
difficult  for an  investor,  or any other  person or entity,  to enforce  civil
liabilities under U.S. federal securities laws in original actions instituted in
Israel.

         Notwithstanding the foregoing,  Israeli courts may enforce a U.S. final
executory judgment for liquidated  amounts in civil matters,  obtained after due
process  before a court of  competent  jurisdiction  (according  to the rules of
private  international law currently  prevailing in Israel) which recognizes and
enforces  similar  Israeli  judgments,  provided that:  (i) adequate  service of
process has been effected and the defendant has had a reasonable  opportunity to
be heard; (ii) such judgment and the enforcement thereof are not contrary to the
law, public policy,  security or sovereignty of the State of Israel;  (iii) such
judgment was not  obtained by fraud and does not  conflict  with any other valid
judgment in the same matter between the same parties; (iv) an action between the
same parties in the same matter is not pending in any Israeli  court at the time
the lawsuit is  instituted  in the  foreign  court;  and (v) the  judgment is no
longer subject to a right of appeal.

         Foreign judgments  enforced by Israeli courts generally will be payable
in Israeli  currency.  The usual  practice  in Israel in an action to recover an
amount in a non-Israeli currency is for the Israeli court to render judgment for
the equivalent  amount in Israeli  currency at the rate of exchange in effect on
the date thereof.  Under  existing  Israeli law, a foreign  judgment  payable in
foreign currency may be paid in Israeli currency at the rate of exchange of such
foreign  currency  on the  date  of  payment  or in  foreign  currency.  Pending
collection,  the amount of the  judgment of an Israeli  court  stated in Israeli
currency  will  ordinarily  be linked to the Israeli  Consumer  Price Index plus
interest  at the annual  rate (set by Israeli  regulations)  prevailing  at such
time. Judgment creditors must bear the risk of unfavorable exchange rates.



                                      -17-
<PAGE>

         In April 1998,  the  Israeli  government  announced  its  intention  to
liberalize its foreign  currency  control  regime by, in effect,  permitting any
foreign  currency  activity or transaction,  except for certain  restrictions on
institutional  investors and on some derivatives  transactions of non-residents.
For  example,  in May 1998,  the Israeli  government  adopted  regulations  that
replaced many of the  restrictions  on foreign  currency  transactions  with the
requirement  that such  transactions  be reported to the  Controller  of Foreign
Currency at the Bank of Israel.  Over time, if enacted,  this liberalization may
ultimately include the NIS becoming a fully convertible  currency.  No assurance
may be given that the Israeli government's  intentions as announced will receive
legislative or regulatory approval,  that any such approvals will be received in
any particular time frame or that the risks described above will be alleviated.

RISKS RELATING TO OPERATIONS IN EUROPE

         WE AND  ELSCINT  ARE  SUBJECT  TO  VARIOUS  RISKS  RELATED  TO OUR  AND
         ELSCINT'S  OPERATIONS  IN  EUROPE,  INCLUDING  ECONOMIC  AND  POLITICAL
         INSTABILITY,   POLITICAL  AND  CRIMINAL  CORRUPTION  AND  THE  LACK  OF
         EXPERIENCE AND UNPREDICTABILITY OF THE CIVIL JUSTICE SYSTEM.

         Many of the Eastern  European  countries in which we or Elscint operate
are  countries  that until the last decade  were  allied with the former  Soviet
Union under a communist  economic system,  and they are still subject to various
risks.  For  example,  Romania,  which is  still  economically  and  politically
unstable,  suffers from rapid  devaluation of the Romanian Lei (local  currency)
against  the  U.S.  dollar,  political  and  criminal  corruption,  and  lack of
experience and  unpredictability of the civil justice system.  Romania continues
to suffer from high unemployment, low wages, low literacy rates, and corruption.
These  risks  could be  harmful  to us and are very  difficult  to  quantify  or
predict.

         Although many  governments of the European  countries have  liberalized
policies on international trade, foreign ownership and development,  investment,
and currency  repatriation to increase both international  trade and investment,
such policies might change unexpectedly.  We and Elscint will be affected by the
rules and regulations regarding foreign ownership of real and personal property.
Such  rules may change  quickly  and  dramatically  and thus may have an adverse
impact  on  ownership  and  may  result  in a loss  without  recourse  of our or
Elscint's  property or assets.  Domestic and international laws and regulations,
whether  existing  today  or in the  future,  could  adversely  affect  our  and
Elscint's ability to market and sell our or Elscint's  products and could impair
our and Elscint's profitability.

         With respect to Elscint's operations in Romania, any foreign company or
litigant  may  encounter  difficulty  in  prevailing  in any  dispute  with,  or
enforcing any judgment  against,  the Romanian  government or any of officers or
directors under the Romanian legal system. If Elscint's  ownership rights in the
company that owns the Buchuresti Hotel complex are successfully challenged, this
may affect Elscint's ability to obtain compensation for its original investment.

         Some countries, including Romania, may regulate or require governmental
approval for the repatriation of investment  income,  capital or the proceeds of
sales  of  securities  by  foreign  investors.   In  addition,  if  there  is  a
deterioration in a country's balance of payments or for other reasons, a country
may impose temporary  restrictions on foreign capital  remittances  abroad. This
may adversely affect our and Elscint's ability to repatriate investment loans or
to remit dividends.

         Many  emerging  countries  have  experienced  substantial,  and in some
periods  extremely high, rates of inflation for many years.  Inflation and rapid
fluctuations  in  inflation  rates have had and may  continue  to have  negative
effects on the economies and securities  markets of certain emerging  countries.
In  addition,  in an attempt  to control  inflation,  price  controls  have been
imposed at times in certain countries,  which may affect our ability to increase
our room rates.



                                      -18-
<PAGE>

         OUR  AND  ELSCINT'S   BUSINESSES  MAY  BE  IMPACTED  BY  EXCHANGE  RATE
         FLUCTUATIONS AND INFLATION

         The  revenues of our  shopping  and  entertainment  malls  division and
Elscint's hotel division, as well as their operating expenses,  capital expenses
and debt payments are generally  denominated in the currency in which each asset
is located.  Therefore,  any  fluctuations  in the exchange  rates between these
currencies  and the NIS may  have an  adverse  effect  on the  reporting  of our
results  as  reflected  in our  Consolidated  Financial  Statements,  which  are
reported in NIS. The reporting of our  operations  that do not have revenues and
expenses in the same currency, will be affected by currency fluctuations.  While
we seek to mitigate the impact on us of a NIS devaluation  (including by linking
financing  transactions  specifically to the relevant  operating  currency),  we
cannot be certain that we will be able to do so successfully.

         In  addition,  to the extent  that the rate of  inflation  in Israel is
lower  than the rate of  devaluation  of the NIS in  relation  to the dollar and
certain other  currencies or if inflation in Israel lags behind any devaluation,
our results of operations may be adversely affected. In the early and mid-1990s,
the inflation rate in Israel exceeded the rate of devaluation of the NIS against
the dollar and certain  European  currencies.  However,  this trend was reversed
during 1997 and 1999. A  substantial  devaluation  of the NIS in relation to the
dollar would substantially increase the cost of our future capital expenditures.

OTHER RISKS

         WE AND ELSCINT ARE SUBJECT TO VARIOUS LEGAL PROCEEDINGS THAT MAY HAVE A
         MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS

         Following the sale of  substantially  all of Elscint's  assets in 1998,
EMI and  Elscint  were  served with  various  claims  filed by former and (then)
current shareholders and employees of Elscint in Israel and in the U.S. relating
to the negotiations preceding the transactions and the transactions  themselves.
Some of the plaintiffs filed motions to certify the claims as class actions.  In
addition,  certain other legal  proceedings have been initiated  against EMI and
Elscint in connection  with the change of control of both companies in May 1999,
and the acquisition of Elscint's hotel  businesses in September 1999,  including
motions  to  certify  such  claims as class  actions  (See  "Item 8 -  Financial
Information  - Legal  Proceedings").  Neither we nor  Elscint can  estimate  the
results of these proceedings.  A determination  against us or Elscint in some or
all of the  proceedings  may  materially  adversely  affect  our  and  Elscint's
operational results.

ITEM 4.  INFORMATION ON THE COMPANY.

BACKGROUND

         EMI  was  incorporated  in  1996  and  has a  perpetual  duration.  Our
executive offices are located at 13 Mozes Street,  Tel-Aviv 67442,  Israel.  You
may reach us by telephone at (972-3) 608-6010 or by fax at (972-3) 695-3080.

         EMI
         ---

         EMI is currently engaged in the following businesses:

         o    ownership,   through  a  wholly-owned  subsidiary,   of  operating
              shopping and entertainment malls in Europe;

         o    image guided treatment activities; and

         o    significant holdings in venture capital investments.



                                      -19-
<PAGE>

         ELSCINT
         -------

         Elscint is currently engaged in the following businesses:

         o    ownership of operating hotels in Europe and elsewhere and of hotel
              projects that are presently under development,  through subsidiary
              companies and jointly controlled companies;

         o    ownership and operation,  through a wholly-owned subsidiary, of an
              entertainment and commercial center in Herzlia, Israel; and

         o    investments in a bio-technology company.

SUMMARY

         EMI
         ---

         Following is a summary of our fields of operations:

         SHOPPING AND ENTERTAINMENT MALLS

         Through our  wholly-owned  subsidiary  Plaza Centers (Europe) BV of The
Netherlands  ("Plaza  Centers" or "PC"),  we  currently  have an aggregate of 18
operating shopping and entertainment malls in Hungary (15) and in Poland (3), as
well as an aggregate of 14 malls in various stages of  development  and planning
in Hungary,  Poland, the Czech Republic,  Romania. Latvia and Greece. The rights
to three of our  Hungarian  malls were  acquired by us from a third party during
2002. During 2002, we completed the construction of additional malls.

         The  business   concept  and  growth   strategy  of  the  shopping  and
entertainment mall business include the following elements:

         o    Site  Location.  Sites  for the  malls are  chosen  carefully  for
              proximity to areas with large population concentrations,  and with
              particular  emphasis on the  available  transportation  facilities
              that will service the malls.  Where  possible,  the sites selected
              are  within  close  proximity  to  metro,  bus or tram  lines  and
              adjacent to major roads.

              PC's unique  strategy  lies in the  launching of malls not only in
              the capital cities of the various countries where it operates, but
              also in the peripheral cities.

         o    Market Penetration. The business concept is, generally, to develop
              the malls in cities where no western style  shopping  malls exist,
              to construct  the malls as  expeditiously  as possible  (generally
              between 8 to 12 months from receipt of building  permits),  and to
              open the malls to the public well ahead of any competing projects.
              Alternatively,  in larger  cities  where  competition  is greater,
              emphasis is placed on location,  tenant mix,  critical density and
              expedited construction, in order to attain an advantage.

         o    Entertainment. One of the most significant elements in the success
              of the  malls  is the  emphasis  on the  entertainment  facilities
              offered to patrons. In many instances,  10 screen cinema complexes
              featuring  newly  released  movies  provide a major  attraction in
              regional cities where entertainment and leisure  opportunities are
              limited. In addition,  video arcades and electronic game rooms are
              popular  with  local  residents,  as are the food  courts.  In the
              larger facilities, an IMAX 3-D screen is sometimes included.



                                      -20-
<PAGE>

         o    Anchor  Tenants.  Where  possible,  agreements  in  principle  are
              reached with anchor tenants, either generally or for agreed space.
              This  facilitates  easier  leasing of the critical  anchor  areas,
              which in turn  makes the  leasing  of  smaller  areas  easier  and
              contributes towards obtaining financing for the construction.

         o    Operation.   Following  opening,   the  malls  are  managed  by  a
              management company (wholly-owned  subsidiary of PC), with know-how
              and expertise in marketing,  promotions  and ad hoc  entertainment
              events to attract customers.

         Growth  Strategy.  Our growth strategy is to develop an extensive chain
of  shopping  and  entertainment  malls  bearing the "Plaza  Centers"  tradename
throughout  central and eastern  Europe.  Implementation  of this  strategy  has
already  commenced with the opening of twelve  operational  malls in Hungary and
three in Poland and the acquisition of three  additional  malls in Hungary,  and
with 14 additional projects in various stages of development in Hungary, Poland,
the Czech Republic,  Romania, Latvia and Greece.  Additional target countries of
Plaza Centers include Croatia,  Slovakia,  Slovenia,  Ukraine and Lithuania.  By
establishing  presence in these  countries  well ahead of its  competitors,  EMI
plans to expand its network of malls throughout eastern and central Europe.

         HOLDINGS IN VENTURE CAPITAL INVESTMENTS

         InSightec - We maintain a  significant  investment  in  InSightec.  The
products  developed by InSightec  are designed to create,  in effect,  a virtual
guided and controlled  thermal scalpel,  for use by surgeons and  interventional
radiologists to  non-invasively  detect,  monitor and destroy tissues and organs
under direct  real-time MR image  guidance.  The products are  evaluated for the
coagulation of breast tumors and uterine fibroids, all under FDA Investigational
Device  Exemptions  (IDEs).  Our  objective in this area is to become the market
leader in Image Guided HIFUS, achieving a significant improvement in the quality
and efficacy of the treatment while demonstrating cost effectiveness.

         Holdings in other venture capital  investments - For  information  with
respect to EMI's  holdings in other  venture  capital  investments,  see " - The
current  businesses  of EMI and  Elscint - EMI -  Holdings  in  Venture  Capital
Investment".

         ELSCINT
         -------

         Following is a summary of Elscint's businesses:

         HOTEL BUSINESS

         Elscint's  business  concept and growth strategy for its hotel business
include the following key elements:

         o    Elscint's  hotels are  generally  situated in close  proximity  to
              major  railway  links into  cities,  such as the  central  railway
              station in Antwerp (situated close to the Astrid Park Plaza hotel)
              and  Victoria  railway  station in London  (situated  close to the
              Victoria Park Plaza hotel),  both of which  stations are scheduled
              to  accommodate  the  services of the train de grand  vitesse (the
              "TGV"), when such services become operational in these areas.

         o    Elscint's  hotels offer  convenient  access to the local  business
              districts, as well as attractive conference facilities.

         o    Elscint's  hotels  make  considerable  efforts  to offer  personal
              services  at a  five-star  level  under  the  motto  "The  World's
              Friendliest Hotels," but at four-star level prices.



                                      -21-
<PAGE>

         o    Elscint's  hotels offer quality  services and guest  facilities to
              their patrons,  with emphasis on advanced hi-tech services such as
              Internet connections in rooms and a fully-equipped business center
              with  facsimile,  photocopying  services  and e-mail and  computer
              link-ups,  as well as fitness  centers,  indoor swimming pools and
              saunas.

         o    Elscint's  hotels'  principal target customer base is the business
              traveler and the tourist industry, both individuals and groups.

         o    Elscint's  hotels focus on strategic  cooperation  and affiliation
              with  management  companies  with  know-how and expertise in hotel
              management, which enables optimal use of a centralized reservation
              system, and which is beneficial due to the advantages of a unified
              management  system that  promotes the  efficiency of the operation
              and control of hotels in diverse locations.

         o    The development and implementation of an efficient cost management
              system in order to reduce overhead costs to a minimum.

         The goal of Elscint's hotel business is to acquire and manage four-star
hotel properties which provide the business and vacation traveler with five-star
quality accommodations,  conveniently located near major transportation stations
and commercial centers, at four-star hotel prices.

         Elscint's  growth  strategy for the hotel  business is  increasing  the
number of hotel rooms in both Western and Eastern Europe, with emphasis on those
cities in which a  shortage  of rooms  exists  in  general,  such as London  and
Amsterdam, or where a shortage of quality rooms exists, such as Bucharest,  with
a view to  attaining  its  ultimate  goal of  having a  presence  in most  major
European cities.  This strategy is being implemented both by the acquisition and
renovation  of  existing   operational   hotels  and  by  the  construction  and
development  of new  hotels  on  land  purchased  in  optimal  locations.  Where
appropriate,  Elscint  may draw on the  experience  and  resources  of its group
affiliates  to  develop   integrated   projects   which  will  include   hotels,
entertainment  and  commercial  centers,  and  office  facilities,   subject  to
applicable restrictions.

         Each of  Elscint's  operating  hotels has  appointed  Park Plaza as its
management company. Park Plaza owns the franchise to the "Park Plaza" brand name
in the Benelux countries,  United Kingdom,  various countries in Eastern Europe,
South  Africa  and a number of  countries  in the  Middle  East.  Park  Plaza is
responsible for the operation of the hotels,  including the daily  monitoring of
each hotel's  results and the  supervision  of the local  management  and staff.
However, local management is employed by the respective company owning the hotel
and not by Park Plaza, although Park Plaza does render hiring services.

         ENTERTAINMENT AND COMMERCIAL CENTER IN HERZLIA, ISRAEL

         Elscint's  entertainment  and commercial center is located in the heart
of, and faces,  the Herzlia Marina,  which is one of the most  prestigious  land
development  projects in Israel.  The principal  features of Elscint's  business
strategy for the entertainment and commercial center include:

         o    The  creation of a  distinctively  aesthetic  and  architecturally
              pleasant structure, with emphasis on "customer friendliness", at a
              prime and unique  location  overlooking the Herzlia Marina and the
              shores of the Mediterranean Sea;

         o    An   aggressive   marketing   campaign   to   attract   recognized
              "brand-name" retailer and entertainment service provider tenants;


                                      -22-
<PAGE>

         o    Offering  a  wide  range  of  quality  entertainment   facilities,
              together with an impressive variety of retail opportunities;

         o    Providing ample parking facilities for patrons; and

         o    An  innovative  and  dynamic  management  program  for the  center
              designed to foster the interest of patrons.

         The Herzlia Marina project  includes an anchorage for over 800 vessels,
as well as  Elscint's  entertainment  and  commercial  center and various  other
developments by unrelated third parties,  all being constructed on approximately
1.46 million square feet of land which has been reclaimed from the sea.

         It is  anticipated  that the center  will draw its  customers  from the
northern parts of Greater Tel Aviv (including the northern  satellite  cities of
Herzlia,  Ra'anana  and Kfar Sava) as well as the suburbs of northern  Tel Aviv,
attracting a potential  customer  base of  approximately  1,500,000 to 2,000,000
residents.  The  center  offers  "brand  name"  retail  outlets,  a  variety  of
entertainment and leisure activities, a food court with more fast and higher-end
food  establishments than in any other single building in Israel, a multi-screen
cinema complex,  a simulation  facility,  an active  water-ride and a video game
arcade.  To promote  customer  traffic,  the  center  will be  administered  and
operated by an experienced  management  company,  which will formulate a program
designed to foster the interest and involvement of the patrons in the activities
of the center,  including special price reduction  campaigns,  entertainment and
fashion  events,  lotteries,  contests,  etc. The  entertainment  and commercial
center  was  opened  to  the  public  in  June  2003.   Through  May  31,  2003,
approximately  141,438 square feet of the  entertainment  and commercial  center
have been leased to various retailers, of which approximately 87,425 square feet
have been leased to three anchor  tenants,  including an eight (8) screen cinema
complex, a large retailer group and a pharmacy-perfumery.

         BIO-TECHNOLOGY INVESTMENTS

         Since  its  establishment  in  early  2000,  Elscint  Bio-Medical  Ltd.
("EBM"), Elscint's bio-technology arm, has focused on investments in early stage
bio-technology  companies.  During 2002,  EBM expanded its investment in Gamida,
but decided to postpone for the foreseeable future other planned  investments in
additional  companies  due to the slowdown in the Israeli  economy and projected
difficulties in raising financing for such businesses.  Currently,  EBM does not
have any plans to expand its activities.

HIGHLIGHTS OF 2002

         During 2002 we continued to expand our shopping and entertainment malls
business and the investments in the venture capital  division.  Elscint expanded
its investments in the hotel and leisure  industry,  and sold its  manufacturing
facility  in Ma'alot,  Israel.  The  following  were the  highlights  of our and
Elscint's activities and other events relating to our businesses during 2002 and
through May 31, 2003:

         EMI
         ---

              o   Acquisition  and  renovation  of Duna Plaza,  Sopron Plaza and
                  Nyir Plaza, three shopping and entertainment malls in Hungary;

              o   FDA approval for Phase III studies of uterine fibroids granted
                  to InSightec;

              o   Agreements  between  InSightec and Brigham & Woman's  Hospital
                  and Haim Sheba Medical Center,  for the  establishment  of MRI
                  Guided HIFUS therapeutic centers;

              o   Grant of Israeli  Ministry of Health and other  approvals  for
                  the commercial use of InSightec's system;

              o   Receipt by InSightec of CE Marking Certification  approval for
                  use of InSightec's system in EC.



                                      -23-
<PAGE>

              o   Signing of distribution and  collaboration  agreement  between
                  InSightec and a Japanese distributor;

              o   Exercise of warrants by a third party for shares in InSightec;

              o   Changing  our  investment  in  VCON   Telecommunications  Ltd.
                  ("VCON");

              o   Additional investment in Easyrun Ltd. ("Easyrun"); and

              o Acquisition of Dreamland Entertainment N.V.

         ELSCINT
         -------

         The following were the highlights of Elscint's business  activities and
investments during 2002 and through May 31, 2003:

              o   The  sale  of the  manufacturing  facility  in  Ma'alot  to an
                  unrelated third party;

              o   The long term  lease of the hotel  property  located on Euston
                  Road in London,  England  (previously  Shaw Park  Plaza) to an
                  unrelated third party for a period of 25 years;

              o   The close down of the Bucuresti  Hotel in  Bucharest,  Romania
                  for renovation and refurbishment;

              o   The  completion of  renovation  works at the Astrid Park Plaza
                  hotel in Antwerp, Belgium and the commencement of construction
                  of an oceanarium attraction within the facility;

              o   The payment of a dividend by the Company to its  shareholders;
                  and

              o   The completion of the  construction of the  Entertainment  and
                  Commercial Center in Herzlia.

         EMI
         ---

         ACQUISITION OF DUNA PLAZA, SOPRON PLAZA AND NYIR PLAZA

         On February 25, 2002, PC and a  wholly-owned  Cypriot  subsidiary of PC
finalized the acquisition from an unrelated third party, for total consideration
of Euro 47.2 million  (approximately $49.6 million), of all of the capital stock
of three Hungarian  companies,  each of which owns a shopping and  entertainment
mall in Hungary:  Duna Plaza Kft.,  which owns the Duna Plaza  Shopping  Mall in
Budapest;  Sopron Plaza,  which owns the Sopron Plaza Shopping Mall in Sopron, a
city in western  Hungary close to the Austrian  border;  and  Nyiregyhaza  Plaza
Kft.,  which  owns  the  Nyir  Plaza  Shopping  Mall  situated  in the  city  of
Nyiregyhaza  in  eastern  Hungary,  approximately  30 miles  from the  Ukrainian
border. Duna Plaza Kft. was, at the time of the transaction, the owner of all of
the rights in and to Sopron Plaza Kft. and Nyiregyhaza Plaza Kft. In addition to
the purchase price, PC assumed a loan made previously to one of the companies in
the amount of Euro 12.27 million (approximately $12.9 million).

         The  foregoing  transaction  was subject to an  adjustment  in purchase
price, which has not yet been finalized for technical reasons.

         PC and its Cypriot  subsidiary  financed this  transaction by long term
loans (See "Item 5 -  Operating  and  Financial  Review and  Prospects - Loans -
EMI").


                                      -24-
<PAGE>

         DEVELOPMENTS RELATING TO INSIGHTEC

         o In  March  2002,  InSightec  received  FDA  approval  for  Phase  III
(pivotal)  study on the treatment of uterine  fibroids,  using its technology of
MRI guided High Intensity Focused Ultrasound (MRgHIFUS).

         The Phase III study will be performed  at Brigham and Women's  Hospital
in  Boston,  the Mayo  Clinic  in  Rochester,  the  Johns  Hopkins  Hospital  in
Baltimore,  the Saint  Mary's  Hospital in London,  the  Charite in Berlin,  the
Cochin  Hotel in Paris,  the Sheba  Medical  Center in Tel Aviv and the Hadassah
Hospital in Jerusalem.  InSightec estimates that commercial  applications of the
treatment  will be  available  during 2004,  subject to  obtaining  the required
regulatory approvals.

         o In June 2002,  InSightec  signed an agreement  with Brigham & Woman's
Hospital in Boston  ("BWH")  for the  establishment  of an MR Image  Guided High
Intensity Focused  Ultrasound  (HIFUS)  therapeutic  center within the hospital.
This  outpatient  treatment  center  combines a diagnostic  1.5T GE SIGNA(TM) MR
imaging system and InSightec's  ExAblate 2000(TM) focused ultrasound system. The
center will enable  InSightec and BWH  researchers to extend their present level
of collaboration on the ongoing clinical trials in the non-invasive treatment of
uterine  fibroids  and breast  fibroadenoma.  It is  anticipated  that  research
activities  at the center will  commence by late 2003.  Subject to obtaining the
required  regulatory  approvals,  the center is expected to become  commercially
operational during the course of 2004.

         o In June 2002,  InSightec  signed a principle  agreement with the Haim
Sheba Medical Center in Tel-Aviv,  for the  establishment of an MRI Guided HIFUS
therapeutic  center  within  the Sheba  Medical  Center.  This  custom  designed
outpatient  treatment  center combines a diagnostic  1.5.T GE SIGNATM MR imaging
system and  InSightec's  ExAblate 2000. The center will enable  InSightec's  and
Sheba   Medical   Center's   researchers   to  extend  their  present  level  of
collaboration on the ongoing  clinical trials in the  non-invasive  treatment of
uterine  fibroids,   breast  fibroadenoma  and  breast  cancer.  The  commercial
operation of the center as well as further  research works are expected to start
during the second half of 2003.

         o In August 2002, InSightec received approval from the Israeli Ministry
of Health for the commercial use of its ExAblate  2000(TM)  system for treatment
of Uterine Fibroids.  Thereafter,  in October 2002 InSightec received CE Marking
Certification  approval  allowing the  commercial  use of the device in European
Union countries as well as Switzerland, Norway, Iceland and Liechtenstein.

         o In February  2003,  InSightec  signed a Memorandum  of  Understanding
("MOU") with Ktec  Corporation Inc.  ("Ktec") for the exclusive  distribution of
MRgFUS  systems in Japan.  The MOU forms the basis of a three-year  distribution
agreement,  within the framework of which Ktec will conduct all the  regulatory,
marketing  and  sales  activities  of  InSightec  in Japan,  and  shall  provide
technical and clinical support. The MOU determines minimum purchase requirements
for each of the three years of the agreement,  increasing  annually,  at a total
value of  approximately  $36  million.  Ktec will  provide  bank  guarantees  as
security for the fulfillment of its obligations under the agreement. The MOU has
been approved by the board of directors of InSightec,  and is currently  subject
to the  approval of the board of  directors  of Ktec and to the  execution  of a
definitive distribution agreement.

         o In April 2003, a shareholder of InSightec (an unrelated  third party)
exercised  certain  warrants  for the  acquisition  of  4.96% of the  shares  of
InSightec,  on a fully  diluted  basis,  in  consideration  for $2.975  million.
Following such exercise, such shareholder holds 19.8% of InSightec's outstanding
capital stock (on a fully diluted basis).  The exercise of such warrants reduced
our holdings in InSightec to 53.78% (on a fully diluted basis).



                                      -25-
<PAGE>

         CHANGING OUR INVESTMENT IN VCON

         Within the framework of an investment agreement signed between VCON and
Elbit Ultrasound Netherlands BV ("EUBV"),  the Company's subsidiary,  on January
15, 2002, the parties agreed to change the holdings of EUBV in VCON. Pursuant to
such agreement, $2 million of a debenture for the amount of $4 million which was
held by EUBV  ("Original  Debenture"),  were converted  into 2 million  ordinary
shares  of  VCON.  In  addition,  a new  convertible  subordinated  note  in the
principal  amount of $2 million and bearing  interest at 2% per year, was issued
to EUBV (the "New Note").  Following such conversion and issuance,  the Original
Debenture  was  cancelled.  The New Note has a  five-year  maturity  term and is
convertible,  in whole or in part, at the option of EUBV, at any time during its
term,  into  ordinary  share of VCON at a  conversion  price of $1 per  ordinary
share. Unless converted,  the outstanding  principal is required to be repaid in
quarterly  installments  commencing two years after the issuance of the New Note
(in August 2002).

         In addition,  and in lieu of interest  payments accrued on the Original
Debenture  and the New Note,  VCON has  issued to EUBV an  additional  five-year
convertible  subordinated  note in the principal amount of $475,000 which amount
represents all interest accrued under the Original Debenture and all interest to
be  accrued  under the New Note (the  "Interest  Note").  The  Interest  Note is
convertible  in whole or in part,  at the option of EUBV, at any time during its
term,  into ordinary  shares of VCON at a conversion  price of $1.4 per ordinary
share  and will  not  bear  any  interest.  Unless  converted,  the  outstanding
principal is required to be repaid in one payment upon  maturity of the Interest
Note.

         Upon  consummation  of the January 15, 2002  investment  agreement,  in
August 2002,  VCON granted to EUBV  three-year  warrants at a purchase  price of
$0.3 per  warrant,  to purchase up to  1,333,333  ordinary  shares of VCON at an
exercise price of $1.4 per ordinary share.

         In addition,  EUBV  acquired  from its wholly owned  subsidiary - Elbit
Communications  and  Technology  BV ("ECT") its holdings in VCON and  thereafter
EUBV was  recorded  as the holder of  approximately  20.3% of VCON's  issued and
outstanding ordinary shares, (30% on a fully diluted basis).

         ADDITIONAL INVESTMENT IN EASYRUN

         In May 2002,  EMI together  with  certain  other  investors,  signed an
agreement with Easyrun for the grant of a convertible loan of up to $600,000, of
which  EMI was to award  $360,000.  The  principal  amount of the loan will bear
interest  at the rate of 6% per year.  Any part of the loan,  unless  converted,
will be  repaid  to EMI at the  expiration  of 6  months  from  the  date of its
respective  grant. The loan may be converted at any time until  repayment,  at a
conversion price of $0.3465 per Easyrun share, into Preferred C Shares.

         Furthermore,  Easyrun  granted to EMI an option to purchase such number
of Easyrun  Preferred C Shares as is equal to the  principal  amount of the loan
($360,000)  divided  by the lower of $0.81 per share or 30% less than the lowest
price  determined  for  the  purpose  of any  financing  event.  The  option  is
exercisable, in whole or in part, within three years from the grant of the loan.

         Pursuant to the foregoing  agreement,  EMI has the right to appoint one
(out of five) members of the board of directors of Easyrun.

         Issuance of Preferred C Shares  according  to the May 2002  transaction
has not yet been executed.

         In January 2003, EMI and Easyrun entered into an additional  agreement,
for a further loan to Easyrun of $100,000.  This loan is similar in terms to the
May 2002 loan.


                                      -26-
<PAGE>

         ACQUISITION OF DREAMLAND ENTERTAINMENT N.V.

         On April 5, 2003 PC  signed an  agreement  for the  acquisition  of the
shares of Dreamland  Entertainment N.V. ("Dreamland") whose main activity is the
operation,  through a subsidiary,  of  entertainment  areas in shopping malls in
Poland,  including  bowling  lanes,  internet  cafes,  ice cream sales,  vending
machines and live music and entertainment. Dreamland also operates in the Polish
shopping  and  entertainment  centers  owned  by  PC's  project  companies.  The
consideration  of Euro 4.2 million was net,  following  deduction of  commercial
debts owed by Dreamland's subsidiary to the project companies.

         ELSCINT
         -------

         SALE BY ELSCINT OF ITS MANUFACTURING AND ASSEMBLY FACILITY

         On December 31, 2002, Elscint sold (on the basis of an agreement signed
on November 13, 2002), of substantially  all of the assets and the assignment of
certain  liabilities  relating  to  the  manufacturing,  development,  assembly,
engineering  and integration  operations  conducted by Elscint at the factory in
Ma'alot  in  Northern  Israel.   The  buyer  did  not  assume  tax  liabilities,
liabilities arising out of breaches by Elscint of assigned  contracts,  employee
related   liabilities  for  the  period   preceding  the   consummation  of  the
transaction,  and certain retained environmental liabilities.  On the basis of a
closing balance sheet, the buyer paid approximately  $20.5 million,  including a
goodwill payment,  of which  approximately  $10.2 million was placed into escrow
pending  verification of the purchase price, within 45 days of the closing,  and
collection of accounts  receivable within 90 days of closing. As of May 31, 2003
the full amount of the escrow  deposit has been released to Elscint  (except for
approximately  $155,000 paid to the buyer for certain  adjustments  and accounts
receivable  not  collected  within  the 90 day  period).  As a  result  of  this
transaction, Elscint recorded a capital gain of approximately $8 million.

         HIGHLIGHTS OF ELSCINT'S HOTEL AND LEISURE BUSINESSES

         Following the opening of the Victoria London and Sherlock Holmes hotels
in London during 2001, Elscint now has interests in six operational hotels:

              o   the Victoria in Amsterdam;

              o   the Utrecht Park Plaza in Utrecht, The Netherlands;

              o   the Astrid Park Plaza in Antwerp, Belgium;

              o   the Sandton Park Plaza in Johannesburg, South Africa;

              o   the Victoria London Park Plaza in London; and

              o   the Sherlock Holmes Park Plaza, also in London.

         In  collaboration  with the Red Sea Hotel Ltd. group of companies ("Red
Sea") and Park Plaza,  Elscint  continued to implement  the  management  program
designed to optimize management procedures,  streamline cost control systems and
improve performance where possible.

         In January 2003, Elscint leased the property situated on Euston Road in
London  (formerly  operated as the Shaw Park Plaza) (the "Euston Road Property")
to an unrelated third party for a period of 25 years.

         During 2002, Elscint completed the renovations of the Astrid Park Plaza
in Antwerp,  Belgium by expanding  the lobby to an area of 7,000 square feet and
inaugurating  a bistro on the lobby floor which has proven a popular  venue.  In



                                      -27-
<PAGE>

addition,  the  commercial  areas of the property have been closed down and work
has commenced on converting this area into an oceanarium  attraction.  The works
on this renovation are scheduled to be completed by the summer of 2003.

         In December 2002, Elscint closed down the Bucuresti hotel in Bucharest,
Romania, in order to facilitate the complete renovation and refurbishment of the
facility and its conversion into a hotel of international standard.  Elscint has
succeeded  in  reducing  the work force at the hotel from 890  employees  to 120
employees as at May 31, 2003.  The planning and design of the  renovation  works
are nearing  completion,  and Elscint  intends to obtain the necessary  building
permits by December 2003 in order to enable the  commencement  of works by early
2004. It is anticipated  that the renovation  works will be completed  within 24
months.

         In  addition,  109  out of  the  230  apartment  units  comprising  the
apartment hotel (which forms part of the Bucuresti  complex) have been renovated
during the  beginning of 2003 at a cost of $2.5  million.  The  apartment  hotel
enjoys a high occupancy rate and generates revenues of approximately  $3,200,000
per annum. Elscint intends to improve the quality of the services offered to its
apartment hotel residents.

         During 2002,  Elscint also  continued its plans for the  development of
two additional hotel projects. In Hungary, the project for the conversion of the
National Ballet Institute Building,  centrally located on Budapest's prestigious
Andrassy  Boulevard,  into a western business orientated hotel,  proceeded.  All
tenants  (except  one) have now been  vacated  from the  building by  agreement.
Applications  for  building   permits  are  now  pending,   and  we  expect  the
construction  works to commence during late-2003,  and to be completed within 15
months  thereafter.  The  construction  of the Riverbank Park Plaza Hotel on the
site  acquired  in March  2000 on the banks of the  Thames  River has  continued
through  2002 and is  expected  to be  completed  by late 2004.  This hotel will
comprise of over 550 rooms.

         During 2002, the  development  of the Lake Monfort  Project in northern
Israel was delayed,  due  primarily  to the severe  economic  situation  and the
decrease in demand for tourism  facilities  in Israel.  Elscint will continue to
assess its plans for the  development  of this  project in light of the security
situation in the region and the  influence  that such  situation may have on the
local tourist market.

         HIGHLIGHTS OF ELSCINT'S INVESTMENTS IN BIO-TECHNOLOGY COMPANIES

         In April  2002,  EBM  acquired  from a third party  450,000  additional
shares in Gamida for approximately $1,042,000,  including the shares held by its
former CEO in Gamida.

         As of the  December  31,  2002,  EBM  held  approximately  37.1% of the
outstanding shares of Gamida (33.6% on a fully-diluted  basis) and had the right
to appoint one quarter of the members of Gamida's board of directors.

         In early 2003,  Gamida  signed an agreement  with Teva  Pharmaceuticals
Ltd.  ("Teva"),  for  the  investment  by  Teva  of $3  million  in  Gamida  for
approximately  9% of  Gamida's  outstanding  share  capital.  Gamida  signed  an
additional  memorandum of  understanding  with Teva,  pursuant to which Teva was
awarded  an  option  for  future  cooperation  with  Gamida  with  regard to the
technology that Gamida is developing,  and subject to conditions  agreed between
those parties.

         In November 2002, the  employment  agreement  between EBM and Dr. Amnon
Gonenne,  its former Chief Executive  Officer,  was terminated.  Pursuant to the
termination  agreement,  EBM purchased from Dr. Gonenne all of his securities of
both  EBM  and  its  portfolio  investee  companies,  in  consideration  for the
repayment  of the loans  awarded by EBM to Dr.  Gonenne in order to finance  the
acquisition of those securities.

         Concurrently  with the  termination of the employment  agreement of Dr.
Gonenne,   EBM's  management   postponed  for  the  foreseeable  future  further
investment   opportunities  in  bio-technology  related  companies  pending  its
re-assessment of the market situation.



                                      -28-
<PAGE>

BUSINESS OVERVIEW

         The following table set forth our revenues by business activity in each
geographic market in which we operate, for each of the last three years:

                                                                CONVENIENCE
                                                                TRANSLATION IN
                                     FISCAL YEAR ENDED          U.S. DOLLARS FOR
                                        DECEMBER 31,            2002
                                    2002      2001     2000     (UNAUDITED)
                                    ----      ----     ----     ----------------
(IN THOUSANDS OF NIS)

   WESTERN EUROPE                 *173,598  109,847  106,686              36,647
   EASTERN AND CENTRAL EUROPE    **320,543  165,710   28,117              67,667
   ISRAEL                            1,538   10,223   20,367                 324
   OTHERS                            1,660    1,096    1,403                 350
                                ------------------------------------------------
                                   497,339  286,876  156,573             104,988
                                ================================================

*    Includes the revenues of the hotel business.
**   Includes  approximately NIS 285.1 million in revenues of the commercial and
     entertainment  center  business  and  approximately  NIS  35.4  million  in
     revenues of the hotel business.

THE CURRENT BUSINESSES OF EMI AND ELSCINT

         EMI
         ---

SHOPPING AND ENTERTAINMENT MALLS

         As a general principle,  the operations of each shopping center project
are conducted through a special purpose project corporation, so that PC operates
as a holding company that holds  interests in the special  purpose  corporations
which  develop,  construct  and operate the centers or have  interests  in land,
developed or intended to be developed as centers.

         PC presently has 15 operating  malls in Hungary,  three operating malls
in  Poland  (in one of these  projects  PC's  interest  is 50%)  and 14  similar
projects in various stages of planning and development in Hungary,  Poland,  the
Czech republic, Romania and Greece.

         The shopping and  entertainment  malls are  constructed  in three basic
models:

         (i)    "Midi-Malls"  measuring  between 165,000 and 242,000 square feet
                (constructed),

         (ii)   the substantially larger type of "Mega-Malls"  measuring between
                330,000 to 550,000 square feet (constructed), and

         (iii)  the  smaller  "Mini-Malls"  of 110,000 to 165,000  square  feet,
                depending on the size of the land and the target population (all
                excluding underground parking facilities, where applicable).

         Areas that can be leased generally  consist of approximately 75% of the
total constructed area. Mall sizes are dependent on the size of the land and the
target population.  The malls are generally comprised of two principal elements,
shopping and entertainment. The anchor tenants form the basis of these elements,
around which the smaller businesses and activities are introduced, and provide a
wide  range and  choice of  activities  offered to  patrons.  The  entertainment
facilities  generally include a cinema complex of between 8-12 screens,  a video
and gaming arcade, bowling alleys, billiard,  fitness centers, bar, discotheque,
kid's playground and, in some projects, an IMAX three-dimensional cinema screen.
The food  court  consists  of a range of  restaurants,  offering  a  variety  of
culinary opportunities from fast food to gourmet foods.



                                      -29-
<PAGE>

         The commercial  activities  focus on supermarket  and department  store
anchors,  and are  carefully  monitored  to allow an  optimal  mix of stores and
services  to cater  for all  requirements  and to  offer  the  maximum  range of
commodities to patrons.

         Our shopping and entertainment  mall business currently consists of the
following projects:

<TABLE>
<CAPTION>

 OPERATIONAL MALLS
------------------------------------------------------------------------------------------------------------------------------------
 NAME OF MALL                      COMMENCEMENT OF       LEASEABLE     PARKING     OCCUPANCY     MISCELLANEOUS
                                   OPERATION             AREA          SPACES      AT
                                                         (SQ.FT.)      (SQ.FT.)    5/31/03
------------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>                    <C>           <C>         <C>           <C>
 CSEPEL PLAZA, Budapest, Hungary   December 1997          150,000       380         91%           o  95 shops
                                                                                                  o  10 screen multiplex cinema
                                                                                                  o  Located in the heart of the
                                                                                                     commercial sector of Csepel
                                                                                                     Island on the Danube River
 GYOR PLAZA, Gyor, Hungary         September 1998         165,000       465         97%           o  City is close to Austrian
                                                                                                     border, and is fast growing
                                                                                                  o  100 shops
                                                                                                  o  10 screen multiplex cinema
 DEBRECEN PLAZA, Debrecen,         December 1998          161,000       450         96%           o  97 shops
 Hungary                                                                                          o  9 screen multiplex cinema
 ALBA PLAZA, Szekesfehervar,       June 1999              165,000       480         93%           o  Open market
 Hungary                                                                                          o  10 screen multiplex cinema
                                                                                                  o  107 shops
 PECS PLAZA, Pecs, Hungary         October 1999           168,000       1,000       95%           o  Close to the Croatian border
                                                                                                  o  113 shops
                                                                                                  o  10 screen multiplex cinema
                                                                                                  o  In June 2002 we  acquired  an
                                                                                                     additional   parcel  of  land
                                                                                                     adjusment  to the Pecs  Plaza
                                                                                                     for HUF 209 million.
 SZEGED PLAZA, Szeged, Hungary     May 2000               170,000       1,000       97%           o  Close to Serbian border
                                                                                                  o  Only mall in city
                                                                                                  o  103 shops
                                                                                                  o  10 screen multiplex cinema
                                                                                                  o  Recreational lake
 MISKOLC PLAZA, Miskolc, Hungary   June 2000              161,000       450         97%           o  Close to Slovakian border
                                                                                                  o  Third largest city in
                                                                                                     Hungary
                                                                                                  o  10 screen multiplex cinema
                                                                                                  o  107 shops
 KANIZSA PLAZA, Nagykanizsa,       December 2000          83,000        300         74%           o  Close to Croatian border
 Hungary                                                                                          o  Additional parking spaces
                                                                                                     available
                                                                                                  o  49 shops
                                                                                                  o  7 screen multiplex cinema
 KAPOSVAR PLAZA, Kaposvar,         December 2000          91,000        254         90%           o  Close to Croatian border
 Hungary                                                                                          o  Additional parking spaces
                                                                                                     available
                                                                                                  o  55 shops
                                                                                                  o  4 screen multiplex cinema
 SZOLNOK PLAZA, Szolnok, Hungary   December 2001          77,500        180         91%           o  55 shops
                                                                                                  o  Multiplex cinema complex
 ZALA PLAZA, Zalaegerszeg,         December 2001          80,000        210         83%           o  48 shops
 Hungary                                                                                          o  Multiplex cinema complex


                                                               -30-
<PAGE>

 OPERATIONAL MALLS
------------------------------------------------------------------------------------------------------------------------------------
 NAME OF MALL                      COMMENCEMENT OF       LEASEABLE     PARKING     OCCUPANCY     MISCELLANEOUS
                                   OPERATION             AREA          SPACES      AT
                                                         (SQ.FT.)      (SQ.FT.)    5/31/03
------------------------------------------------------------------------------------------------------------------------------------
 SAVARIA PLAZA, Szombathely,       March 2002             91,600        240         64%4          o  Close to Austrian border
 Hungary                                                                                          o  50 shops
                                                                                                  o  Multiplex cinema complex
 DUNA PLAZA (*), Budapest,         October 1996           600,000 +     1,500       96%
 Hungary                                                  123,000                                 o  132,000 sq. ft. of office
                                                          sq.ft.  of                              o  291 shops
                                                          office                                  o  access to additional parking
                                                                                                     spaces
                                                                                                  o  14 screen multiplex cinema
                                                                                                  o  Currently undergoing
                                                                                                     renovation
                                                                                                  o  Close to Austrian border
                                                                                                  o  101 shops
                                                                                                  o  7 screen multiplex cinema
 SOPRON PLAZA (*), Sopron,         December 1998          164,000       700         90%           o  Over 60 international
 Hungary                                                                                             outlets and local retailers
                                                                                                  o  Close to Ukrainian border
                                                                                                  o  81 shops
                                                                                                  o  6 screen multiplex cinema
 NYIR PLAZA (*), Nyiregyhaza,      June 2000              150,000       600         74%           o  EMI owns 50%
 Hungary                                                                                          o  EMI is subject to a put
                                                                                                     option of the joint venture
 SADYBA BEST MALL (50%),           September 2000         260,000       1,100       85%              partner until September 2003
 Warsaw, Poland                                                                                   o  EMI will have a call right
                                                                                                     as to the remaining 50% of
                                                                                                     the mall
                                                                                                  o  Situated in the center of
                                                                                                     Warsaw
                                                                                                  o  12 screen multiplex cinema
                                                                                                  o  Three-dimensional IMAX
                                                                                                     screen
                                                                                                  o  81 shops
                                                                                                  o  8 screen multiplex cinema
                                                                                                  o  140 shops
 RUDA SLASKA PLAZA, Ruda           November 2001          158,000       600         80.6%         o  Multiplex screen cinema
 Slaska, Poland                                                                                      complex, including an IMAX
 KRAKOW PLAZA, Krakow, Poland      December 2001          344,300       1,500       80.1%            screen


(*) Recently acquired

         In  addition  to our  operating  projects,  all of the below  sites are
designated  for  construction  of shopping  and  entertainment  malls of various
sizes. The following projects are in various stages of planning and development.

PROJECTS UNDER DEVELOPMENT
------------------------------------------------------------------------------------------------------------------------------------
Name                      Status            Scheduled    Leaseable       Parking     Miscellaneous (1)
                                            Opening      Area (sq. ft.)  Spaces
------------------------------------------------------------------------------------------------------------------------------------
BALATON PLAZA, Vesxprem   Pre Sale          2004         100,000         370         o   Total anticipated cost of project
Hungary                   Agreement                                                      Euro 10.161 million ($10.67 million)
POZNAN PLAZA, Poznan      Land Acquired     2004         341,000         1,100       o   Total anticipated cost o project
Poland                                                                                   Euro 53.2 million  ($55.8 million)

----------------
4  Recently opened.

                                                               -31-
<PAGE>

------------------------------------------------------------------------------------------------------------------------------------
Name                      Status            Scheduled    Leaseable       Parking     Miscellaneous (1)
                                            Opening      Area (sq. ft.)  Spaces
------------------------------------------------------------------------------------------------------------------------------------

LUBLINE PLAZA, Lublin     Joint Venture     2005         286,000         950         o   The acquisition by PC of a 50%
Poland                    Agreement                                                      interest in this project is
                                                                                         scheduled to be  consummated in September
                                                                                         2003  following   completion  of  certain
                                                                                         pre-closing   obligations  by  the  joint
                                                                                         venture parties.
                                                                                     o   Total anticipated cost of project
                                                                                         Euro  43.6 million (US$45.7 million)
RYBNIK PLAZA, Rybnik      Tender won (2)    2004         161,000         500         o   Situated in the very city center
Poland                                                                               o   Total anticipated cost of project
                                                                                         Euro 23 million (US$24.1 million)
BRNO PLAZA, Brno Czech    Pre Sale          2004         222,600         860         o   125 miles east of Prague
Rep.                      Agreement (2)                                              o   Total anticipated cost of project
                                                                                         Euro 32.5 million (US$34.1 million)
NOVO PLAZA, Prague        Pre Sale          2004         300,000         800         o   PC will hold 99% of the ownership in
Czech Rep.                Agreement (2)                                                  the land (5)
                                                                                     o   Situated in Prague (district IV)
                                                                                     o   57,700 sq. ft. - office use
                                                                                     o   Total anticipated cost of project
                                                                                         Euro 36.7 million (US$38.5 million)
PIREAS PLAZA, Athens      Final stages of   2005         270,000         1,015       o   Situated between Athens and Piraeus
Greece                    planning and                                               o   Total anticipated cost of project
                          designing                                                      Euro 78.3 million (US$82.2 million)

</TABLE>

(1)      Details provided in this item are presented  according to the plans and
         design of each respective malls and may subsequently differ.

(2)      Building permit not yet issued.

OTHER PLANNED PROJECTS

         In  addition  to  the  foregoing   operating   malls  and  malls  under
construction,  PC is in  various  preliminary  stages  of  the  development  and
planning of the following shopping and entertainment centers:

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
                                               Date of anticipated      Anticipated approximate project
Name of Project          Location              opening                  costs (including land)                 Status
------------------------------------------------------------------------------------------------------------------------------------
<S>                      <C>                   <C>                      <C>                                    <C>
Elblag Plaza             Elblag, Poland        2006                     Euro 17.9 million (approximately       Tender won
                                                                        $18.8 million)
Sosnowiec Plaza          Sosnowiec, Poland     2006                     Euro 20.7 million (approximately       Tender won
                                                                        $21.7 million)
Lodz Plaza               Lodz, Poland          2006                     Euro 60 million (approximately $63     Land Acquired
                                                                        million)
Duna Plaza extention     Budapest, Hungary     2005                     Euro 25.1 million (approximately       Planning
                                                                        $26.4 million)
Pilzen Plaza             Pilzen, Czech         2005                     Euro 21.8 million (approximately       Agreement for the
                         Republic                                       $22.9 million)                         perpetual use signed
Bucuresti Plaza          Bucharest, Romania    Not determined           Euro 30.2 million (approximately       Land Acquired
                                                                        $31.7 million)
Riga Plaza               Riga, Latvia          2006                     Euro 44.3 million (approximately       Final stages of
                                                                        $46.5 million)                         negotiations for a
                                                                                                               joint venture
                                                                                                               agreement
</TABLE>

5  The  remaining  1% is  being  held by the  seller  for a  period  of 5 years,
   following  which PC has an option to acquire such 1% at nominal value secured
   by a pledge  over the  shares  in PC's  favor.  The  transaction  is  pending
   consummation.


                                      -32-
<PAGE>


OTHER PROPERTIES

         HUNGARY - PLAZA HOUSE BUILDING

         Plaza House Kft., a wholly  owned  Hungarian  subsidiary  of PC, is the
owner of a building located on the prestigious Andrassy Boulevard, in the center
of Budapest.  The  building was  reconstructed  and  refurbished  by Plaza House
during  2000-2001.  Many of the original features are retained with the building
including the inner  courtyard,  staircases,  stucco,  ornate metalwork and fine
wood carvings.

         The building is located on property  totaling  approximately 600 square
meters  (approximately 6,600 square feet) and consists of four floors, an atrium
and a basement,  with a total  constructed  area of  approximately  2,400 square
meters  (approximately  26,400 square feet). The site is located in an exclusive
area of the city in which several foreign embassies are located.

         Parts of the  building  have  been  leased  to  subsidiaries  of PC and
C.D.P.M.  Kft., a subsidiary  of Control  Centers  ("CDPM")  (see "Item 7. Major
Shareholders and Related Party Transactions - Related party transactions - Plaza
House Office  Building").  The building is also used as the headquarters of PC's
management.

         THE CZECH REPUBLIC - THE PRAHA PLAZA COMMERCIAL COMPLEX

         Praha Plaza s.r.o., a wholly owned Czech subsidiary of PC, is the owner
of a commercial  complex comprised of a number of buildings located in the Third
District   of  Prague.   Their   strategic   location   allows  for   convenient
transportation thereto.

         The buildings  are located on property  totaling  approximately  50,000
square meters  (approximately  550,000  square feet) and consist of a five floor
main building and a basement,  an office building  consisting of four floors and
an office  building  of two  floors.  In  addition,  there are a number of other
buildings  of one  floor  each.  The total  leasable  area of the  buildings  is
approximately  45,000  square meters  (approximately  495,000  square  feet).  A
building permit granted to Praha Plaza s.r.o.  allows for the development of the
property as an office center.  The development of such center has been postponed
by the  management of Praha Plaza s.r.o.  due to  disadvantageous  office market
conditions in Prague.

         The property is currently  operating as a commercial complex with a 37%
occupancy rate as at May 31, 2003.

         KATOWICE PLAZA, POLAND

         In December 1998, Katowice Plaza Sp.z.o.o, a wholly owned subsidiary of
PC,  entered  into an  agreement  for the  acquisition  of the  rights in and to
several  adjacent  parcels of land in Katowice as well as the  ownership  of the
buildings  located  thereon  (the  "Purchase  Agreement")  for  the  purpose  of
constructing  a commercial  and  entertainment  center,  in exchange for PLN 5.5
million.  The Purchase Agreement also provided that Katowice Plaza would pay all
liabilities  and payments  relating to the  acquisition  of the assets and their
registration  in the name of Katowice Plaza. An amount of PLN 4 million was paid
on the date the  agreement  was  signed,  with PLN 1  million  to be paid to the
seller  upon the  receipt  of the  construction  permit  and the  balance of PLN
500,000 to be paid when the local  zoning  plan is changed  to the  purposes  of
trade and services. However, to date the construction has not commenced, and the
parties are disputing the agreement due to the discovery of a major fault in the
land which renders construction  inviable.  See "Item 8. Financial Information -
Legal Proceeding - Poland."



                                      -33-
<PAGE>

         PROJECT MANAGEMENT AND SUPERVISION

              DEVELOPMENT AND MANAGEMENT SERVICES

         Pursuant to an agreement dated as of August 1, 2001 among EMI, PC, EUBV
and Triple-S,  Triple-S undertook either itself or through Mr. Shmuel S. Smucha,
its  controlling  shareholder who also acts as the President and Chief Executive
Officer of PC, to render  management  services to PC,  which  services  include:
initiation of projects,  location of plots of land for the construction of malls
and  negotiation of the purchase  thereof,  negotiation  and execution of credit
facilities  for  the  financing  of the  malls'  construction,  supervision  and
coordination of the development of the malls, and other related services.

         As consideration for such services,  Triple-S receives a monthly fee of
$40,000. In addition, Mr. Smucha is eligible to receive from PC reimbursement of
reasonable  living expenses,  as well as other customary  benefits.  Triple-S is
entitled to receive from PC a monthly loan of $5,000,  bearing  market  interest
rates and repayable no later than December 31, 2004.  This  agreement will be in
effect  until  December  31,  2003.  EMI is  entitled to  terminate  the service
agreement, at any time, by giving a 90-days advance notice.

              PROJECTS UNDER DEVELOPMENT AND CONSTRUCTION

         Each of PC's Hungarian subsidiaries that engages in the construction of
a mall enters into a Management Services and Cost Allocation  Agreement with HOM
Kft., a wholly  owned  subsidiary  of PC ("HOM"),  pursuant to which HOM renders
general management,  administration and project development  services to each of
the  subsidiaries  from the early  development  stages  until the  shopping  and
entertainment  mall is opened.  Companies  similar to HOM  operate in Poland and
will be  incorporated in each of the countries in which PC is active in order to
serve the projects in the relevant country.

         In  addition,  each of the  subsidiaries  also  enters  into a  Project
Supervision  Agreement  with  CDPM,  pursuant  to which  CDPM  provides  project
supervision  and  construction  management  services  to  each  of the  relevant
subsidiaries  during the construction phase of the project. In consideration for
such services,  CDPM is entitled to receive fees calculated at 5% of the cost of
the  design  and  construction  related  costs  of the  project  excluding  land
acquisition  and  financing  costs  (which  cost will be  calculated  as per the
instructions in the agreement).

              OPERATING PROJECTS

         Immediately  following the  completion and opening of each shopping and
entertainment  mall, the  subsidiary  that  constructed  such mall enters into a
management agreement with Plaza Centers Management BV. a wholly owned subsidiary
of PC, and which renders to the construction  subsidiaries  services relating to
the ongoing  administration,  maintenance  and  operation  of the  shopping  and
entertainment  malls, in consideration  for which it receives service fees which
are paid by the tenants of the shopping malls.

HOLDINGS IN VENTURE CAPITAL INVESTMENTS

         IMAGE GUIDED TREATMENT PRODUCTS

         All of  EMI's  activities  in the  image  guided  treatment  field  are
performed through InSightec.

         ExAblate  2000(TM) is based on  breakthrough  technology  that combines
high-intensity   focused   ultrasound  with  MRI  imaging  to  achieve  accurate
destruction of tumors in a completely  non-invasive  manner and under  real-time
imaging  control.  The  standard  treatment  for uterine  fibroids is  currently
invasive surgery (hysterectomy).  This new procedure, performed in an outpatient
environment,   has  been  shown  to  provide  relief  in  women  suffering  from
symptomatic uterine fibroids with minimal side effects.



                                      -34-
<PAGE>

         ExAblate 2000(TM) systems are used in clinical studies at leading North
American and European medical centers, including:  Harvard's Brigham and Women's
Hospital in Boston,  Massachusetts;  Saint Luc Hospital in Montreal, Canada; the
Mayo Clinic at Rochester,  Minnesota;  John Hopkins Hospital,  Baltimore;  Saint
Mary's of London; Charite in Berlin; Semmelweiss University, Budapest as well as
at the Sheba Medical Center and Hadassah Hospital in Israel.  About 350 clinical
treatments for several indications have already been performed.

         InSightec's  HIFUS technology is at the cutting edge of developments in
its field,  and contains  several  technical  breakthroughs  and advanced system
concepts,  which  facilitate a dramatic  improvement in treatment  capabilities,
mainly by controlling volume thereby  considerably  shortening treatment time as
well as providing  three-dimensional planning and follow-up capabilities.  These
developments  are based on the  extensive  accumulated  know-how  in the medical
imaging area, use of high-output ultrasound, MRI and robotics.

         The Focused  Ultrasound  treatment  of uterine  fibroids  replaces  the
current solution for this problem, namely hysterectomy, which is a major surgery
with a considerable  rate of complications and long  convalescence  time. An FDA
approved study for the same indication has already been finished and the data is
now being analyzed prior to submission for final regulatory approval in the US.

         In  addition,  InSightec  and  its  clinical  partners  are  performing
clinical  studies using the ExAblate  2000 for the  treatment of breast  cancer,
breast  fibroadenoma  (benign  tumor),  brain tumors through an open flap in the
skull  and  several  other  indications.  First  results  are very  encouraging.
InSightec is also in advanced  stages of development of a second FUS system that
is  able  to  focus  the  ultrasound  through  the  intact  skull,  opening  new
possibilities in the non-invasive treatment of the brain.

         InSightec is also assessing the concept of using ultrasound  energy, in
a controlled manner, to direct drugs. The assessment is focused on the technical
and physiological feasibility of the use of FUS in this role.

         TXSONICS

         TxSonics has a wholly-owned  subsidiary registered in the United States
known as TxSonics  Inc. The current  function of this  subsidiary  is to provide
support and services for clinical testing in North America.

         VCON

         VCON is a developer and manufacturer of  videoconferencing  systems for
ISDN and Internet Protocol networks. VCON offers comprehensive meeting solutions
for desk top, portable and group  conferencing over ISDN,  Transmission  Control
Protocol  or  TCP/IP,  ATM,  Satellite,   xDSL  and  other  carriers.   VCON  is
headquartered in Israel with  subsidiaries in the U.S. and Europe and with sales
offices  in Japan and  China.  VCON has  established  strategic  alliances  with
leading high tech  companies  worldwide to offer high quality  audio,  video and
data  collaboration.  The company markets its products and services  exclusively
through a network of reseller partners, OEMs (original equipment  manufacturers)
and value added resellers worldwide.  VCON is publicly traded on the Paris Stock
Exchange (Nouveau Marche).

         OLIVE

         EMI,  through a Dutch  indirect  subsidiary,  holds  shares of Series A
preferred  stock  as  well  as  Ordinary   Shares,   representing  25%  and  5%,
respectively,  of the  issued  and  outstanding  stock of Olive  Software,  Inc.
("Olive"),  a Delaware  company  engaged in the  development  and  marketing  of
products  enabling  a  transparent  link  between  the  newspapers'  traditional
printing systems and the world of e-publishing. These products enable newspapers
and magazines to  automatically  present their printed  edition on the internet,


                                      -35-
<PAGE>

while supporting the e-commerce  applications,  personalization  and interactive
advertising.  In addition,  Olive develops and markets digital archive  services
for newspapers and libraries.

         The  Preferred  A Shares held by EMI's  subsidiary  are senior to other
securities of Olive with respect to rights in liquidation,  conversion rights to
common stock,  anti-dilution  and voting rights on an as converted basis.  EMI's
subsidiary  is  party to a  Stockholders  Rights  Agreement  that  provides  for
customary  restrictions on sale of shares,  such as no sale  restrictions  for a
fixed period of time,  right of first  refusal,  co-sale  rights and bring along
rights as well as  pre-emptive  rights.  EMI's  subsidiary  was also granted the
right to appoint one director to the Board of Directors of Olive, which is to be
comprised of up to 4 directors.

         In June 2002 a Stock Purchase  Agreement was executed between ECT and a
private  shareholder,  for  the  purchase  by ECT of the  shares  held  by  such
shareholder in exchange for $125,000.  Acquisition of the said shares  increased
the holdings of ECT in Olive to 33% (fully diluted).

         EASYRUN

         Easyrun is engaged in the  development  and marketing of "call centers"
solutions,  which support under one platform,  diversified  infrastructure  from
historical  telephonia and up to futuristic  telecom equipment (IP switchboards)
and modern e-commerce applications (Web).

          In November 2001, a convertible  loan  agreement was executed  between
EMI, Easyrun and other investors (including another major shareholder - "Alon"),
pursuant to which EMI  granted to Easyrun a loan in the amount of $300,000  (out
of a total investment round of $500,000), bearing annual interest of LIBOR + 2%.
The loan is convertible into Series C Preferred  Shares.  The Preferred C Shares
entitle their holder to all rights granted to the Preferred B holders as well as
to seniority to all other equity securities in liquidation. The conversion price
of the Preferred C Shares was set to achieve aggregate  holdings by EMI and Alon
of 48%. Preferred C shares have not yet been issued to either EMI or Alon. As to
further  investment  in Easyrun,  see -  "Highlights  of 2002 - EMI - Additional
Investment in Easyrun".

         As of May 31,  2003,  EMI  held  shares  of  Series B  preferred  stock
representing  30.33% of the issued and  outstanding  shares of capital  stock of
Easyrun.  The  Preferred B shares  provide for  customary  rights such as demand
registration,  rights of co-sale,  rights of first refusal,  preemptive  rights,
conversion  rights and the right to vote on an as converted basis. The Preferred
B shares also entitle their holders to seniority in the event of liquidation and
winding up.

         Bank  Leumi  Le-Israel  B.M.  has agreed to extend to Easyrun a line of
credit  secured by certain  invoices  issued by Easyrun to various  buyers which
invoices  will be assigned to the bank.  Such line of credit is also  secured by
guarantees  provided by EMI and other  parties up to a total amount of $150,000,
out of which EMI's share is limited to approximately $140,000.

         ELSCINT
         -------

HOTELS AND LEISURE

         Set forth below is certain  information  relating to the hotel business
of Elscint:

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
                                ELSCINT'S          TOTAL                               AVERAGE OCCUPANCY
       NAME AND RATE             HOLDING      CONSTRUCTED AREA                          DURING 2002 AND
          OF HOTEL              PERCENTAGE       (SQ. FT.)          TOTAL ROOMS        THROUGH MAY 2003      OTHER INFORMATION
------------------------------------------------------------------------------------------------------------------------------------

<S>                             <C>                <C>          <C>                         <C>            <C>
Victoria Hotel                  50%                220,000      305 (27 Suites)             89.8%          o    business
Amsterdam, four stars                                                                                           center
                                                                                                           o    health center

                                                                -36-

<PAGE>



Utrecht Park Plaza Hotel,       50%                 55,880      120 (40 executive           67.8%          o    70 parking
Utrecht, The Netherlands,                                       rooms)                                          spaces
four stars                                                                                                 o    11 conference rooms

Astrid Park Plaza Hotel,        100%               223,300      232 (19 business            67.8%          o    part of
Antwerp                                                         suites)                                         complex that
Belgium, four stars                                                                                             includes an
                                                                                                                oceanarium (under
                                                                                                                development)

Sandton Park Plaza, Hotel,      33.33%              89,100      138 (61 suites)             45.1%          o    business
Johannesburg, four stars                                                                                        center

Sherlock Holmes Hotel,          45.1% equity        67,460      119 (17 executive           66%            o    fitness
London                          50% voting                      studios, 3 split                                center
                                                                level "loft" suites)                       o    main meeting
                                                                                                                room for 600
                                                                                                                people
                                                                                                           o    6 board rooms

Bucuresti Hotel Complex,      69%                  901,000      446 (24 units) in     The hotel is         o    adjacent
Bucharest, Romania                                              the hotel; 220 in     closed for                historically
four star hotel and an                                          apartment hotel       renovation.               protected
apartment hotel                                                                       Apartment hotel -         building
                                                                                      90%                      (restaurant)
                                                                                                           o    health center

Victoria Park Plaza Hotel,      50%                242,000      287 rooms (22               73.1%          o    Executive
London (standard of                                             business suites and                             lounge
building equivalent to                                          12 main suites)                            o    health club
"four star deluxe")                                             12 apartments                              o    main conference room
                                                                                                                for up to 750
                                                                                                                people
                                                                                                           o    13 additional
                                                                                                                convention health
                                                                                                           o    underground
                                                                                                                parking
                                                                                                                facilities

                                                                -37-
<PAGE>

------------------------------------------------------------------------------------------------------------------------------------
                                ELSCINT'S          TOTAL                               AVERAGE OCCUPANCY
       NAME AND RATE             HOLDING      CONSTRUCTED AREA                          DURING 2002 AND
          OF HOTEL              PERCENTAGE       (SQ. FT.)          TOTAL ROOMS        THROUGH MAY 2003      OTHER INFORMATION
------------------------------------------------------------------------------------------------------------------------------------

Riverbank (Thames) Project,   45% equity                        377 rooms                                  o    full leisure
London, preliminary             5% voting                       156 boutique hotel                              center
development                                                     style rooms                                o    two main
                                                                                                                conference
                                                                                                                rooms, each with
                                                                                                                capacity of up
                                                                                                                to 650 people 20
                                                                                                                additional
                                                                                                                conference rooms

Ballet Building, Budapest,      50%                143,000      196 rooms                                  o    construction
Hungary - in development                                                                                        works to
                                                                                                                commence during
                                                                                                                2003
</TABLE>

ENTERTAINMENT AND COMMERCIAL CENTER IN HERZLIA, ISRAEL

         The total estimated  project cost of the  entertainment  and commercial
center is  approximately  $150 million  (approximately  NIS 710 million).  As of
March 31, 2003,  the total  estimated  remaining  cost  required to complete the
entertainment and commercial center was approximately $40 million (approximately
NIS 190 million).  As of May 31, 2003 the  construction of the facility has been
completed and efforts are currently  concentrated upon final decoration,  tenant
fit outs and completion of the entertainment  facilities.  The center was opened
to the public during June 2003.

         As of May 31,  2003,  78  leases  had  been  signed  for  space  in the
entertainment   and  commercial   center,   including   agreements   with  three
anchor-lessees (a cinema, a large retailer group and a pharmacy-perfumery) for a
total area of  approximately  13,140 square meter. The rental periods range from
four to ten years for the "anchor" areas to shorter periods for large brand name
shops and other  regular  shops,  not  including  an option to extend the lease.
Total annual rent for the whole project is expected to be  approximately  $14-15
million (approximately NIS 66.3 million - NIS 71.0 million).

INVESTMENTS IN BIO-TECHNOLOGY COMPANIES

         Gamida develops proprietary  technology for multiplying  embryonic-like
cells called "stem cells" outside the body,  that could  potentially  expand the
use of stem cells in therapy. Stem cells are  undifferentiated,  primitive cells
with the ability to multiply and  differentiate  into  specific  kinds of cells.
Stem cells hold the promise of allowing researchers to grow specialized cells or
tissue, which could be used to treat injuries or disease. Stem cells could serve
in the near future as replacement of bone marrow for cancer patients  undergoing
radiation  therapy.  In addition,  stem cells could become the vehicle of choice
for gene  therapy  and,  ultimately,  be used for  tissue  regeneration.  EBM is
entitled to appoint two directors to the board of directors of Gamida.

         Umbilical  Cord Blood Bank. As a complement to its investment in Gamida
and the  fulfillment  of its  quest to  become a  leader  in the  bio-technology
sector,  EBM expects to establish  an  international  umbilical  cord blood bank
("UCBB")  during 2004. The UCBB will provide a broad-based  source of stem cells
that are  collected  from  umbilical  cords  immediately  after  birth  and then


                                      -38-
<PAGE>

processed and stored for various  medical  uses.  EBM expects that the UCBB will
supply its products  worldwide.  In this regard,  EBM intends to cooperate  with
several  leading  research  groups in Israel  which are active in  research  and
development  in the  broader  field of stem cell.  Within the  framework  of the
proposed  activities  of the  UCBB,  EBM  also  intends  to  establish  a highly
sophisticated  laboratory  for  the  genetic  analysis  of stem  cells,  and for
conducting  other genetic tests on a commercial  basis.  In this regard,  EBM is
negotiating with the Ezer M'Zion, a charitable organization (which maintains the
largest  bone marrow  registry in Israel)  with a view to  establishing  a joint
venture for the operation of the laboratory.

         LuriDent.  EBM has terminated the term sheet, signed in April 2001, for
an investment in LuriDent Ltd. ("LuriDent"), a company that develops proprietary
platform  technology  which  creates  controlled  release  formulations,   which
preferentially  adhere to the mucosa  tissue.  LuriDent  has  developed  a first
generation mouth rinse, which contains a known antibacterial  agent. EBM intends
to initiate legal proceedings against LuriDent for the refund of certain amounts
advanced on account of the proposed investment.

         Oncologics.   EBM  is  currently  assessing  whether  to  continue  its
investment  in  Oncologics  Ltd.  ("Oncologics"),  to which  EBM had  previously
provided a line of credit of up to $250,000.  Of this amount, EBM has extended a
$167,000 loan to Oncologics for the  performance of studies  intended to advance
its technological proof of concept stage. Oncologics has identified a biological
defect  in cancer  cells  which  renders  them  resistant  to  chemotherapy.  If
corroboration  of this finding is established,  Oncologics'  technology could be
used to identify  patients who are resistant to  chemotherapy  and offer them an
alternative therapy.  This could improve the clinical outcome of cancer patients
and save substantial costs of inadequate therapy. As consideration for the loan,
EBM has the  option to  purchase  up to 40% of  Oncologics'  capital  stock at a
pre-money  value of $1 million.  In addition,  in the event  Oncologics does not
comply with the terms of the foregoing  loan, EBM will have the right to convert
the loan into shares of capital stock of Oncologics.

COMPETITION

         EMI
         ---

         SHOPPING AND ENTERTAINMENT MALLS

         There are a number of competitors  in the eastern and central  European
countries  in which EMI  operates  or intends to  operate  in the  shopping  and
entertainment mall business, particularly in the larger cities, such as Budapest
and Warsaw.  However,  the following should be noted: (a) shopping centers which
are not in close  proximity and which do not draw their  clientele from the same
catchment  areas are not  considered as being  competitive;  (b) we believe that
large retail centers (known as "power  centers"),  even if they compete with our
centers  directly  merely by  virtue  of their  proximity  to our  shopping  and
entertainment  malls,  are at a  disadvantage  because  they  do not  offer  the
entertainment  facilities which characterize our malls, and which we consider to
comprise a  significant  element in the  attraction  of patrons;  and (c) in the
regional  cities of Hungary,  Poland,  the Czech  Republic as well as in Athens,
Greece, the competitive activity is more limited.

         In addition to several ad hoc entrepreneurial  projects,  there are two
significant  groups  operating  a number of  shopping  malls in the  eastern and
central  Europe with whom we compete  directly,  namely the Corfu chain based in
France and the ECE chain based in Germany.  We compete  with these chains in the
pre-development  stage (for acquisition of suitable  sites),  in the development
stage (obtaining suitably qualified architects, consultants and contractors) and
in the  operational  stage,  if the malls  compete for the patronage of the same
population.  We also  compete for  quality  "brand  name"  tenants to occupy the
rental  units.  In  locations  where  competing  malls  are  being   constructed
simultaneously,  the first mall to open  generally  enjoys an advantage over its
competitor,  which is the reason for our emphasis on the expeditious  completion
of the construction operations.



                                      -39-
<PAGE>

         The Duna Plaza  Shopping and  Entertainment  Mall in Budapest  competes
directly with the "West End Shopping Mall" which is more centrally located, also
benefits from  proximity of bus and rail access  points,  and is a western style
shopping mall of a high standard offering  substantially  similar  facilities to
those offered by the Duna Plaza. The Csepel Shopping and  Entertainment  Mall in
Budapest is less directly  affected by the  competition  posed by the "West End"
mall, since it is located in a principally  residential district,  approximately
three  miles  from the city  center,  and serves  mainly  the local  residential
population.

         The Sadyba Best Mall in Warsaw also competes directly with the "Mokotow
Shopping  Center",  a shopping  mall of a similar  quality  and  standard as the
Sadyba  Best Mall,  located in the same  district of Warsaw and serving the same
population.  In Krakow,  the Krakow Plaza mall competes with the M1 Power Center
located in close proximity.

         However,  in most of the  cities  in  Hungary  and  Poland  in which we
operate or are developing  shopping malls,  our malls are the only ones of their
type  in the  city,  and  competition  is  therefore  minimal  or  non-existent.
Traditional  shopping  outlets  lack  the  added  benefit  of the  entertainment
activities which our malls offer, and accordingly have difficulty competing with
us. The Helios Plaza Mall presently under construction in Athens,  Greece is the
first western style shopping and entertainment mall in the entire Greater Athens
area (which includes Piraeus),  and will thus enjoy a significant advantage when
it opens.  However,  there can be no certainty that this  competitive  edge will
continue,  especially in the larger  metropolitan  areas, which have populations
sufficient to support more than one mall.

         HOLDINGS IN VENTURE CAPITAL INVESTMENTS

         HIFUS PRODUCTS

         The  competition  in the HIFUS  products  field can be divided into two
main  categories:  alternative  Minimally  Invasive  Surgery  methods  (MIS) and
competing image guided high intensity focused ultrasound systems.

         Regarding  the MIS  methods,  in  general,  there are  tissue  ablation
methods in various MIS versions (e.g.,  radio frequency  electromagnetic  energy
inserted  into  the body by a  special  needle,  laser &  cryogenic)  which  are
potential  competitors with our application market.  Another experimental method
in the  treatment of uterine  fibroids is that of uterine  artery  embolization.
Presently  we  are  not  aware  of  any  established   method  in  the  clinical
applications of breast tumors, uterine fibroids or brain tumors.  Although these
techniques  might be somewhat  less  expensive,  they are invasive and we expect
that they will be less accurate and less effective.

         Insofar as Image Guided HIFUS  competition  is concerned,  although the
field of HIFUS tissue  ablation is not yet  clinically  established,  we know of
several  companies  that are active in  developing  such  systems  and  clinical
applications. The imaging guidance of our system is to facilitate on-line/closed
loop  thermometry.  We  believe  that this  feature is  essential  to ensure the
quality of the treatment.

         Philips is  developing a similar  system to the one being  developed by
InSightec.  While the exact application has not been disclosed, it appears to be
compatible with superficial target tissue ablation. Philips does not claim to be
in clinical  trials.  Transurgical is developing a small portable MRI integrated
unit,  which would appear to use a low field MRI with limited  application in MR
thermometry.  No clinical trials have been reported. EDAP is marketing in Europe
a non-real  time  ultrasound  guided HIFUS  transrectal  system for treatment of
prostate cancer which is presently under clinical  testing in the U.S.  Siemens,
which  holds  a  minority  interest  in  EDAP,  collaborated  with  EDAP  on  an
experimental  system for the treatment of breast  cancer.  A single  patient was
treated and the activity has been discontinued. Focus Surgery Inc. is developing
a HIFUS treatment system for benign  prostatic  hyperplasia and is also starting
clinical  trials on an  ultrasound  guided  system for the treatment of prostate
cancer.  Toshiba  has several  patents in the field but no specific  activity is
reported besides a possible  involvement with Focus Surgery.  Hitachi has an old
patent on some  aspects of MR guided FUS,  which it does not seem to be actively
pursuing.


                                      -40-
<PAGE>

         ELSCINT
         -------

         HOTEL AND LEISURE

         The lodging industry in Europe has  traditionally  been classified on a
grading system, with five-star representing a luxury hotel and one-star a budget
hotel.  All of  Elscint's  hotels  enjoy a  four-star  grading,  or  qualify  as
four-star  establishments,  while  some are  designated  as "Four  Star  Deluxe"
establishments.

         Each of Elscint's  hotels  competes with other hotels in its geographic
area for clientele, including hotels associated with franchisers, which may have
more  extensive  reservation  networks  than  those  which may be  available  to
Elscint. Elscint competes with other facilities on various bases, including room
prices,  quality,  service,  location and amenities  customarily  offered to the
traveling  public.  Levels of demand are dependent  upon many factors  including
general  and local  economic  conditions  and  changes in levels of tourism  and
business-related  travel. Elscint's hotels depend upon both business and tourist
travelers for revenues.

         In  addition,  Elscint  competes  with  other  companies  in the  hotel
industry  for  opportunities  to  purchase  or build  new  hotels.  These  other
companies may be larger than Elscint and may have greater  financial  resources.
Elscint's hotel in Utrecht,  The Netherlands  competes directly with the Holiday
Inn hotel (which is located  directly  opposite  Elscint's  hotel),  the Mercury
Hotel and the President  Hotel.  Elscint's  hotel in Antwerp,  Belgium  competes
directly  with the  Hilton,  Holiday  Inn,  Crown  Plaza and Park  Lane  hotels,
although   Elscint  believes  that  the  average  room  rate  in  its  hotel  is
competitive.  The Victoria  Park Plaza Hotel in London is in direct  competition
with a number of three-star  plus and four-star  rated hotels within  relatively
close proximity of the Victoria railway station, including the Thistle Grosvenor
and the  Victoria  Holiday Inn hotels,  both of which  benefit  from their close
proximity to Victoria station, as well as the Thistle Royal Westminster, Rubens,
Status Street, Ennins, St. James's Court and Merchant Court hotels. In addition,
there is a considerable  number of traditional budget hotels in the proximity of
the  Victoria  Hotel.  The hotel  Elscint is planning to  construct in Budapest,
Hungary  will  compete   directly   with  the   Kempinski,   Marriott,   Hilton,
Inter-Continental  and Hyatt hotels.  The Bucuresti Hotel in Bucharest  competes
with the Hilton situated directly across the street, the  Intercontinental,  and
the newly opened Marriott Grand Palace hotel.

         Although  the hotel  industry in Europe is highly  competitive,  and is
witnessing an increase in room supply in some areas,  the outlook for the medium
to long term is positive.  Notwithstanding a slight slow-down in the latter part
of 1998, the market had strengthened  during 1999 and 2000.  During 2001 Elscint
experienced  a  reduction  in hotel  demand  in  London,  which is  attributable
primarily  to the outbreak of the foot and mouth  disease in the United  Kingdom
and  secondarily to a slow-down in the U.S.  economy,  especially  following the
events of September 11, 2001. The goal of Elscint's hotel business is to acquire
and manage  four-star hotel  properties  which provide the business and vacation
traveler with luxury  quality  accommodations,  conveniently  located near major
transportation stations and commercial centers, at four-star prices.

         ENTERTAINMENT AND COMMERCIAL CENTER IN HERZLIA

         There is a large  number of shopping  malls  located in the Greater Tel
Aviv area and in its satellite cities, including Herzlia, Ra'anana, Petach-Tikva
and Rishon  LeTzion.  A large shopping mall has recently been opened in Herzlia,
approximately  1.5  kilometers  from  the  site  of  Elscint's   commercial  and
entertainment  center  at  the  Marina  in  Herzlia.  All  these  malls  compete
vigorously not only for tenants but also for customers. Elscint is attempting to


                                      -41-
<PAGE>

establish  a  competitive  edge,  both due to:  (a) the unique  location  of the
Marina,  overlooking the  Mediterranean  Sea; and (b) the strong emphasis on the
entertainment facilities to be offered to its patrons.

         INVESTMENTS IN BIO TECHNOLOGY COMPANIES

         Start up companies,  including  companies in the bio-technology  field,
tend to operate in a highly competitive  environment.  In order to succeed,  the
products or services  require a unique "added value"  factor,  relatively  brief
concept-to-market parameters, and aggressive marketing. Gamida faces competition
from large  international  companies with access to financial resources and with
well-established   research   and   development   capabilities.   However,   the
bio-technology field, which is dominated by large multi-national  conglomerates,
although  affected  by  global  pressures  on the  investment  market,  is  more
resilient to market trends than the more volatile high technology industry.

SEASONALITY

         EMI AND ELSCINT
         ---------------

         SHOPPING AND ENTERTAINMENT MALLS (INCLUDING ELSCINT'S ENTERTAINMENT AND
         COMMERCIAL CENTER IN HERZLIA, ISRAEL)

         The entertainment and commercial center may experience  seasonal shifts
in retail activity. Generally speaking, peak holiday seasons (such as Christmas,
Easter, Passover, the Jewish New Year and other national holidays), will show an
increase  in patron  traffic,  both for the  purchase  of holiday  gifts and for
utilizing  the  entertainment  facilities  offered by the  center.  The  periods
immediately  following  such  periods  tend to show a decrease  in the number of
patrons  visiting the centers and a corresponding  slow down in retail activity.
However,  this may be offset by the fact that the indoor facilities will offer a
heated or an  air-conditioned  environment  for shoppers and patrons which is of
particular significance in areas with severe weather conditions.

         ELSCINT
         -------

         HOTEL AND LEISURE

         The business  activities of the various  hotels,  especially in Europe,
are  influenced by several  constant  factors that affect the revenues and gross
operating  profit  ("GOP"),  either on an  absolute  basis or  relative to other
periods  during the year.  These  factors  include  (i)  seasonality  of general
business  activity  (which  affects  the  volume  of  traffic  in  the  business
community),  (ii) holiday seasons (such as Christmas and Easter),  and (iii) the
weather  conditions.  These factors generally cause the first and third quarters
to be weaker than the second and fourth quarters.

         The  first  quarter,  which is the  period  immediately  following  the
Christmas  season  and the  height  of the  European  winter,  is  traditionally
characterized by lower revenues and GOP resulting from lower occupancy rates and
reduced room rates.  During the third quarter,  there is generally a decrease in
local business  activities  due to the summer  holidays  which,  together with a
tendency  for  local  tourist  traffic  to seek out  resort  destinations,  also
generates slower results, while the increase in international tourism is to some
extent offset by lower room rates, particularly for groups.

         However,  the second  quarter  shows an increase due to more  favorable
weather  conditions  (spring to early  summer)  and the Easter  holiday  and the
corresponding  revival of both business and tourist  activity,  while the fourth
quarter is usually the strongest period, leading to the Christmas and New Year's
holiday season and a significant year-end increase in business activities.

         For  Elscint's  South  African  hotel,  generally  the holiday  seasons
(Christmas  and Easter)  show  insignificantly  stronger  results,  although the
depressed  economy and the  political  uncertainty  of the region  have  reduced
occupancy rates to the point that seasonal comparisons are largely irrelevant.



                                      -42-
<PAGE>

GOVERNMENTAL REGULATION

         EMI
         ---

         SHOPPING AND ENTERTAINMENT MALLS

         The   development,   construction   and   operation   of  shopping  and
entertainment  centers are subject to various  regulatory  controls,  which vary
according to the country of activity.  In certain  countries,  such as Poland, a
foreign company (or a local company which is controlled by foreign shareholders)
is  required  to obtain a special  permit  for the  acquisition  of real  estate
properties in that country.  In addition,  some countries such as Poland and the
Czech Republic require that the developer carry out an  environmental  report on
the land  before  building  permit  applications  are  countenanced.  In Poland,
acquisitions of shares of a Polish company or of a foreign company that controls
a Polish company require a permit from the Polish Anti Monopoly Office.

         In Poland, Hungary and the Czech Republic,  building permits are issued
in two stages.  The first stage  determines  the  "building  conditions",  which
addresses  factors  such  as  the  proposed  area  to  be  constructed  and  its
distribution over the floors of the building,  the building  "foot-print" within
the plot,  building  lines,  access  routes,  and  conceptual  design.  Once the
"building conditions" have been approved and have become lawful (see below), the
application for the formal building permit is submitted, which includes detailed
architectural building plans, sections, elevations etc. all of which must comply
with the  approved  building  conditions.  Following  the  issuance  of both the
"building  conditions" approval and the building permit approval, a period of is
allowed  (which  varies from country to country) for third  parties whose rights
are allegedly affected by the permits to file objections. Only in the event that
this period passes without objection, or in the event that objections raised are
dismissed by the competent  authorities,  do the permits become "lawful",  valid
and available for execution.  In some instances where the applicable town zoning
scheme does not permit  commercial  activities of the type  characterized by our
malls,  it is necessary to process an amendment to the zoning scheme,  which may
be a protracted process and may not necessarily be successful (as in the case of
the Prague District III project).

         Apart from the building permits which are required for the construction
of  the  shopping  and   entertainment   malls  as  mentioned  above,  the  mall
constructing  are  required to obtain  "operating  permits"  from the  municipal
authorities before the mall can be opened to the public and commence  operation.
Such permits will  typically  address  issues such as fire fighting  facilities,
escape  routes,   mechanical  integrity  of  systems,  public  sanitation,   and
compliance  with the  approved  building  conditions  and building  permits.  In
addition,  the individual  tenants are required to obtain  operating or business
licenses in order to commence  trading within the malls.  In certain  countries,
video arcade  operators may be required to obtain gaming  licenses.  The Project
Companies  are also  required to comply  with local  regulations  governing  the
employment of its employees.

         HIFUS PRODUCTS

         The testing,  manufacture and sale of InSightec's  products are subject
to regulation by numerous  governmental  authorities,  principally  the FDA, the
European Economic  Community (the "EEC"),  and  corresponding  state and foreign
regulatory agencies.

         The U.S. Safe Medical Devices Act of 1990 (the "SMDA") includes various
provisions  which are  applicable to each of the existing  products of InSightec
and may result in the Pre Market  Approval  process (a process  whereby  the FDA
approves a new system that has no predicate  devices that have been  approved in
the past) for such products becoming lengthier and more costly.  Under the SMDA,
the FDA can impose new special controls on medical  products.  These include the
promulgation of performance standards,  post-market  surveillance  requirements,
patient  registries,  and the  development and  dissemination  of guidelines and
other actions as the FDA may deem necessary to provide a reasonable assurance of
safety and effectiveness.



                                      -43-
<PAGE>

         In June 1993,  directive  93/42/EEC for medical  devices was adopted by
the EEC. In June 1998, this directive replaced the local regulations and ensured
free  transfer of  qualified  medical  equipment  among member  states.  Medical
devices that meet the established standards receive certification represented by
the symbol "CE".  There are two types of  certifications  that are granted:  (i)
general  certification  of a  company  and  (ii)  certification  for a  specific
product. In addition, the established directives indicated,  among other things,
that  InSightec  should  comply  with the  medical  device  directive;  however,
InSightec  decided to comply  with  International  Standard  ISO 9001  (European
Standard EN 29001) entitled "Model for Quality Assurance in Design, Development,
Production, Installation and Servicing" and its extension to medical products EN
46001 which satisfies the medical device directive.  On May 10, 2001,  InSightec
obtained a certification by the European Notified Body that it complies with the
requirements of ISO 9001 and EN 46001.

         In  1985,  Israel  and the  United  States  entered  into a free  trade
agreement which generally  enables  tariff-free  access of InSightec's  products
into the United States.  As a result of an agreement entered into between Israel
and the EEC, the EEC has  abolished  customs  duties on most Israeli  industrial
products,  including all Elscint, EUL and InSightec products of which Israeli or
EEC origin can be proved.

         ELSCINT
         -------

         HOTEL AND LEISURE

         The Netherlands
         ---------------

         In The  Netherlands,  there  are a number of  commercial  organizations
regulating the hotel and restaurant  industry,  which govern methods of engaging
in agreements,  advertising tariffs and advertising the hotel. These regulations
also govern the sale of alcohol to the  public,  terms of  employing  personnel,
methods of  registering  the hotel and creating a method of rating the hotels in
the Benelux countries (Belgium, The Netherlands and Luxembourg).

         In  the  Benelux  countries,  there  is a  "Benelux-Hotelclassificatie"
(Benelux hotel  classification  system).  In The Netherlands this classification
system  is  conduced  by  the  "Bedrijfschap  Horecsa  en  Catering",   a  trade
organization  established by law in collaboration with the consumer society ANWB
(which is a  consumer  society  comparable  to the AAA in the  United  States of
America).  Our  hotels in The  Netherlands  have  received a  four-star  rating.
Restaurants  and hotels  operating in The  Netherlands  must  operate  under the
management of a general manager and a local manager.

         According  to Dutch  law,  where a company  sells its  business,  it is
obligated to transfer all employees  together  with the business.  The hotel and
restaurant  industry in The Netherlands has collective  labor  agreement,  which
provides a grading  system for employees in the hotel and  restaurant  industry.
For each  grade  there is a minimum  wage  mandated.  Among  other  things,  the
provisions of the collective  labor  agreement  obligate the employer to provide
money for employees for a number of funds.

         The total  obligations of the companies in The  Netherlands  due to the
termination of employees,  in accordance  with the laws in The  Netherlands  and
labor  agreements in effect,  are covered by (i) current  payments to government
institutions  for provisions for the retirement of employees or their dismissal;
(ii) current  payments to life  insurance  companies for  pensions;  and (iii) a
provision included in their financial reporting.

         Belgium
         -------

         Astrid  Park Plaza has a license  for  operating  the Astrid Park Plaza
hotel in Antwerp, Belgium.

         In  Belgium,   the  grading  of  hotels  is   conducted  by  a  tourism
organization  which  operates  under the authority  of, and in  accordance  with
regulations  issued by, the Belgian  Ministry of Tourism.  Hotels  which are not
graded are prohibited from trading as a hotel. This  organization  regulates and


                                      -44-
<PAGE>

grades hotels and  restaurants  including  supervising the method of engaging in
agreements and advertising tariffs and the hotel. The regulations also establish
the  rating of hotels  using  the  "stars"  method.  As of April 30,  2002,  the
evaluation  of the Astrid Park Plaza hotel has been  completed and the hotel has
received an official  H-4 rating,  which is  equivalent  to a "Four Star Deluxe"
rating.

         In addition,  various licenses and permits are required to be issued by
governmental  authorities  (including permits for the operation of a restaurant,
the sale of alcohol and food and beverage licenses,  etc.) and in some instances
by the  municipal  authorities  (including  illumination,  operation of a public
terrace  during summer  months,  etc.).  Governmental  authorities  also conduct
periodic  reviews  of  installations  and  systems  operating  within  the hotel
(elevators,  sprinkler systems,  sanitation,  etc.). Regulations also govern the
employment of employees,  the observance of which is monitored by the employee's
union and regulated by governmental authorities.

         United Kingdom
         --------------

         The  principal   regulatory   requirements  for  the  construction  and
operation of hotels in the United Kingdom are as follows:

o        Approval of the appropriate  building control authorities for the plans
         and designs of the proposed hotel,  culminating in the grant of a valid
         building permit;

o        Building  regulation consents required for the occupation and operation
         of the building, particularly in connection with means of escape in the
         case of fire;

o        Licenses for sale of alcohol;

o        Compliance  with various United Kingdom and European Union  regulations
         in connection with employees, in particular working hours regulations;

o        Compliance  with health and safety  regulations,  in  particular  those
         concerning food and hygiene; and

o        Gaming licenses (where applicable).

         The  type  and  nature  of  the   licenses   will  vary   according  to
circumstances.  In particular, there are a number of different licenses that may
be  relevant  in   connection   with  the  sale  of  alcohol  and  operation  of
entertainment facilities, depending on the nature of the services to be provided
by the hotel to its patrons.

         Hungary
         -------

         The fact that the Ballet Institute  Building has a historical  landmark
status,  under the protection of the Hungarian Historical Building Office (which
has  authority  for the  administration  and  preservation  of  such  building),
mandates  that the  planning  consents  and  requisite  permits for the proposed
renovation of the Ballet  Institute  Building and its  conversion  into an hotel
must be applied for and obtained from the Historical  Building Office.  In order
to obtain  such  consents  and  permits,  it is  necessary  to  ensure  that the
renovation   plans  provide  for  the   restoration  of  the  building  and  the
preservation of its historical status.

         Various  government  decrees  establish  the criteria for the rating of
hotel  establishments.  These  criteria  include:  size of rooms;  suite-to-room
ratio;  number of  restaurants  and  other  catering  facilities;  level of room
service  provided;  level of room amenities  provided;  air-conditioning;  guest
facilities; and the quality and periods of food and beverage services provided.

         Following  the  completion  of the  renovation  works,  it will also be
necessary  to obtain an  operating  permit,  which will only be issued after the
following consents and approvals have been obtained:



                                      -45-
<PAGE>

o        The  approval of the local  State  Public  Health and  Medical  Officer
         Service for the commercial accommodation;

o        Animal  Health  Station and the local State  Public  Health and Medical
         Officer Service for businesses or catering  establishments which use or
         market food or ingredients of animal origin;

o        The  Fire   Department   as  fire   control   authority   for  business
         establishments,     commercial     accommodations    and    hospitality
         establishments; and

o        The competent  building  authority (in Elscint's  case,  the Historical
         Building  Office)  certifying  that  the  developer  has  executed  the
         renovation and construction works in compliance with the permits issued
         to it.

         The  operating  permit is issued for the hotel as a business  activity.
Other  activities  conducted  within the premises (such as:  restaurants,  bars,
shops,  health clubs, etc.) require special operating permits,  which are issued
by the local municipal authorities. The sale of alcohol on the premises requires
a permit from the customs authorities.

         South Africa
         ------------

         The Sandton Hotel is required to maintain,  and it currently maintains,
licenses  for the sale of alcohol on the  premises,  a trading  license,  and to
comply with  national and  municipal  regulations  regarding  food,  hygiene and
employees.

         Romania
         -------

         Building permits required under local applicable laws will be necessary
in order to execute the  renovation  works at the Bucuresti  Hotel.  In order to
enable the re-opening of the hotel  following  renovation,  the Bucuresti  Hotel
will be required to maintain  licenses  for the  operation  of the building as a
hotel, the sale of alcohol on the premises and the operation of a restaurant and
tourism services. In addition,  the hotel will be required to maintain a trading
license, and to comply with national and municipal  regulations  regarding food,
hygiene, the operation and maintenance of the swimming pool, casino,  elevators,
health,  sanitation,  electricity,  fire hazards prevention,  and employees. The
hotel will also be required to obtain local  municipal and police  approvals for
the means of access to and egress from the hotel for motor vehicles.

PRINCIPAL CAPITAL EXPENDITURES AND DIVESTITURES

         FISCAL YEAR 2000

         EMI
         ---

         In 2000, EMI made the following capital expenditures and divestitures:

         Acquisition of Shopping and Entertainment Malls Business.  On September
19, 2000, a subsidiary of EMI  consummated  the  acquisition of the shopping and
entertainment  malls business from BEA Holding BV ("BEA Holding"),  a subsidiary
of Europe-Israel (M.M.S.) Ltd.  ("Europe-Israel"),  an Israeli company listed on
the Tel Aviv Stock Exchange ("TASE"),  which at that time held 50% of the rights
to such  malls  (the  "BEA  Agreement")  and  from a  subsidiary  of Red Sea (an
unrelated  third party,  who at that time held the  remaining 50% of said malls)
(the "Red Sea Agreement").

         Within the framework of the BEA Agreement,  EUBV acquired BEA Holding's
holdings  in PC in  consideration  of $42.5  million  (based  on an  independent
valuation  of PC's assets) as well as certain  indebtedness  owed to BEA Holding
under certain financing  facilities  provided by BEA Holding to PC, which, as of
March  31,  2000,  totaled  approximately  $19.46  million,   including  accrued
interest.   Furthermore,   EUBV  acquired  from  BEA  Holdings  all   additional


                                      -46-
<PAGE>

shareholder  loans  granted by BEA Holdings to PC, as of April 1, 2000 and until
the  closing of the BEA  Agreement,  in  consideration  for the payment of their
principal  amounts only.  The interest  accrued on these loans was attributed to
EUBV from the respective dates of the grant of the loans to PC. The total amount
of these  additional  shareholder  loans at the time of the  closing  of the BEA
Agreement was approximately $15.3 million.

         Pursuant  to the Red Sea  Agreement,  EUBV  acquired  all of Red  Sea's
investments in the capital stock of the various  companies owning the malls, and
all of the loans  granted  by Red Sea to  companies,  in  consideration  for the
payment of $42.5 million.

         Immediately following the consummation of both transactions,  EUBV held
100% of the  shopping  and  entertainment  mall  business,  50% directly and 50%
through PC. In October 2000, as part of a corporate re-structuring program, EUBV
transferred  to PC those  rights  acquired by it directly  from Red Sea (50%) in
each of the mall-owning  companies.  The consideration for the transfer of these
rights was $42.5  million,  which was recorded in the books of PC as an interest
bearing loan due and owed by PC to EUBV. PC held,  following the above described
transactions 100% of the rights to the mall owning companies.

         Sadyba - In March 2000 we acquired the rights to 50% of the Sadyba mall
for consideration of $4.150 million.

         Olive - In September  2000, we signed  agreements for the  acquisition,
through ECT, of 32.8% of the outstanding  share capital of Olive (30% on a fully
diluted basis), in exchange for $6 million.

         Easyrun - In November 2000,  EMI entered into a subscription  agreement
with  Easyrun,  as well as with  various  third  parties,  for the  purchase  of
preferred shares of Easyrun, at a price per share of $1.79. Following payment by
EMI of approximately $3 million, EMI was issued 23.7% of the preferred shares of
Easyrun (19.22% on a fully diluted basis).

         ELSCINT
         -------

         In  2000,   Elscint  made  the  following   capital   expenditures  and
divestitures:

         Riverbank  (Thames),  London - The  company  owning  the hotel  paid an
aggregate  initial amount of GB (Pound)13.55  million as  consideration  for the
acquisition  of the long  term  lease  rights to the land and  certain  property
constructed thereon, and will pay annual lease payments of GB (Pound)500,000.

         Sherlock Holmes Hotel,  London - The consideration  paid for the assets
acquired was approximately GB (Pound)10.5  million.  The annual lease payment is
GB  (Pound)450,000,  subject  to review  every  five years on the basis of "open
market value".

         The Bucuresti Hotel Complex, Bucharest,  Romania - The total investment
made by BEA in respect of this transaction  (including  ancillary costs) totaled
approximately $27 million.

         Monfort  Lake  Project,  Israel - Elscint  entered  into a  development
agreement  with  the  Israeli  Lands  Administration  and  the  local  municipal
authority,  pursuant to which Elscint  undertook to invest  approximately  NIS 9
million in the  development  of the  infrastructure  of the land,  which  amount
includes the capitalized annual lease payment for the initial lease term.

         Sale of ELGEMS - As  consideration  for the transfer to GEMS of its 50%
holdings in ELGEMS,  Elscint  received  $30 million in the form of a  promissory
note  maturing on December  31, 2001,  linked to the U.S.  dollar and bearing no
interest.  The discounted value of the proceeds of the sale at December 31, 2000
amounted to $28.3 million  (based on an annual  discount  rate of  approximately
6%). This transaction resulted in a capital gain of NIS 73 million.



                                      -47-
<PAGE>

         EBM - In early 2000, EBM invested  approximately $1.5 million in Gamida
(including the purchase of Dr. Gonen's shares),  at a pre-money  valuation of $7
million.

         FISCAL YEAR 2001

         EMI
         ---

         In 2001, EMI made the following capital expenditures and divestitures:

         Additional investment in VCON - In February 2001, a Dutch subsidiary of
EMI signed an agreement for the investment in VCON of $4 million, and subsequent
thereto signed an amendment to the agreement pursuant to which it would receive,
for no further consideration,  additional shares and warrants to purchase shares
of VCON.

         Additional  investment  in Easyrun - On November 13, 2001,  EMI entered
into a  convertible  loan  agreement  with  Easyrun (and other  lenders),  which
provided  for the grant by the  lenders to  Easyrun  of a loan in the  aggregate
amount of $500,000,  with EMI's share in such loan being $300,000. The principal
amount bears interest at the rate of LIBOR + 2% per year. It was agreed that the
loan may, at any time, be converted into Series C Preferred Shares of Easyrun at
a price per share of between $0.928 and $1.124.

         Purchase  of Afridar - In early  2001,  a  consortium  that  included a
wholly-owned  subsidiary  of EMI (the "Group") won the right to acquire from the
Governmental  Companies' Authority ("GCA") the shares of the state owned company
Afridar - Housing and Development Company of Ashkelon Ltd.  ("Afridar"),  a well
known  and  experienced  Israeli  real  estate   entrepreneurial   company  with
substantial holdings in residential property,  and, as a joint venture party, in
projects  being  developed  in  southern  Israel.  Afridar  also has  investment
property  holdings.  Immediately  thereafter,  members  of the  Group  signed an
agreement in principle to govern their business relationship, according to which
the party  other than EMI would pay the total  acquisition  cost of the  Afridar
shares  and,  in  exchange,  the Company  and/or its  subsidiary  would hold the
Afridar  shares  registered  in their names in trust for such other  party.  The
Company,  together with the other party,  negotiated with the GCA the assignment
of the Company's rights and obligations in Afridar to the other party. As of May
31, 2003, these rights had not yet been assigned.

         ELSCINT
         -------

         In  2001,   Elscint  made  the  following   capital   expenditures  and
divestitures:

         Riverbank (Thames), London - Following the acquisition and during 2001,
the  hotel-owning  company made  additional  payments on account of planning and
design costs of GB (Pound)3.2 million.

         Sherlock  Holmes Hotel,  London - The renovation of the Sherlock Holmes
Hotel  commenced  in early 2001,  and as of  December  31, 2001 was in its final
stages  of  completion.  As of  December  31,  2001,  Elscint  had  invested  GB
(Pound)7.8 million in the hotel's renovation.

         The Victoria  Park Plaza Hotel,  London - The Victoria Park Plaza Hotel
was opened in September  2001, and became fully  operational in the beginning of
2002. During 2001,  Elscint's  subsidiary invested GB (Pound)10.7 million in the
construction  works of the hotel.  As of December 31, 2001  Elscint  invested GB
(Pound)53.9 in the construction of the hotel.

         The Ballet  Building,  Budapest,  Hungary -  Currently  in  Preliminary
Development - Elscint's  subsidiary  invested  approximately $5.7 million in the
renovations of the building.

         Monfort Lake Project,  Israel - As of December 2001,  Elscint  invested
NIS 9 million, including initial planning costs, in this project.



                                      -48-
<PAGE>

         EBM - In  September  2001,  EBM  invested an  additional  $5 million in
Gamida (including the purchase of Dr. Gonen's shares),  at a pre-money valuation
of $20 million.

         Gilbridge - In October 2001, Elscint entered into an agreement with Mr.
Emmanuel Gill, a former  Chairman of the board of directors of Elscint,  for the
sale by Elscint to Mr. Gill of 49% of the issued and outstanding  shares held by
Elscint in  Gilbridge  and the  assignment  of Elscint's  rights  under  certain
capital notes made by Gilbridge to Elscint for a consideration of $5 million. It
was further  agreed that the loan of NIS 18.9 million  granted to Gilbridge  for
repayment  out of initial  profits for the period  ending  October 30, 2005 will
nevertheless  be  repayable  in full  on that  date  if  initial  profits  prove
insufficient.

         FISCAL YEAR 2002

         EMI
         ---

         Acquisition  of Duna  Plaza,  Sopron  Plaza  and  Nyir  Plaza - see " -
Highlights  of 2002".  See also "Item 5 -  Operating  and  Financial  Review and
Prospects - Loans".

         Refinancing  of Alba Plaza,  Debrecen  Plaza,  Miskolc Plaza and Szeged
Plaza - See "Item 5 - Operating and Financial Review and Prospects - Loans".

         Financing loan for the acquisition of 50% of Pireas Plaza - See "Item 5
- Operating and Financial Review and Prospects - Loans".

         Continuing   Investments  in  Mall  Projects  -  Throughout  2002,  EMI
completed  the  construction  of and opened the  Savaria  Plaza in  Szombathely,
Hungary,  and continued the construction of various other projects.  Part of the
funds paid with respect to the mall projects were financed  through  investments
by the Company,  while a majority of the  financing  was  obtained  through bank
loans. See "Item 5 - Operating and Financial Review and Prospects - Loans".

         ELSCINT
         -------

         HOTEL AND LEISURE

         Riverbank  (Thames),  London - The total additional  amount invested by
Elscint in this  project  during  fiscal  year 2002 was GB  (Pound)12.1  million
(approximately $19.5 million), including annual rent payments made by Elscint to
the owner of the land.  These  amounts were expended  principally  in respect of
planning and design and construction  operations.  Elscint has received approval
in principal, in the form of a term sheet, for a long-term construction facility
in respect of this project.

         The Ballet  Building,  Budapest,  Hungary - The total investment in the
project  during  2002  (including  obtaining  full  and  clean  possession)  was
approximately (Euro) 9.1 million (approximately $9.5 million).

         Astrid  Park  Plaza  Hotel  - The  cost  of the  completion  and of the
renovation  works at the Astrid  Park Plaza  hotel in  Antwerp,  Belgium and the
commencement of construction of an oceanarium attraction within the facility was
approximately (Euro) 2.6 million (approximately $2.7 million).

         Sale of Manufacturing  Facility - Effective  December 31, 2002, Elscint
sold  substantially  all of the assets  and  assigned  substantially  all of the
liabilities pertaining to the business previously conducted by it at its factory
in Ma'alot,  to an  unrelated  third  party.  The sale price of the facility was
approximately $20 million,  and Elscint recorded a capital gain of approximately
$8 million. (See : "Item 4 - Highlights of 2002").

         Entertainment  and  Commercial  Center - The  total  additional  amount
invested by Elscint's  subsidiary  in this project  during  fiscal year 2002 was
$20.9 million.  The total cost of the project is estimated at approximately $150
million.



                                      -49-
<PAGE>

         Bio  Technology  Investments - In April 2002, EBM acquired from a third
party  an  additional  450,000  ordinary  shares  of  Gamida  for  approximately
$1,042,000.

PRINCIPAL CAPITAL EXPENDITURES AND DIVESTITURES CURRENTLY IN PROGRESS

         Currently,  we and  Elscint  are either in the process of making or are
planning to make additional capital expenditures, as follows:

         EMI
         ---

         Refinancing  loan for the  acquisition  of an  aircraft - See "Item 5 -
Operating and Financial Review and Prospects - Loans".

         Refinancing  loan  for  Krakow  Plaza  - See  "Item 5 -  Operating  and
Financial Review and Prospects - Loans".

         EMI has recently  agreed with an Israeli  bank,  on an extension to the
repayment  term of the credit  facility.  See "Item 5 - Operating  and Financial
Review and Prospects - Liquidity and Capital Resources".

         Acquisition of Dreamland  Entertainment  N.V. See "Item 4 - Information
on the Company -Highlights of 2002 - EMI".

         ELSCINT
         -------

         During 2003,  Elscint either made, was in the process of making, or was
planning to make, additional capital expenditures, as follows:

         HOTEL AND LEISURE

         Riverbank (Thames), London - construction
         -----------------------------------------

         The additional  amount  invested by Elscint in this project during 2003
was (Pound)6.5  million  (approximately  $10.47 million)  including  annual rent
payments  made by Elscint to the owner of the land.  These amounts were expended
principally in respect of planning and design and construction operations.

         The Ballet Building, Budapest, Hungary - construction
         -----------------------------------------------------

         The additional  amount  invested by Elscint in this project during 2003
was  approximately  (Euro)  0.45  million  (approximately  $0.47  million).  The
estimated  cost of the  renovation  and conversion of the building into a hotel,
which  will  commence  in  late  2003,  is   approximately   (Euro)  35  million
(approximately $36.7 million).

         Astrid Park Plaza hotel
         -----------------------

         The cost of the  construction of the oceanarium  attraction  within the
facility up to May 31, 2003 was  approximately  (Euro) 1.5  (approximately  $1.6
million).

         Bernard Shaw hotel
         ------------------

         In  January  2003,  Elscint  leased  the  Euston  Road  Property  to an
unrelated  third party for a period of 25 years.  The rental  payments  are in a
fixed  amount  for each of the first four  years of the  lease,  and  thereafter
increase annually at the rate of 2.5% through the end of the lease term.

         Bucuresti Hotel Complex, Bucharest, Romania - Renovation Planned
         ----------------------------------------------------------------

         Elscint intends to extensively renovate the Bucuresti Hotel in order to
enable  compliance  with the  international  standards  required for a four star
business  hotel.  As at May 31, 2003, the renovation  program was in an advanced


                                      -50-
<PAGE>

stage of preparation.  On the basis of the budget currently under consideration,
Elscint  anticipates  that an  investment of  approximately  (Euro) 36.5 million
(approximately $38.3 million) will be required, which Elscint intends to finance
through the issuance of equity, shareholders loans and bank loans.

         ENTERTAINMENT AND COMMERCIAL CENTER

         During  the  first  quarter  of  2003,  Elscint's  subsidiary  invested
approximately $9 million in this project. The total estimated cost of completing
the project is approximately $40 million.

ORGANIZATIONAL STRUCTURE

         EMI is a member of the Europe-Israel  group of companies (See "Item 7 -
Major  Shareholders  and Related  Party  Transactions").  Control  Centers  Ltd.
("Control  Centers"),  an Israeli  privately-held  company,  is currently  EMI's
largest shareholder (approximately 80%).

         EMI's significant subsidiaries, as of May 31, 2003, were as follows:

<TABLE>
<CAPTION>

                                                                               COUNTRY OF           EMI'S DIRECT/INDIRECT
NAME OF COMPANY                                        ABBREVIATED NAME        ORGANIZATION         OWNERSHIP (PERCENTAGE)
                                                                                                    EQUITY         VOTING
<S>                                                    <C>                     <C>                  <C>            <C>
SUBSIDIARY AND JOINTLY CONTROLLED COMPANIES **

Elbit Medical Holdings Ltd.                            EMH                     Israel               99%            99%
Elscint Ltd.                                           Elscint                 Israel               61.5%          61.5%
BEA Hotels NV                                          BEA Hotels              The Netherlands      61.5% *        61.5%
Elscint Bio-Medical Ltd.                               EBM                     Israel               61.5% *        61.5%
S.L.S. Sails Ltd.                                      SLS                     Israel               61.5% *        61.5%
Elbit Ultrasound Ltd.                                  EUL                     Israel               100%           100%
Elbit Ultrasound (Netherlands) BV                      EUBV                    The Netherlands      100%           100%
Elbit Communications and Technology BV                 ECT                     The Netherlands      100%           100%
InSightec - Image Guided Treatment Ltd.                InSightec               Israel               53.8%          53.8%
Plaza Centers (Europe) BV                              PC                      The Netherlands      100%           100%
Plaza Centers Management Hungary Kft.                  PCM                     Hungary              100%           100%
Superior Investments Ltd.                              Superior                Israel               100%           100%

AFFILIATED COMPANIES AND OTHER INVESTMENTS
VCON Telecommunications Ltd.                           VCON                    Israel               20.3%          20.3%
Olive Software Inc.                                    Olive                   USA                  36.2%          36.25%
Easyrun Ltd.                                           Easyrun                 Israel               30.3%          30.3%
</TABLE>


(*)  These percentages are calculated as beneficially  owned by EMI by virtue of
     its holdings of Elscint.
(**) There are various additional companies in various stages of liquidation.

PROPERTY, PLANTS AND EQUIPMENT

         EMI
         ---

         As of May 31, 2003, EMI (excluding Elscint) leased approximately 26,000
square feet in Israel for management and administration purposes, of which parts
were leased from Control Centers at market prices. For further details see "Item
7  -  Major   Shareholders  and  Related  Party  Transactions  -  Related  Party
Transactions - Other - Lease".

         InSightec's  operations are conducted in facilities  mainly leased from
unaffiliated  entities.  As of May 31,  2003,  InSightec  leased an aggregate of
approximately 18,000 square feet in Tirat Hacarmel and Or-Yehuda,  Israel, where
it  maintains  its  principal  executive  offices  and  performs  the  research,
development and manufacturing  activities of TxSonics and TOR. These leases will
expire in 2005.  Rental  payments are linked  primarily  to the various  Israeli
price  indices.  Total annual  rental  expenses  under these leases are $400,000
(approximately NIS 1.76 million).  The leased property is adequate for the needs
of InSightec in the foreseeable future.



                                      -51-
<PAGE>

         Sadyba Center SA, the owner of the Sadyba Best Mall, in which we hold a
50% interest,  leases 305,668 square feet from the  Municipality  of Warsaw on a
long term lease which  expires on July 31,  2021.  Annual  rental  payments  are
approximately  $350,000  (approximately NIS 1.658 million),  which are partially
off-set by rental  received  from the sub lessee,  which  sub-leases  an area of
approximately  50,000 square feet upon which a gas station operates at an annual
rental of approximately  $50,000  (approximately NIS 236,850).  No mortgages are
registered  over the long term lease rights in this  property.  A shopping  mall
with a total  constructed  area of 583,000 square feet is constructed  upon this
site, of which approximately 254,500 square feet are available for leasing.

         Plaza  House Kft.  is the owner of a  renovated  building  with a total
built up area of  approximately  26,400 square feet, which is constructed upon a
plot of land  measuring  approximately  6,600 square feet on Andrassy  Blvd.  in
central  Budapest.  A mortgage is registered over this property in favor of Hypo
Vereinsbank  as security for a loan awarded to Plaza House Kft. in the amount of
EURO 2.3 million

         The  following  mall-constructing  subsidiaries  are  registered as the
owners of certain rights to various properties, as follows:

<TABLE>
<CAPTION>

Name                                   Title          Land           Constructed Area (sq.ft.)    Lien
                                                      Area (sq.ft.)  Total         Leasable

<S>                                    <C>            <C>            <C>               <C>        <C>
Duna Plaza (**)                        Freehold       476,000        1,100,000         600,000    OVAG
Csepel Plaza                           Freehold       151,000        220,000           150,000    OVAG
Gyor Plaza                             Freehold       567,000        219,000           165,000    OVAG
Debrecen Plaza                         Freehold       152,000        372,000           161,000    MKB+OTP+K&H
Alba Plaza                             Freehold       321,000        223,000           165,000    MKB+OTP+K&H
Pecs Plaza                             Freehold       660,000        228,000           168,000    OVAG
Szeged Plaza                           Freehold       473,000        230,600           170,000    MKB+OTP+K&H
Miskolc Plaza                          Freehold       160,000        390,000           161,000    MKB+OTP+K&H
Kanizsa Plaza                          Freehold       267,000        117,000            83,000    CIB
Kaposvar Plaza                         Freehold       296,000        133,000            91,000    MKB
Szolnok Plaza                          Freehold       51,500         165,600            77,500    K&H and OTP
Zala Plaza                             Freehold       110,000        112,400            80,000    K&H and OTP
Savaria Plaza                          Freehold       120,000        128,000            91,600    K&H and OTP
Sopron Plaza (**)                      Freehold       548,000        234,000           164,000    OVAG
Nyir Plaza (**)                        Freehold       485,000        218,000           150,000    Erste
Sadyba Best Mall (50%) (*)             Leasehold      306,000        594,000           260,000    ----
Ruda Slaska Plaza                      Freehold       385,000        242,000           158,000    ING-BANK SLASKI
Krakow Plaza                           Freehold       660,000        440,000           344,300    OVAG
</TABLE>

          (*)     Leased until 2021
         (**)     Recently acquired

         ELSCINT
         -------

         PROPERTY IN ISRAEL

         As of May 31, 2003, Elscint leased  approximately  6,300 square feet in
Tel Aviv.

         Elscint's  subsidiary that acquired the rights to the entertainment and
commercial  center in the Marina in Herzlia,  Israel will be  registered  as the
owner  of the  long  term  lease  rights  to  land  owned  by the  Israeli  Land
Administration.

         In  September  2000,  Elscint  won a  tender  for  the  acquisition  of
long-term lease rights to  approximately  22 acres,  situated on the bank of the
artificial Lake Monfort near Ma'alot in Northern Israel.



                                      -52-
<PAGE>

         PROPERTY IN THE UNITED STATES

         Elscint Inc., Elscint's  wholly-owned United States subsidiary,  owns a
building in Rockleigh,  New Jersey,  consisting of  approximately  40,000 square
feet. Until March 2001,  Elscint Inc. used  approximately  5,000 square feet for
its office space.

         PROPERTY IN EUROPE AND SOUTH AFRICA

         Set forth below is certain information with respect to Elscint's hotels
and hotel projects in Europe and South Africa:

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
                           Size of Property   Percentage of Ownership
      Name of Hotel            (Sq. Ft.)             by Elscint                         Encumbrances; Miscellaneous
------------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>                     <C>             <C>
Victoria Hotel, Amsterdam       220,000                 50%             o  land pledged as collateral to secure payment of loan

                                                                        o  first priority mortgage and first priority lien on
                                                                           all movable assets
------------------------------------------------------------------------------------------------------------------------------------
Utrecht Park Plaza,             55,880                  50%             o  long term lease rights pledged as collateral to
Utrecht                                                                    secure payment of loan

                                                                        o  first priority lien on all movable assets
------------------------------------------------------------------------------------------------------------------------------------

Astrid Park Plaza,              315,000                 100%            o  none
Antwerp
------------------------------------------------------------------------------------------------------------------------------------
Euston Road, London             275,000                 35%             o  first priority mortgage on land and on movable
                                                                           assets

                                                                        o  first ranking pledge on shares of subsidiary that
                                                                           owns the rights to the land
------------------------------------------------------------------------------------------------------------------------------------
Southern Park Plaza             89,100                 33.33%           o  first priority mortgage on land
Hotel, Johannesburg,
South Africa                                                            o  lien on all movable assets
------------------------------------------------------------------------------------------------------------------------------------
Victoria Park Plaza,            242,000                 50%             o  first priority mortgage on land
London

                                                                        o  first priority lien on shares of subsidiary that
                                                                           owns the rights to the land

                                                                        o  lien on all movable assets
------------------------------------------------------------------------------------------------------------------------------------
Ballet Building, Budapest       170,000                 50%             o  no loans have been taken.  Property is
                                                                           unencumbered.


------------------------------------------------------------------------------------------------------------------------------------
Riverbank (Thames)              327,700              45% equity         o  long term lease rights for 125 years
property, London

                                                     50% voting         o  first priority mortgage on land

                                                                        o  first ranking lien on shares of subsidiary that
                                                                           owns the rights to the lease

                                                                        o  lien on all movable assets
------------------------------------------------------------------------------------------------------------------------------------
Sherlock Holmes Hotel,          65,600               45% equity         o  sub-lease for 99 years and an option to extend to
London                                               50% voting            a total of 125 years


                                                                        o  lien on the sub-lease rights
------------------------------------------------------------------------------------------------------------------------------------
Bucuresti Hotel Complex,        901,000                 69%             o  Property and movables unencumbered
Bucharest, Romania
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      -53-
<PAGE>

         In January 2003,  Elscint  leased the Euston Road property in London to
an unrelated third party for a period of 25 years.  The rental payments are in a
fixed  amount  for each of the first four  years of the  lease,  and  thereafter
increase  annually at the rate of 2.5%  through  the end of the lease term.  The
lessee  has  placed  a  deposit   in  the  amount  of  GB   (Pound)2.5   million
(approximately  $4.0 million) that will serve as security for the rent payments.
The lessee has also been granted an option to extend the lease  agreement by two
additional periods of 15 years each.

ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

GENERAL

         Our  functional  currency  is NIS  and  our  financial  statements  are
prepared in accordance  with Israeli GAAP.  Israeli GAAP and U.S. GAAP differ in
certain respects,  which are summarized in detail in Note 26 of the Notes to the
Financial Statements.

         In accordance  with the  principles  set forth in Opinion No. 36 of the
ICPAI,  the  financial  statements  of  autonomous  foreign   subsidiaries,   or
autonomous  subsidiaries,  are prepared in their local currency,  which is their
functional  currency.  The financial  statements were translated into NIS on the
basis of the  exchange  rates in effect on the  balance  sheet date after  first
being  adjusted  for  inflation  in  their  respective  countries  of  principal
operation.  The  differences  arising  between the  adjustment  of the Company's
investment  in its various other  entities  (including in loans of an investment
nature)  on the  basis of the  changes  in the CPI,  and the  adjustment  of the
Company's share in the shareholders' equity of such entities on the basis of the
changes in the  exchange  rate of the local  currency as compared to the NIS and
the rate of inflation in the respective countries, are included in shareholders'
equity  under the item  "Capital  reserves  from the  translation  of  financial
statements of foreign investees."  Financing expenses caused by foreign currency
loans that financed the investments in the autonomous  subsidiaries,  as well as
the related tax effect, are also included in the same item.

         The financial  statements of the Company's  integrated foreign entities
in which it owns an  interest  (as  defined in Opinion  No. 36 of the ICPAI) are
prepared in foreign currency.  The financial  statements of these companies were
translated into Israeli currency as follows:

         o  Non-monetary  balance  sheet  items  were  translated  according  to
         historical exchange rates and adjusted,  through September 1999, on the
         basis of the changes in the exchange rate of the dollar,  and from that
         date on, according to the changes in the CPI.

         o  Monetary   balance  sheet  items  (items  which  represent   amounts
         receivable or payable at face value,  which represent their  realizable
         value) were  translated  according to the  exchange  rate as at balance
         sheet date.

         o Statement of income items were  translated,  through  September 1999,
         according  to  the  average   exchange   rates   prevailing   when  the
         transactions  were effected and thereafter  according to the changes in
         the CPI.  Differences  arising from such  translations  are included in
         financing expenses.

         Because our revenues  and expenses are recorded in various  currencies,
the results of our  operations  are affected by several  inter-related  factors,
including the ratio between the value of the NIS and other currencies,  the rate
of  inflation  in Israel and the timing  and  amount of the  devaluation  of the
Israeli currency as compared to the U.S. dollar.

         Financial  data  included  in this  discussion  has  derived  from  our
Consolidated  Financial  Statements and analyses based on our general accounting
records and published  statistical data. Such financial data has been rounded to
the nearest thousand. For convenience purposes,  certain selected financial data
presented  herein  for the  fiscal  year  ended  December  31,  2002,  has  been
translated into dollars using the  representative  exchange rate on December 31,
2002 of NIS 4.737 = $1.00.



                                      -54-
<PAGE>

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         The  following  discussion  should  be read  in  conjunction  with  the
consolidated  financial  statements of the Company included in Item 18 and notes
thereto.

         "Critical  accounting  policy" as indicated by the SEC, is one that (i)
is important to the portrayal of an entity's financial condition and results and
(ii) requires  management's  most  difficult,  subjective or complex  judgments,
often as a result of the need to make estimates about the effect of matters that
are inherently  uncertain.  We believe that our critical accounting policies are
those described below. For detailed  information on the application of these and
other accounting policies,  see Note 2 to the consolidated  financial statements
includes in Item 18. As for the differences  between Israeli GAAP and U.S. GAAP,
see Note 26 to the financial statements included in Item 18.

         The preparation of our consolidated  financial statements in conformity
with  accounting  principles  generally  accepted  in Israel  ("Israeli  GAAP"),
requires us to make estimates and judgments that affect the reported  amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and  liabilities.  On an  on-going  basis,  we  evaluate  our  estimates,
including  those related to  impairment  of real estate assets and  investments,
assessment of the probable  potential outcome of litigation  matters in which we
are involved and other contingent liabilities,  allowance for doubtful accounts,
determination  of  subsidiaries'   functional   currency,   deferred  taxes  and
capitalization  of costs. We base our estimates on historical  experience and on
various  other  assumptions  that  are  believed  to  be  reasonable  under  the
circumstances,  the results of which form the basis for making  judgments  about
the carrying values of assets and liabilities that are not readily apparent from
other sources.  In preparing the financial  statements and forming its estimates
and judgments with respect to certain amounts included  therein,  management has
utilized available  information  including,  among other factors,  the Company's
past history,  industry  standards and the current economic  environment,  while
giving due  consideration  to  materiality.  It is  possible  that the  ultimate
outcome,  as anticipated by management in formulating its estimates  inherent in
these financial statements,  will not materialize.  However,  application of the
critical  accounting  policies described below involves the exercise of judgment
and use of assumptions as to future  uncertainties  and, as a result, the actual
outcome could differ from these estimates. In addition,  other companies may use
different estimates, which may have impact on the comparability of the Company's
results of operations to those of companies in similar businesses.

         The SEC recently issued Financial Reporting Release No. 60, "Cautionary
Advice  Regarding  Disclosure  About Critical  Accounting  Policies" ("FRR 60"),
suggesting  companies  provide  additional  disclosure  and  commentary on those
accounting  policies  considered  most critical.  FRR 60 considers an accounting
policy to be critical if it is important to our financial  condition and results
of operations,  and requires  significant  judgment and estimates on the part of
management  in its  application.

         We believe  the  following  critical  accounting  policies  reflect our
principal  significant  judgments and estimates  used in the  preparation of the
consolidated financial statements.

IMPAIRMENT AND DEPRECIATION OF LONG-LIVED ASSETS

         The  Company  evaluates  the  need for an  impairment  loss on its real
estate  assets used in  operations  or under  construction,  when  indicators of
impairment  are  present  and based on the  estimated  undiscounted  cash  flows
(before  interest and tax  charges)  expected to be generated by those assets in
comparison  and if they are not  sufficient to recover their  carrying  amounts.
Indicators we consider  important so as to trigger an impairment  review include
the following:  a significant negative industry or economic trend; a significant
under-performance  relative to  historical  or projected  operating  results;  a
significant  change in the manner in which an asset is used; and an accumulation
of costs  significantly in excess of the amount originally expected to construct
an asset.  Our cash flow estimates are based on historical  results  adjusted to
reflect our best estimate of future market and operating conditions.  If such an
asset  is  considered  to be  impaired,  an  impairment  loss is  recorded.  The
impairment  loss,  if any, is measured by comparing the amount that reflects the
fair  value of the asset at the time  impairment  is  evident,  to its  carrying
amount.  Estimates of fair value  represent the best estimate  based on industry


                                      -55-
<PAGE>

trends  with  reference  to  market  rates  and  transactions.  In the event the
projected forecasts regarding the future cash flow generated by those assets are
not met, we may have to record in the future an impairment  loss not  previously
recorded.

         Based on  management's  estimates of future cash flows,  our long-lived
assets were determined to be  recoverable,  except for an impairment loss of NIS
4.4 million,  which were recorded in 2002. In addition, the Company has recorded
an impairment loss of the carrying value of investments in certain subsidiaries,
for the year ended December 31, 2002, which was attributed,  in the consolidated
financial  statements,  to the assets value of each such a subsidiary.  See also
"Impairment of Investments", below.

         The  recognition of an impaired  property and the potential  impairment
calculation  are subject to a  considerable  degree of judgment,  the results of
which,  when applied  under  different  principles  or different  conditions  or
assumptions, are likely to result in materially different amounts and could have
a material adverse impact on the financial statements.  The evaluation of future
cash flow  expected to be generated by each property is subject to a significant
uncertainty  in the  estimation  of future  income and  expenses  of the hotels'
and/or the commercial center's operations,  and the future capital expenditures.
In preparing  these  projections,  the Company must make a number of assumptions
concerning  occupancy  rates,  average room rate (in respect of hotels),  rental
fees rates (in respect of the commercial  and  entertainment  center),  rates of
growth of revenues,  market prospects,  operational efficiency of the management
company  and the scope of  maintenance  and  other  operational  expenses.  Such
estimates  are affected by economic  factors  such as visitors'  trends per each
site,  general  prospect  of demand  and  supply of hotel  rooms in the city (in
respect of hotels),  competition in the site area and macro-economic  factors in
each country.

         Depreciation  of real estate is based on the  estimated  useful life of
the  property  (50 years in respect of the  commercial  centers  and 67 years in
respect of the hotels) using the straight-line method.

         Maintenance  and repairs are charged to expenses as  incurred.  Capital
improvements   and  renovations  are  capitalized  and  depreciated   using  the
straight-line method over their estimated useful life.

         Under  different  assumptions  or  conditions,   the  asset  impairment
analysis may yield a different outcome,  which may alter the impairment analysis
on our assets,  as well as the gain or loss on the eventual  disposition  of the
asset.

IMPAIRMENT OF INVESTMENTS

         The Company evaluates  permanent  impairment on individual  investments
(including,   in  subsidiaries)  in  its  portfolio,   when  an  investment  has
experienced a sustained  decline (not of a temporary nature) in fair value below
cost.  Management  considers several factors,  including a significant  negative
industry  or  economic  trend,  a  significant   under-performance  relative  to
historical or projected operating results,  the length of time during which such
investment has  experienced a decline,  achievement of business plan  objectives
and  milestones,  the  value of each  ownership  interest  in an  unconsolidated
company in relation to the carrying value, the financial condition and prospects
of the company as well as the  volatility  inherent in the external  markets for
these investments,  and other relevant factors. These evaluations are subjective
in  nature.  Permanent  declines  in value  result in a charge to net  income or
against  foreign  translation  adjustment  reserve in  shareholders  equity,  as
applicable, reducing the carrying value of the investment.

         The  Company  holds  majority  interest in private  investee  companies
(without  a  quoted  market  value),  which  own and  operate  (each of them) an
entertainment and commercial center and/or a hotel.

         In addition,  the company  holds also  minority  interests in high-tech
companies that are either  operational or in their  development  stage,  some of
which are publicly traded and whose share prices are highly volatile and some of
which are  privately  held  companies  (without  a market for the trade of their
securities), whose value is difficult to determine.



                                      -56-
<PAGE>

         The Company records an investment impairment charge when it believes an
investment  has  experienced  a decline in value that is not  temporary.  Future
adverse  changes in market  conditions or poor  operating  results of underlying
investments  could  result  in  losses  or  in  an  inability  to  generate  the
anticipated cash flow from holding the investee company and recover the carrying
value of the  investments  (which is not  reflected in an  investment's  current
carrying value), thereby possibly requiring an impairment charge in the future.

         In 2002, the Company  recorded a write-down of such  investments in the
amount of NIS 99.6 million ($21.0 million).  In the year 2001 - NIS 16.6 million
($3.8 million) and in 2000, no write-down was recorded.

         For  additional  information  -  see  notes  2G;  10A(1);   10B(1)b(8);
10B(3)b(8) and 11A to the financial statements including in item 18.

         As for the  differences  between  Israeli  and U.S.  GAAP in respect of
investment in subsidiaries-  fair value measurement - see subsection A14 to note
26 to the financial statements included in Item 18.

ALLOWANCE FOR DOUBTFUL ACCOUNTS, LITIGATION AND OTHER CONTINGENT LIABILITIES

         a. The Company and its subsidiaries  are currently  involved in various
litigation  disputes  in  substantial   amounts.  We  provide  a  provision  for
contingent obligations  (including those in respect of discontinued  operations)
when the obligations  are probable and the amounts may be estimated  reasonably.
We include in the financial statements provisions which in management's opinion,
based on, among other  factors,  legal  consultation  and past  experience,  are
deemed  adequate  to cover the costs and  resources  necessary  to  satisfy  the
potential  liabilities  under these claims.  As facts  concerning  contingencies
become known, we reassess our position and make  appropriate  adjustments to the
financial statements.

         In addition to the above, the Company and its subsidiaries are involved
in  litigation  matters,  the amount or  outcome  of which may not be  estimated
(e.g.,  class actions).  Because of the uncertainties  related to amounts and/or
ranges of losses in these remaining  litigation  matters,  neither the Company's
management nor its legal advisors are able to make a reasonable  estimate of the
liability  that  could  result  from  an  unfavorable   outcome.  As  additional
information becomes available, we will re-assess the potential liability related
to our pending litigation and revise our estimates  accordingly.  Such revisions
in our estimates of the potential  liability could materially impact our results
of operations and financial position.

         For additional information regarding contingent liabilities,  see "Item
8 - Financial Information - Legal Proceedings".

         b. Following the sale of the Company's  operations in 1998, the Company
was  required  to assess  the  outcome  of  various  contingent  liabilities  in
connection with such sale. The outcome of such contingent liabilities may differ
materially from the assessment of management.  Management periodically evaluates
these assessments and makes appropriate  adjustments to the financial  statement
based thereon.

         c. The  Company  examines,  on an ongoing  basis,  the volume of credit
extended to its customers in the ordinary  course of business and,  accordingly,
records a provision  for  doubtful  accounts  based on those  factors  affecting
credit risks of certain customers based upon the judgment of management.

         Our group  companies  periodically  evaluate  the  quality and value of
loans  granted  by them to  various  third  parties  in the  ordinary  course of
business,  in light of the securities  provided therefor,  the term of such loan
and their past expreience with such third parties.

         d. The  allocation  of the  proceeds  from  the  sale of the  Company's
operations in 1998 among Elscint and its  subsidiaries  is based on an estimated
fair  value  of  assets  (both  tangible  and  intangible)  sold  by each of the
companies;  on separate  negotiations held with each selling company; and on the


                                      -57-
<PAGE>

basis  of  the  provisions  stipulated  in the  respective  sale  agreements.  A
different method of allocation may cause Elscint and its subsidiaries additional
liabilities and/or expenses.  Elscint's  management  believes that the estimates
used as the  basis  for this  allocation  of  proceeds  are  adequate  under the
circumstances.

DETERMINATION OF FUNCTIONAL CURRENCY OF INVESTEE COMPANIES

         In preparing our consolidated financial statements,  we are required to
evaluate the functional  currency of certain  subsidiaries  operating outside of
Israel  (mainly in  Europe).  The  functional  currency is  determined  based on
management judgment and involves  consideration of all relevant economic factors
and circumstances affecting each subsidiary (e.g., the currency of the financial
environment that significantly  affects  management in determining,  inter alia,
services' prices, or the currency used by management for the purpose of decision
making).  Generally,  the currency in which each subsidiary transacts a majority
of its transactions,  including  purchases,  billings,  collections and payments
(i.e.,  currency in which  receivables  and payments  from current  activity are
denominated or in which they are held following  their  conversion),  as well as
financing,  the currency in which majority of costs  pertaining to the supply of
services are incurred (e.g. payroll,  maintenance and other  expenditures),  may
indicate the functional currency while the nature of the subsidiary's operations
must also be considered.  A significant change in the financial environment,  or
in the foregoing factors in whole or in part, may require management to re-asses
its determination of the functional currency.

         Based on our  assessment  of the  foregoing  factors,  we consider  the
relevant  subsidiary's local currency to be the functional  currency for each of
our international subsidiaries.

         When any  subsidiary's  functional  currency  is deemed to be the local
currency,  then  any  gain or  loss  associated  with  the  translation  of that
subsidiary's  financial  statements,  for  consolidation  purposes,  is  charged
directly  to a  separate  item  in the  shareholders'  equity,  namely  "foreign
currency  translation  adjustments".  Exchange differences on net monetary items
included in the subsidiary's  financial  statements which are denominated in, or
linked to, currencies other than the functional currency,  are recorded directly
to  the  statements  of  operations.  See  also  "Item  11  -  Quantitative  and
Qualitative disclosure about market risks - Exchange rate exposure" and "Item 11
- Quantitative  and Qualitative  disclosure about market risks - Exposure to net
investment value of foreign entity."

         However,  in the event the  functional  currency  changes to a currency
other than the local currency,  the amount of the foreign  currency  translation
adjustment  and/or the net income could be materially  affected in each reported
year relevant to the change.

         For information on currencies  involved in our global  operations,  see
"Item 11 - Quantitative and Qualitative  disclosure about market risks - Table I
- foreign currency risks".

ACCOUNTING FOR INCOME TAXES

         As part of preparing  our  consolidated  financial  statements,  we are
required to estimate our income taxes in each of the  jurisdictions  in which we
operate.  This  process  involves an  estimate  by us of our actual  current tax
exposure, together with assessing temporary differences resulting from differing
treatment of items, such as deferred revenue,  for tax and accounting  purposes.
These  differences  result in  deferred  tax  assets  and  liabilities  that are
included in our  consolidated  balance sheet. We must then assess the likelihood
that our deferred tax assets will be recovered  from future taxable  income.  To
the extent we believe that recovery is unlikely,  we must  establish a valuation
allowance.  The Company  records a valuation  allowance  to reduce  deferred tax
assets to the amount believed more likely than not to be realized.  In assessing
the need for the  valuation  allowance,  the Company  considers  future  taxable
income and ongoing  prudent and feasible tax planning  strategies.  In the event
the Company determines that it may not be able to realize all or part of its net
deferred tax assets,  an  adjustment to the deferred tax assets would be charged
as a tax expense in the period  throughout  which such  determination  was made.
Likewise,  should the  Company  determine  that it would be able to realize  its


                                      -58-
<PAGE>

deferred  tax  assets in the  future in excess of its net  recorded  amount,  an
adjustment  to the  deferred  tax assets  would be recorded as tax income in the
period throughout which such determination was made.

         CAPITALIZATION OF COSTS

         We capitalize direct acquisitions,  construction and development costs,
including initiation costs,  pre-development costs, finance costs in real terms,
property  taxes,  insurance,  and indirect  allocated  project  costs,  that are
associated  with the  acquisition,  development or  construction  of real estate
projects.   Costs  previously  capitalized  that  relate  to  (i)  an  abandoned
development  opportunity;  (ii) a project  that is not  reasonably  expected  to
materialize;  or (iii) a  project  the  expected  economic  benefit  of which is
doubtful,  are written off, and charged to the statement of  operations.  Should
development and construction  activities  decrease  substantially,  a portion of
financial   costs  and  project   expenses   may  no  longer  be  eligible   for
capitalization, and would be expensed.

OPERATING RESULTS

         The   following   table   presents  for  the  periods   indicated   the
relationships  of certain income  statement items as percentages of net revenues
of EMI:

<TABLE>
<CAPTION>

                                                                           YEAR ENDED DECEMBER 31,

                                                                  2002 (%)       2001 (%)      2000 (%)
                                                                  --------       --------      --------
<S>                                                                 <C>            <C>            <C>
   Revenues                                                         100            100            100
   Revenues from Commercial-center operations                        57             47             18
   Revenues from hotel operations and management                     42             49             69
   Revenues from Long-term projects                                   0              4             13
   Cost of commercial-center operations                              31             24              8
   Cost of hotel operations and management                           40             45             59
   Cost of long-term projects                                         0              3             12
   Gross profit                                                      29             29             21
   Initiation Costs of projects                                       3              2              2
   Research and development expenses, net                             6              9             17
   Marketing and selling expenses                                     6              3              1
   General and administrative expenses                               18             22             35
   Operating loss before financial income, net                       (4)            (7)           (35)
   Financial income (expenses), net                                  (1)            36             21
   Operating income(loss) after financial income, net                (5)            29            (13)
   Other income (expenses), net                                       2             12            (10)
   Income (loss) before income taxes                                 (3)            41            (24)
   Income taxes                                                       4              5             12
   Income (loss) after income taxes                                  (7)            36            (36)
   Equity in earnings (losses) of investee companies, net            (1)            (3)            (2)
   Minority interest in results of subsidiaries, net                  5             (2)            10
   Income (loss) from continuing operations                          (3)            31            (28)
   Income (loss) from discontinued operations, net                   11              7             18
   Net income (loss) for the year                                     8             38            (10)
</TABLE>


FISCAL 2002 COMPARED TO FISCAL 2001

         Revenues from  Commercial and  Entertainment  malls  operations,  Hotal
operations   and  management  and  long  term  projects  were  NIS  497  million
(approximately  $105  million),  compared to NIS 287 million for fiscal 2001, an
increase of NIS 210 million, or 73%.



                                      -59-
<PAGE>

         Revenues from Commercial and Entertainment  malls operations for fiscal
2002 were NIS 285 million  (approximately  $60 million),  as compared to NIS 134
million for fiscal 2001, an increase of NIS 151 million or 112%.

         The  increase  in  revenues  in the  reported  period  compared  to the
corresponding  period in the previous year was due primarily to the inclusion of
the activities of three additional Commercial and Entertainment malls in Hungary
and two  Commercial  and  Entertainment  malls in  Poland,  most of  which  were
inaugurated  at the end of 2001,  in addition to another  three  Commercial  and
Entertainment malls acquired on February 25, 2002.

         Following  completion  of  the  acquisition  and  the  opening  of  the
aforementioned  Commercial and  Entertainment  malls, the Company owns 18 active
Commercial and Entertainment  malls, of which 15 are located in Hungary and 3 in
Poland.  These  centers  are  expected  to yield  aggregate  annual  revenues of
approximately   NIS  250  million   (approximately   $52-63   million)  and  are
characterized by a rate of gross profit estimated at 45% to 48%.

         Revenues from Elscint's  hotel  activities for fiscal 2002 were NIS 210
million as compared to NIS 141  million for fiscal  2001,  an increase of NIS 69
million (approximately $14.5 million) or 48%.

         The increase in revenues of the hotel division resulted  primarily from
(i)  commencement  of operation of the Sherlock  Holmes and Victoria  Park Plaza
hotels in London at the end of fiscal  2001 and (ii)  increase  in the  exchange
rate of the Euro and the British Pound against the NIS in fiscal 2002.

         Elscint  expects  income from its hotel  business to decrease in fiscal
2003,  mainly due to the  discontinuing  operations at the Bernard Shaw hotel at
the beginning of fiscal 2003,  as a result of leasing the  property,  and to the
closing of the Bucuresti Hotel in Romania for renovation.  In addition,  Elscint
expects to record revenue from the operation of the entertainment and commercial
center at the Herzlia Marina in the second half of 2003.

         As a result of the  foregoing  factors,  total gross  profit for fiscal
2002 was NIS 145 million  (approximately $31 million), or 29% of total revenues,
compared to NIS 82 million, or 29% of total revenues, in fiscal 2001.

         Cost  of   initiation   of   projects   in  2002  was  NIS  17  million
(approximately $4 million) compared to cost of initiation of projects in 2001 of
NIS 6 million. These expenses derived primarily from land acquisition activities
in connection with non-realized  Commercial and Entertainment  malls, as well as
hotels.

         Net  research  and  development  expenses in fiscal 2002 totaled NIS 29
million  (approximately  $6  million),  as  compared to NIS 24 million in fiscal
2001.  EMI included in its results for fiscal 2002 income from the Office of the
Chief  Scientist  of the  Ministry of Industry  and Trade of the  Government  of
Israel ("OCS") in the amount of NIS 8 million.  In the twelve month period ended
December 31, 2002, the Company  recorded,  under other income,  deferred  income
amount deriving from an increase in the Company's share in the net book value of
InSightec (resulting from the decrease in its rate of shareholding in InSightec)
at the end of  2001,  in an  amount  of NIS  25.1  million  (approximately  $5.3
million).

         General and administrative  expenses in fiscal 2002 were NIS 90 million
(approximately $19 million), as compared to NIS 63 million in fiscal 2001. These
general and administrative  expenses included executive,  administrative,  legal
and  accounting  activities,   rental  expenses  and  professional  fees.  These
increases  derive  primarily  from an  increase  in  administrative  and general
expenses  in the  subsidiary  company  Plaza  Centers,  which  incorporates  the
activities of commercial  centers in the Group,  comprising an additional  eight
Commercial and Entertainment malls, over the course of the reported year.



                                      -60-
<PAGE>

         Net other income in fiscal 2002 was NIS 9.6 million  (approximately  $2
million),  as compared to NIS 34.7 million in fiscal  2001.  See note 20I to the
financial statements.

         Net   financing   expenses   in  fiscal   2002  were  NIS  5.5  million
(approximately  $1  million),  as  compared to net  financing  income of NIS 103
million  in  fiscal  2001.  The  transition  from net  financing  income  to net
financing  expenses  in  2002  as  compared  to  2001  was  primarily  due  to a
combination of the following factors:

         1.  An increase in the volume of credit balances (mainly in Hungary and
             Poland)  assumed  by  group  companies  (mainly  during  the  first
             quarter) for financing  increases in  investments in Commercial and
             Entertainment  malls  and the  resulting  increase  in the  cost of
             credit.

         2.  A decrease  in  Elscint's  liquid  assets and in the rate of actual
             yield  produced  by the  Group  companies,  resulting  out of their
             investment in cash and deposits.

         3.  A  decrease  in the  Company's  income  from  derivative  financial
             transactions carried out by the Company's  investments  department,
             as compared to the previous year. See "Item 11. - Quantitative  and
             Qualitative Disclosure About Market Risks."

         4.  Changes in the exchange rate of operational  currencies  (primarily
             the Euro and the NIS) in relation to the exchange rate of financing
             currencies  (primarily the Dollar),  which yielded financing income
             due to the lower rate of  depreciation of the Dollar to the NIS, as
             compared to last year.

         Income  taxes for fiscal 2002 were NIS 22 million  (approximately  $4.6
million), as compared to NIS 14 million in fiscal 2001.

         EMI's share in net loss of investee  companies  in fiscal 2002  totaled
NIS 2.9 million  (approximately  $0.6 million).  This loss was due to a net loss
from the operations of the Group's investee companies:  Gamida,  VCON, Olive and
Easyrun.

         On  December  31,  2002,  Elscint  sold  to a  third  party  all of its
manufacturing,  assembly, engineering, and integration activities of systems and
sub-systems segment (mainly related to medical imaging), which were performed in
Elscint's  plant  in  Maalot  in  northern  Israel.   Upon  completion  of  this
transaction,  the group's  activity in this  segment and in the field of medical
imaging in general was discontinued. Net income from discontinuing operations in
fiscal 2002 was NIS 55.8 million  (approximately $11.8 million) as compared with
NIS 19.1 million in fiscal 2001. See note 23 to the financial statements.

         In the reported  year, the Group paid to its minority  shareholders  in
Elscint a cash dividend of $1.10 per share.

         As a result of the  foregoing  factors,  EMI had a net income in fiscal
2002 of NIS 41.1  million  (approximately  $8.6  million),  as compared to a net
income of NIS 107.8 million in fiscal 2001.

FISCAL 2001 COMPARED TO FISCAL 2000

         Revenues from  Commercial  and  Entertainment  malls  operation,  hotel
operations and  management  and long-term  projects for fiscal 2001 were NIS 286
million  compared  to NIS 156 million  for fiscal  2000,  an increase of NIS 130
million, or 83%.

         The  increase  in  the  total  revenues  resulted  primarily  from  (i)
consolidation of the operations of the two additional  shopping malls in Hungary
and  the  two  malls  in  Poland,   which  were  opened  during  2001  and  (ii)
consolidation of Elscint's Buchuresti Hotel's results commencing in April 2001.



                                      -61-
<PAGE>

         Total gross profit for fiscal 2001 was NIS 82 million,  or 29% of total
revenues, compared to NIS 32 million, or 20% of total revenues, in fiscal 2000.

         Cost of initiation of projects in 2001 was NIS 5.9 million  compared to
cost of  initiation  of  projects  in 2000 of NIS 2.8  million.  These  expenses
derived   primarily  from  land   acquisition   activities  in  connection  with
non-realized commercial centers, as well as hotels.

         Net  research  and  development  expenses in fiscal 2001 totaled NIS 24
million as  compared  to NIS 26  million in fiscal  2000.  EMI  included  in its
results  for fiscal  2001,  income from the OCS in the amount of NIS 14 million.
Research and  development  expenses were  generated  only by  InSightec.  In the
fourth  quarter  of  2001,  the  Company  accounted  for a  deferred  income  of
approximately NIS 30 million resulting from the investment by an unrelated third
party in  InSightec.  Such  deferred  income is offset  against net research and
development  expenses in 2002 up to the amount of such  expenses.  Any remaining
income will be deferred and offset  against the  subsequent  year's net research
and development expenses.

         General and administrative  expenses in fiscal 2001 were NIS 63 million
as compared to NIS 55 million in fiscal 2000.  These general and  administrative
expenses included executive,  administrative,  legal and accounting  activities,
rental expenses and professional  fees. The increase resulted mainly from sales,
general and administrative  expense of the Company's subsidiary,  Plaza Centers.
The  results  of  such  subsidiary  were  consolidated  with  EMI's  results  of
operations beginning in the fourth quarter of 2000.

         Net financing  income in fiscal 2001 was NIS 103 million as compared to
NIS 33 million in fiscal 2000. The increase in the net financing income resulted
mainly from the revaluation in the exchange rate of the operating  currencies in
Eastern  Europe  (Hungary and Poland) in relation to the  exchange  rates of the
currencies  financing the operation of the Company and its  subsidiaries in such
countries  (mainly Euro),  as well as the increase in the price index in Hungary
(approximately 6.9%) and Poland (approximately 3.6%).

         The net  financing  income was also  affected by the  investment of the
majority of the Company's  consolidated  liquidity  instruments  (mainly that of
Elscint) in U.S.  Dollar  denominated  deposits,  which  investment  resulted in
increased  income due to the  appreciation of the U.S. Dollar as compared to the
NIS during 2001.

         Furthermore,   the  net  financing  income  was  affected  by  activity
resulting from entering into transactions in derivative financial instruments.

         Net other  income in fiscal  2001 was NIS 34 million as compared to net
other  expenses of NIS 16 million in fiscal 2000.  See note 20I to the financial
statements.

         Income  taxes for fiscal 2001 were NIS 14 million as compared to NIS 19
million in fiscal 2000.

         EMI's share in net loss of investee  companies  in fiscal 2001  totaled
NIS 9.9 million compared to net loss of investee companies of NIS 3.3 million in
fiscal 2000.  This decrease was primarily due to a net loss from the  operations
of Gilbridge  Holdings Ltd.,  during the nine months period ended  September 30,
2001.

         Income  from  discontinued  operations,  net, in fiscal 2001 was NIS 19
million as compared with an income from  discontinued  operations in fiscal 2000
of NIS 28.3 million. See Note 23 to the financial statements.

         As a result of the  foregoing  factors,  EMI had a net income in fiscal
2001 of NIS 108  million as  compared  to a net loss of NIS 16 million in fiscal
2000.



                                      -62-
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

         Major  balance  sheet  items  as a  percentage  of total  assets  as at
December 31, 2002 and 2001 were as follows:

                                               DECEMBER 31,
                                      2002                     2001

  Current assets...................... 17%                      24%
  Current liabilities................. 33%                      34%
  Long-term liabilities............... 38%                      31%
  Minority Interest................... 8%                       10%
  Shareholders' equity................ 19%                      19%


         EMI met its  operational  and liquidity  needs in fiscal 2002 from cash
from  operations,  utilization of bank credit  facilities and cash on hand. Cash
and cash equivalents decreased to NIS 215 million (approximately $45 million) at
December 31, 2002 from NIS 363 million at December 31, 2001.  This  decrease was
primarily  due to the ongoing  investments  in the  shopping  and  entertainment
malls, the construction of the hotels and general and  administrative  expenses.
Trade  accounts  receivables  increased  to NIS 54  million  (approximately  $11
million) at December 31, 2002 from NIS 34 million at December 31, 2001.

         Hotels, commercial centers and other fixed assets increased to NIS 4.17
billion (approximately $880 million) at December 31, 2002 from NIS 2.913 billion
at December 31, 2001, primarily due to continuing  investments in the commercial
centers and in Elscint's hotels under construction in Europe.

         Other  assets  (net)  increased  to NIS 74 million  (approximately  $16
million) at December 31, 2002 from NIS 61 million at December  31, 2001,  due to
growth in the  activities of the  commercial  centers as well as from  Elscint's
hotels' operations.

         Assets related to discontinuing operations decreased to NIS 114 million
(approximately  $24  million)  at  December  31,  2002 from NIS 203  million  at
December 31, 2001. This decrease was attributed  primarily to the disposition of
assets  related  to the  subassemblies  segment  as a result of the sale of this
segment on December 2002, which was offset in part by the balance due to Elscint
from the buyer of this segment.

         Short-term  borrowings  increased to NIS 1.664  billion  (approximately
$351  million) at December 31, 2002 from NIS 1.445  billion at December 31, 2001
and  long-term  loans and other  long-term  liabilities  increased  to NIS 2.217
billion (approximately $468 million) at December 31, 2002 from NIS 1.474 billion
at December 31, 2001. These changes reflect  primarily  borrowings from banks to
finance the construction and operations of the commercial  center operations and
the  construction  of hotels by  Elscint as well as the  devaluation  of the NIS
against foreign currencies as offset in part by the repayments of loans.

         Liabilities  relating to discontinuing  operations decreased to NIS 112
million (approximately $23 million) at December 31, 2002 from NIS 259 million at
December  31,  2001,  primarily  due to the sale by Elscint of the  sub-assembly
segment in  December  2002 and  reduction  of  provisions previously  accrued in
respect of Elscint's sale in 1998 of its CT, MRI and NM assets.



                                      -63-
<PAGE>

         Net cash used in  operating  activities  in fiscal  2002  totaled NIS 4
million  (approximately  $845,000),  compared to net cash  provided by operating
activities  of NIS 23 million  in 2001.  Net cash used in  investing  activities
decreased to NIS 507 million  (approximately  $107 million) from NIS 972 million
in 2001. The investing  activities in fiscal 2002 were attributed  mainly to the
purchase of fixed and other assets.  Net cash  provided by financing  activities
during 2002 totaled NIS 356 million  (approximately $75 million) compared to NIS
838  million  in  2001,  representing  net  borrowings  due to  continuation  of
investments  in  the  commercial-centers   operations  and  in  Elscint's  hotel
division. In fiscal 2002, the Group paid to its minority shareholders in Elscint
a cash dividend in the amount of NIS 34 million (approximately $7 million).

         Under  credit  financing  loan  agreements  between  the Company and an
Israeli bank,  EMI undertook,  for as long as the credit  facility or any amount
thereunder is outstanding,  to maintain certain financial covenants,  including,
among others,  a minimal  ratio of  shareholders'  equity to its "reduced  total
assets' book value" ("RTA") as determined in the loan documentation.

         EMI has recently  agreed in principle with the  aforementioned  Israeli
bank on an extension to the  repayment  term of the credit  facility.  Terms and
conditions in respect of interest and repayment of principal, as well as certain
other  terms  and  conditions,  including  reduction  of the  minimal  ratio  of
shareholder's  equity to the RTA and  acceleration of repayment,  in whole or in
part,  in events of  realization  of assets  acquired  using the funds from this
loan, are to be concluded between the parties in detailed agreements,  yet to be
signed.

         We anticipate, based on management's internal forecasts and assumptions
relating to our  operations,  that our existing  cash and funds  generated  from
operations,  together with our existing financing agreements and proceeds of our
asset  sales,  will be  sufficient  to meet  our  working  capital  and  capital
expenditure requirements for the completion of those projects whose construction
has  already  commenced.  In the event that our plans  change,  our  assumptions
change  or prove  to be  inaccurate,  business  conditions  change,  or if other
capital  resources and projected cash flow otherwise prove to be insufficient to
fund our operations (due to unanticipated  expenses or other unforeseen events),
we  may  be  required  to  seek  additional   financing  sooner  than  currently
anticipated.  We have  no  current  arrangements  with  respect  to  sources  of
additional  financing  and  there  can be no  assurance  that we will be able to
obtain additional financing on terms acceptable to us, if at all.

         RECENTLY ISSUED ACCOUNTING  STANDARDS (For other standards issued up to
the date of approval  of the  Financial  Statements,  see  Financial  Statements
included in Item 18 below)

         On April 30, 2003, the FASB issued FASB Statement No. 149, Amendment of
Statement 133 on Derivative  Instruments  and Hedging  Activities,  which amends
FASB  Statement  No. 133,  Accounting  for  Derivative  Instruments  and Hedging
Activities,  to address (1) decisions reached by the Derivatives  Implementation
Group,  (2)  developments  in  other  Board  projects  that  address   financial
instruments,  and (3)  implementation  issues  related  to the  definition  of a
derivative.  Statement 149 has multiple  effective date provisions  depending on
the  nature  of the  amendment  to  Statement  133.  The  Company  is  currently
evaluating the impact of adopting Statement 149 on its financial statements

         On May 15, 2003, the FASB issued FASB Statement No. 150, Accounting for
Certain  Financial  Instruments  with  Characteristics  of both  Liabilities and
Equity.  This Statement  establishes  standards for how an issuer classifies and
measures certain financial  instruments with characteristics of both liabilities
and equity.  It requires that an issuer classify a financial  instrument that is
within its scope as a  liability  (or an asset in some  circumstances).  Many of
those  instruments  were  previously  classified  as equity.  This  Statement is
effective for financial instruments entered into or modified after May 31, 2003,
and  otherwise  is  effective  at the  beginning  of the  first  interim  period
beginning  after June 15,  2003,  except for  mandatorily  redeemable  financial
instruments  of nonpublic  entities.  It is to be  implemented  by reporting the
cumulative  effect  of  a  change  in  an  accounting  principle  for  financial
instruments created before the issuance date of the Statement and still existing
at  the  beginning  of  the  interim  period  of  adoption.  Restatement  is not
permitted. For nonpublic entities,  mandatorily redeemable financial instruments
are subject to the  provisions  of this  Statement  for the first fiscal  period
beginning  after  December 15, 2003.  The Company is  currently  evaluating  the
impact of adopting Statement 150 on its financial statements.



                                      -64-
<PAGE>

DERIVATIVE INSTRUMENTS

         For information  about  financial  instruments  used,  profile of debt,
currencies,  interest rate structure, and the use of financial instruments,  see
"Item 11 - Quantitative and Qualitative Disclosure about Market Risks".

LOANS

         EMI
         ---

         General.  We  have  entered  into  or  assumed  liability  for  various
financing agreements, either directly or indirectly through our subsidiaries, to
provide  capital for the  purchase,  construction,  renovation  and operation of
shopping and entertainment centers and hotels as well as for various investments
in our other  fields of  operations.  In our  opinion,  our  working  capital is
sufficient for our current requirements;  however, our subsidiaries may continue
to borrow funds from time to time to finance their various  projects.  Set forth
below is certain material  information with respect to loans extended to EMI and
its subsidiaries:



                                      -65-
<PAGE>
<TABLE>
<CAPTION>
                                            AMOUNT
NAME OF MALL/PURPOSE/  AMOUNT AND TERM OF   OUTSTANDING AS OF                                     SECURITY FOR LOAN AND OTHER
OTHER                  LOAN                 31/12/2002        LENDING BANK   INTEREST ON LOAN     INFORMATION
------------------------------------------------------------------------------------------------------------------------------------
<S>                    <C>                  <C>                 <C>          <C>                  <C>
General, for           Loan I- $75 million  Loan I- $75         Bank         Loan I- LIBOR +      Loan I- pledge of investment
financing future       Loan II-90.8         million             Hapoalim     0.7%                 portfolio in an amount not less
businesses and         million (6)          Loan II- $90.8                   Loan II- LIBOR + 3%  than the amount of Loan I,
activities of EMI                           million                                               accruing interest 0.7% lower than
especially in the                                                                                 interest on Loan I.
malls business, and                                                                               Loan II- first priority pledge of
for refinancing a                                                                                 shares of PC and undertaking to
previous loan                                                                                     provide second ranking pledge
granted in relation                                                                               over assets acquired using such
to payment of a                                                                                   loan;
dividend declared in                                                                              General - Undertaking by EMI to
April 1999.                                                                                       maintain a minimal ratio of
                                                                                                  shareholder equity to RTA.
                                                                                                  EMI guaranteed the repayment of
                                                                                                  any amount under the credit
                                                                                                  facility paid to any of its
                                                                                                  subsidiaries.
General, for           $35.2 million.(7)    $35.2 million       Bank Leumi   Libor + 2%-2.5%      Pledge of cash deposit and
financing activities                                                                              securities of $18.2 million
of subsidiaries,
mainly in the malls
business, of which
$15 million were
used to finance the
Sadyba transaction.

EMI, for investment    $10 million credit   $10 million         Bank         LIBOR + 2%
in InSightec           facility repayable                       Hapoalim
                       in December 2003.(8)

InSightec              $5 million credit    $1 million          Bank         Libor +3%            InSightec may borrow loans out of
                       facility                                 Hapoalim                          the facility for two year period
                                                                                                  each.

                                                                                                  EMI guaranteed repayment
                                                                                                  of this loan.

PC for refinancing     $3.150 million       N/A                 GMAC         Prime + 1.55%        Promissory note; pledge of the
the acquisition of     granted in February                                                        aircraft; assignment of
the executive          2003 repayable by                                                          maintenance program contract
aircraft               May 2008

Alba Plaza             Euro 75.2 million    Euro 22 million     MKB+K&H      Euribor+1.875%       First ranking mortgage on all
Debrecen Plaza         refinancing facility Euro 18.5 million   +OTP                              projects; floating charge on all
Szeged Plaza           to be repaid in 2017 Euro 16.6 million                                     assets of each project; pledged
Miskolc Plaza                               Euro 17.9 million                                     on interest in the malls;
                                                                                                  assisgnment of insurance
                                                                                                  proceeds;
                                                                                                  Borrowers undertook to maintain
                                                                                                  various financial covenants.
                                                                                                  Obligations of Borrowers are
                                                                                                  joint and several

Csepel Plaza           Euro 17.9 million      Euro 12.6 million   OVAG          fixed rate of     First ranking mortgage on the
                       refinancing facility                                     5.75% through     mall; Pledge on interest in the
                       to be repaid by 2010                                     12/31/03,         mall; Assignment of leases in
                                                                                thereafter        mall; Assignment of insurance
                                                                                Eurilibor + 2%    proceeds; Floating lien on assets
                                                                                until 2006 and    of mall
                                                                                thereafter        OVAG has the right to appoint one
                                                                                Eurilibor + 1.75% director to the board of EMI's
                                                                                                  subsidiary building the mall;
                                                                                                  EMI guaranteed payments under the
                                                                                                  loan up to DM 5 million.
                                                                                                  Europe-Israel and Control Centers
                                                                                                  provided another similar guaranty
----------

6    EMI has recently  agreed with the bank to extend the repayment  term of the
     credit facility.

7    EMI is negotiating  with the bank an extension of the term of the loan to a
     long-term loan.

8    The bank has  agreed in  principle  to extend  the term of such loan  until
     December  2004 at an interest  rate of LIBOR +3%,  subject to  finalizing a
     definitive agreement.

                                      -66-
<PAGE>
                                              AMOUNT
NAME OF MALL/PURPOSE/  AMOUNT AND TERM OF     OUTSTANDING AS OF                                     SECURITY FOR LOAN AND OTHER
OTHER                  LOAN                   31/12/2002          LENDING BANK  INTEREST ON LOAN    INFORMATION
------------------------------------------------------------------------------------------------------------------------------------

Gyor Plaza             Euro 16.36 million     Euro 12.9 million   OVAG          In respect to Euro   First ranking mortgage on the
                       refinancing facility                                     8.7 million 6.14%    mall; Pledge on interest in the
                       to be repaid by 2011                                     until June 2004,     mall; Assignment of leases in
                                                                                Euribor+2.3%         mall; Assignment of insurance
                                                                                until June 2007 and  proceeds; Assignment of
                                                                                Euribor 2.2%         proceeds; Pledge over bank
                                                                                thereafter. With     accounts and insurance
                                                                                respect to Euro 7.7  coverage proceeds; OVAG has
                                                                                million 6.82% until  the right to appoint one
                                                                                June 2009            director to the board of EMI's
                                                                                                     subsidiary building the mall

Kanisza Plaza          Euro 4.9 million       Euro 4.3 million    CIB           Euribor + 1.5% -     First ranking mortgage on the
                       facility to be                             Kozep-Europai 2.1%                 mall; Assignment of leases in
                       repaid by 2009                             Nemzetkozi                         mall; Assignment of proceeds;
                                                                  Bank Rt.                           Pledge over bank accounts

Kapsovar Plaza         Euro 5.4 million +     Euro 8.1 million    MKB           Euribor + 1.875%     First ranking mortgage on the
                       Euro 3 million                                           +Euribor + 1.85%     mall; Pledge on interest in the
                       credit facility to                                                            mall; Assignment of leases in
                       be repaid by 2017                                                             mall; Pledge over bank
                                                                                                     accounts; lien on the mall's
                                                                                                     assets

Pecs Plaza             Euro 15.8 million      Euro 14.6 million   OVAG          In respect of Euro   First ranking mortgage on the
                       refinancing loan to    credit facility                   14.3 million -       mall; Pledge on interest in
                       be repaid by 2015                                        Euribor + 1.7% -     the mall; Assignment of income
                                                                                1.875% in respect    from the mall; Pledge over
                                                                                of Euro 1.5 million  bank accounts; Assignment of
                                                                                Euribor+2% - 2.5%    insurance proceeds; OVAG has
                                                                                                     the right to appoint one
                                                                                                     director to the board of EMI's
                                                                                                     subsidiary building the mall

Szolnok Plaza          Euro 5.4 million       Euro 5 million      K& H+OTP      Euribor +            First ranking mortgage on the
Szombathely Plaza      Euro 5.7 million       Euro 5.5 million                  1.75-1.9%            mall; Assignment of insurance
Zalaegerszag Plaza     Euro 5.2 million       Euro 4.9 million                                       proceeds; Pledge on interest in
                       All to be repaid by                                                           companies constructing the
                       2013                                                                          malls;Lien on bank accounts of
                                                                                                     companies constructing malls;
                                                                                                     Assignment of all rights and
                                                                                                     benefits of respective
                                                                                                     companies under project
                                                                                                     agreements; Floating lien
                                                                                                     over assets of respective
                                                                                                     companies

Tatabanya Plaza        Euro 5 million         Euro 3.5 million    MKB           Euribor + 1.75%      Pledge on interest of
                       facility to be                                                                Tatabanya Plaza, suretyship of
                       repaid in 2003                                                                PC, Negative pledge, Pledge
                                                                                                     over shares of Helios Plaza,

Krakow Plaza           $35 million credit     Euro 42.1 million   OVAG          LIBOR + 1.9%         First ranking mortgage on the
                       facility to be                                                                mall; Pledge on interest in
                       repaid by 2014                                                                company constructing the mall;
                                                                                                     Assignment of all leases of
                                                                                                     premises in mall; Pledge of
                                                                                                     bank accounts; Assignment of
                                                                                                     insurance proceeds; Assignment
                                                                                                     of contractor performance
                                                                                                     guaranty; OVAG has the right
                                                                                                     to elect one member of the
                                                                                                     board of directors of the
                                                                                                     company constructing the mall

Ruda Slaska Plaza      Euro 16 million        Euro 14.8 million   Bank Slaski   Euribor + 1.9%       Blank promissory note made by
                       facility to be         credit facility                                        the company constructing the
                       repaid by 2012                                                                mall; First ranking mortgage
                                                                                                     on the mall; Pledge on machines
                                                                                                     and equipment; Assignment of
                                                                                                     rights to certain financial
                                                                                                     assets; Assignment of rights
                                                                                                     under leases for premises in
                                                                                                     mall; Assignment of bank
                                                                                                     accounts and insurance
                                                                                                     proceeds; Guaranty signed
                                                                                                     by PC to cover construction
                                                                                                     costs in excess of $21.825
                                                                                                     million



                                      -67-
<PAGE>

                                            AMOUNT
NAME OF MALL/PURPOSE/  AMOUNT AND TERM OF   OUTSTANDING AS OF                                        SECURITY FOR LOAN AND OTHER
OTHER                  LOAN                 31/12/2002            LENDING BANK  INTEREST ON LOAN     INFORMATION
------------------------------------------------------------------------------------------------------------------------------------

Duna Plaza             Total facility in      Duna: Euro 41.2     OVAG, MKB     In respect of Euro   Mortgage on malls up to 140%
Sopron Plaza           the amount of Euro     million             and OTP       69.9 million the     of respective loan amounts;
Amanati                82.9 million to be     Sopron: Euro 8.9                  following interest   Pledge on shares of Cyprus
                       repaid by 2016         million                           rates apply: in      subsidiary; Pledge on shares
                                              Amanati: Euro                     respect of 65        in mall constructing
                                              29.7 million                      million - Euribor    companies; Pledge over lease
                                                                                +1.85%; In respect   payments generated by the
                                                                                of Euro 4.9          malls; Lien on bank accounts
                                                                                million - Euribor    and assets of mall constructing
                                                                                +2.35% until 2006.   companies; Assignment of
                                                                                                     insurance proceeds; Cross
                                                                                In respect of Euro   guaranty by the mall
                                                                                13 million the       constructing companies and the
                                                                                interest rate is     Cyprus subsidiary as to their
                                                                                Euribor + 1.85%      obligations; Subordination
                                                                                                     shareholder loans; Certain
                                                                                                     guaranties by PC

Nyir Plaza             Euro 13.235 million    Euro 11.2 million   Erste Bank    Euribor + 1.5%       First ranking mortgage on
                       facility to be                             Hungary                            mall; First ranking mortgage
                       repaid by 2010                                                                on current and future assets;
                                                                                                     Pledge on shares of company
                                                                                                     constructing the mall;
                                                                                                     Assignment of all leases of
                                                                                                     premises in mall; Pledge on
                                                                                                     bank accounts; Certain
                                                                                                     guaranties by PC

Praha Plaza            Euro 6 million         N/A                 OVAG          Euribor + 2.35%      First ranking mortgage on the
                       granted in March                                                              land; pledge on interest of
                       2003, to be repaid                                                            borrower; assignment of
                       in 2008.                                                                      current and future leases;
                                                                                                     assignment of tenant
                                                                                                     guarantees; pledge of
                                                                                                     liquidity deficit account;
                                                                                                     assignment of insurance claims;
                                                                                                     subordination of shareholders
                                                                                                     loans;

Pireas Plaza           Euro 7.5 million to    Euro 7.5 million    Pireas Bank   Euribor + 2%         First ranking mortgage on the
                       be repaid in 2003                                                             land

Plaza House            Euro 2.75 million      Euro 2.45 million   Hypo          Euribor + 1.35%      First ranking mortgage on the
                       credit facility to     credit facility     Vereinsbank                        building; Right under a
                       be repaid by 2011                          Hungaria                           10-year lease; Pledge on
                                                                                                     interest in the constructing
                                                                                                     company; Floating lien on
                                                                                                     assets of mall constructing
                                                                                                     company; Assignment of claims
                                                                                                     under lease or sale of
                                                                                                     Assignment of insurance
                                                                                                     property; proceeds; Certain
                                                                                                     guaranty by PC for
                                                                                                     construction costs
</TABLE>

                                      -68-
<PAGE>

ELSCINT

         Set forth below is  information  with  respect to loans taken by us, by
our subsidiaries and by our jointly controlled  companies.  The loans granted to
our jointly controlled companies are presented in the table at their full value:

<TABLE>
<CAPTION>
                      AMOUNT OF LOAN AND
                      AMOUNT OUTSTANDING
NATURE OF FACILITY    AS OF 12/31/02        LENDING BANK        INTEREST ON LOAN    SECURITY FOR LOAN    OTHER INFORMATION
------------------------------------------------------------------------------------------------------------------------------------
<S>                   <C>                   <C>                 <C>                 <C>                  <C>
General Facilities    3 Credit facilities   Bank Hapoalim,      With respect to     pledge on security   As long as any of the
to the Company        in the aggregate      Israel              the Loan I(A)       deposit of $55       facilities are
                      total of                                  ($55 million) -     million              outstanding, the ratio
                      approximately $110                        0.7% more than      subordinated         between equity and
                      million                                   rate of interest    security interest    adjusted balance sheet has
                                                                accruing on         in  certain assets   to be not less than 25%
                                                                pledged security    acquired using the   Bank agreed to provide an
                      Amount outstanding -                      deposit; and Loan   facility             additional long term
                      Loan I in U.S.                            I(B) ($9.7          Various pledges      facility of $30 million,
                      dollar - $64.7                            million)  - LIBOR   (first and second    secured by a $20 million
                      million comprised                         + 2.5%              ranking) on shares   collateral deposit
                      of (A) $55 million;                       With respect to     of subsidiary
                      and (B) $9.7 million                      Loan II - LIBOR +   companies
                      Loan II in Euro -                         2.5%                (Africana,
                      35.0 million                              With respect to     Grandis, Albert,
                      Loan III in GB                            Loan III - LIBOR    Euston)
                     (Pound) 10.2 million                       + 2.5%

                                                                                    Mortgage on both     15% of principal to be
Victoria and          Euro 49.9 million     Depfa Bank          4.9% - first five   hotels and another   paid during first five
Utrecht Park Plaza    Amount outstanding                        years               hotel in Eindhoven   years
Hotels (The           Euro 44.4 million                         Euro Swap + 1.2%    (not owned by        20% of principal to be
Netherlands)                                                    - next five years   Elscint)             paid during next five years
                                                                                    First priority       Balance to be paid at end
                                                                                    security on          of term
                                                                                    movable property,    Elscint has no interests
                                                                                    goods, present and   in the Eindhoven hotel
                                                                                    future rights        included in the
                                                                                    under lease, FF&E    refinancing loan. In as
                                                                                    and insurance        much as all borrowers have
                                                                                    proceeds             joint and severally
                                                                                    First ranking        liability. Elscint has a
                                                                                    pledge on shares     material indemnity
                                                                                    of subsidiary that   arrangement with the owner
                                                                                    owns the rights to   of the hotel in Eindhoven
                                                                                    the land             with respect to
                                                                                                         liabilities under the
                                                                                                         loan, which pertain to the
                                                                                                         Eindhoven hotel




                                      -69-
<PAGE>

                      AMOUNT OF LOAN AND
                      AMOUNT OUTSTANDING
NATURE OF FACILITY    AS OF 12/31/02        LENDING BANK        INTEREST ON LOAN    SECURITY FOR LOAN    OTHER INFORMATION
------------------------------------------------------------------------------------------------------------------------------------
Euston Road,          (Pound) 28 million    Bank Hapoalim       LIBOR + 1.25%       Mortgage on hotel    Half of loan payable in 20
London -              amount outstanding-                                           and related assets   equal installments, with
                      (Pound) 24.15 million                                         Third party          balance payable 10 years
                                                                                    guarantee of (Pound) after closing of loan
                                                                                    5 million (the third (Pound) 5 million may not
                                                                                    party is             be repaid until certain
                                                                                    indemnified by       conditions are met, and
                                                                                    Europe-Israel for    can be used only to repay
                                                                                    (Pound) 2.5 million) shareholders' loans
                                                                                    Europe-Israel and
                                                                                    a Third Party
                                                                                    guarantee
                                                                                    (severely and
                                                                                    jointly) of (Pound)
                                                                                    2.25 million First
                                                                                    ranking pledge on
                                                                                    shares of subsidiary
                                                                                    that owns the rights
                                                                                    to the land

Sandton Park Plaza    Loan:                 Nedcor Investment   10/02 - 9/03 - 7%   $500,000 deposit     Payments to commence on
                      Rand 20 million                           10/03 and on - 1%   to guarantee         10/1/03; full balance
                      (approximately $2.3                       below prime         payment of loan      payable on 10/1/2013
                      million)                                  overdraft rate      Mortgage on hotel
                      Amount outstanding                        charged by bank     and liens on other
                      - Rand 19.2 million                                           assets
                      (approximately $2.2                                           Rand 5 million bond
                      million)

Victoria Park Plaza   Credit Line:          Bank Leumi U.K.     LIBOR + 2%          (Pound) 250,000
Hotel, London         Line of credit of                                             guarantee by each    Short term facility
                      up to(Pound) 500,000                                          of Europe-Israel
                      Amount outstanding                                            and a third party
                      - (Pound) 492,000

                      Credit Facility -                                             Fixed and floating   One-half of refinancing
                      (Pound) 39.9 millions Bank Hapoalim       LIBOR + 1.4%        liens on hotel and   loan repayable in 20
                      Amount outstanding                                            related assets and   semi-annual installments
                      -(Pound)39.9 million                                          rights               commencing six months
                                                                                    First ranking        following first
                                                                                    pledge on shares     anniversary of
                                                                                    subsidiaries         opening of hotel;
                                                                                    that own the         balance repayable in
                                                                                    rights to            one payment 10 years
                                                                                    the lands            after opening hotel,
                                                                                    guarantees by        Shareholders agreed to
                                                                                    each of a third      maintain an equity
                                                                                    party and Elscint    investment of at least
                                                                                    for the higher of    (Pound) 17.9 million
                                                                                    2.5% of total costs of
                                                                                    project and (Pound)
                                                                                    1.25 million




                                      -70-
<PAGE>

                      AMOUNT OF LOAN AND
                      AMOUNT OUTSTANDING
NATURE OF FACILITY    AS OF 12/31/02        LENDING BANK        INTEREST ON LOAN    SECURITY FOR LOAN    OTHER INFORMATION
------------------------------------------------------------------------------------------------------------------------------------

Bucuresti Hotel       Two loans, each for   Bank Leumi          First loan -        First loan -
                      $14.0 million                             LIBOR + 0.7%        pledge on a          The Bank has restricted
                                                                Second loan -       security deposit     its right to realize the
                      Amount outstanding                        LIBOR + 1.95%       of $14 million       Elscint guarantee, by
                      - $28 million                                                 Second loan:         linking it to the
                                                                                    Lien on Domino       realization of the pledge
                                                                                    shares               over the Bucuresti shares
                                                                                    Pledge of Domino's   owned by Domino within 6
                                                                                    assets               months (except for certain
                                                                                    Other liens and      instances stipulated in
                                                                                    pledges              the loan agreement).
                                                                                    Undertaking to
                                                                                    maintain existing    Short term credit
                                                                                    ownership
                                                                                    structure of hotel
                                                                                    Unlimited
                                                                                    guarantee by
                                                                                    Elscint

Riverbank Park        Credit facility -     Bank Hapoalim       LIBOR + 1.5%        Liens on all         Short term credit
Plaza Project,        (Pound) 17.7 million                                          assets, including
London                                                                              land and goodwill
                      Amount outstanding                                            of hotel owning
                      -(Pound) 17.7 million                                         subsidiary
                                                                                    First ranking
                                                                                    pledge on shares
                                                                                    of subsidiary that
                                                                                    owns the rights to
                                                                                    the land

Sherlock Holmes       (Pound)14.2 million   Bank Hapoalim       LIBOR + 1.4%        Fixed and floating   One-half to be repaid in
Hotel, London                                                                       lien on rights to    19 semi-annual installments
                      Amount outstanding                                            hotel's assets,      Balance to be repaid 10
                      -(Pound)13.8 million                                          including goodwill   years after first draw
                                                                                    First ranking        down on loan
                                                                                    pledge on shares
                                                                                    of subsidiary that
                                                                                    owns the rights to
                                                                                    the land
</TABLE>


TREND INFORMATION

         EMI
         ---

SHOPPING AND ENTERTAINMENT MALLS BUSINESS

         The economies of most Central  European  countries are  experiencing  a
moderate upward trend, as evidenced by gross domestic  products  ranging between
2% to 6%. The shopping and  entertainment  malls  business  benefits  from these
trends,  which are generally  manifested in increased consumer spending,  but at
the same time are  subject to local  pressures  of supply and  demand.  With the
growth in the number of  shopping  malls,  especially  in the  capital and large
regional   cities,   supply  is  beginning  to  outpace  demand,   resulting  in
increasingly aggressive competition for patronage.  However, the negative impact
of these market  forces on our shopping and  entertainment  centers is offset by
the strong  emphasis which PC places on the  entertainment  facilities  which it
offers  to its  customers,  which  has been  shown to be a  dominant  factor  in
attracting visitors to the malls.



                                      -71-
<PAGE>

         In the smaller regional cities,  where both local and foreign investors
are reluctant to develop projects,  the shopping and entertainment centers of PC
generally  operate in an environment  devoid of meaningful  competition and thus
benefit,  notwithstanding  that the  catchment  populations  are smaller and the
relative  buying  power  of  patrons  is less  than in the  larger  metropolitan
locations.

         ELSCINT
         -------

HOTEL BUSINESS

         Elscint's  hotel  business  is  affected  by the  trends in each of the
geographic  areas in which it operates.  The Western  European hotel industry is
generally  seen to be  recovering  after the slower period during 1998 and 1999,
and the demand  fallouts  which were  suffered by most European  gateway  cities
(including London and Amsterdam) with highest exposure to slump in United States
demand,  particularly  at the top-end of the market,  following  the outbreak of
"food and mouth" disease and the subsequent September 11. 2001 terrorist attacks
in New York.  These events served to push down hotel room yields by up to 30% in
the fourth quarter of 2001.  This trend has continued  during 2002 as revival in
the  United  States  economy  proved  slower  than  anticipated,  and  growth in
operating profits remains uncertain for the foreseeable future.  However, in the
medium term gateway cities are liable to show the strongest growth over the next
five years,  with an increase in business  demand  preceding the leisure  market
which may lag behind this recovery as the threat of terrorist reprisals persist.
European  markets with the highest  proportion  of domestic  and  intra-regional
demand, which are less reliant on US and international  traffic and strengthened
by economic  convergence  following the launch of the  euro-currency  in January
2002, will fare best in the short term.

         In the Eastern  European  market,  significant  supply  increases,  for
exmple in  Budapest  and  Warsaw,  are a key  factor for  falling  damand in the
region,  although the pending  acceptance of Hungary as a member of the European
Union is likely to exert a positive  influence  on the  economy of that  country
which may generate an increase in business and tourist  traffic.  However,  room
rates in Hungary are expected to remain lower than in Western European countries
in the short to mid term.  The political and economic  situation in South Africa
is liable to remain unstable for the foreseeable future, while the prospects for
stabilization in Romania remain unclear.

ENTERTAINMENT AND COMMERCIAL CENTER

         In 1999, an Israeli court determined that the zoning plan applicable to
the Herzlia Marina project permits the construction of resort units only and not
of  residential  units.  This decision is not final and an appeal by the various
developers is still pending before the Supreme Court in Israel. While this issue
does not directly affect  Elscint's  entertainment  and commercial  center,  any
delays in the general  development  of the project  caused by the  resolution of
this matter may affect the flow of consumer traffic to the area.

HOLDINGS IN VENTURE CAPITAL INVESTMENTS BY EMI AND INVESTMENTS IN BIO-TECHNOLOGY
COMPANIES BY ELSCINT

         In late 2000 and early 2001, the high technology industry experienced a
severe  worldwide  crisis,  generating a widespread  loss of  confidence  in the
market.  As a result,  many high  technology  companies,  including  some of the
industry  leaders,  suffered sudden and dramatic losses,  large scale lay-off of
employees,  and  acute  liquidity  problems.  Many  high  technology  companies,
particularly  start-up companies,  were forced out of business as a result. This
negative global trend will undoubtedly  affect, in varying degrees,  some or all
of the hi-tech companies in which we and Elscint have invested. We cannot assess
at this  time for how long  this  negative  trend  will  persist.  However,  the
bio-technology field, although affected to some extent by global pressure on the
investment  market,  is more resilient than the traditional  high tech industry,
and is less likely to be directly affected by recent upheavals in that industry.
Nevertheless,  during 2002 EBM determined to temporarily postpone all additional
investment  in  bio  technology  companies  due  to the  slowdown  in and  other
conditions  of  the  Israeli  economy  and  projected  difficulties  in  raising
financing for such companies.

IMPACT OF DEVALUATION ON RESULTS OF OPERATIONS AND ON MONETARY ASSETS AND
LIABILITIES

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


                                      -72-
<PAGE>
<TABLE>
<CAPTION>
                                                                                                ANNUAL DEVALUATION
                   ISRAELI CONSUMER     ISRAELI          CLOSING EXCHANGE    ANNUAL             ADJUSTED FOR ANNUAL
YEAR ENDED         PRICE INDEX          INFLATION RATE   RATE OF THE         DEVALUATION RATE   INFLATION
DECEMBER 31,       (UNITS) (1)          (%) (2)          DOLLAR (3)          (%) (4)            (%) (5)
----------------   ------------------   --------------   -----------------   ----------------   -------------------
<C>                       <C>                    <C>           <C>                  <C>                  <C>
1998                      166.3                  8.6       NIS 4.16                 17.6                 8.3
1999                      168.5                  1.3       NIS 4.153                (0.2)               (1.5)
2000                      168.5                  0         NIS 4.041                (2.7)               (2.7)
2001                      170.9                  1.4       NIS 4.416                 9.2                 7.7
2002                      182.01                 6.5       NIS 4.737                 7.2                 0.65
-------------------------
</TABLE>

(1)      For  purposes of this table,  the CPI figures use 1993 as base equal to
         100.  These  figures  are  based  on  reports  of the  Israeli  Central
         Statistics Bureau.
(2)      Annual inflation is the percentage  change in the CPI in Israel between
         December of the year indicated and December of the preceding year.
(3)      Closing  exchange rate is the rate of exchange  between the NIS and the
         dollar at December 31 of the year indicated, as reported by the Bank of
         Israel.
(4)      Annual  devaluation  is the  percentage  increase  in the  value of the
         dollar in relation to the NIS during the year indicated.
(5)      The percentage of the annual devaluation  adjusted for annual inflation
         is obtained by dividing the percentage of the annual  devaluation  rate
         plus 1 by the percentage of the annual  Israeli  inflation rate plus 1,
         minus 1. For  information  about  inflation rates and exchange rates of
         foreign  currencies of autonomous units, see Note 2 of the Notes to the
         Consolidated Financial Statements.

         EMI incurs  certain of its expenses in NIS,  which expenses are usually
linked, wholly or partially, to changes in the CPI.

RESEARCH AND DEVELOPMENT

         OFFICE OF THE CHIEF SCIENTIST

         The Israeli government encourages industrial companies by funding their
research and development activities through grants of the OCS.

         EMI
         ---

         In  2001  and  2002  InSightec  received  grants  from  the OCS for the
financing  of   InSightec's   research  and   development   in  the  amounts  of
approximately NIS 9.4 million  (approximately  $2.2 million) and NIS 7.8 million
(approximately $1.6 million) respectively.

          InSightec is committed  to pay  royalties to the OCS on proceeds  from
sale  of  products  in the  research  and  development  in  which  the  OCS  has
participated  by way of grants,  up to 100% of the grants received plus interest
at the rate of LIBOR (in dollar terms). The royalties are payable at the rate of
3% for the first three years and 3.5% thereafter.

          The total  accumulated  amount of grants  received by  InSightec as of
December 31, 2002 was $7.5 million.

         The  following  table  shows  EMI's  consolidated  total  research  and
development  expenditures  and  royalty-bearing  participation  by  the  Israeli
government for the years 2000 through 2002, together with the percentages of net
revenues for each year (in NIS thousands, except for percentages):


                                      -73-
<PAGE>
<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER 31,
                                                                            -----------------------
                                                           2000                      2001                      2002
                                                           ----                      ----                      ----
                                                    THOUSANDS    % OF NET     THOUSANDS    % OF NET     THOUSANDS    % OF NET
                                                       NIS       REVENUES        NIS       REVENUES        NIS       REVENUES
<S>                                                 <C>           <C>        <C>            <C>        <C>             <C>
Total expenditures for research and
development                                         41,351        26.4       39,141         13.6       36,791          7.4
Royalty-bearing participation from the
Government of Israel                                14,785         9.4       14,478          5.0       7,790           1.6
Net research and development expenses funded
by EMI                                              26,566        16.9       24,663          8.6       29,001          5.8

</TABLE>
Research and development expenses are attributed to InSightec.

PATENTS AND PROPRIETARY RIGHTS; LICENSES

         EMI
         ---

         TXSONICS

         In December 1998, TxSonics acquired focused ultrasound  technology from
GEMS,  which  included  all  relevant  intellectual  property (13 patents) at an
aggregate  purchase  price of $5 million.  All patents  have been  purchased  by
TxSonics.  As of May 31, 2003, InSightec has submitted over 30 additional patent
applications.  Of these,  three have  already been  approved  and the  remaining
applications are in process.

         EMI believes that its research  orientation  through InSightec in image
guided  treatment,  a  field  of  rapidly  changing  technology,  increases  the
importance  of patents which are intended to protect the ability of InSightec to
develop,  manufacture and market its products. InSightec is diligently expanding
its intellectual property portfolio.

ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

DIRECTORS AND SENIOR MANAGEMENT

         The directors and senior officers of EMI as of May 31, 2003 were:

<TABLE>
<CAPTION>
NAME                                  AGE            POSITION

<S>                                   <C>            <C>
Mordechay Zisser(2) (3)               47             Executive Chairman of the Board of Directors
Shimon Yitzhaki(2) (3)(4)             47             President, Chief Financial Officer and Director
Rachel Lavine(4)                      37             Director
Avraham Elimelech Firer               49             Director
Yehoshua (Shuki) Forer(1)(5)          59             Director
Meir Kaisserman(1) (3)(4)(5)          49             External Director
Yosef Apter(1)                        48             External Director
Marc Lavine(5)                        49             Corporate Secretary and General Counsel
Shmuel S. Smucha                      58             President and Chief Executive Officer of PC
</TABLE>
-----------------
(1)      Member of the Audit Committee
(2)      Member of the Investment Committee
(3)      Member of the Donations Committee
(4)      Member of the Balance-Sheet Committee
(5)      Member of the Disclosure Committee



                                      -74-
<PAGE>

         MORDECHAY ZISSER.  Mr. Zisser became Executive Chairman of our board of
directors in May 1999. He has been President of  Europe-Israel  since March 1998
and its Chairman of the board of directors  from March 1988,  and  President and
Chairman of the board of directors of Control Centers, a privately held company,
which is the parent  company of  Europe-Israel,  since 1983.  Europe-Israel  and
Control  Centers are  engaged,  through  their  direct and  indirect  wholly and
partially owned  subsidiaries and affiliates,  in the following core businesses:
real  estate  investment,  hotel  ownership  and  management,   development  and
operation of shopping and entertainment malls in Eastern European countries,  in
the venture  capital  investments  in the  hi-tech,  medical and  bio-technology
industries and in the  manufacturing  and supply of sub-systems  and assemblies.
Control Centers also holds direct interests in property  development projects in
Israel. Mr. Zisser is active in charitable organizations.  He is a member of the
management of the "Oranit" hostel.

         SHIMON  YITZHAKI.  Mr.  Yitzhaki was  appointed as the  President and a
member of our board of directors in May 1999. In May 1999 he was also  appointed
as a member of the board of directors of Elscint. Since March 1998, Mr. Yitzhaki
has served as the Vice President of Europe-Israel, and, since the mid-1980's, as
Vice President of Control Centers.  Mr. Yitzhaki holds a Bachelor of Arts degree
in accounting from Bar Ilan University and is a certified public accountant.

         RACHEL  LAVINE.  Ms.  Lavine was  appointed as a member of our board of
directors in May 1999.  On May 1999 Ms.  Lavine was also  appointed as President
and a member of the board of  directors  of Elscint.  Since March 1998,  she has
served as Vice  President of  Europe-Israel,  and, from 1994 to 1998, Ms. Lavine
has served as Chief Financial Officer of Control Centers,  the parent company of
EMI. Ms. Lavine holds a Bachelor of Arts degree in accounting and is a certified
public accountant.

         AVRAHAM  ELIMELECH  FIRER.  Mr. Firer was  appointed as a member of our
board  of  directors  in May  1999.  He is the  Chairman  and  founder  of "Ezra
Lemarpeh"  Association  since 1979. "Ezra Lemarpeh" is a voluntary  association,
which provides assistance to the sick and needy. "Ezra Lemarpeh" has established
a logistic layout, which includes dozens of ambulances, a special ICU for flying
patients abroad, Home Care Network that cares for cancer stricken children and a
Video-Conference  System for  international  medical  sessions.  Mr. Firer is an
ordained  Rabbi.  He holds an Honorary  Ph.D.  from the Bar-Ilan  University  in
Israel.  In 1997 Mr. Firer  received the "Israel  Award",  a  distinguished  and
highly  prestigious  award  granted to persons who  contribute to social life in
Israel.  In 2002, Mr. Firer was awarded an Honorary  Doctorate from the Weitzman
Institute.

         YEHOSHUA  (SHUKI)  FORER.  Mr.  Forer was  appointed as a member of our
board of  directors  in May  1999.  He is the  Mayor of the City of  Rehovot  in
Israel. Mr. Forer is an attorney,  and was the managing partner of Forer Azrieli
and Partners, a law firm with offices in Tel-Aviv and Rehovot from 1994 to 1998.
Mr. Forer was the Acting  Chairman of Herzlia Marina Ltd.,  Ashkelon Marina Ltd.
and Control  Centers from 1989 to 1994 and of Williger  Ltd.  from 1989 to 1991.
Mr.  Forer was also  Managing  Director of the Israel  Ministry of Industry  and
Commerce from 1983 to 1986 and of the  Investment  Center From 1981 to 1983. Mr.
Forer was an  Assistant  to the  Minister of Industry  and Commerce in charge of
development areas from 1980 to 1981. Mr. Forer held positions as a member of the
boards of directors of Bank Leumi Le-Israel Ltd.,  Israel  Chemicals Ltd., Negev
Phosphates Company Ltd.,  Industrial Buildings  Corporation Ltd., Red Sea Hotels
Ltd.  ("Red Sea") and  Ackerstein Zvi Ltd. and was a member of the Presidium and
Vice President of the Association of the Tel-Aviv  Chamber of Commerce from 1987
to 1996.  Mr.  Forer is  currently a member of the board of  directors of Castro
Model Ltd. Mr. Forer received his LL.B.  with Honors from the Hebrew  University
in Jerusalem.

         MEIR KAISSERMAN.  Mr. Kaisserman was appointed as an external director,
to our  board  of  directors  in June  1999  for a  period  of five  years.  Mr.
Kaisserman  is the  Chairman  of  Executive  Council of KAN  Textile  Dyeing and
Finishing Ltd., Milat Textile Industries and ARKA Investment Ltd. He is a member
of the board of directors of the Shenkar College, Nehora Yeshiva and the Yeshiva
of Kerem B'Yavne. A graduate of the Shenkar College in Ramat Gan, Mr. Kaisserman
holds a B.A. in Textile Chemistry.



                                      -75-
<PAGE>

         YOSEF  APTER.  Mr.  Apter was  appointed  as an  external  director  in
December 2002 for a period of three years. Mr. Apter serves as a director of the
Jerusalem  College of  Technology.  Between 1980 and 2002, Mr. Apter served as a
member of the executive  boards of the Center for  Investigation  of Driving and
Casualties,  Shiloh Hesder Yeshiva,  Nature Life,  Zamir Systems Ltd.,  Binyamin
Regional Council, Binyamin Development Company and Elad Non-Profit Organization.
Mr. Apter also served as a director  and vice  chairman of Security  Funds.  Mr.
Apter is a graduate of the Jerusalem College of Technology  (B.Sc.) and holds an
MBA from the Hebrew University in Jerusalem.

         MARC  LAVINE.  Mr.  Lavine was  appointed  as our  General  Counsel and
Corporate  Secretary in May 1999. Mr. Lavine also serves as General  Counsel and
Corporate Secretary for Elscint and Europe-Israel. Prior thereto, Mr. Lavine was
in private  practice as an  associate  and as a partner in the Law firms  Miron,
Bension & Priwes  (Tel-Aviv) (1977 to 1997) and Raved,  Magriso,  Benkel & Caspi
(Tel-Aviv)  (1997 to  1998).  Mr.  Lavine is a  graduate  of the  University  of
Zimbabwe (B.L., 1974).

         SHMUEL  S.  SMUCHA.  Mr.  Smucha  was  appointed  President  and  Chief
Executive  Officer of PC in 1998. From 1982 until 1992, he was Vice President of
Control Centers,  responsible for development,  design and construction of large
residential, resort and commercial projects in Israel, South Africa and Belgium,
and from 1992 to 1998,  he served as  president  of Control  Centers.  From 1971
until 1982,  Mr. Smucha was an  engineering  supervisor  and project  manager at
Bechtel Inc., a U.S.  company.  He holds B.Sc. and M.Sc.  degrees in engineering
from the Technion - Israeli Institute of Technology, in Haifa, Israel.

         Marc Lavine and Rachel Lavine are married.

         There are no arrangements made with directors and senior management for
their appointment.

COMPENSATION OF DIRECTORS AND OFFICERS

         The cost of  compensation  of Mr. Shimon  Yitzhaki in his capacities as
President and Chief Financial  Officer of EMI (including  pension and retirement
benefits,  cost of vehicle and  estimated  provisions  for annual bonus which is
subject  to  the  approval  of  the   Company's   Board  of  Directors  and  its
shareholders)  for the year ended December 31, 2002 was  approximately  NIS 2.18
million  (approximately  $461,000).  In addition,  Mr.  Yitzhaki  received  from
Elscint a dividend  payment (under  Elscint's  employees and officers  incentive
plan), in the amount of approximately NIS 263,000 (approximately $55,500).

         The cost of compensation of Mr. Mordechay Zisser in his capacity as the
Executive  Chairman of our Board of  Directors  for the year ended  December 31,
2002 was NIS 840,573 (including pension and retirement benefits)  (approximately
$177,000),  on an annualized  basis. Mr. Zisser started  receiving  compensation
from EMI as of August 1, 2002. For details on Mr.  Zisser's terms of employment,
see "Item 7 - Major  Shareholders and Related Party  Transaction - Related Party
Transaction  - Terms  of  employment  of  Executive  Chairman  of the  Board  of
Directors of the Company". For details on the issuance of 350,000 options to Mr.
Zisser,  see " - Share  Ownership   -  Issuance  of  350,000  options  to  EMI's
Executive Chairman of the Board".

         The cost of  compensation  of Mr.  Shalom  Singer  in his  capacity  as
Executive Vice Chairman of EMI (including pension and retirement benefits,  cost
of vehicle and  estimated  provisions  for annual  bonus which is subject to the
approval of the Company's Board of Directors and its  shareholders) for the year
ended  December  31,  2002 was NIS 1.58  million  (approximately  $333,700).  In
addition,  Mr. Singer received from Elscint a dividend  payment (under Elscint's
employees  and officers  incentive  plan),  in the amount of  approximately  NIS
131,000  (approximately  $27,500).  In addition,  effective  January 1, 2000, an
annual bonus has been approved to be disbursed at Mr. Singer's  discretion among
the Company's investment department's  employees,  including Mr. Singer himself.
Such  annual  bonus is  calculated  on the  basis of  annual  profits  gained on
derivatives  activity and investment portfolio directly supervised or



                                      -76-
<PAGE>

managed by the investment department,  net of the investment  department's costs
for  the  same  year.  Total  amount  approved  for  the  Company's   investment
department's  employees,  for 2002  (excluding  the  amount  paid to Mr.  Singer
himself  which is  included in his  compensation  above) was  approximately  NIS
264,000 (approximately $55,700).

         The  compensation  of  Ms.  Rachel  Lavine  is not  paid  by  EMI.  The
compensation of Mr. Marc Lavine,  EMI's Corporate Secretary and General Counsel,
is not paid by EMI. The compensation of Mr. Shmuel S. Smucha is paid by PC.

         The aggregate  amount  accrued by the Company and its  subsidiaries  in
2002 to provide pension and retirement benefits for the directors and members of
the  administrative,  supervisory and management  bodies of EMI, as a group, was
NIS 374,052 (approximately $79,000).

         The  aggregate  compensation  paid  to or  accrued  on  behalf  of  the
remaining  directors  of EMI as a group for the year  ended  December  31,  2002
(consisting  of four  persons,  including  Prof.  Many who  served  as  external
director on our board of  directors  until August  2002) was  approximately  NIS
232,000 (approximately $49,000).

         For details on the issuance of shares to officers and directors of EMI,
see " - Share Ownership - Issuance of ordinary shares to employees and directors
of EMI and its group companies".

BOARD PRACTICES

         APPOINTMENT  OF  DIRECTORS.  Our  current  directors  (other  than  the
independent  directors)  were  appointed  by our  shareholders  at their  annual
meeting on December 25, 2002 and will hold office until the next annual  meeting
of our shareholders.  Mr. Shalom Singer, who was also appointed as a director at
such meeting, resigned from office on December 31, 2002. Mr. Meir Kaisserman and
Mr. Yosef Apter were elected in June 1999 and December  2002,  respectively,  as
external  directors.  Mr. Kaisserman's term of appointment is five years, ending
in July 2004,  and Mr.  Apter's term of  appointment  is three years,  ending in
December 2005.

         AUDIT  COMMITTEE.  The  members  of our  audit  committee  are  Messrs.
Kaisserman, Forer and Apter. The audit committee operates in accordance with its
charter,  which  sets  forth the  requirements,  obligations  and  duties of the
members  thereof.  All of the  members of the audit  committee  meet the current
independence requirements under Israeli law and Nasdaq rules.

EMPLOYEES

         As  of  May  31,  2003,   EMI   employed  20  persons  in   investment,
administration and managerial services,  all of whom were employed in Israel. As
of May 31, 2003,  PC had 191  employees in Eastern  Europe.  As of May 31, 2003,
InSightec  had 68  employees,  of whom 64 were  employed  in  Israel  and 4 were
employed in the United States.

         To date,  EMI has  enjoyed  good  employee  relations  and  have  never
experienced labor disputes, strikes or work stoppages.

MANAGERS' INSURANCE AND OTHER EMPLOYMENT CONDITIONS

         In Israel

         The liability of EMI and its subsidiaries to employees upon termination
include,  primarily,  ,  severance  pay,  termination  pay,  retirement  grants,
advance-notice pay and compensation for unutilized vacation days.



                                      -77-
<PAGE>

         Although not legally required, EMI and Elscint generally contribute, on
behalf of most of their  employees,  to a fund known as  "Managers'  Insurance".
This fund  provides a  combination  of savings  plan,  insurance  and  severance
payment  benefits to the  employee,  giving the employee a lump sum payment upon
retirement  and  securing  the  severance  payment,  if legally  entitled,  upon
termination  of  employment.  EMI and Elscint  determine  whether an employee is
entitled to participate in the plan, and each employee who agrees to participate
contributes  an  amount  equal  to 5% of his  salary,  with EMI or  Elscint,  as
applicable, contributing between 13.3% and 15.8% of his salary.

         The funds contributed by EMI and Elscint to the insurance companies and
the pension fund are  transferred  under the employee's  name but are in EMI and
Elscint's  possession  until a written  approval  for withdraw is granted by the
Company or Elscint, as the case may be.

         The  reserves  included  in the  financial  statements  of EMI  include
accumulated  profits deriving from severance funds under the name of the Company
as of December 31, 2002. The deposited amounts may be withdrawn only after EMI's
severance obligations are fulfilled. Severance obligations related to terminated
employees are fully covered.

         Israeli law generally requires  severance payment,  which may be funded
by the  Managers'  Insurance,  to be paid  upon  the  retirement  or death of an
employee or termination of employment without cause (as defined in the law). The
payments  amount to  one-month  salary for each  employment  year.  Furthermore,
Israeli  employees and employers are required to pay  predetermined  sums to the
National  Insurance  Institute  (similar to the United  States  Social  Security
Administration),  which amounts include payments for national health  insurance.
The  payments to the National  Insurance  Institute  are equal to  approximately
15.42% of the wages,  of which the employee  contributes  9.49% and the employer
contributes 5.93%.

         Israeli  employment  laws,  are  applicable to the employees of EMI and
Elscint and their  subsidiaries  in Israel.  These laws  concern  primarily  the
length of working-day,  minimum daily wages for professional workers,  insurance
for work-related accidents,  procedures for dismissing employees,  determination
of severance payment and other conditions of employment.

         Abroad

         The  Company's  liability for severance pay in respect of its employees
abroad,  pursuant to the laws of the countries in which these  companies  reside
and the labor agreements in effect, is ordinarily covered by current payments to
government agencies with respect to the voluntary or involuntary  termination of
the employees employment,  as well as by regular payments to insurance companies
for pension benefits.

SHARE OWNERSHIP

         EMI
         ---

         ISSUANCE OF ORDINARY  SHARES TO EMPLOYEES  AND DIRECTORS OF EMI AND ITS
         GROUP OF COMPANIES.

         In accordance with EMI's  shareholders'  approval  obtained in February
2001, EMI issued  550,000  shares (out of which 23,000 shares were  subsequently
returned to the plan),  NIS 1 par value each,  to employees and officers of EMI,
Europe-Israel  and companies  controlled by EMI or by  Europe-Israel,  including
Elscint,  pursuant to EMI's employees and officers  incentive  plan.  280,000 of
those shares were issued to EMI's directors (out of which 15,000 shares returned
to the plan).

         The  shares  were  issued  at a price  per  share of NIS 24.1 per share
(approximately  $5.4).  Except for one recipient whose shares vested upon grant,
the rights of the other  recipients to receive those shares vest over periods of
two or three years after the issuance.



                                      -78-
<PAGE>

         EMI granted  each  recipient a loan for the  purpose of  financing  the
purchase  of the  shares in an amount  equal to the full  purchase  price of the
shares such  recipient  is entitled  to  receive.  The loans were  granted for a
period of five years,  bearing interest at an annual rate of 6%. Value added tax
payable in respect of the interest  will be paid by EMI. In  addition,  EMI will
pay any taxes, if applicable and when due from the recipients as a result of the
interest  rate.  The loan  (principal  and  interest)  will be  repaid  upon the
expiration of five years after the grant of the loan.

         The shares were issued to a trustee for the benefit of the  recipients,
and will serve as sole  collateral  for the  repayment by each  recipient of the
loan.  Notwithstanding  the  foregoing,  each recipient of shares is entitled to
instruct  the trustee to transfer or sell any vested  shares,  provided  that in
this event the  recipient  shall  deposit a percentage  of the loan (capital and
interest)  equal to the pro rata number of shares sold or transferred out of the
total number of shares issued in favor of such recipient, in an interest bearing
deposit on the  recipient's  name.  The deposit will serve as collateral and the
loan will become a recourse loan.

         As of May 31, 2003, the right to purchase 441,834 shares had vested. As
of May 31, 2003, no shares were purchased by any recipient.

         ISSUANCE OF 350,000 OPTIONS TO EMI'S EXECUTIVE CHAIRMAN OF THE BOARD

         In September 2001, EMI granted to Mr. Mordechay  Zisser,  the executive
chairman of our Board of Directors,  options to purchase up to 350,000  ordinary
shares of EMI. The shares  underlying  the options were  registered for trade on
the TASE,  but not on the Nasdaq  National  Market.  The  options  were  granted
without consideration, became exercisable immediately upon the grant thereof and
will remain  exercisable  for a period of three years  thereafter.  The exercise
price of the  options  was set at NIS 35.7 per share,  and was later  amended to
reflect  changes in the exchange  rate between the NIS and the U.S.  dollar.  In
December 2002, the Company's  shareholders approved an amendment of the exercise
price to unlinked NIS 44 per option (approximately $9.28).

         The  shares  underlying  the  options  represented,  on the date of the
issuance thereof, 1.51% of EMI's issued and outstanding share capital.

         EMI 1996 STOCK OPTION PLAN

         The Company's 1996 stock option plan covers 2,100,000  ordinary shares.
Currently,  there are no options  outstanding,  following the  expiration of all
previously outstanding options.

         INSIGHTEC STOCK OPTION PLAN

         1999  ESOP - On May 19,  1999,  the  board of  directors  of  InSightec
approved, subject to the approval of a special committee appointed by the board,
the issuance to a trustee of  2,500,000  shares of  InSightec,  NIS 0.01 nominal
value  each,  pursuant to  InSightec's  1999 stock  option plan (the  "InSightec
Plan"),  to be reserved for issuance  upon the exercise of options to be granted
to InSightec's  and its  subsidiaries'  managers,  employees and directors.  The
InSightec  Plan is  administered  by a committee of the board,  whose consent is
required for the following matters:

         o        the relationship between EUBV, the controlling  shareholder of
                  InSightec,  and the  participants  in the InSightec Plan, upon
                  the occurrence of certain investment  situations in InSightec;
                  and

         o        amendments to the InSightec Plan.

         The shares  subject to the InSightec Plan  constituted,  upon the grant
thereof and prior to an investment by an unrelated third party in InSightec, 25%
of the issued share capital of InSightec.



                                      -79-
<PAGE>

         Options are  non-transferable  and vest (i) as to 50% of the underlying
shares,  24 months after grant,  (ii) as to an additional  25% of the underlying
shares, 36 months after grant, and (iii) as to the remaining  underlying shares,
48 months  after  grant.  In the event of a material  change in  InSightec,  the
vesting of unexercised  options shall be  accelerated  and the options will vest
immediately.

         Participants  do not have any  shareholders'  rights  in  InSightec  by
virtue of the grant of an option,  until the exercise of options and issuance of
one or more share certificates in respect thereof.  Sale of shares issuable upon
the  exercise  of options  is  subject to a right of first  refusal of all other
shareholders,  including  participants in the InSightec Plan. The right of first
refusal  will be in effect until  InSightec's  shares are listed for trade on an
Israeli or foreign stock exchange.

         Under  applicable  law,  participants  bear  all tax  consequences  and
liabilities  relating  to the options  and the shares  issuable  pursuant to the
exercise  thereof.  The  InSightec  Plan is  governed  by  Israeli  law,  and is
available also to employees of subsidiaries of InSightec.

         In 1999,  InSightec  granted to its directors options to purchase up to
150,000 ordinary shares (out of a total of 300,000 ordinary shares), exercisable
until March 2006 at an exercise price of $3.33 per share; the rights to purchase
75% of those shares  vested as of December 31, 2002,  with the remainder to vest
during 2003.

         2003 ESOP AND CSOP - On January 26,  2003,  the board of  directors  of
InSightec  approved the issuance to a trustee of 1,000,000  shares of InSightec,
NIS 0.01 nominal value each,  pursuant to InSightec's  2003 Employee & Directors
Stock Ownership Plan (the "2003 ESOP"), pursuant to the "Capital Gains - Trustee
Track"  provided  for in the  Amended  Section  102 of the  Israeli  Income  Tax
Ordinance (New Version),  and the Service  Providers Stock Ownership Option Plan
(the "2003 CSOP"),  pursuant to Section 3(9) of the Israeli Income Tax Ordinance
(New  Version).  Both plans were approved at  InSightec's  Shareholders  General
Meeting held on February 10, 2003.

         In addition,  InSightec  approved the transfer by the trustee under the
InSightec Plan to the trustee appointed under the 2003 ESOP and 2003 CSOP of the
outstanding  balance of 394,000  shares,  which were not, as of the date of such
approval,  granted to any specific  participant  under the InSightec Plan, to be
held by the trustee under the 2003 ESOP or under the 2003 CSOP.

         Following the said issuance and transfer of the shares, up to 1,094,000
options were  designated  to the 2003 ESOP and up to 300,000 were  designated to
the 2003 CSOP.

         The options  under the 2003 ESOP will vest at the end of two years from
the  year  in  which  the  options  were  granted  to the  participant  and  are
exercisable at an exercise price of NIS 0.01 per option.  The exercise price for
the  options  under  the  2003  CSOP  will  be set in each  participant's  grant
notification  which will also outline the vesting  terms for each  participant's
options.  The  exercise  period for the options  under both plans is seven years
from the date of each grant.

         The shares  subject to the 2003 ESOP and 2003 CSOP  constituted,  as of
May 31, 2003, 10.2% of the issued share capital of InSightec.

         Options are  non-transferable  and vest in accordance with the terms of
the Grant Notice letter to each  participate.  In the event of a material change
in InSightec,  the vesting of unexercised  options will be  accelerated  and the
options will vest immediately.

         Participants  do not have any  shareholders'  rights  in  InSightec  by
virtue of the grant of an option,  until the exercise of options and issuance of
one or more share certificates in respect thereof.  Sale of shares issuable upon
the  exercise  of options  is  subject to a right of first  refusal of all other
shareholders  who hold more  than 1% of  InSightec's  shares on a fully  diluted
basis,  including participants in the 2003



                                      -80-
<PAGE>

ESOP. The right of first refusal will be in effect until InSightec's  shares are
listed for trade on an Israeli or foreign stock exchange.

         Under  applicable  law,  participants  bear  all tax  consequences  and
liabilities  relating  to the options  and the shares  issuable  pursuant to the
exercise thereof. The 2003 ESOP and 2003 CSOP are governed by Israeli law.

ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

MAJOR SHAREHOLDERS

         The Company  had, as of May 31,  2003,  23,146,820  shares  outstanding
(excluding  626,900  shares  which were issued by the Company but not paid for).
The  following  table  sets  forth  certain  information  as of  May  31,  2003,
concerning: (i) persons or entities who, to our knowledge, beneficially own more
than 5% of the  outstanding  ordinary shares of EMI, (ii) the number of ordinary
shares of EMI  beneficially  owned by all  officers  and  directors  of EMI as a
group,  and (iii) the  number of  ordinary  shares of EMI  beneficially  held by
Elscint:

<TABLE>
              NAME AND ADDRESS                              NUMBER OF SHARES                        PERCENT

<S>                                                            <C>                                   <C>
Europe-Israel (M.M.S.) Ltd.                                    13,437,584                            58.5%
13 Mozes Street
Tel-Aviv, Israel(1)

Bank Leumi (Provident Funds)                                   2,103,368                             9.09%
32 Yehuda Halevi Street
Tel-Aviv, Israel

All  officers  and  directors  as a group  (8                  14,259,251                            61.6%
persons) (2)

Elscint Limited                                               885,140 (3)                            3.8%
13 Mozes Street
Tel Aviv, Israel
</TABLE>

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

(1)      As of May 31,  2003,  Control  Centers  owned  80.17% of the issued and
         outstanding  shares of Europe-Israel.  Control Centers is controlled by
         Mr. Mordechay Zisser,  the Executive Chairman of the board of directors
         of EMI.

(2)      Includes  13,437,584 shares of EMI held by Europe-Israel,  which may be
         deemed indirectly  beneficially owned by Mr. Mordechay Zisser by virtue
         of his control of Europe-Israel through his control of Control Centers,
         as described in footnote (1). Mr. Zisser disclaims beneficial ownership
         of such shares.  Also includes 350,000 shares  underling  options which
         are  currently  exercisable;  221,667  shares  issued to the  Company's
         directors and officers pursuant to the Company's employees and officers
         incentive  plan,  which have either  vested or will vest within 60 days
         after the date of this report;  and 250,000 shares held by Triple-S,  a
         company  controlled  by Mr.  Shmuel S.  Smucha.  Mr.  Smucha  disclaims
         beneficial ownership of such shares.

(3)      Elscint has voting rights with respect to 208,431 shares.

         Except for (i) 676,709  shares held by Elscint and (ii) 350,000  shares
underlying options that prior to the exercise thereof confer no voting rights to
the holder  thereof,  the  shareholders  listed above do not have any  different
voting rights from any other shareholder of EMI. However,  by virtue of the fact
that Europe-Israel  holds more than a majority of the outstanding shares of EMI,
it  can,  in all  likelihood,  control  the  direction  of EMI at  shareholders'
meetings where a simple majority vote is required for adoption of proposals.



                                      -81-
<PAGE>

         550,000  additional  shares were  granted to  directors,  officers  and
employees of the Company (out of which 23,000 shares were subsequently  returned
to the plan) pursuant to the Company's officer and employees  incentive plan, of
which 441,834 shares have vested as of the date of this report. For more details
on the issuance of shares to employees and officers of the Company,  see "Item 6
- Directors,  Senior Management and Employees - Share Ownership - EMI - Issuance
of  ordinary  shares  to  employees  and  directors  of EMI  and  its  group  of
companies".

         As of May 31,  2003,  on the books of our  transfer  agent,  there were
approximately 230 holders of record of our ordinary shares with addresses in the
United States, holding approximately 5.7% of our issued and outstanding ordinary
shares.

RELATED PARTY TRANSACTIONS

         Framework  agreement  for the  provision  of services of  coordination,
planning,  execution and supervision over construction  projects.  Pursuant to a
certain  services  agreement dated February 17, 1998 between  Europe-Israel  and
Control Centers,  Control Centers, through its subsidiary CDPM, renders services
with respect to the  coordination,  planning,  execution and  supervision of the
construction  of the  Centers  (the  "Services"),  for a fee  equal to 5% of the
actual  construction  costs of each such project (but excluding land acquisition
and  financing  costs),  plus VAT. The Company and Control  Centers have entered
into a similar  agreement  (the  "Services  Agreement"),  pursuant  to which the
Company  will  receive  the  Services  from  Control  Centers or its  subsidiary
companies.  Each  engagement  under the  Services  Agreement  for the receipt of
Services  by a specific  mall is subject to the prior  approval  of the board of
directors and audit committee of the Company,  and must comply with the terms of
the Services Agreement.

         The 5% fee was agreed to by the parties based on customary fees paid in
similar  transactions  in Eastern  Europe and is payable in accordance  with the
progress of the  construction  works.  In addition,  the Company will  reimburse
Control  Centers  for all  reasonable  costs  incurred  in  connection  with the
services  rendered  thereby,  not to exceed a total of $50,000 per project.  The
parties agreed that if any project is not completed, or is sold to a third party
before  completion,  Control  Centers' fee will be determined based on its total
costs incurred in connection  with such project  through the termination or sale
thereof. The Services Agreement is effective through December 31, 2002.

         For additional  details see Note 21(A)*(1) to the Financial  Statements
included in Item 18 below.

         Lease: As and from January 2001, EMI has been leasing office space from
Control  Centers.  The annual rental fees (including  management  fees) for 2002
were approximately NIS 431,000 (approximately $91,000).

         Issuance of 350,000  options to the Executive  Chairman of the Board of
Directors.  See "Item 6 - Directors,  Senior  Management  and  Employees - Share
Ownership - EMI - Issuance of 350,000 options to EMI's Executive Chairman of the
Board."

         Terms of Employment of Executive  Chairman of the Board of Directors of
the Company. In December 2002 the shareholders of the Company approved the terms
of  employment  by the Company of Mr.  Zisser in his  capacity as the  Executive
Chairman of the Board of Directors of EMI. In accordance with the  shareholders'
approval,  Mr. Zisser is entitled to receive a monthly  salary of  approximately
NIS 106,500 (approximately $22,500),  linked to the Israeli consumer price index
prevailing  on August 1, 2002,  as well as  customary  employment  benefits,  as
described  below.  The salary is being paid by the  Company  and/or its  private
subsidiaries and/or private affiliates. Mr. Zisser is also entitled to unlimited
reimbursement of his expenses incurred in connection with his office.

         Mr. Zisser is also  entitled to customary  annual  vacation,  paid sick
leave,  replenishment  payment,  managers'  insurance  and  participation  in  a
sabbatical  fund. The Company shall be responsible for any expenses  incurred in
the event that the  foregoing  benefits  exceed the maximum  amount of managers'
insurance and sabbatical  fund  contributions  which are exempted from taxes. In
addition to the above,  the Company  shall  provide Mr. Zisser with the use of a
motor vehicle,  of a model and type commensurate with his office, and shall bear
all costs and  expenses  incurred in  connection  with the use of such  vehicle,
including any expenses in  connection  with the payment of income tax and social
security  insurance  imposed  in  respect of such use.  The  Company  shall also
provide Mr. Zisser with a telephone,  facsimile, mobile phone, computer, printer
and modem and shall  bear all  installation  costs and all  reasonable  expenses
related thereto.

         The term of Mr.  Zisser's  employment  is for a period  of three  years
commencing  August 1, 2002 (the  "Effective  Date").  Either the  Company or Mr.
Zisser may terminate  the  employment by providing the other party with at least
six (6) months advanced written notice of its intention to do so.

         Mr. Zisser has been serving as the  Executive  Chairman of our Board of
Directors  since May 1999.  Prior to the Effective Date the Company has not paid
to Mr.  Zisser any amounts with respect to such office and no allowance was made
with respect to such payments on the Company's financial statements.

         Mr.  Zisser also serves as the  president  and chairman of the board of
both Control Centers and  Europe-Israel.  Mr. Zisser's cost of employment by the
Europe-Israel  group therefore remains unchanged,  and in light of the Company's
shareholders' approval (that Mr. Zisser's term of employment by Europe-Israel is
to be counted in calculating the period of his employment by the Company for all
purposes) Mr.



                                      -82-
<PAGE>

Zisser's monthly salary in Europe-Israel was reduced  accordingly.  In addition,
all relative amounts out of the contribution made by Europe-Israel in connection
with Mr. Zisser's  employment by Europe-Israel in policies and funds, as well as
all other amounts  accumulated by Europe-Israel for Mr. Zisser's  benefit,  were
transferred to the Company, effective as of August 1, 2002.

         Allocation of Costs  Agreement:  At the Annual  General  Meeting of the
shareholders of the Company held on February 21, 2001, our shareholders approved
an agreement with Europe-Israel and Elscint,  retroactively from January 1, 2000
and until December 31, 2002,  for the allocation of costs and expenses  incurred
in connection with services rendered to those companies by their in-house legal,
economic and taxation and accounting departments. Each party to the agreement is
entitled to terminate it at the end of each  12-month  period by giving a 60-day
advance notice to the other parties. The allocation would be carried out so that
Europe-Israel  bears 35%,  while  Elscint and EMI each bear 32.5% of such costs.
These percentage shares reflect a general estimate of the companies'  management
of the actual  utilization  rate of these  departments'  services by each of the
companies based on the actual services provided thereby during the first half of
2000.  Should these  percentage  rates deviate from the actual  service rates by
more than 10%,  the  parties  will be charged  on the basis of the  actual  cost
allocation.  In November  2002 the  Company's  Board of  Directors  approved the
extension of the agreement for a three years term.

         ELSCINT
         -------

         Hotel and  Leisure - Elscint and  Europe-Israel  have  provided  loans,
guarantees   and  lines  of  credit  to  various  of   Elscint's   hotel  owning
subsidiaries.

         BEA - Jet Link - BEA  receives,  from time to time,  aviation  services
from Jet Link Ltd.  (an  aviation  company  controlled  by Control  Centers)  in
exchange for a payment  based on the latter's  price list,  net of a discount of
5%.

         Line of Credit - Elscint has provided to its  wholly-owned  subsidiary,
Elscint Holding and Investment NV (the holding company of the hotels), a line of
credit for the  construction  and  development  of the hotels,  in the following
amounts:

   Linkage Base           Interest rate      Balance as of        Balance as of
                                             12/31/02 in          3/31/03 in
                                             millions (*)         millions (*)
           $**            LIBOR + 1.25%             113.1               116.6
           Euro           LIBOR + 2.5%               39.9                40.4
           GB(Pound)      LIBOR + 2.5%               11.9                12.0


         (*)  These  balances  are  presented  in their  original  currency  and
              include accrued interest as of the balance sheet date. The balance
              as of March 31,  2003  represents  the largest  amount  during the
              period from January 1, 2002 through March 31, 2003.

         (**) Includes  loans of  approximately  $54.4 million and $54.7 million
              from Elscint Inc. (Elscint's  wholly-owned U.S. subsidiary) to BEA
              as of December 31, 2002 and March 31, 2003, respectively.

         Commercial and  Entertainment  Center - Agreement between CDPM and BEA:
In  October  2001  an  agreement  between  BEA  and  CDPM  was  approved  by the
shareholders  meeting of Elscint.  In accordance  with the agreement,  CDPM will
provide  logistical,  planning and  supervisory  services in connection with the
renovation of the Bucuresti  Hotel, in exchange for  consideration  equal to the
lower  of 5% of the  renovation  costs  (excluding  general  and  administrative
expenses and financing expenses) or 5% of U.S. $30 million.



                                      -83-
<PAGE>

         Commercial and  Entertainment  Center - Agreement between CDPM and SLS:
In May 2002, Elscint's shareholders approved a turn-key contracting agreement by
and between SLS and CDPM,  for the completion of the  construction  works of the
center  for  a  consideration   of  $57.7  million  plus  Value  Added  Tax  (if
applicable),  subject to reductions  and  adjustments  due to payments by SLS to
sub-contractors,  suppliers,  consultants  and other third parties in connection
with the construction  work. The amount of the  consideration  was determined on
the basis of a calculation of the amount of work  remaining to be performed,  as
at March 1, 2002. From March 1, 2002 until March 31, 2003 SLS made such payments
on  account of  implementation  of the  project  in the total sum of U.S.  $25.2
million.  As of the  date of  this  report,  the  agreement  had  not  yet  been
consummated. Upon the closing of the agreement, SLS is to pay to CDPM an advance
of $3 million,  on account of the consideration  and,  concurrently,  CDPM is to
provide SLS with a bank guarantee,  at the rate of 5% of the Work Consideration.
In addition, SLS committed,  as part of the agreement, to assign to CDPM all the
rights and  obligations,  based on the agreements,  which it signed with various
suppliers, except for those specified in the agreement. The agreement includes a
number of conditions, the breach of which is considered as a fundamental breach,
which confers the remedies  stated in the  agreement.  Nevertheless,  further to
SLS's  request CDPM is  assisting  in the  construction  and  management  of the
project.

         Line of  Credit:  Elscint  has  provided  to SLS a credit  line for the
construction works at the commercial and entertainment  center,  which is linked
to the Israeli CPI and bears annual interest of 5%.

         The  balance  of the  loan  (including  accrued  interest)  was NIS 390
million  and NIS 452  million  as of  December  31,  2002 and  March  31,  2003,
respectively.

         Investments in Bio-Technology  Companies - Line of Credit.  Elscint has
provided to EBM a $30 million line of credit for  investments in  bio-technology
companies  and for the  financing  of EBM's  operations.  This line of credit is
linked to the U.S. dollar and bears annual interest of LIBOR + 1.25%.

         The balance of the loan (including  accrued interest) was $10.3 million
and $10.5 million as of December 31, 2002 and March 31, 2003, respectively.

         Lease. As of September 2000, Elscint has been leasing office space from
Control Centers.  The annual rent under such lease is approximately  $85,000 per
annum, including payments to the management company of the building. The term of
the lease is three  years,  and  Elscint has an option to extend such term to an
additional 23 months.

         Credit line from Bank Leumi. Elscint and its investee companies conduct
credit, deposit and management of security portfolio transactions with the bank,
which is an indirect  interested  party in the Company.  These  transactions are
conducted  during the  ordinary  course of business and under  customary  market
terms and conditions.

ITEM 8.  FINANCIAL INFORMATION

         CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

         See Consolidated Financial Statements included in Item 18.

         LEGAL PROCEEDINGS

         Class  Action by  Minority  Shareholders.  In  September  1999,  we and
Elscint  (among  others) were served with a claim and a motion to recognize  the
claim as a class  action  filed by a  shareholder  of  Elscint  on behalf of all
minority shareholders who held shares on February 18, 1999, and on the date that
the claim was submitted.



                                      -84-
<PAGE>

         The  plaintiff  requested (i) relief of  approximately  NIS 1.9 million
(the plaintiff  subsequently  requested to amend the relief to approximately NIS
2.5 million) plus expenses and attorney's  fees, and (ii)  approximately  $148.5
million  (the  plaintiff  subsequently  requested  to amend  the  relief to $158
million) plus expenses and attorney's fees for alleged  damages  suffered by the
class.

         The main  allegation of this claim is that EMI,  through the actions of
its former  directors  in Elscint,  caused  Elscint  damages  and  discriminated
against the minority  shareholders  of Elscint.  The plaintiff also alleged that
Elscint's  former  directors acted while being in a conflict of interest between
the interests of Elscint and its minority shareholders, on the one hand, and the
interests of the controlling shareholders of Elscint, on the other hand.

         The plaintiff  requested that Elscint,  or alternatively all or part of
the defendants, be ordered to purchase from each members of the class all shares
held by such member at a price of $27.46 per share.

         On October 7, 1999, the plaintiff  filed a motion to amend his claim to
include an additional  cause,  being EMI's violation of its offer to acquire all
shares of Elscint  held by the public at a price per share of $14.  On  November
15, 1999,  the Israeli  Supreme  Court ruled that this claim be removed from the
District Court in Haifa to the District Court in Tel-Aviv,  and that it be heard
together with the claim filed by Elscint's  former President and Chief Executive
Officer  (described  above). On July 19, 2000, EMI filed a motion to dismiss the
motion to  recognize  the claim as a class  action,  on the  grounds  of lack of
cause,  lack of opponency  and failure by the plaintiff to pay the court fee. In
October 2000, the plaintiff and the defendants  reached a procedural  agreement,
providing that all the  proceedings  shall be withheld until the Israeli Supreme
Court shall have  rendered  its ruling with respect to a motion filed by certain
investors  (described  below)  for  permission  to  appeal a ruling of the Haifa
District Court to dismiss the  application  to recognize  their claim as a class
action.

         Class Action by Investors. In November 1999, we and Elscint were served
with a claim and a motion to recognize the claim as a class action,  which claim
was also  submitted  against  Europe-Israel,  Control  Centers,  Marina  Herzlia
Limited Partnership 1988 (which is controlled by Control Centers),  Elron and 25
past and present  directors in the above companies,  which claim and motion were
filed in the District Court in Haifa, Israel.

         The claim was  submitted  by a number of  institutional  investors  and
other  individuals  and  entities  that hold  shares in  Elscint.  The motion to
recognize  the claim as a class action was  submitted on behalf of those persons
who held shares of Elscint on  September  6, 1999,  and  continued  to hold such
shares on the date on which the motion was filed, excluding the defendants.

         The plaintiffs  alleged that the minority  shareholders of Elscint were
discriminated against as a result of various activities carried out by Elscint's
controlling shareholders and its board of directors. The main allegations raised
by the plaintiffs include the following:

      o  EMI (i) discriminated  against the minority  shareholders of Elscint in
         favor of Elron and its own interests,  (ii) refrained from distributing
         dividends to Elscint's shareholders,  (iii) caused, or did not prevent,
         the sale of controlling  interest in Elscint,  favoring the creation of
         great profits to Elron over Elscint's  best interest,  and (iv) did not
         report,  and  prevented  the  report  by  Elron  and  Elscint,  of  the
         negotiations to sell the controlling interest in EMI held by Elron;

      o  EMI breached (i) its contractual undertaking towards Elscint to conduct
         a  takeover  bid for  the  purchase  of  Elscint's  shares  held by the
         minority  shareholders of Elscint at a price per share of $14, and (ii)
         its obligation to cancel of the takeover bid in accordance with certain
         provisions under applicable law;

      o  EMI released  misleading  reports with respect to, and  refrained  from
         reporting on, the takeover bid and the  acquisition  of the business of
         Elscint  from  its  controlling  shareholders,  thereby  violating



                                      -85-
<PAGE>

         the applicable  reporting  requirements and causing damage to Elscint's
         shareholders who relied on EMI's  announcements and either purchased or
         refrained from selling Elscint's shares;

      o  EMI  violated  Israeli  law  by  entering  into agreements to assist in
         redeeming its shares; and

      o  EMI violated Israeli law by acquiring  Elscint's shares based on inside
         information.

         The plaintiffs argued that the total damages suffered until the time of
submission  of  the  claim  were  $100  million.  The  remedy  requested  by the
plaintiffs  was that EMI be ordered to execute  the  alleged  buy-out of Elscint
shares  held by the  public  at $14 per  share.  Alternatively,  the  plaintiffs
requested  compensation for the damages,  which they allegedly suffered, and the
rescission of the transactions with controlling  shareholders.  In addition, the
plaintiffs demanded,  among other remedies, the return by Elscint of all amounts
paid in  connection  with the  acquisition  by Elscint of the hotel  business in
September  1999.  Certain of the remedies have also been requested as derivative
claims on behalf of Elscint.

         On December 26, 1999, we filed motions, together with other defendants,
to dismiss the claim.  The  defendants  alleged,  among other  things,  that the
remedies requested in the claim could only be raised by Elscint itself, and that
the claim is not suitable to be recognized  as a class  action.  In August 2000,
the motion to  recognize  the claim as a class action was  dismissed  before the
hearing of the motion on its merits. The claim itself remains pending.

         Currently, two separate proceedings are pending:

         (1) Before the  Israeli  Supreme  Court - several,  but not all, of the
plaintiffs, have filed a motion with the Israeli Supreme Court for permission to
appeal  the  ruling of the  District  Court in Haifa to  dismiss  the  motion to
recognize the claim as a class action.  We have filed a written response to this
motion.  In May 2001,  the  Israeli  Attorney  General  filed a notice  with the
Supreme Court that in accordance with the authority  granted to him under law he
joined the  proceedings  and filed his position,  which supports the plaintiffs'
legal claims.

         At a hearing  held before the  Israeli  Supreme  Court on November  21,
2001,  the plaintiffs  received  permission to appeal the ruling of the District
Court in Haifa, we filed our arguments and the plaintiffs  responded.  As of the
date of this report,  the Supreme Court has no yet rendered its decision in this
motion.

         (2) Before the Haifa District Court - The District Court ruled that the
claim filed by the  plaintiffs  shall continue to be heard as a regular claim in
spite of the fact that the request to recognize  the claim as a class action has
been dismissed. The plaintiffs and the defendants disagree on the issue of court
fees.  While  the  counsel  for the  plaintiffs  claims  that the  claim is of a
declarative  nature  and  therefore  the  court fee is  approximately  NIS 1,600
(approximately $400), counsel for the respondents claims that the relief claimed
is a financial  relief and that according to their  calculations,  the court fee
(taking  into  account all of the relieves  claimed) is  approximately  NIS 1.32
million   (approximately   $300,000)   or   approximately   NIS  20.09   million
(approximately  $4.97 million).  In the course of interim  procedure,  the Court
repeated its position that the real relief  claimed by the plaintiffs is in fact
a financial relief and that counsel for the plaintiffs  should adjust the amount
of the court fee in accordance with such financial  relief.  Since the court fee
has not been  paid,  on March 11,  2001,  Elscint,  together  with  seven  other
respondents,  filed a request  with the  District  Court in Haifa to rule on the
assessment of the court fee due.  Elscint's  counsel's  opinion was supported by
the Attorney  General's  opinion  filed on May 14, 2001 with the court.  Several
court  hearings  pertaining to court fees took place before the District  Court,
the last one on April 25, 2002,  and the District  Court's  decision is pending.
However,  the court has ruled that Elscint shall submit its statement of defense
75 days after the plaintiffs  have paid the court fee in full, and that we shall
submit  our  statement  of  defense  45 days after  Elscint  has  submitted  its
statement of defense.



                                      -86-
<PAGE>

         Claim  against  EMI and  EMS.  In March  2000,  we were  served  with a
Statement of Claim against us and our  subsidiary  Elbit  Medical  Services Ltd.
("EMS")  that was filed by two  Brazilian  companies  in the  District  Court in
Haifa.

         The  plaintiffs  allege  that we and EMS  breached,  and/or  caused the
breach  of,  two  agreements  between  EMS  and  the  plaintiffs  regarding  the
participation in a tender for the  establishment of a  Multi-Diagnostic  Medical
Center in the city of  Brazilia.  The remedy  sought is damages in the amount of
$14.3 million  (approximately  NIS 57.8  million);  however,  for the purpose of
court  filing  fees,  the  amount  requested  was  approximately  $4.94  million
(approximately NIS 20 million).  In May 2000, we filed a petition to dismiss the
Statement of Claim on the ground of lack of authority  of Israeli  courts,  and,
alternatively,  Forum  Non  Convenient.  On May 13,  2001,  the  District  Court
rejected our request to dismiss the Statement of Claim. In May 2001, we appealed
the  decision of the  District  Court and  simultaneously  filed a petition  for
another  extension for filing its statement of defense.  We reached an agreement
with the  plaintiffs  that if our appeal to dismiss  the claim is  rejected,  we
shall submit our  statement of defense  within 30 days after the  dismissal.  On
January 23,  2002,  a hearing  took place in the  District  Court in Haifa.  Our
counsel  informed us that the District  Court in Haifa  dismissed  our appeal on
February  19,  2003 and  ordered us to pay legal  expenses  in the amount of NIS
20,000  (approximately  $4,500).  On April 1, 2003,  our  counsel  submitted  an
application  to the  Supreme  Court  for  permission  to file an  appeal  on the
District  Court's  decision  and on April 2, 2003,  our  counsel  submitted  our
defense to the plaintiffs' claim.

         Poland.  Katowice  Plaza was served  with a  statement  of claim in the
amount of $235,000, constituting the last part of the consideration for property
purchased by Katowice  Plaza in December  1998. The statement of claim was filed
by the seller,  a  construction  company,  in the  regional  court of  Katowice.
Katowice  Plaza filed its  statement  of defense  alleging an error going to the
essence of the  transaction.  In addition,  Katowice Plaza filed a counter claim
against  the  construction  company,  demanding  the return of  payments,  which
Katowice Plaza paid to the construction  company, in the amount of $960,000.  On
March 19, 2001, a judgment  was rendered in favor of the  construction  company,
and Katowice  Plaza was compelled to pay $222,222 to the plaintiff with interest
calculated  as  of  October  8,  1999,  and  legal  expenses  of  $15,000.   The
counterclaim  filed by  Katowice  Plaza was  dismissed  and  Katowice  Plaza was
compelled  to pay legal  expenses  in the  amount of  $3,000.  On May 23,  2001,
Katowice Plaza appealed this judgment. On July 27, 2001, Katowice Plaza received
a notification  from the court that a lien in the sum of $438,000 was applied to
its assets, in order to secure the payments due to the construction company as a
result of the judgment  given by the court.  On August 1, 2002,  Katowice  Plaza
Counsel  informed us that the judgment  was  finalized  and  Katowice  Plaza was
compelled to pay the sum of $438,000.  According to the court judgment  Katowice
Plaza had to pay that sum until July 15, 2002, but the payment was not yet made.
Katowice  Plaza is continuing its attempts to sell the property so that it could
pay the debt to the plaintiff.  In addition,  Katowice Plaza,  made a settlement
proposal to the  plaintiff  according to which the debt will be paid in 12 equal
payments in consideration for freezing the proceedings against it. The plaintiff
is considering this offer.

         A second claim was filed against  Katowice Plaza on July 2, 2001 by the
construction  company,  claiming an additional payment for the subject property.
The sum  claimed  under  this suit was also  secured  by an  additional  lien on
Katowice Plaza's assets. Katowice Plaza filed an appeal against the lien imposed
on its assets but a court hearing has not yet been scheduled.  On February 2002,
the court gave a judgment in this suit, in which the  evaluation of the property
that is subject to both  claims,  was reduced to  $1,255,000.  According to this
judgment  Katowice Plaza's total outstanding debt to the plaintiff is in the sum
of $250,000 plus  interest.  The parties  intend to meet in order to negotiate a
settlement in light of this judgment.

         During the court  proceedings  regarding the property,  land taxes have
not been paid by Katowice Plaza to the municipality of Katowice.  As a result, a
lien  has  been  applied  to  Katowice  Plaza's  bank  accounts  in favor of the
municipality of Katowice.

         In July  2002,  a third  party  filed a lawsuit in Poland  against  our
subsidiary  in Poland,  Ruda Slaska Plaza S.P Z.O.O  ("Ruda") for  approximately
$3.6  million,  alleging an unpaid debt  arising  from a service



                                      -87-
<PAGE>

agreement.  In addition,  the plaintiff  asked the court to seize monies owed to
Ruda by three  lessees,  in order to  secure  the  payment  of Ruda's  debt.  In
September 2002, the court accepted the plaintiff's  request to also seize future
rental  payments of the three lessees and on October 21 2002, the court rejected
Ruda's appeal on this decision. In October 2002, Ruda also filed its response to
the main claim, in which it rejected most of the plaintiff's assertions.

         On March 21,  2003,  the court gave a decision  according  to which the
seizure of rental payments would be expanded so that it will be applied to other
debtors of Ruda.  Ruda  submitted an appeal  against this  decision as well as a
request to postpone its execution until its claims are  considered.  The court's
decision in the appeal is pending.

         Concurrently, Ruda filed a counter-claim against the third party in the
sum of  approximately  $3.4  million,  claiming  damages  due to  defects in the
performance  of the  agreement  by the  plaintiff as well as  additional  losses
incurred as a result of its  actions.  In addition  to these  proceedings,  Ruda
requested to be included in a compromise  settlement being finalized between the
plaintiff  and all of its  creditors.  Ruda was formally  approved as one of the
plaintiff's   creditors  and  will  thus  participate  in  all  the  proceedings
pertaining to the arrangement.

         On April 23, 2003, a hearing in the main claim was held. Ruda submitted
a request to replace the judge.  The request was based on the argument  that due
to the fact that many errors were made in the  management of the suit, the court
proceedings  were  unjustly  prolonged.  The  request to  replace  the judge was
dismissed.

         Claims  Relating  to the  Sale of the NM,  MRI  and CT  Businesses.  In
connection  with the sale in 1998 of  substantially  all of Elscint's  assets to
GEMS and Picker (today  Philips),  the following  material  claims were filed or
threatened against Elscint:

         1. In  October  1999,  Elscint  received a claim  letter  from a former
distributor of Elscint in Greece,  claiming approximately $27 million in damages
as a result of an alleged breach of a distribution agreement. Elscint denied all
allegations in a letter dated October 19, 1999,  and received  another letter on
November 9, 1999, in which the plaintiff  asked that Elscint  arrange for all of
the  plaintiff's  contracts  to be  assigned  to and  assumed  by GEMS.  Elscint
discussed  the merit of these  claims with GEMS,  but was not informed by either
GEMS or the distributor of the outcome of their actions.  Since the end of 1999,
Elscint did not receive any communication  from this distributor with respect to
the foregoing matter.

         2.  Distributors  and Agents:  Various  other  distributors  of Elscint
and/or its  subsidiaries  have sent  letters to Elscint,  demanding  payment for
damages that they have  allegedly  suffered as a result of the sale of assets in
1998.  The aggregate  amount  demanded under these letters is  approximately  $4
million. Additional letters of demand did not specify the amounts claimed.

         3. Claims in Brazil:  Elscint is a defendant in several claims filed by
certain of its customers (including some demanding the cancellation of sales and
service agreements) totaling approximately $5 million. These claims allege among
other things, damages caused to medical equipment acquired from Elscint.

         Claims relating to the hotel business
         -------------------------------------

         Bucuresti  Hotel  Complex,  Bucharest,  Romania.  In December 2000, BEA
acquired  80% of the  capital and voting  rights in Desca  Investments  Ltd.,  a
Cypriot company ("Desca"),  which at the time held 100% of Domino  International
Hotels s.r.l, a Romanian limited liability company ("Domino"). In December 1999,
Domino  successfully  bid for the acquisition  from the Romanian State Ownership
Fund (the "SOF") of 66.18% of the outstanding shares (the "Bucuresti Shares") of
SC Bucuresti  Turism S.A.  ("Bucuresti"),  a Romanian  joint stock  company that
owned the rights to the Bucuresti  Hotel and other parties have filed a petition
with the Supreme court to re-consider its desition given.  The Bucuresti  Shares
were offered for sale through a tender for the  privatization of the holdings of
the SOF



                                      -88-
<PAGE>

in  Bucuresti  (the  foregoing  transaction  is  referred  to as the  "Bucuresti
Transaction").

         Under Romanian law, Domino,  as the holder of 66.18% of the outstanding
shares of Bucuresti, controls Bucuresti. The acquisition of the Bucuresti Shares
by Domino was delayed from  December  1999 to December 2000 due to various legal
disputes  between  Domino,  the SOF and  unrelated  third  parties who contested
Domino's  right  to  acquire  the  Bucuresti  Shares  on the  grounds  that  the
privatization  tender was conducted  improperly by the SOF. However, in November
2000 the Romanian  Supreme Court "finally and  irrevocably"  determined that the
Bucuresti Transaction should be consummated and that the Bucuresti shares should
be sold to Domino.  The Bucuresti  Transaction  was  consummated on December 11,
2000.

         An employee union active in the Bucuresti  Hotel and other parties have
filed a petition with the Supreme Court to re-consider  its foregoing  decision.
The ground for this  petition is that the  employees  and the other parties were
not summoned to appear at one of the  hearings of the court,  due to a technical
error  of the  court  administration,  and  were  thus  allegedly  denied a fair
opportunity to present their  arguments to the court.  In July 2002, the Supreme
Court of Romania dismissed the petition.

         An additional  claim  submitted by certain  individuals  requesting the
nullification  of the public  tender for the sale of the Bucuresti  Shares,  the
privatization  contract and the transfer of the  Bucuresti  shares to Domino was
also  dismissed  outright by the courts in Romania on procedural  grounds before
the matter was heard on its merits.

         A criminal  procedure has been instigated against 17 former officers of
the SOF  responsible  for  the  execution  of the  tender  for  the  sale of the
Bucuresti Shares on allegations of fraudulent conduct.  Although Domino is not a
party  to  these  proceedings  and is  not  cited  as an  accused  party  on the
indictment,  its local  counsel  advised  us that the  indictment  does  contain
certain  allegations  regarding  the validity of the  privatization  proceedings
which may  indirectly  affect the ownership  interest by Domino of the Bucuresti
Shares.

         Bucuresti  and Domino  are  engaged in  several  other  litigations  in
Romania  arising in the ordinary  course of business or which are not considered
material.

         Office of the Chief Scientist
         -----------------------------

         The Israeli government encourages industrial companies by funding their
research  and   development   activities.   Elscint,   in  the  past,   received
royalty-bearing  participation  grants from the Office of the Chief Scientist of
the Israeli  Ministry of Industry and Trade (the "OCS"),  for the development of
its medical imaging systems and products.

         Elscint  agreed to pay royalties  for sales of products,  for which the
research and development was funded  principally by the OCS or by third parties.
The amount of each royalty payment payable to the OCS is computed on the portion
of sales  proceeds  from  such  products  at rates  varying  from 1% to 5%.  The
commitment to the OCS is limited to the amount it funded.

         In 1999, we received a letter from the OCS requesting  certain  details
regarding the previous  years'  computation  of royalties.  This matter is still
under review,  and we are not able to determine if we will have any liability to
the OCS as a result of these discussions.

         Pursuant to the sale of business  agreement  signed between Elscint and
GEMS,  Elscint was  responsible  for 60%, and GEMS for 40%, of the amount of $11
million of  royalties  payment by Elscint to the OCS  relating  to MRI  business
activity.  It was also agreed that NM and MRI know-how,  products and components
funded by the OCS and currently produced only in Israel will not be made outside
Israel  unless GEMS seeks the  approval  of the OCS.  Elscint  committed  to pay
royalties to the OCS in the amount in excess of $1.5  million of  royalties  for
sales of MRI products by GEMS,  which contain  certain  know-how and  components
funded by the OCS. In 1999,  Elscint  received a letter from the OCS



                                      -89-
<PAGE>

requesting details regarding the proceeds from GEMS allocated to the MRI product
line according to which the above-mentioned royalties payment was computed.

         Elscint has been conducting  internal inquiries and is negotiating with
the OCS in order to resolve all matters  which are the subject of disputes  with
the OCS.  At this time it is not clear  what  amounts,  if any,  Elscint  may be
required to pay to the OCS in settlement of these royalty payment claims.

         Ordinary course of business
         ---------------------------

         The  Company and its  subsidiaries  are  involved  from time to time in
litigation  arising  out of the  ordinary  course  of  the  Company's  business.
Although  the  outcome of each of these  cases is  uncertain  at this  time,  we
believe that the resolution of such litigation will not have a material  adverse
effect on our financial position.

ITEM 9.  OFFER AND LISTING

         The  ordinary  shares  of EMI are  quoted on  Nasdaq  under the  symbol
"EMITF" and are listed on the TASE.

         The annual  high and low sale  prices for our  ordinary  shares for the
five most recent full financial years are:

<TABLE>
<CAPTION>
                                                       NASDAQ                         TASE
                                                       ------                         ----
   YEAR ENDED DECEMBER 31,               HIGH ($)          LOW ($)           HIGH ($)          LOW ($)
   -----------------------               --------          -------           --------          -------
<S>                                      <C>               <C>               <C>               <C>
                   2002                  7.71              4.50              7.19              4.49
                   2001                  6.30              4.23              6.55              4.39
                   2000                  13.50             5.1562            13.338            5.596
                   1999                  11 15/16          7 5/16            11.96             7.60
                   1998                  10 13/16          4 9/16            10.97             4.67


</TABLE>

         The quarterly high and low sale prices for our ordinary  shares for the
two most recent full financial years and the first subsequent quarter are:

<TABLE>
<CAPTION>
                                                      NASDAQ                           TASE
                                                      ------                           ----
                                        HIGH ($)          LOW ($)           HIGH ($)           LOW ($)
                                        --------          -------           --------           -------

2003

<S>                                     <C>               <C>               <C>                <C>
First Quarter                           5.78              3.70              6.13               4.25
2002
First Quarter                           7.71              5.42              6.89               5.16
Second Quarter                          5.88              5.00              6.32               5.58
Third Quarter                           6.36              5.05              6.75               5.72
Fourth Quarter                          5.95              4.50              6.25               4.87
2001

First Quarter                           6.30              4.59              5.89               4.48
Second Quarter                          6.11              4.85              5.81               4.73
Third Quarter                           5.65              4.23              5.35               4.39
Fourth Quarter                          6.50              4.56              6.55               4.44

</TABLE>

                                      -90-
<PAGE>

         The monthly high and low sale prices for our ordinary shares during the
six months of December 2002 through May 2003 were:


<TABLE>
<CAPTION>
                                                      NASDAQ                           TASE
                                                      ------                           ----
MONTH                                   HIGH ($)          LOW ($)           HIGH ($)           LOW ($)
                                        --------          -------           --------           -------
<S>      <C>                            <C>               <C>               <C>                <C>
December 2002                           5.89              4.50              6.25               4.87
January 2003                            4.37              4.14              4.88               4.74
February 2003                           4.21              3.70              4.8                4.25
March 2003                              5.78              4.46              6.13               4.63
April 2003                              6.40              5.40              6.8                5.92
May 2003                                6.70              5.00              6.85               5.23

</TABLE>
         The closing price of our ordinary  shares on Nasdaq on May 31, 2003 was
$6.04, and on the TASE was $6.12.

         The closing  prices of our ordinary  shares listed on the TASE for each
of the years 1998  through  2002 have been  translated  into  dollars  using the
representative  rate of  exchange  of the NIS to the  U.S.  dollar  on the  last
trading day of each such year as  published  by the Bank of Israel.  The closing
prices of our  ordinary  shares  listed on the TASE for all periods  during 2003
have been translated into dollars using the  representative  rate of exchange of
the NIS to the U.S. dollar on May 31, 2003 as published by the Bank of Israel.

ITEM 10. ADDITIONAL INFORMATION

MEMORANDUM AND ARTICLES OF ASSOCIATION AND GENERAL PROVISIONS OF ISRAELI LAW

         PURPOSES AND OBJECTS OF THE COMPANY
         -----------------------------------

         We are a public company  registered under the Israeli  Companies Law of
1999  ("Companies  Law") as Elbit  Medical  Imaging  Ltd.,  registration  number
52-004303-5.

         Pursuant  to our  Memorandum  of  Association,  we were  formed for the
purpose of  operating in the  development,  manufacture,  compilation,  sale and
service of technological and electronic  systems in the field of medical imaging
and  ancillary  products.  In addition we are also  empowered  to operate in any
business or matter for profit  purposes as shall be  determined  by the board of
directors of the Company from time to time.

         At our  shareholders'  meeting  held on February 21, 2001, a resolution
was adopted  approving the amendment of our Articles of  Association by adding a
new  article  authorizing  us to  make,  from  time to  time,  contributions  of
reasonable sums for worthy causes even if such  contributions do not fall within
the  company's  business  considerations  as  referred  to in  Section 11 of the
Israeli Companies Law. Our board of directors, or any committee appointed by it,
is authorized to determine, in its discretion, with respect to any contribution,
the amount thereof,  its purpose, the entity to receive the contribution and any
other term or condition relating thereto.

         APPOINTMENT OF DIRECTORS
         ------------------------

         Our directors are elected by our  shareholders at the annual meeting of
the  shareholders.  Only a person  nominated  by the board of  directors  may be
elected at the shareholders'  meeting to the office of director,  unless written
notice is submitted  to the Company at its  registered  address,  at least seven
days prior to the date set for the meeting,  signed by the shareholder  entitled
to  participate  and vote at such  meeting,  of his intention to propose at such
meeting a certain  candidate  confirming his consent to such



                                      -91-
<PAGE>

election  which will be  submitted to the Company at its  registered  address at
least 24 hours prior to such date.  The  directors  hold  office  until the next
annual meeting of our  shareholders,  which is required to be held at least once
during  every  calendar  year but not more than  fifteen  months  after the last
preceding  meeting.  In the  intervals  between  annual  meetings,  the board of
directors  may appoint  additional  directors to the Board in the event that the
number of directors is less than the maximum number  authorized by our Articles.
Any  director so appointed  shall hold office  until the next  General  Meeting.
According  the our  Articles  of  Association,  not les  than 2/3 in  number  of
directors present in person or represted by their substitutes shall be a quorum.

         In  accordance  with  Article 22 of our  Articles of  Association,  our
directors are elected by an ordinary majority at a general meeting and they hold
office until the next ordinary  meeting and shall be eligible for re election at
such meeting, or until they resign or other circumstances listed in our Articles
of Association  occur,  except that external directors are elected in accordance
with  applicable  law and in  accordance  with  relevant  stock  exchange  rules
applicable to us (See  "-Independent  Directors,  External  Directors" above). A
director  need not hold any  qualification  shares.  The board of directors  may
appoint one or more  additional  directors to the board if the current number of
directors  is less  than  the  maximum  number  authorized  by our  Articles  of
Association. Any director so appointed shall hold office until the conclusion of
the next ordinary meeting of our shareholders.

         Under  Article  21(d) of our  Articles of  Association,  subject to the
Companies Law, our directors may hold offices in other companies in which we may
have an interest,  and they may also enter,  either on their own or as directors
of other companies or as members of other entities,  into contracts with us, and
neither  will such  contracts  be  avoided  nor will the  director  be liable to
account to us for any profit arising from any such contract or other office.  In
addition,  subject to the Companies Law, our directors are not disqualified from
voting as  directors  on any  contract or  arrangement  in which they (or any of
them) are interested,  either individually or as directors of other companies or
members of other entities.  (See also:  "Approval of Related Party Transactions"
above).

         ALTERNATE DIRECTORS
         -------------------

         EMI's Articles of Association provide that any director may, subject to
the approval of the other directors,  appoint, by written notice, another person
to serve as an alternate director,  and such appointing director may also remove
such alternate  director.  The Israeli  Companies Law provides that a person may
not serve as an alternate director if such person is not qualified to serve as a
director  or already  serves as a director  or as an  alternate.  Any  alternate
director  possesses all the rights and obligations of the director who appointed
him  except  that  the  alternate  has no  standing  at any  meeting  while  the
appointing  director is present,  and the alternative is not entitled to receive
remuneration  for his services.  The  appointment  is effective for all purposes
until  the  appointing  director  ceases  to be a  director  or  terminates  the
appointment.

         The  appointment of an alternate  director does not in itself  diminish
the   responsibility  of  the  appointing   director  as  a  director  and  such
responsibility  shall apply  giving  effect to the  circumstances  of the matter
including the circumstances of the appointment of the alternate director and the
period such alternate served.

         Our  Articles of  Association  also provide that our board of directors
may delegate its powers to one or more  committees  of the board of directors as
it deems appropriate. Such delegation may be exercised subject to the provisions
of the  Israeli  Companies  Law,  which  limits  the  matters  that the board of
directors may delegate to committees  (such as the  determination of the general
policies of EMI).

         The  Israeli  Companies  Law  requires  that  each  committee  which is
authorized  to exercise  powers of the board of directors  must include at least
one external director.



                                      -92-
<PAGE>

         INDEPENDENT DIRECTORS; EXTERNAL DIRECTORS
         -----------------------------------------

         Pursuant  to SEC and Nasdaq  rules,  each audit  committee  of a listed
company  must have at least three  members who are  independent  directors.  Our
audit  committee  members are Messrs.  Kaisserman  and Apter (each,  an external
director)  and  Forer,  all of whom  fulfill  the  reuiqrements  of  independent
directors.

         The Israeli  Companies Law requires Israeli companies whose shares have
been  offered to the  public in or  outside  of Israel to appoint  two people to
serve as external directors on the board of directors of a company.  The Israeli
Companies Law provides for certain  qualifications that a candidate for external
directorship must fulfill or comply with. Among other requirements, a person may
not be appointed as an external director if the person or the person's relative,
partner or employer or any entity controlled by that person, has, at the date of
appointment,  or had at any time during the two years  preceding  that date, any
affiliation with the company,  any entity  controlling the company or any entity
controlled  by the company or by the entity  controlling  the company.  The term
"affiliation" is broadly defined.

         In  addition,  no  person  can  serve as an  external  director  if the
person's  position  or  other  business  creates,  or may  create,  conflict  of
interests with the person's position as an external director or if such position
or other business may impair on such director's  ability to serve as an external
director.  The Israeli  Companies  Law  provides  for  additional  qualification
requirements that are imposed on such candidates.

         The Israeli  Companies Law further  provides  that  external  directors
shall be appointed by a general meeting of  shareholders,  and that the approval
of  such  appointment  requires  that  at  least  a  majority  of the  votes  of
shareholders present at the general meeting in person or by proxy have voted for
such proposal, provided that (i) such majority vote at the general meeting shall
include  at  least  one  third  (1/3)  of the  total  votes  of  non-controlling
shareholders  present at such general  meeting in person or by proxy,  excluding
abstaining  votes,  or (ii)  the  total  number  of  votes  of the  shareholders
mentioned  in clause (i) above that have voted  against such  proposal  does not
exceed one percent (1%) of the total voting rights in the company.

         The Israeli Companies Law also provides that a general meeting at which
the appointment of external  directors is to be considered shall not be convened
unless the candidate for external  directorship has declared to the company that
he  fulfills or  complies  with the  qualifications  for his  appointment  as an
external director.

         The  initial  term of an  external  director  in  accordance  with  the
Companies  Law, is three years and such term may be extended  for an  additional
three-year period. Each committee of EMI's board of directors that is authorized
to exercise powers of the board of directors is required to include at least one
external  director,  and all external directors must be members of the company's
audit  committee.  The  Companies  Law  provides  that an  independent  director
appointed pursuant to the Companies Ordinance (which preceded the Companies Law)
shall,  for the  purposes  of the  requirement  to  appoint  external  directors
pursuant to the Companies Law, be deemed an external director,  except that with
respect  to the term of  appointment  and its  renewal,  the  provisions  of the
Companies  Ordinance  shall  apply.  Pursuant  to the  Companies  Ordinance  the
appointment term of an external  director shall be for five  consecutive  years,
and it may not be renewed  unless two years have passed since the  expiration of
the previous appointment.

         An external director is entitled to reimbursement of expenses, monetary
and other compensation as provided in regulations  promulgated under the Israeli
Companies   Law,  but  is  otherwise   prohibited   from   receiving  any  other
compensation,  directly or indirectly,  in connection with services  provided by
such person as an external director.



                                      -93-
<PAGE>

         APPROVAL OF RELATED PARTY TRANSACTIONS
         --------------------------------------

         Generally,  under  the  Israeli  Companies  Law,  engagement  terms  of
directors and of directors fulfilling other offices in the company including (i)
the grant of an exemption from  liability for damages  sustained due to a breach
by the  directors'  of  their  duty  of  care,  (ii)  directors'  and  officers'
insurance, (iii) a prospective undertaking to indemnify such directors, and (iv)
a retroactive indemnification,  require the approval of the audit committee, the
board of directors and the majority vote of the shareholders of the company. The
Israeli  Companies  Law  also  requires  that  the  compensation  and  terms  of
engagement  and  employment  of Office  Holders (as  hereinafter  defined) or of
employees  of the company who hold a  controlling  interest in a company must be
approved by the audit committee, the board of directors and the majority vote of
the  shareholders at general  meetings,  provided that (i) such majority vote at
the  shareholders  meeting  shall  include at least one third (1/3) of the total
votes of shareholders having no personal interest in the transaction, present at
the  meeting in person or by proxy  (excluding  abstaining  votes);  or (ii) the
total  number of votes of  shareholders  mentioned in clause (i) above who voted
against  such  transaction  does not exceed one percent (1%) of the total voting
rights in the company.

         The  Israeli  Companies  Law  requires  that  an  Office  Holder,  or a
controlling  shareholder,  promptly  disclose  any direct or  indirect  personal
interest that he or any of his  affiliates  may have,  and all related  material
information   known  to  him,  in  connection  with  any  existing  or  proposed
"extraordinary  transaction" by the company.  If the Office Holder complies with
such disclosure  requirements and the transaction is not prejudicial to the best
interests  of the  company,  then,  unless the  Articles of  Association  of the
company provide  otherwise,  the board of directors of a company may approve the
transaction  in accordance  with the  provisions of such  company's  Articles of
Association.  Under  the  Israeli  Companies  Law,  if  the  transaction  is  an
"extraordinary  transaction",  then it must be approved by the  company's  audit
committee,   its  board  of  directors  and,  in  certain   circumstances,   the
shareholders of the company.  An  "extraordinary  transaction" is defined in the
Israeli Companies Law as a transaction not in the ordinary course of business, a
transaction  that is not on market terms or a transaction that is likely to have
a material impact on the company's profitability, assets or liability.

         In most  circumstances,  the Israeli  Companies  Law  restricts  Office
Holders  who have a  personal  interest  in a matter  which is  considered  at a
meeting of the board of directors or the audit  committee  from being present at
such meeting, participating in the discussions or voting on any such matter.

         The Israeli  Companies  Law contains the same  disclosure  requirements
applicable to persons  having  control of a public company as was required under
the Companies Ordinance (which preceded the Israeli Companies Law). In addition,
under the Israeli Companies Law,  "extraordinary  transactions" between a public
company and a controlling shareholder of the company, extraordinary transactions
of the  company  with a third  party in which a  controlling  shareholder  has a
personal  interest and an  engagement  of a public  company  with a  controlling
shareholder  regarding  employment  terms, all require the approval of the audit
committee, the board of directors and the shareholders.

         An offer of securities  to a shareholder  who holds more than 5% of the
company's  outstanding  share capital or voting rights,  or to a party that will
become,  as a result of the issuance,  a holder of more than 5% of the company's
outstanding  share capital or voting rights,  requires  approval of the board of
directors and the approval of the shareholders of the company.

         AUDIT COMMITTEE
         ---------------

         The Israeli Companies Law requires public companies to appoint an audit
committee.  The  responsibilities  of the audit  committee  include  identifying
irregularities in the management of the company's business and approving related
party transactions and transactions with officers of the company, as required by
law. An audit  committee  must consist of at least three members and include all
of the  company's  external  directors.  However,  the  chairman of the board of
directors,  any director  employed by the company or  rendering  services to the
company on a permanent basis, any controlling  shareholder and any relative of a
controlling shareholder, may not be a member of the audit committee.



                                      -94-
<PAGE>

         INTERNAL AUDITOR AND CERTIFIED PUBLIC ACCOUNTANT
         ------------------------------------------------

         The Israeli Companies Law requires the board of directors to appoint an
internal  auditor  recommended  by the audit  committee.  A person  who does not
satisfy certain  independence  requirements  may not be appointed as an internal
auditor.  The role of the internal  auditor is to examine,  among other matters,
the  compliance  of the  company's  actions  with  applicable  law,  and orderly
business procedure.  EMI's internal auditor is Greitzer,  IA and IE Services. In
addition,  under  the  Israeli  Companies  Law,  all  companies  must  appoint a
certified  public  accountant to audit the company's  financial  statements  and
report any  material  improprieties  that he may discover to the chairman of the
board of directors.  EMI appointed  Brightman  Almagor & Co.,  certified  public
accountants in Israel and the Israeli  affiliate of Deloitte  Touche  Tohmatsu &
Co., as its certified public accountant for the above matter.

         RIGHTS ATTACHED TO SHARES
         -------------------------

         Our registered  share capital  consists of a single class of 50,000,000
ordinary shares, par value NIS 1 per share, of which 23,146,820  ordinary shares
were issued and  outstanding as of December 31, 2002. All  outstanding  ordinary
shares  are  validly  issued,  fully  paid  and  non-assessable.  Of  the  total
outstanding shares, 76,900 shares are held by the Company and considered dormant
shares,  and do not confer any rights as long as they are held by us. Elscint is
the owner of 885,140 ordinary shares of EMI, but under the Israeli Companies Law
has voting  rights  only with  respect to 208,431 of the  shares.  In  addition,
following  approval of EMI's  shareholders  in February 2001, EMI issued 550,000
shares to employees and officers of EMI,  Europe-Israel and companies controlled
by EMI or by  Europe-Israel  (see "Item 6 -  Directors,  Senior  Management  and
Employees - Share Ownership"). Prior to the vesting of the rights to acquire the
shares, voting rights in respect of the shares may not be exercised.

         The rights attached to all of the ordinary shares are as follows:

         DIVIDEND RIGHTS

         Subject to the  rights of  persons,  if any,  entitled  to shares  with
special  rights as to  dividend,  or whose rights to dividend are limited in any
way, all dividends  shall be declared and paid  according to the amounts paid or
credited as paid on the shares in respect  whereof the dividend is paid,  but no
amount  paid or credited as paid on a share in advance of calls shall be treated
as  paid  on  the  share.   All  dividends   shall  be   apportioned   and  paid
proportionately to the amounts paid or credited as paid on the shares during any
portion or portions of the period in respect of which the dividend is paid;  but
if any share is issued on terms  providing  that it shall rank for  dividend  as
from a particular date, such share shall rank for dividend accordingly.

         The board of directors may propose a dividend  only out of profits,  in
accordance  with the provisions of the Israeli  Companies Law.  Declaration of a
dividend requires approval by an ordinary  shareholders'  resolution,  which may
decrease, but not increase, the amount proposed by the board of directors.

         One year after a dividend has been declared and is still unclaimed, the
board of  directors  is entitled to invest or utilize  the  unclaimed  amount of
dividend in any manner to the benefit of the Company until it is claimed. We are
not obligated to pay interest or linkage on an unclaimed dividend.

         The directors may, from time to time, pay to the Company's shareholders
on account of the next  forthcoming  dividend an interim dividend which in their
judgment is justified in view of the Company's position.

         VOTING RIGHTS

         Holders of ordinary  shares have one vote for each ordinary  share held
by them on all  matters  submitted  to a vote of the  shareholders.  Such voting
rights may be affected by the creation of any special



                                      -95-
<PAGE>

rights to the holders of a class of shares with preferential  rights that may be
authorized in the future in the manner provided for under the Israeli  Companies
Law and our Articles of Association. The quorum required for an ordinary meeting
of shareholders  consists of at least two  shareholders  present in person or by
proxy who hold or represent,  in the aggregate,  at least 33 1/3 % of the issued
voting share  capital.  In the event that a quorum is not present within half an
hour of the  scheduled  time,  the meeting shall be adjourned to the same day of
the following  week, at the same time and place,  or to such other day, time and
place as the board of directors shall  determine by notice to the  shareholders.
If at such adjourned  meeting a quorum is not present within half an hour of the
scheduled  time, the two members present in person or by proxy will constitute a
quorum.

         An  ordinary  resolution,  such as a  resolution  for the  election  of
directors, the declaration of dividends or the appointment of auditors, requires
approval by the holders of a majority of the voting  rights  represented  at the
meeting,  in person or by proxy,  and  voting  thereon.  Under our  Articles  of
Association as amended at our  shareholders'  meeting on February 21, 2001, also
resolutions  such as a  resolution  amending  the  Articles  of  Association  or
approving any change in capitalization,  reconstruction,  or other decisions the
general meeting of our shareholders is empowered to make require the approval by
an ordinary majority.

         RIGHTS TO THE COMPANY'S PROFITS

         Our shareholders have the rights to share in our profits distributed as
a dividend  and any other  permitted  distribution.  (See " -  Dividend  Rights"
above.)

         RIGHTS IN THE EVENT OF LIQUIDATION

         Pursuant  to  Article 33 of our  Articles  of  Association,  subject to
approval of an ordinary  majority,  at a meeting  convened for such  purpose,  a
liquidator  may divide among the  shareholders  the assets of the Company  other
than in  accordance  with the  legal  rights  of the  shareholders,  subject  to
statutory rights.

         CHANGING RIGHTS ATTACHED TO SHARES

         According  to our  Articles  of  Association,  if at anytime  the share
capital of the company is divided into different classes of shares, then, unless
otherwise  provided  for by the terms of  issuance  of that class of shares,  in
order to change  the rights  attached  to any class of  shares,  the  consent in
writing of the  holders of the  majority  of the issued  shares of the  affected
class must be obtained,  or at a separate  meeting of the  shareholders  of that
class of shares  convened for such purpose  adopting a resolution to change such
rights. The provisions relating to general meetings shall apply, except that the
necessary  quorum  required shall be two person holding or representing by proxy
at least two thirds of the issued shares of that class. In an adjourned meeting,
those shareholders present in person or by proxy shall be deemed to constitute a
quorum.  The rights conferred upon the holders of the shares of any class issued
with preferred or other rights shall not, unless  expressly  provided for by the
terms of the shares of that  class,  be deemed to be varied by the  creation  or
issue of further shares ranking pari-passu with that class.

         FIDUCIARY DUTY AND DUTY OF CARE OF AN OFFICE HOLDER
         ---------------------------------------------------

         The Israeli Companies Law codifies the duties that an officer owes to a
company.  These duties consist of a fiduciary  duty, a duty to act in good faith
and in the best interests of the company and a duty of care. An "Office  Holder"
is defined in the new  Israeli  Companies  Law as a director,  general  manager,
chief executive  officer,  executive vice president,  vice president,  any other
person assuming the  responsibilities  of any of the foregoing positions without
regard to such person's  title and other  managers  directly  subordinate to the
general manager. The Office Holder's duties to the company include:

         o    The  avoidance of any conflict of interest  between the  officer's
              position  with the company  and any other  position he fulfills or
              with his personal affairs;



                                      -96-
<PAGE>

         o    the avoidance of any competition with the company;

         o    the  avoidance  of  exploiting  any  of  the  company's   business
              opportunities in order to gain a personal advantage for himself or
              for others; and

         o    the disclosure to the company of any information and documentation
              relating to the company's affairs,  obtained by the officer due to
              his position with the company.

         The Israeli  Companies  Law  requires  that an office  holder  promptly
disclose to the company any personal interest that he or she may have, including
all related  material  information  known to him or her, in connection  with any
existing or proposed  transaction by the company.  The  disclosure  must be made
without  delay and not later than the first board of directors  meeting at which
the  transaction  is first  discussed.  (See also:  "- Approval of Related Party
Transactions" and " Voting Rights" above).

         DUTY OF A SHAREHOLDER
         ---------------------

         Under the Israeli  Companies  Law, a  shareholder,  in  exercising  his
rights and fulfilling his obligations to the company and the other shareholders,
must act in good faith and in a  customary  manner and refrain  from  improperly
exploiting  his power in the company,  including when voting at general or class
meetings of  shareholders  on: (a) any amendment to the Articles of Association;
(b) an increase of the company's  authorized share capital; (c) a merger; or (d)
approval of related party transactions. In addition, a shareholder shall refrain
from prejudicing the rights of other shareholders.  The laws governing breach of
contracts  apply,  with the  necessary  modifications,  to a breach of the above
obligations. Furthermore, any controlling shareholder, any shareholder who knows
that he possesses power to determine the outcome of the shareholders'  vote at a
general or a class meeting, and any shareholder that, pursuant to the provisions
of the  Articles  of  Association,  has the  power to  appoint  or  prevent  the
appointment  of an Office  Holder in the  company or  possesses  any other power
towards the company,  is under a duty to act in fairness towards the company.  A
breach by any such shareholder of this duty is treated  similarly to a breach of
a fiduciary duty of an Office Holder, with the applicable  changes.  The Israeli
Companies Law does not detail the substance of this duty.

         EXEMPTION, INSURANCE AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
         ------------------------------------------------------------------

         EXEMPTION

         Our Articles of Association  provide that EMI may prospectively  exempt
any of its officers from liability for damages  sustained due to a breach by the
officer  of such  officer's  duty of care to  EMI.  The  annual  meeting  of our
shareholders  held on February  21, 2001  approved to  prospectively  exempt our
company's  officers from liability for damages  sustained due to a breach by the
officer of such  officer's  duty of care to the company,  except with respect to
Mr. Zisser, the controlling  shareholder of the Company. Such exception applied,
at the time of the said  meeting,  also to Ms.  Bracha  Zisser,  the wife of Mr.
Zisser, who, at that date, served as a director of the Company.

         INSURANCE

         Our  Articles of  Associatin  provide  that we may obtain an  insurance
policy providing  directors and officers of the Company  insurance for liability
imposed on them due to an act  performed by them in their  capacity as directors
or officers of the Company, in any of the following:

         (1)      Breach of their  duty of care to the  Company  or to any other
                  person;

         (2)      Breach of their  fiduciary duty to the Company,  provided that
                  they acted in good faith and had reasonable grounds to believe
                  that the act would not prejudice the interest of the Company;



                                      -97-
<PAGE>

         (3)      Monetary  liability  imposed  upon  them in  favor  of a third
                  party; and

         (4)      Any other event in respect of which an insurance of a director
                  or officer is and/or may be permitted.

         Our  shareholders,  at their annual  meeting held on February 21, 2001,
approved the subscription for insurance  covering liability of our directors and
officers in  accordance  with the above  principles,  except with respect to Mr.
Mordechay Zisser .

         Pursuant  to the  Israeli  Companies  Law,  in no event may EMI insure,
indemnify or exempt its officers and directors with respect to:

         (1)      breach of the fiduciary  duty towards EMI,  unless the officer
                  or director acted in good faith and had reasonable  grounds to
                  assume that the action would not prejudice EMI;

         (2)      breach of the duty of care, made intentionally or recklessly;

         (3)      an  intentional  act  which was made to  unlawfully  realize a
                  personal gain; or

         (4)      a fine or penalty imposed for an offense.

         INDEMNIFICATION

         Our Articles of Association  also provide that we may  prospectively or
retroactively undertake to indemnify an officer or director of EMI in respect of
the following matters:

         (1)      Monetary  liability  imposed  upon a director or an officer in
                  favor of a third party by a judgment,  including a  settlement
                  or arbitrator's award approved by a court;

         (2)      Reasonable  litigation  expenses,  including  attorney's fees,
                  incurred  by or charged to a director  or an officer by court,
                  in proceedings  brought against the director or officer by the
                  Company  or on its behalf or by a third  party,  or a criminal
                  charge from which the director or officer was acquitted or for
                  a  criminal  charge in which  such  director  or  officer  was
                  convicted  of an  offense  not  requiring  proof  of  criminal
                  intent; and

         (3)      Other  liability  or  expense  for  which  it  is  or  may  be
                  permissible to indemnify a director or an officer;

         provided,  however,  that the  prospective  undertaking  is  limited to
certain  events  that the board of  directors  may  anticipate  at the time such
undertaking  is issued  and  limited at an amount  which the board of  directors
determines is reasonable under the circumstances.

         Pursuant to our Articles of Association,  the aggregate indemnification
amount paid to an officer of the Company  pursuant to a prospective  undertaking
to indemnify shall not exceed the lower of (i) 25% of the  shareholders'  equity
of EMI as of the date of actual payment by EMI of the indemnification amount (as
set forth in EMI's most recent consolidated  financial  statements prior to such
payment);  and (ii) $40  million  in  excess  of any  amounts  paid (if paid) by
insurance  companies  pursuant  to  insurance  policies  maintained  by EMI with
respect to matters covered by such indemnification.

         At their annual  meeting held on February  21, 2001,  our  shareholders
approved that we may  prospectively  exempt and  accordingly  issue  prospective
indemnification  undertakings in favor of our directors and officers pursuant to
our Articles of Association.

         In  addition,   we  may   prospectively   undertake  to  indemnify  and
accordingly  issue a  prospective  indemnification  undertaking  in favor of any
person,  including an officer of the Company who  officiates  or



                                      -98-
<PAGE>

officiated  on behalf or at the  request of the Company as a director of another
company of which the Company is either  directly or indirectly a shareholder  or
in which it has any other interest whatsoever  ("Director of the Other Company")
with respect to a liability or expense as set forth above,  which may be imposed
upon such  person  as a result of an act  performed  by such  person in  his/her
capacity as a Director of the Other Company,  provided that such  undertaking is
limited to events that in the opinion of the board of directors are  foreseeable
at the  time of the  issue  of the  undertaking  and is  limited  to the  amount
determined by the board of directors as reasonable under the circumstances.

         We may also retroactively  indemnify a Director of the Other Company in
respect of liability  or expense as set forth  above,  imposed upon him/her as a
result of an act  performed by him/her in his/her  capacity as a Director of the
Other Company.

         ANTI-TAKEOVER PROVISIONS AND ACQUISITIONS UNDER ISRAELI LAW

         Pursuant to the Israeli  Companies Law, if following any acquisition of
shares of a public  company  or of a class of shares  of a public  company,  the
purchaser  will hold 90% or more of the company's  shares or 90% of any class of
the company's shares, then the purchaser must make a tender offer for all of the
remaining shares or the particular class of shares of the company.  In the event
that  holders  of 5% or more of the shares  have not  responded  favorably  to a
tender  offer,  the  offeror  may not  purchase  more than 90% of that  class of
shares.  In the event that holders of less than 5% of the company's  outstanding
share capital,  or the outstanding share capital of a class of shares,  have not
responded  favorably to the tender offer,  then all of the company's shares that
the offeror intended to purchase will be transferred to such offeror by way of a
compulsory sale of such shares.

         At the request of an offeree of a tender offer which has favorably been
accepted,  which  request  was  submitted  to a competent  court,  the court may
determine  that the  consideration  for the acquired  shares  purchase under the
tender  offer,  was lower than their fair value and compel the offeror to pay to
the  offerees  the fair value of the  shares.  It should also be noted that such
application to the courts may be filed as a class action.

         Furthermore,  the  Israeli  Companies  Law  provides  that as long as a
shareholder in a public  company holds more than 90% of the company's  shares or
of a class of shares,  such  shareholder  shall be precluded from purchasing any
additional  shares, or a class of shares,  for as long as such shareholder holds
shares in the aforementioned percentage,  without executing a full tender offer,
as above mentioned.

         The Israeli  Companies Law also provides that an  acquisition of shares
in a public  company  must be made by means of a  special  tender  offer if as a
result of the  acquisition the purchaser would become a holder of 25% or more of
the voting  rights in the company.  This rule does not apply if there already is
another  holder of 25% or more of the voting  rights in the company.  Similarly,
the Israeli  Companies  Law provides that an  acquisition  of shares in a public
company  must be made by means of a special  tender  offer if as a result of the
acquisition the purchaser would become the holder of more than 45% of the voting
rights in the company.  This rule does not apply if another  party already holds
more than 50% of the voting rights in the company.

         ANNUAL AND EXTRAORDINARY MEETINGS
         ---------------------------------

         In accordance  with the Israeli  Companies  Law, the board of directors
must  convene an annual  meeting of  shareholders  at least once every  calendar
year, and no later than within fifteen months of the last annual meeting. Notice
of at  least  21  days  prior  to  the  date  of the  meeting  is  required.  An
extraordinary  meeting may be convened by the board of directors,  either at its
discretion or upon a demand of any two directors or 25% of the directors,  or of
one or more  shareholders  holding  in the  aggregate  at least 5% of our issued
capital.  An  extraordinary  meeting must be held not more than 35 days from the
publication date of the announcement of the meeting.



                                      -99-
<PAGE>

         LIMITATIONS ON THE RIGHTS TO OWN SECURITIES
         -------------------------------------------

         Our  Memorandum  and Articles of Association do not restrict in any way
the ownership of our shares by nonresidents of Israel and neither the Memorandum
of Association nor Israeli law restricts the voting rights of  non-residents  of
Israel,  except that under  Israeli  law, any transfer or issue of shares of the
Company  to a  resident  of a  country  under  a state  of war  with  Israel  is
prohibited and shall have no effect,  unless  authorized by the Israeli Minister
of Finance.

         CHANGES TO OUR CAPITAL
         ----------------------

         Changes to our capital are subject to the approval of the  shareholders
at a general  meeting by an  ordinary  majority of more than 50% of the votes of
the  shareholders  who are entitled to vote and who vote at a general  meting in
person, by means of a proxy or by means of a deed of vote.

MATERIAL CONTRACTS

         The  following  is a list of material  agreements  entered into by EMI,
Elscint  or any of their  subsidiaries  during  the last two years  prior to the
filing of this annual report:

         EMI

         Agreement  dated  December 27, 2001 for the  Investment by an unrelated
third party in InSightec - On December  27,  2001, a Stock and Warrant  Purchase
Agreement was signed between EMI, EUBV,  InSightec and an unrelated  third party
for  an  investment  of  $10  million  by  the  third  party  in  InSightec,  in
consideration for 11.8% of InSightec's shares, on a fully diluted basis. As part
of the  transaction,  the  unrelated  third party  converted  its previous  5.4%
holdings in InSightec's subsidiary into an additional 5% holdings in InSightec.

         In addition,  the unrelated third party was granted three-year warrants
to purchase an  additional  5% of the shares of  InSightec  for $3 million.  See
"Item 4 -Information on the Company - Highlights of 2002 - EMI".

         Agreement  for the  acquisition  of Duna Plaza,  Sopron  Plaza and Nyir
Plaza  - For a  description  of the  terms  of  this  agreement,  see  "Item 4 -
Information  on the Company -  Highlights  of 2002 - EMI -  Acquisition  of Duna
Plaza, Sopron Plaza and Nyir Plaza".

         Framework  Agreement  dated January 22, 2002 between OVAG,  MKB and OPT
banks,  Amanati Ltd., Duna Plaza Kft. Sopron Plaza Kft. and Plaza Centers Europe
BV - On January 22,  2002, a Framework  Agreement  was entered into between OVAG
(as leader of a syndicate of banks  comprised  of OVAG,  MKB and OTP) as lender,
Amanati Ltd. of Cyprus (a wholly owned subsidiary of PC) ("Amanati"), Duna Plaza
and Sopron Plaza as borrowers, and PC as guarantor, for a credit facility in the
aggregate  amount of Euro  82.9  million  (approximately  $87.1  million).  This
facility was granted for the purpose of the acquisition by Amanati of the entire
interest  in Duna Plaza and Sopron  Plaza and for the  refinancing  of  existing
loans (for certain terms of the facility,  see "Item 5 - Operating and Financial
Review and Prospects - Loans - EMI").

         1.  Agreement  between CDPM and SLS for the  completion of the works at
the entertainment and commercial center in the Herzlia Marina, Israel. See "Item
7  -  Major   Shareholders  and  Related  Party  Transactions  -  Related  Party
Transactions - Elscint - Commercial and Entertainment Center".

EXCHANGE CONTROLS

         In 1998,  the  government of Israel  promulgated a general permit under
the Israeli Currency  Control Law.  Pursuant so such permit,  substantially  all
transactions in foreign currency are permitted.



                                     -100-
<PAGE>

         Our  memorandum  and articles of association do not restrict in any way
the  ownership  of the shares by  non-residents  and neither the  memorandum  of
association nor Israeli law restricts the voting rights of non-residents.

TAXATION

         Following is a  discussion  of certain tax laws that may be material to
our U.S. shareholders, all as in effect as of the date of this report and all of
which are subject to changes,  possibly on a  retroactive  basis,  to the extent
that such laws are still subject to judicial or administrative interpretation in
the future.  This  discussion is not intended,  and should not be construed,  as
legal  or  professional   tax  advice  and  does  not  cover  all  possible  tax
considerations.

         WE ENCOURAGE  EACH  INVESTOR TO CONSULT WITH HIS OR HER OWN TAX ADVISOR
AS TO THE  PARTICULAR  TAX  CONSEQUENCES  TO  SUCH  INVESTOR  OF  THE  PURCHASE,
OWNERSHIP  AND  DISPOSITION  OF OUR ORDINARY  SHARES,  INCLUDING  THE EFFECTS OF
APPLICABLE  ISRAELI,  U.S.  FEDERAL,  STATE, AND LOCAL, AND FOREIGN TAX LAWS AND
POSSIBLE CHANGES IN SUCH TAX LAWS.

         TAXATION IN ISRAEL

         In general,  Israeli  companies are currently subject to company tax at
the rate of 36% of taxable income.

         LAW FOR THE ENCOURAGEMENT OF CAPITAL INVESTMENTS, 1959

         Certain  of the  facilities  of  Elscint  have been  granted  "Approved
Enterprise"  status under the Law for the Encouragement of Capital  Investments,
1959 ("Investment Law"), as amended.  The Investment Law provides that a capital
investment in eligible facilities may, upon application to the Israel Investment
Center,  be designated as an Approved  Enterprise.  Each certificate of approval
for an Approved  Enterprise relates to a specific  investment program delineated
both by its  financial  scope,  including  its capital  sources and its physical
characteristics,  e.g.,  the equipment to be purchased and utilized  pursuant to
the program.  The tax benefits  derived  from any such  certificate  of approval
relate only to taxable income attributable to the specific Approved Enterprise.

         Taxable income of a company derived from an Approved  Enterprise status
is subject to company tax at the rate of 25% for the "Benefit Period":  a period
of seven years  commencing with the year in which the Approved  Enterprise first
generated   taxable  income  (limited  to  twelve  years  from  commencement  of
production  or fourteen  years from the date of approval,  whichever is earlier)
and, under certain  circumstances  (as further detailed  below),  extending to a
maximum  of ten years  from the  commencement  date.  In the event a company  is
operating under more than one approval or that its capital  investments are only
partly  approved,  such  company will be taxed at a rate that is the result of a
weighted combination of the various applicable rates.

         A company,  which  qualifies  as a  "Foreign  Investors'  Company",  is
entitled to further  reductions in the tax rate normally  applicable to Approved
Enterprises.  Subject to certain conditions, a "Foreign Investors' Company" is a
company  which has more than 25% of its  combined  shareholders'  investment  in
share  capital (in terms of rights to  profits,  voting and the  appointment  of
directors) and in long term  shareholders'  loans made originally by persons who
are not residents of Israel. The percentage owned by non-residents of Israel for
any tax year will be  determined  by the lowest  percentage  of any of the above
rights held by  non-residents  during that year. Such a company will pay company
tax on the income of the company derived from an Approved  Enterprise at reduced
rates (ranging from 10%-25%, depending on the percentage of foreign shareholders
investment  in the share  capital,  and with  respect to an Approved  Enterprise
approved  after January 1, 1997,  such income will be exempted  during the first
two  years) for



                                     -101-
<PAGE>

an extended ten-year (rather than the otherwise  applicable  seven-year)  period
and is exempt from any other tax on the income from its Approved Enterprise.

         In addition,  a company  owning an Approved  Enterprise  approved after
April 1, 1986 (or  prior  thereto  provided  no  government  grants or loans had
previously  been granted  regarding such  enterprise)  may elect (as we have) to
forego certain government grants extended to Approved  Enterprises in return for
an "alternative  package" of tax benefits.  Under such  alternative  package,  a
company's  undistributed  income  derived  from an Approved  Enterprise  will be
exempt from company tax for a period of between two and ten years,  depending on
the  geographic  location of the Approved  Enterprise  within  Israel,  and such
company will be eligible for the tax benefits  under the  Investment Law for the
remainder of the Benefit Period.

         A company  that has elected  the  alternative  package of tax  benefits
referred to above and that  subsequently  pays a dividend out of income  derived
from the Approved  Enterprise(s) during the tax exemption period will be subject
to company tax in the year the dividend is  distributed in respect of the amount
distributed  at the rate that would have been  applicable  had the  company  not
elected the alternative package (generally 25%). The dividend recipient is taxed
at the reduced rate  applicable to dividends from Approved  Enterprises  (15% as
compared to 25% for individuals),  if the dividend is distributed during the tax
exemption  period or within a  specified  period.  This tax must be  withheld at
source by the company.

         Subject  to  certain  provisions   concerning  income  subject  to  the
alternative  package  of  tax  benefits,  all  dividends  are  considered  to be
attributable  to the entire  enterprise and the effective tax rate is the result
of a weighted combination of the various applicable tax rates.

         Grants and certain other incentives received by a company in accordance
with the  Investment  Law  remain  subject to final  ratification  by the Israel
Investment  Center and final  determination  by the Israel Tax  Authority,  such
ratification and  determination  being conditional upon fulfillment of all terms
of the approved program.

         The  benefits  granted  under these  programs are  contingent  upon the
fulfillment of the conditions  stipulated in the law, and the regulations  there
under and the approval  documents based on which the investment had been carried
out. In the event of failure to comply with these conditions the benefits may be
cancelled,  and the  Company  may be require  to refund the amount of  benefits,
previously  received  in  whole  or  in  part,  with  the  addition  of  linkage
differences and interest.

         A  distribution  of  cash  dividends  out of  tax-exempt  income  of an
Approved  Enterprise  would  impose on the Company an  additional  tax of 25% in
respect of the amount  distributed.  The said tax addition has not been included
in  these  financial  statements  due to the  Group's  Group's  policy  to avoid
dividend distribution which may result in additional tax to the Group.

         The period of tax  benefits  under the  Investment  Law with respect to
Elscint  expired  upon  the  sale of the  Ma'alot  Ma'alot  facility,  effective
December 31, 2002.

         InSightec  has  two  investment  programs  approved  under  the  law as
approved enterprises.  Accordingly, income generated by these two enterprises is
exempt from tax during the  initial two years of the benefit  period and subject
to a reduced tax rate of 25% during the remaining five years for one program and
full exemption from tax for ten years for the second program. The benefit period
for the two programs has not yet commenced.

         TAXATION UNDER INFLATIONARY CONDITIONS

         The Income Tax Law (Inflationary Adjustments), 1985, (the "Inflationary
Adjustments Law"), represents an attempt to overcome the problems presented to a
traditional  tax  system  by  an  economy



                                     -102-
<PAGE>

undergoing rapid inflation. The Inflationary Adjustments Law is characterized by
a high degree of complexity and its salient features can be described  generally
as follows:

         (a) A special tax  adjustment  for the  preservation  of equity whereby
certain corporate assets are classified broadly into fixed (inflation resistant)
assets and non-fixed (soft) assets. Where a corporation's  equity, as defined in
such law,  exceeds the depreciated  cost of Fixed Assets,  a tax deduction which
takes into account the effect of the annual  inflationary  change on such excess
is allowed  (up to a ceiling  of 70% of  taxable  income in any single tax year,
with the unused portion  permitted to be carried forward on a linked basis).  If
the depreciated cost of Fixed Assets exceeds a corporation's  equity,  then such
excess multiplied by the annual inflation change is added to taxable income.

         (b) Depreciation  deductions on fixed assets and losses carried forward
are adjusted for inflation  based on the increase in the Israeli  Consumer Price
Index.

         CAPITAL GAINS TAX

         Israeli law imposes a capital  gains tax on the sale of capital  assets
by both residents and non-residents of Israel. The law distinguishes between the
"Real Gain" and the  "Inflationary  Surplus." The Real Gain is the excess of the
total capital gain over the Inflationary  Surplus,  computed on the basis of the
increase in the Israeli  Consumer  Price Index  between the date of purchase and
the date of sale. The Inflationary  Surplus is tax exempt,  except for inflation
surplus  accumulated until December 31, 1993 which is taxed at a rate of 10% for
residents of Israel (reduced to no tax for non-residents if calculated according
to the exchange rate of the dollar  instead of the Israeli CPI),  while the Real
Gain is added to  ordinary  income  which  is  taxed  at the  ordinary  rate for
individuals  and at 36% for companies (as for capital gains tax after January 1,
2003, see "Reform of taxes on income in Israel below").

         Pursuant to the Convention  Between the government of the United States
of America and the  government  of Israel  with  Respect to Taxes on Income (the
"US-Israel Tax Treaty"), the sale, exchange or disposition of shares by a person
who  qualifies  as a resident  of the United  States  within the  meaning of the
US-Israel Tax Treaty and who is entitled to claim the benefits  afforded to such
resident by the  U.S.-Israel Tax Treaty  ("Treaty U.S.  Resident"),  will not be
subject to the Israeli capital gains tax unless such Treaty U.S. Resident 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.  A sale,  exchange  or  disposition  of 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 would be subject to such Israeli tax;  however,  under the  US-Israel Tax
Treaty,  such Treaty U.S. Resident would be permitted to claim a credit for such
taxes against the U.S. income tax imposed with respect to such sale, exchange or
disposition, subject to the limitations applicable to foreign tax credits.

         TAXATION OF NON-RESIDENTS

         Non-residents  of Israel are  subject  to income tax on income  derived
from sources in Israel.  On  distributions  of dividends other than bonus shares
(stock dividends), income tax at the rate of 25% (15% for dividends generated by
an  "Approved  Enterprise")  is withheld at source,  unless a different  rate is
provided in a treaty between Israel and the shareholder's  country of residence.
The US-Israel Tax Treaty  provides for a maximum tax of 25% on dividends paid to
a Treaty U.S.  Resident  and for a rate of 12.5% on  dividends  paid to a United
States  corporation that holds 10% or more of the shares of the Israeli company,
or  15%  for  dividends  distributed  from  income  derived  from  an  "Approved
Enterprise".

         For information  with respect to the  applicability  of Israeli capital
gains  taxes on the  sale of our  ordinary  shares  by U.S.  residents,  see " -
Capital Gains Tax" above.



                                     -103-
<PAGE>


         REFORM OF TAXES ON INCOME IN ISRAEL

         During  2002,  tax reform  legislation  was  enacted  with  effect from
January 1, 2003, which significantly changed the taxation basis of corporate and
individual  taxpayers from a territorial  basis to a worldwide  basis. As of the
effective  date, an Israeli  resident  taxpayer will be taxed on income produced
and derived  both in and out of Israel.  The main  provisions  of the tax reform
that may affect the Company are as follows:

         1. Changes in the method of taxation prevailing in Israel regarding the
revenues of foreign companies  controlled (over 10%) by Israeli residents,  most
of whose revenues are passive revenues,  as defined in the law, or most of whose
profits  result from passive  revenues,  the tax rate  applying to them does not
exceed 20%,  and over 50% of the means of control in them are held,  directly or
indirectly,  by Israeli residents ("C.F.C.").  In accordance with the provisions
of  the  law,  the   controlling   shareholder  in  such  companies  which  have
undistributed  profits,  as defined in the law,  will be deemed to have received
its proportional share in these profits as a dividend,  and income tax in Israel
of up to 25% will apply to them.

         2.  Dividend  whose source is revenues  produced or accrued  outside of
Israel and a dividend  whose  source is out of Israel will be taxed at a rate of
up to 25%.

         In addition,  the law sets forth provisions regarding amounts and rates
of tax, in those cases where tax was paid abroad on such revenues.

         3. As of January 1, 2003,  all income of an Israeli  resident,  even if
accrued or  produced  outside of Israel,  will be taxed.  Until the end of 2002,
Israeli  residents  were subject to taxation on certain  types of income only if
received for the first time in Israel.

         4. As of January 1, 2003,  the tax rate on capital gains from realizing
assets was reduced to 25%. The reduced rate will apply to assets  purchased  and
realized  as of January 1, 2003 and  thereafter.  The tax rate on capital  gains
derived  from  assets  purchased  prior to  January 1, 2003 and  realized  after
January 1, 2003 will be  calculated  by taking into  account part of the profits
relating to the period after that date, and up to the date of realization.

TAXATION IN THE U.S.

         This summary of certain U.S. federal income tax laws applies to persons
that are generally  subject to U.S. federal income taxation on world-wide income
basis (collectively,  "U.S.  Persons").  However,  this summary does not address
U.S.  federal  income tax  considerations  that may be relevant to certain  U.S.
Persons that are subject to special  treatment under the federal income tax law,
such as tax-exempt  organizations,  financial  institutions,  non-U.S.  persons,
insurance companies, broker-dealers or certain other persons). In addition, this
summary does not contain any specific tax  discussion  applicable  to particular
U.S. Persons.

         PASSIVE FOREIGN INVESTMENT COMPANIES

         In general, a foreign  corporation will be a passive foreign investment
company  ("PFIC"),  if either  (i) 75% or more of its gross  income in a taxable
year is passive income or (ii) 50% or more of the average value of its assets in
a taxable year are held for the production of, or produce,  passive income. If a
corporation  is a PFIC,  a U.S.  shareholder,  in the  absence of an election to
treat the corporation as a "qualified electing fund" or a "mark to market", will
be  required  to  report  any  gain on the  disposition  of the  shares  of such
corporation  as ordinary  income rather than capital gain and to compute the tax
liability on such gain, as well as on certain dividends and other distributions,
at the time of such  disposition  or  distribution,  as if the  income  had been
earned ratably over each day in the U.S.  shareholder's holding period, and such
U.S.  shareholder  automatically  will be subject to the highest ordinary income
tax rate for each  taxable  year  that the  corporation  was a PFIC in which the
items were  treated  as having  been  earned



                                     -104-
<PAGE>

regardless  of the rate  otherwise  applicable to such  shareholder  during such
taxable years. In addition,  the taxes attributable to these prior years will be
increased by an interest  factor.  Additionally,  if a corporation  is a PFIC, a
non-electing shareholder who acquires shares in such corporation from a decedent
generally  is denied  the  normally  available  step-up in the tax basis of such
shares  to fair  market  value at the date of death and  instead  will hold such
shares with a tax basis equal to the  decedent's  basis,  of lower than the fair
market value.

         We believe that EMI was not a PFIC for the year ended December 31, 2002
or prior years.  However,  we emphasize  that there can be no assurance that the
Internal  Revenue  Service  will  not  determine  that,  under  the  methodology
currently used by EMI or a possible alternative capitalization methodology,  EMI
was a PFIC for its taxable year ended December 31, 2002 or prior years.

         USE OF THE COMPANY'S NET OPERATING LOSSES

         A complex set of rules exists under the U.S.  Internal  Revenue Code of
1986,  as amended (the "Code")  limiting the potential  utilization  of U.S. net
operating loss and tax credit  carry-forwards  in periods  following a corporate
"ownership  change".  In  general,  for U.S.  federal  income tax  purposes,  an
ownership  change  is  deemed  to  occur  if the  percentage  of stock of a loss
corporation owned (actually,  constructively and, in some cases,  deemed) by one
or more "5%  shareholders"  has increased by more than 50 percentage points over
the lowest  percentage of such stock owned during a three-year  testing  period.
Subsequent  stock  ownership  changes,  or  changes  in  relevant  tax  laws and
interpretations,  may result in an ownership  change at some date in the future.
If the  change in  control  of EMI in 1999 is  considered  an  ownership  change
according to the U.S. Internal Revenue Code, our ability to utilize our U.S. net
operating loss and tax attribute  carry-forwards could be significantly limited.
While such limitation will not have a direct impact on our  shareholders who are
U.S. Persons,  it may affect the amounts of income available for distribution to
the shareholders.

         TAXATION OF DIVIDENDS PAID TO U.S. SHAREHOLDERS

         Under the recently  enacted  amendments to the Code,  dividends paid to
individual  U.S.  Persons  with  respect  to  shares  of  a  qualified   foreign
corporation  are  taxed at a  capital  gains tax rate  (currently,  15%,  with a
transitional rate available for dividends paid in 2003),  which is substantially
lower than the  ordinary  income  tax rates.  A  qualified  foreign  corporation
includes a  corporation  the shares of which (with respect to which the dividend
is paid) are readily tradable on an established  U.S.  securities  market.  As a
result,  dividends  paid with respect to the  ordinary  shares of the Company in
2003  should  be  taxable  to the U.S.  Persons  who  hold  such  shares  at the
transitional  tax rate,  and  dividends  paid  thereafter  with  respect  to the
ordinary  shares  (provided such shares  continue to be  publicly-traded  in the
United  States)  should be eligible  for the 15% tax rate  (during the time such
rate remains in effect).

TAXATION IN POLAND

          The  corporation  tax rate  imposed on the income of the  subsidiaries
incorporated in Poland (including  capital gains) is currently 28%. The tax rate
is  decreased  in 2003 to 27%.  Losses can be carried  forward for the period of
five years and only 50% of a loss can be offset in any one year.  Dividends paid
out of net  income  are  subject  to a  withholding  tax of 20%,  subject to the
relevant double taxation treaty.

TAXATION IN GREECE

         The  corporation  tax rate  imposed on the  income of the  subsidiaries
incorporated  in the Greece  (including  capital  gains) is  currently  35%. Tax
losses can be carried  forward and be offset against  taxable



                                     -105-
<PAGE>

income  of the five  years  following  the  accounting  year in which  they were
incurred.  Dividends  paid out of net income are not subject to any  withholding
tax.

TAXATION IN THE CZECH REPUBLIC

         The  corporation  tax rate  imposed on the  income of the  subsidiaries
incorporated in the Czech Republic  (including  capital gains) is currently 31%.
Tax losses can be carried  forward up to seven  years to offset  future  taxable
income.  Dividends  paid out of net income are subject to a  withholding  tax of
25%, subject to the relevant double taxation treaty.

TAXATION IN HUNGARY

         The corporate tax rate applicable to income  (including  capital gains)
of  subsidiaries  incorporated  in Hungary is 18%.  Dividends  paid out of these
profits are taxed by an  additional  20%,  subject to the terms of the  relevant
treaty for the prevention of double taxation.  Losses from the third year onward
may be offset against taxable income for a period of five years,  subject to the
fulfillment  of  a  losses-to-revenues   ratio,   pursuant  to  the  income  tax
regulations.  The losses incurred during the first two years of operation may be
carried forward for an unlimited period of time.

TAXATION IN ROMANIA

         Corporate  income  tax  is  payable  by  resident  legal  entities  and
non-resident  entities with permanent  establishments in Romania.  The corporate
income tax rate is generally 25%.  Dividends  paid to resident and  non-resident
companies are subject to a final  withholding  tax of 10%, unless reduced double
taxation  treaty  rates apply for  non-residents.  Capital  gains are  generally
treated as ordinary business income. Losses may be offset against taxable income
for a period of 5 years from the period they incurred.

TAXATION IN THE NETHERLANDS

         Some of our  subsidiary  companies  are taxable in the  Netherlands.  A
Dutch company is subject to Dutch corporate tax at normal rates on its worldwide
profits. As of 2002, the general rate is reduced from 35% to 34.5%.

         All Dutch companies must withhold 25% dividend withholding tax on their
distributions and certain interest payments, where the loan has certain features
of equity. The rate can be reduced by taxed treaty.

         Dutch  companies  are  exempt  from Dutch  corporate  income tax on all
"benefits" connected with a qualifying shareholding. The participation exemption
provisions not only over  dividends,  but also capital gains,  realized upon the
disposal of the  shareholding.  Capital losses on the  shareholding  are not tax
deductible except in cases of certain  liquidations  losses.  Expenses connected
with a foreign qualifying participation,  including interest on loans to acquire
or capitalize a subsidiary, are not deductible for Dutch corporate tax purposes.

         The following cumulative conditions must be met in order to qualify for
the participation exemption:

         1.       The subsidiary must have a capital devided into shares.

         2.       The Dutch  company must own at least 5% of the nominal paid up
                  capital of a subsidiary.  A smaller holding may qualify if the
                  shares are held for business purposes.



                                     -106-
<PAGE>

         3.       The shares of the  subsidiary,  will not be held for inventory
                  purposes only.  This  exclusion is an anti abuse  provision to
                  exclude the trade in shelf  companies  from the  participation
                  exemption  and does  generally  not  apply  if the  subsidiary
                  carry's on an active business.

         If the  subsidiary is a non-resident  company the following  additional
conditions must be met:

         4.       The  subsidiary  must be  subject to a profit  tax,  levied at
                  federal level,  by the state of its resinence,  which ever the
                  tax rate.

         5.       The shares of the  subsidiary  must not be held as a portfolio
                  investmnet,   which  includes  shareholdings  in  non-resident
                  passive group companies.  Shareholdings in operating companies
                  and sub-holding companies operating companies,  generally meet
                  this condition. For qualifying EU subsidiaries, this condition
                  is met automatically, subject to an anti-abuse rule.

         WE STRONGLY  ADVISE THAT YOU CONSULT YOUR TAX ADVISORS IN REGARD TO TAX
ISSUES,  INCLUDING  ISSUES RELATING TO PFIC, WHICH MAY AFFECT YOUR INVESTMENT IN
EMI.

DOCUMENTS ON DISPLAY

         EMI is  subject to the  informational  requirements  of the  Securities
Exchange Act of 1934, as amended.  In accordance  with these  requirements,  EMI
files annual  reports with and furnishes  other  information  to the SEC.  These
materials,  including  this  annual  report  and  the  exhibits  hereto,  may be
inspected  and copied at the SEC's Public  Reference  Room at 450 Fifth  Street,
N.W.,  Washington,  D.C.  20549  and at the  SEC's  regional  office at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of the materials may
be obtained from the Public Reference Room of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The public may obtain information on
the  operation  of the SEC's  Public  Reference  Room by calling  the SEC in the
United States at 1-800-SEC-0330.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS.

1.       EXCHANGE RATE EXPOSURE

         (a) The Shopping and Entertainment Mall business: The main transactions
(revenues and construction costs/expenditures) and balances (mainly, loans which
financed  the malls,  both active and under  construction)  of  companies in our
shopping and  entertainment  mall  business,  which are  measured as  autonomous
entities,  are  linked,  mainly,  to  foreign  currencies  which  are not  their
functional  currency.  Consequently,  there is an  exposure to  fluctuations  in
exchange  rates  of those  currencies  (mainly  the  Euro)  in  relation  to the
functional  currency  of each  project  company.  Such  fluctuations  may have a
material  adverse effect on the Company's  results of operations.  The extent of
such exposure depends primarily on the differences between the time of revenues'
generation and the time of expenses'  generation,  on the difference between the
time of the  execution  of the  transactions  and the time of the receipt of the
consideration therefore, and on the fluctuations between the EURO and each local
currency. Each company does not activity hedge against the fluctuations in these
currencies  in  relation  to their  functional  currency.  However,  in order to
minimize the exposure to the effects of the  fluctuation in the rate of exchange
as  mentioned  above,  the  Company  adopted a policy  to  obtain  loans for the
financing of the acquisition of the plots of land and the  constructions  of the
malls, in the same currency that future lease income is denominated.

         (b) Hotel Division:  The main transactions and balances of companies in
our hotel division,  which are measured as autonomous entities,  are denominated
or linked to the  functional  currency of each company.  As of December 31, 2002
and for the year then ended,  the company did not have any significant  exchange
rate  exposure  in the hotel  division,  except for the  divisions'  activity in
Romania.



                                     -107-
<PAGE>

         (c) General Monetary Assets and Liabilities: The functional currency of
the Company is the NIS. The Company (on a  consolidated  basis with Elscint) has
monetary assets and monetary liabilities in substantial amounts,  denominated or
linked  to  other  currencies,   and  is  therefore  exposed  to  a  substantial
devaluation of the NIS,  especially in relation to the U.S.  dollar,  and to the
EURO,  Further details of the Company's foreign currency exposure as of December
31, 2002,  are set forth in Table I below.  The Company does not actively  hedge
against fluctuations in the NIS in relation to these currencies.

         For the rate of exchange between the relevant main currencies, see Note
2L and Note 24A to the financial statements included in item 18 below.

2.       EXPOSURE TO THE NET INVESTMENT VALUE OF FOREIGN ENTITIES

         The Company's subsidiaries that operate outside of Israel and which are
autonomous entities, prepare their financial statements in the currency of their
country of residence  which is also their  functional  currency.  Such financial
statements  were  translated  into the  functional  currency  of  their  holding
company, according to the exchange rate prevailing as at the balance sheet date.
Differences  between (i) the holding  companies'  investments  in the  investees
(including  monetary  balances  with a nature  of  investments),  based on their
functional currency;  and (ii) the holding companies' share in the shareholders'
equity of these investees, determined in their local currency (translated to the
functional  currency of the  holding  companies),  are  charged  directly to the
shareholders' equity of the Company.

         The Company's  exposure to  fluctuations  in exchange  rates of foreign
currencies,  as  above-mentioned,  in relation to the functional currency of the
holding  companies is reflected  only by the value of the net  investment in the
autonomous entities (capital and loans with a nature of investments).

         Further  details  of the  Company's  foreign  currency  exposure  as of
December 31, 2002, regarding  investments in foreign entities,  are set forth in
Table I below.

         The Company  does not  actively  hedge  against the exposure to the net
investment value of the foreign  entities,  except for certain  investments that
are financed by bank loans  denominated  in the same currency of the  functional
currency of the investee - see below.

         A  decrease/increase   in  the  value  of  foreign  currencies  of  the
autonomous  entities in relation to the holding companies'  functional  currency
(other than where the investment was financed in the functional  currency of the
autonomous  entity)  may  therefore  have a  negative/  positive  impact  on the
Company's shareholders equity.

         In addition,  the Company's exposure to the foregoing  fluctuations has
an impact  on the  extent  of the  assets,  liabilities  and  operations  of the
autonomous companies, as reflected in the Company's financial statements, and on
the  date-to-date  and  period-to-period  comparison of the company's  financial
statements.

         For the rate of exchange between the relevant main currencies, see Note
2L and Note 24A to the financial statements included in item 18 below.

3.       RATE OF INFLATION

         Exposure to  fluctuations in the rates of inflation in the countries in
which the Company and/or its subsidiaries  operates: The group companies prepare
their  financial  statements in real terms,  so that  non-monetary  items (e.g.,
fixed assets and  inventory)  are  presented on the basis of cost as adjusted to
the change in the CPI of each country of  residence,  while  monetary  items are
presented  at their  nominal  value.  Therefore,  any rate of  inflation  with a
positive  amount in respect to each reporting  entity with an excess of monetary
liabilities (which have been assumed in order to finance the construction and/or
acquisition of non-monetary  assets,  mainly in the commercial  centers business
and in the hotel  division) over monetary  assets,  has a positive impact on the
results  of  operations  of the  Company,  while  any rate of



                                     -108-
<PAGE>

inflation with a positive  amount in respect to each reporting  entity,  with an
excess of monetary assets over liabilities, has a negative impact on the results
of operations of the Company.

         The Company does not actively  hedge  against the  fluctuations  in the
rate of inflation.

         As mentioned in Note 2 to the financial  statements included in Item 18
below, new accounting standards were issued during the year 2001 and thereafter,
in  respect  of the  ceasing  of the  adjustments  of  financial  statement  for
inflation and in respect of the effect of changes in foreign  currency  exchange
rates in effect,  which standards will enter into force,  commencing  January 1,
2004. The management of the Company and its  subsidiaries  cannot at this stage,
asses the impact of these standards on the companies'  results of operation,  in
the periods commencing January 1, 2004.  However,  the management of the Company
is of the  opinion  that  the  results  of  operations  of the  Company,  may be
substantially affected, as a result of implementation of the above standards, in
comparison to the  measurement  principle that are in effect during the reported
period ending December 31, 2003, inclusive.

         Further  details about the Company's rate of inflation  exposure on net
monetary  assets/liabilities,  as at December 31, 2002, are set forth in Table I
below.

         As to the rate of inflation  see Note 2L and Note 24A to the  financial
statements included in Item 18 below.

4.       INTEREST RATE RISKS

         The Company and its  subsidiaries  finance some of their  activities by
means of credit in  foreign  currencies  (mainly  in U.S.  dollar  and Euro) and
maintain its monetary assets in bank deposits (namely,  in U.S. dollars).  Parts
of the credit and the  deposits  are  obtained at or invested in fixed  interest
rate while the major part is provided  at variable  rates (see Table III below).
The changes in interest  rates in the  countries  in which the Company  operates
affect its results of operations and its future cash flows. The company does not
actively  hedge  against  the  impact  of the  interest  rate  risks  on its net
momentary assets/liabilities.

5.       CREDIT RISKS

         Cash, cash  equivalents and bank deposits are maintained with reputable
banks.  In the  commercial  centers  business  and in the  hotel  division,  the
services and sales are rendered to a large  numbers of  customers,  and thus the
Company is not significantly  exposed to credit risks arising from dependence on
any customer. See also Note 24d to the financial statements in item 18.

         In relation to anchor  tenants,  see "Item 3 - Key  Information  - Risk
Factors - Risk Relating to the Shopping and Entertainment Malls Business".

6.       EQUITY PRICE RISK

         As to the Company's  liability towards Triple-S which is subject to the
market price of the Company's  shares,  immediately  prior to January 15, 2004 -
see  note  19c to the  financial  statements  included  in Item  18.  As for the
differences  between Israeli and U.S. GAAP regarding this issue - see subsection
A 17 of Note 26 to the financial statements included in Item 18.

7.       MARKETABLE SECURITIES

         As for composition of the short and long-term investment portfolio- see
Note 4 and  Note  8 to the  financial  statements  included  in  Item  18.  Such
investments are exposed to market-price fluctuation,  with the Group affected by
fluctuation of the capital markets over which the Group has no control.



                                     -109-
<PAGE>


8.       HOLDINGS IN VENTURE CAPITAL INVESTMENTS

         As to exposures relating to venture capital investments,  see "Item 3 -
Risk Factors - Risks  relating to EMI's holdings in venture  capital  operations
and Elscint's investments in bio-technology companies."

9.       RENT INCOME FROM SHOPPING AND ENTERTAINMENT MALLS

         As to  risks  relating  to the  market  price of  lease  of  spaces  in
commercial  centers  - See  "Item  3 - Key  Information  - Risk  Factors  - Risk
Relating to the Shopping and Entertainment Malls Business".

10.      ADDITIONAL MARKET RISK

         The Company  engages in derivative and financial  trading  instruments.
The results of such activities,  and the value of assets and liabilities arising
therefrom, are affected by the volatility in foreign exchange rates and interest
rates. Changes in foreign exchange rates and interest rates in Israel and abroad
may  significantly  affect the financial  results of the Company and its assets,
liabilities,  equity  capital and cash flow,  as a result of the  aforementioned
derivative and financial instruments trading activity.

         The highest  balance at open positions of derivatives for currency sale
and purchase during 2002 was NIS 753 million.

         It  should  be noted  that due to the  extensive  volatility  of global
financial   markets,   foreign   exchange  and  interest  rate  trading  involve
significant risks, mainly in the short term.

         For currency  transactions  outstanding  as at December  31, 2002,  see
Table II - Derivative contracts on foreign exchange rates below.

11. FAIR VALUE OF FINANCIAL INSTRUMENTS

         EMI's and its  subsidiaries'  financial  instruments  include  monetary
assets (cash and cash equivalents,  short and long-term deposits, trade accounts
receivables,  marketable  securities  as well as other  receivables  and current
assets) and monetary liabilities (short-term borrowings,  long-term liabilities,
trade accounts payables as well as payables and other current liabilities).  Due
to the nature of the financial  instruments  included in working capital,  their
fair values approximate those presented in the balance sheet.

         It is difficult to estimate the fair value of many  accounts as well as
notes  receivable  bearing  different  maturity  dates and interest rates in the
different countries in which the Group companies are active.  Nevertheless,  the
Group companies'  management estimates that the fair value of these accounts and
notes is not lower than their book value.

         The fair value of long term trade  accounts  receivable,  deposits  and
other long-term  liabilities is ordinarily  based on the present value of future
receipts and  disbursements,  discounted by the interest rate  applicable to the
Company's lending or borrowing  activities under similar terms as of the balance
sheet date,  and it is not  materially  different  than the one presented in the
financial statements.

         As  for  the  presentation  of  long-term  balances  not  under  market
conditions - see Note 2J to the financial statements included in Item 18.

         Derivative  financial  instruments having an active market, were valued
based on market value.

         Assets  included  among long term  investments  that their market value
differ from their carrying amount are as follows:



                                     -110-
<PAGE>

                                         ---------------------------------------
                                                   December 31, 2002
                                         ---------------------------------------
                                                   NIS (in millions)
                                         ---------------------------------------
                                         Carrying amount          Market value
                                         -------------------- ------------------
Elscint (see Note 10 B. (6) (*))              517.7                  179.5
VCON (see Note 10 A. (1) (b) (*))              19.0                   6.0
                                         -------------------- ------------------

         (*) to the financial statements

TABLE I - FOREIGN CURRENCY RISKS

         The table below provides  information as at December 31, 2002 regarding
the  Company's  financial  assets and  liabilities  (including  - inter  company
balances) denominated or linked to foreign currencies (other than the functional
currency):

NIS (IN MILLIONS)

<TABLE>
<CAPTION>
                                                                    BRITISH (POUND                                 HUNGARIAN
FUNCTIONAL CURRENCY(1):              ISRAELI SHEKELS (NIS)             STERLING)             EURO (EURO)             FORINT
                                   $       (EURO)  (POUND)  UN-     (EURO)   UN-     $      HUF   (POUND)   UN-      (HUF)
LINKAGE CURRENCY(3)                                        LINKED          LINKED                          LINKED    (EURO)
                               ----------------------------------------------------------------------------------------------
<S>                              <C>        <C>        <C>      <C>   <C>     <C>    <C>      <C>      <C>    <C>     <C>
CURRENT ASSETS:
Cash and cash equivalents          81         63       -       13      -       5      2        -      -        7         -
Short-term deposits and
 investments                      592          -       -       32      -       1     22        -      -       29         7
Trade Receivables                   -          -       -        -      -       8      -        -      -        9         -
Other receivables and other
 debit balances                     -          -       -       12      -       5     24        -      1       24         -
Inventories                         -          -       -        -      -       -      -        -      -        -         -
                                  673         63       -       57      -      19     48        -      1       69         7
LONG-TERM INVESTMENTS AND
 RECEIVABLES:
Deposits, loans and
 long-term receivables            262          -       -       45      -       -     26        -      -       18         8
Investments in investees and
 others companies:
  Shares                           17        344       -    1,135      -       -     51      544    (38)     222         -
  Loans                           971        141      91       20      -       -    920        -     74      305        49
FIXED ASSETS
Other assets and deferred
 expenses
Assets related to
 discontinued operations          101          4       -        9      -       -      -        -      -        -         -
                                1,351        489      91    1,209      -       -    997      544     36      545        57
TOTAL ASSETS                    2,024        552      91    1,266      -      19  1,045      544     37      614        64
                               ==============================================================================================
CURRENT LIABILITIES:
Short-term borrowings             838(4)(7)  187(5)   79(5)    19      -      83    120(4)     -      -       70         -
Suppliers and services
  providers                         -          -       -        1      -      11      -        -      -       10         -
Other payables and
  credit balances                  20          1       -       52      -      24      2        -      -       39         5
                               ----------------------------------------------------------------------------------------------
                                  858        188      79       72      -     118    122        -      -      119         5
                               ----------------------------------------------------------------------------------------------
LONG-TERM LIABILITIES:
 Group companies                   25         10       -       11    177      74  1,626        -     91       89       176
 Others                           355(4)       -       -        3      -     255     16        -      -      106     1,215(6)
Liabilities relating to
 termination of employment          -          -       -        1      -       -        -      -      -        -         -
Liabilities relating to
 discontinued operations           99         10       -        3      -       -        -      -      -        -         -
                               ----------------------------------------------------------------------------------------------
                                  479         20       -       18    177     329      1,642    -     91      195      1,391
                               ----------------------------------------------------------------------------------------------
 MINORITY INTEREST
 SHAREHOLDERS' EQUITY
 TOTAL LIABILITIES AND
  EQUITY-BASED RIGHTS           1,337        208      79       90    177    447      1,764     -     91     314       1,396
                               ==============================================================================================
 TOTAL ASSETS LESS
   LIABILITIES AND
   EQUITY-BASED RIGHTS (8)        687        344      12    1,176   (177)  (428)    (719)    544    (54)    300      (1,332)
                               =============================================================================================

FUNCTIONAL CURRENCY(1):                            ROMANIAN             RECONCI-
                                    POLISH ZLOTY     LEI     OTHER(2)   LIATION
LINKAGE CURRENCY(3)                     (PLZ)       (ROL)               FOR CONSOL-
                                    $        (EURO)    $                IDATION    TOTAL
                               --------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents           -          -       2       42           -        215
Short-term deposits and
 investments                        -          -       -        8           -        691
Trade Receivables                   -          -       -       37           -         54
Other receivables and other
 debit balances                     -          -       -       49         (48)        67
Inventories                         -          -       -        -           3          3
                               --------------------------------------------------------------
LONG-TERM INVESTMENTS AND           -          -       2      136         (45)     1,030
 RECEIVABLES:
Deposits, loans and
 long-term receivables              -          -       -       38         (42)       355
Investments in investees and
 others companies:
  Shares                            -          -       -      (16)     (2,156)       103
  Loans                             -          -       -      124      (2,695)         -
FIXED ASSETS                                           -    4,170       4,170
Other assets and deferred
 expenses                                              -       74          74
Assets related to
 discontinued operations            -          -       -        -           -        114
                                    -          -       -      146        (649)     4,816
                               --------------------------------------------------------------
TOTAL ASSETS                        -          -       2      282        (694)     5,846
                               ==============================================================
CURRENT LIABILITIES:
Short-term borrowings               -          1     133        -         134     1,664
Suppliers and services
  providers                         -          -       -       75           -        97
Other payables and
  credit balances                   -          -       1       43         (10)      177
                               --------------------------------------------------------------
                                    -          1     134      118         124     1,938
                               --------------------------------------------------------------

LONG-TERM LIABILITIES:
 Group companies                   50        220      53      108      (2,710)        -
 Others                           247(6)      37(6)    -       76         (93)    2,217
Liabilities relating to
 termination of employment          -          -       -        -           -         1
Liabilities relating to
 discontinued operations            -          -            -  -            -       112
                               --------------------------------------------------------------
                                  297        257         53  184       (2,803)    2,330
                               --------------------------------------------------------------
 MINORITY INTEREST                                                        496       496
 SHAREHOLDERS' EQUITY                                                   1,082     1,082
 TOTAL LIABILITIES AND
  EQUITY-BASED RIGHTS             297        258        187  302       (1,101)    5,846
                               ==============================================================
 TOTAL ASSETS LESS
   LIABILITIES AND
   EQUITY-BASED RIGHTS (8)       (297)      (258)       (185) (20)        407        0
                               ==============================================================

</TABLE>


                                     -111-
<PAGE>

FOOTNOTES:

(1)  Adjusted to the CPI in the state of residence.
(2)  Includes  linkage  currencies  which total  financial  assets or  financial
     liabilities that are denominated  therein or linked thereto,  do not exceed
     5% of total financial assets or financial  liabilities,  respectively (on a
     consolidated basis).
(3)  As for  investments in investees - "linkage  currency" means the functional
     currency  of each  investee.  As for  loans  with  nature of  investment  -
     "linkage  currency"  means the currency that the loan is  denominated in or
     linked to.
(4)  Loans  totaling - as at December 31, 2002 -  approximately  NIS 526 million
     (mainly,  granted to companies  which  functional  currency is the NIS) are
     linked to the U.S.  Dollar,  the  effect  of  exchange  rates on which,  is
     attributed  to cost of  assets  under  construction  during  the  period of
     construction  (anticipated completion by 2003-2004). As for the differences
     between Israeli and U.S. GAAP in respect of capitalization of exchange rate
     differences  (in  real  term)  - see  subsection  A 12 of  Note  26 to  the
     financial statements included in Item 18 below.
(5)  Mainly,  loans  which have been taken in order to hedge  value  (accounting
     recognizable) of net investment (including loans of capital nature) made in
     these  currencies,  the  exchange  rate  fluctuations'  impact  of which is
     charged directly to the  shareholders'  equity and not to the statements of
     operations (see subsection 2 above).
(6)  The loans are  generally  linked to the  currencies in which rental fees of
     the  shopping  centers  (the  construction  of which such  loans  served to
     finance) are denominated in or linked to (for financial  hedging purposes -
     accountancy  non-recognizable).  As for the  implementation  of  SFAS  133,
     according to U.S.  GAAP - see  subsection  A18 of Note 26 to the  financial
     statements included in Item 18 below.
(7)  Including  liabilities  in the  amount of NIS 22  million  which  value may
     decrease  parallel  to the  increase in the market  value of the  Company's
     shares - See Note 19c.  to the  financial  statements  included  in Item 18
     below.
(8)  Comprised as follows (9)

<TABLE>
<CAPTION>
                                                             BRITISH (POUND                                           HUNGARIAN
FUNCTIONAL CURRENCY(1):       ISRAELI SHEKELS (NIS)             STERLING)                     EURO                      FORINT
                            $       EURO    POUND   UN-      EURO        UN-       $       HUF     POUND     UN-         (HUF)
LINKAGE CURRENCY(3)                                 LINKED              LINKED                               LINKED      EURO
                        -----------------------------------------------------------------------------------------------------------
<S>                      <C>        <C>       <C>  <C>        <C>         <C>      <C>       <C>      <C>        <C>     <C>
Net Monetary
items, (10)             (276)(7)   (131)(5)  (79)     32         -        (353)     (64)       -        -       (138)    (1,206)(6)
Intercompany
balances
  (loans with
  nature of
  investment)(11)        946(4)     130       91       9      (177)        (75)    (706)(4)    -        -       216       (126)
Investments in
investees shares(11)      17        345        -   1,135         -           -       51      544      (16)       222          -
Non-monetary items         -          -                -         -           -        -        -      (38)         -          -
                        ------------------------------------------------------------------------------------------------------------
                         687        344       12   1,176      (177)       (428)    (719)     544      (54)       300     (1,332)
                        ============================================================================================================


FUNCTIONAL CURRENCY(1):                     ROMANIAN             RECONCI-
                             POLISH ZLOTY      LEI    OTHER(2)   LIATION
LINKAGE CURRENCY(3)              (PLZ)        (ROL)              FOR CONSOL-
                             $         EURO     $                IDATION    TOTAL
                        --------------------------------------------------------------
Net Monetary
items, (10)                (247)(6)   (38)(6) (132)   (20)(5)      (121)    (2,773)
Intercompany
balances
  (loans with
  nature of
  investment)(11)           (50)     (220)     (53)    16            15         16
Investments in
investees shares(11)          -         -        -    (16)       (2,156)       126
Non-monetary items            -         -        -      -         2,669      2,631
                        ------------------------------------------------------------
                           (297)     (258)    (185)   (20)          407          -
                        ============================================================

</TABLE>

(9)  The above table includes items of Elscint (61.53% owned by the Company), as
     follows:



                                     -112-
<PAGE>

<TABLE>
<CAPTION>
                                                           BRITISH (POUND                         ROMOAN-         RECONCI-
FUNCTIONAL CURRENCY(1):        ISRAELI SHEKELS (NIS)          STERLING)              EURO           IAN           LIATION
                           $      EURO    POUND     UN-     EURO    UN-       $    (POUND)  UN-     LEI   OTHER   FOR CONSOL-
LINKAGE CURRENCY(3)                               LINKED           LINKED                  LINKED  (ROL)   (2)    IDATION     TOTAL
                        -----------------------------------------------------------------------------------------------------------
<S>                        <C>   <C>        <C>      <C>     <C>    <C>       <C>    <C>     <C>    <C>    <C>      <C>      <C>
Net monetary items(10)      170   (176)(5)  (79)(5)   26       -    (355)      24      -     (102)  (131)  (12)       -       (635)
Intercompany balances
  (loans with nature
  of investment)(11)        533    198       91        -    (177)    (74)    (487)   (17)      (1)   (37)  (29)       -          -
Investment in investees'
  shares(11)                 17   (259)       -       42       -       -        -    (38)       -      -    (4)     275         33
Net non-monetary items        -      -        -        -       -       -        -      -        -      -     -      602        602
                         -----------------------------------------------------------------------------------------------------------
        Total               720   (237)      12       68    (177)   (429)    (463)   (55)    (103)  (168)  (45)     877          -
                         ===========================================================================================================

</TABLE>

(10) The impact of exchange rates exposure and inflation  adjustments  exposure,
     on net monetary items, is charged directly to the statements of operations.

(11) The impact of exchange rates exposure on these items is charged directly to
     the shareholders equity and not to the statements of operations.

(12) Exchange rates:
<TABLE>
<CAPTION>
                                                       BRITISH                                                           1,000,000
                                                        POUND                              HUNGARIAN                      ROMANIAN
                                                       STERLING                              FORINT     POLISH ZLOTY         LEI
FUNCTIONAL CURRENCY:       ISRAELI SHEKELS (NIS)        POUND            EURO                (HUF)        (PLZ)             (ROL)
---------------------   ----------------------------   ------- ---------------------------  --------  -----------------   ---------
LINKAGE CURRENCY:          $       (EURO)    (POUND)    (EURO)     $         HUF 1,000       (EURO)   (EURO)        $        $
---------------------   -------    -------   -------   -------  -------      ----------     --------  ------      ------  ---------
DECEMBER 31:

<S>                     <C>        <C>       <C>       <C>      <C>           <C>            <C>      <C>         <C>        <C>
 May 30, 2003            4.373      5.176     7.209     0.718    0.845         4.001         249.38    3.71        4.39       31.40
                        =======    =======   =======   =======  =======       =======       ========  ======      ======  ==========

 December 31, 2002       4.737      4.969     7.633     0.652    0.952         4.239         235.9     3.84        4.02       33.50
                        =======    =======   =======   =======  =======       =======       ========  ======      ======  ==========

 December 31, 2001       4.416      3.908     6.400     0.611    1.135         4.060         246.3     3.99        3.52       31.60
                        =======    =======   =======   =======  =======       =======       ========  ======      ======  ==========

</TABLE>



(12) Changes in the CPI (in effect)
<TABLE>
<CAPTION>
                          -------------- -------------- -------------- -------------- -------------- -------------- --------------
                             ISRAEL         BRITAIN        HOLLAND        BELGIUM        HUNGARY        POLAND         ROMANIA
                          -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S>                        <C>            <C>            <C>            <C>            <C>            <C>            <C>
March 31, 2003                0.78           0.78           1.94           1.42           2.93           0.80           3.20
                          ============== ============== ============== ============== ============== ============== ==============
December 31, 2002             6.49           2.94           3.24           1.37           5.00           0.69           17.80
                          ============== ============== ============== ============== ============== ============== ==============
December 31, 2001             1.40           1.28           4.45           2.18           6.90           3.61           30.30
                          ============== ============== ============== ============== ============== ============== ==============
December 31, 2000             0.00           2.93           2.89           2.49           10.13          8.90           40.70
                          ============== ============== ============== ============== ============== ============== ==============

(13) Changes in the exchange rates (in effect)

---------------------- --------------------- ---------- --------------- ----------- --------------------- ------------------------
FUNCTIONAL CURRENCY
                                              BRITISH                    HUNGARIAN
                         ISRAELI SHEKELS      POUND                       FORINT                             1,000,000 ROMANIAN
                              (NIS)           STERLING         EURO        (HUF)     POLISH ZLOTY (PLZ)          LEI (ROL)
---------------------- ------ ------- ------ ---------- --------------- ----------- ------- ------------- ------------------------
Linkage Currency         $     Euro   Pound    Euro        $     HUF      (Euro)      $       (Euro)                   $
                                                                 1000

May 30, 2003           (7.68)   4.10   (5.55)   10.12   (11.23) (5.61)     5.71      3.39       9.2               (6.29)
                       ====== ======= ====== ========== ======= ======= =========== ======= ============= ========================

December 31, 2002       7.27   27.18   19.27     6.71   (16.12)  4.41     (4.23)    (3.76)     14.20               6.01
                       ====== ======= ====== ========== ======= ======= =========== ======= ============= ========================

December 31, 2001       9.28    3.85   6.10     (1.86)    5.40   7.58     (7.02)    (3.80)     (9.00)                -
                       ====== ======= ====== ========== ======= ======= =========== ======= ============= ========================

</TABLE>


TABLE II - DERIVATIVE CONTRACTS ON FOREIGN EXCHANGE RATES

         The  following  table  presents a summery of the currency  transactions
outstanding at December 31, 2002:

         (1)      Forward transactions:

--------------------- ----------------- ------------------- -------------------
                                                            FAIR VALUE AS
AMOUNTS RECEIVABLE    AMOUNTS PAYABLE   SETTLEMENT DATE     OF 31/12/02
(IN MILLIONS)         (IN MILLIONS)                         (IN MILLIONS)
--------------------- ----------------- ------------------- -------------------
31.0 Dollars          3,839.0 YEN       January 2003        (5.2)
--------------------- ----------------- ------------------- -------------------

         (2).     Certain short term,  non-hedging  currency  transaction,  in a
                  total amount of $8 million which were concluded up to the date
                  of the approval of the financial  statements.  Results of such
                  transactions are immaterial to the company's business.



                                     -113-
<PAGE>

         (3).     As to foreign currency loans,  assumed for accounting  hedging
                  purposes  - see Table I  footnote  (5)  above;  As to  foreign
                  currency  loans assumed for economical  hedging  purposes- see
                  Table I footnote (6) above.

TABLE III - INTEREST RISKS

         The following table presents a summery of balances classified according
to interest rate, at December 31, 2002:

1.       LONG TERM LOANS AND DEPOSITS - (IN MILLIONS NIS)

<TABLE>
<CAPTION>
------------------------------------------------- -------------------------------------------------------------------
                                                                           REPAYMENT YEARS
------------------------------------------------- -------------------------------------------------------------------
   FUNCTIONAL        LINKAGE     INTEREST RATE %     1       2     3       4       6 AND      NOT YET       TOTAL
    CURRENCY         CURRENCY                                                    THEREAFTER  DETERMINED
------------------ ------------- ---------------- -------- ------ ----- -------- ----------- ------------ -----------
<S>                <C>           <C>                <C>   <C>     <C>     <C>     <C>            <C>       <C>

EURO               US Dollar            -                                  8                     16 (2)       24

EURO               US Dollar       Libor +2.0                3      4      4                                  11 (3)

EURO               US Dollar         6.7 (1)        20                                            1           21

EURO               EURO              4.0 (1)                                                      6            6
                                 (average rate)

Hungarian Forint   Hungarian       Bubor -3.0                                                    39           39
                   Forint            (7.0%)

Hungarian Fotint   EURO            Libor -1.5                                                     2            2

Polish Zloty       Polish Zloty                                                                   2            2

Adjusted NIS       US Dollar       Libor - 0.7                                                  261 (4)      261

Adjusted NIS       US Dollar       Libor + 2.0       3                                                         3

Adjusted NIS       Adjusted NIS         -                          14                                         14
------------------ ------------- ---------------- -------- ------ ----- -------- ----------- ------------ -----------
                                                    23       3     18     12         -           327         383
================== ============= ================ ======== ====== ===== ======== =========== ============ ===========
</TABLE>

(1) Fixed Interest.
(2) See note 8A(2) to the financial statements included in Item 18.
(3) See Note 10A (2) to the financial  statements included in Item 18.
(4) In order to secure loans at the same amount - see 2 below.

2.       LONG TERM LOANS - (IN MILLIONS NIS)

<TABLE>
<CAPTION>
                                             AVERAGE
 FUNCTIONAL   LINKAGE                       INTEREST
  CURRENCY    CURRENCY  INTEREST RATE %      RATE %                                   REPAYMENT YEARS
------------- --------- ----------------- -------------- ------------------------------------------------------------------------
                                                                                                 6 AND       NOT YET
                                                           1       2       3       4       5     THEREAFTER  DETERMINED   TOTAL
------------- --------- ----------------- -------------- ------- ------- ------- ------- ------- ----------- ----------- --------

<S>           <C>       <C>                <C>           <C>      <C>     <C>     <C>     <C>      <C>                   <C>
EURO          EURO      4.9-5.0 (1)                        4       5       5       5       5         87                    111

                         Euribor
EURO          USD       +1.5-2.2               3.8                 16                                                      16

Hungarian
Forint        EURO      5.8-6.6 (2)                        12      9       10      10      11        75                    127

Hungarian               Euribor +
Forint        EURO      1.4-2.1              4.8-5.6       53      45      47      49      52       826                   1,072

Polish Zloty  EURO      Euribor + 1.9-2        5.7         16      19      19      20      20       152                    246

              US
Polish Zloty  Dollar    7 (2)                                                                        18                    18



                                     -114-
<PAGE>

              US
Polish Zloty  Dollar    Libor + 1.9-2          3.7         1       1       1       1       1         14                    19

              UK
UK     Pound  Pound

Sterling      Sterling  Libor + 1.3-1.4        5.4         14      13      13      13      14       202                    269

              US
Adjusted NIS  Dollar    Libor + 2.0-2.5        4.4         52      20                                                      72

              US
US Dollar     Dollar    Libor + 3.0            5.0         -       5                                                        5

              US
Adjusted NIS  Dollar    Libor                  2.4                                                            261 (3)      261
------------- --------- ----------------- -------------- ------- ------- ------- ------- ------- ----------- ----------- --------
                                                          152     133      95      98     103      1,374        261       2,216
============= ========= ================= ============== ======= ======= ======= ======= ======= =========== =========== ========
</TABLE>

(1) Fixed interest of 4.9% up to March 2004 and thereafter  Euro Swap + 1.2.
(2) Fixed Interest.
(3) Are secured by deposits at the same amount.  The margin between the interest
    rate in the loan and on the deposit - is 0.7% - see 1 above.

3.       SHORT  TERM  CASH AND  DEPOSITS  - see  notes 3 and 4 to the  financial
         statements included in Item 18.

4.       SHORT TERM LOANS - see note 13 to the financial  statements included in
         Item 18.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

         Not applicable.

                                     PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

         None.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
         PROCEEDS

         Not applicable.

ITEM 15. CONTROLS AND PROCEDURES

         We maintain  disclosure  controls and  procedures  that are designed to
ensure that  information  required to be disclosed in our periodic  filings with
the SEC is recorded, processed,  summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and  communicated  to  our  management,  including  our  President  (our  senior
executive  officer) and Chief Financial Officer (CFO), as appropriate,  to allow
timely decisions regarding required disclosure.  In designing and evaluating the
disclosure controls and procedures,  management recognized that any controls and
procedures,  no  matter  how  well  designed  and  operated,  can  provide  only
reasonable  assurance of achieving the desired control objectives.  Furthermore,
management  necessarily  was required to use its judgment in evaluating the cost
to benefit  relationship of possible disclosure controls and procedures.  Within
90 days prior to the date of this  report,  we performed  an  evaluation  of the
effectiveness  of the  design  and  operation  of our  disclosure  controls  and
procedures.  The  evaluation  was  performed  with the  participation  of senior
management of each business segment and key corporate  functions,  and under the
supervision of the President and CFO. Based on the  evaluation,  our management,
including the  President and CFO,  concluded  that our  disclosure  controls and
procedures  were  effective.  There  have  been no  significant  changes  in our
internal controls or in other factors that could  significantly  affect internal
controls after the date we completed the evaluation.



                                     -115-
<PAGE>

ITEM 16. [RESERVED]

                                    PART III

ITEM 17. FINANCIAL STATEMENTS









                                     -116-

<PAGE>

ITEM 18. FINANCIAL STATEMENTS





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

                           ELBIT MEDICAL IMAGING LTD.
                              FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 2002
-------------------------------------------------------------------------------




                                    CONTENTS

                                                                            PAGE

INDEPENDENT AUDITORS' REPORTS                                                2

CONSOLIDATED FINANCIAL STATEMENTS:

   Balance sheets                                                            3-4
   Statements of operations                                                    5
   Statements of changes in shareholders' equity                               6
   Statements of cash flows                                                  7-9
   Notes to the consolidated financial statements                         10-133
   Report of other auditor










                                      -1-
<PAGE>


                          INDEPENDENT AUDITORS' REPORT

TO THE SHAREHOLDERS OF
ELBIT MEDICAL IMAGING LTD.

We have audited the  accompanying  balance sheets of Elbit Medical  Imaging Ltd.
(the "Company") as of December 31, 2002 and 2001, and the  consolidated  balance
sheets as of those dates and the related statements of operations and changes in
shareholders'  equity  of  the  Company  and on a  consolidated  basis  and  the
consolidated  statement  of cash flows for each of the three years in the period
ended December 31, 2002. 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 certain  consolidated  subsidiaries,  whose  assets  included  in
consolidation,  constitute 50% and 49% of the total  consolidated  assets, as of
December 31, 2002 and 2001,  respectively and whose revenues constitute 46%, 29%
and 14% of total  consolidated  revenues for the years ended  December 31, 2002,
2001 and  2000,  respectively.  In  addition,  we did not  audit  the  financial
statements of  affiliates,  the Company's  investment in which amounts to NIS 57
million as of December  31,  2002,  and the  Company's  share of losses in which
amounts to NIS 7 million for the year then ended.  The  financial  statements of
those  subsidiaries  were audited by other auditors  whose reports  thereon were
furnished to us, and our opinion,  insofar as it relates to the amounts included
for those companies, is based solely on the reports of such other auditors.

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

In our opinion,  based on our audits and the reports of the other auditors,  the
consolidated  financial  statements  referred to above  present  fairly,  in all
material  respects,  the financial position of the Company and on a consolidated
basis as of  December  31,  2002 and 2001,  and the  results of  operations  and
changes in shareholders'  equity - of the Company and on a consolidated  basis -
and  consolidated  cash  flows for each of the three  years in the  period  then
ended, in conformity with generally  accepted  accounting  principles  generally
accepted in Israel. These principles differ in certain significant respects from
accounting  principles  generally accepted in the United States of America.  The
effect of the material  differences  between Israeli and U.S. generally accepted
accounting  principles on the consolidated  financial statements is presented in
Note 26 to the financial statements.

As  described  in Note 2A,  the  financial  statements  have been  presented  in
adjusted  values to  reflect  changes  in the  general  purchasing  power of the
Israeli  currency,  in  conformity  with  pronouncements  of  the  Institute  of
Certified Public Accountants in Israel.

Without qualifying our opinion,  we draw attention to the information  presented
in Note 18B,  regarding claims filed against Group companies.  For some of those
claims petitions have been filed for certification as class actions.

BRIGHTMAN ALMAGOR & CO.
CERTIFIED PUBLIC ACCOUNTANTS
A MEMBER FIRM OF DELOITTE TOUCHE
TOHMATSU
Tel-Aviv, April 8, 2003


                                     - 2 -
<PAGE>


                           ELBIT MEDICAL IMAGING LTD.
                                 BALANCE SHEETS
                        IN THOUSAND NIS OF DECEMBER 2002

<TABLE>
<CAPTION>

                                                           CONSOLIDATED                        COMPANY
                                                 ----------------------------------    ----------------------
                                                                            DECEMBER 31
                                                 ------------------------------------------------------------
                                                    2002         2002        2001(*)       2002         2001
                                                    ----         ----        -------       ----         ----
                                                 CONVENIENCE
                                                 TRANSLATION
                                        NOTE       US$'000                     (IN THOUSAND NIS)
                                        ----     -----------   ----------------------------------------------
<S>                                      <C>       <C>         <C>          <C>           <C>           <C>
CURRENT ASSETS
Cash and cash equivalents                (3)       45,484      215,463      363,623       75,636        5,643
Short-term deposits and
  Investments                            (4)      146,023      691,724      693,823      468,440      490,317
Trade accounts receivable                (5)       11,463       54,303       34,545           --           --
Receivables and other
current Assets                           (6)       14,001       66,323       58,487        4,535        2,692
Inventories                              (7)          665        3,151        3,468           --           --
                                                ---------    ---------    ---------    ---------    ---------
                                                  217,636    1,030,964    1,153,946      548,611      498,652
                                                ---------    ---------    ---------    ---------    ---------

 LONG-TERM INVESTMENTS
     AND RECEIVABLES
Deposits, debentures and
  long-term loans and receivables        (8)       74,805      354,358      399,102          245        1,708
Venture-capital investments              (9)           --           --       64,478           --           --
Investments in investees
and others                              (10)       21,702      102,804       22,638    1,426,053    1,289,816
                                                ---------    ---------    ---------    ---------    ---------
                                                   96,507      457,162      486,218    1,426,298    1,291,524
                                                ---------    ---------    ---------    ---------    ---------

HOTELS, COMMERCIAL
CENTERS AND OTHER FIXED ASSETS          (11)      880,188    4,169,532    2,913,040        2,541        2,835
                                                ---------    ---------    ---------    ---------    ---------

OTHER ASSETS AND DEFERRED
  EXPENSES                              (12)       15,712       74,427       61,760           --           --
                                                ---------    ---------    ---------    ---------    ---------

 ASSETS RELATED TO
   DISCONTINUING OPERATION                         24,094      114,135      203,190          --           --
                                                ---------    ---------    ---------    ---------    ---------

                                                1,234,137    5,846,220    4,818,154    1,977,450    1,793,011
                                                =========    =========    =========    =========    =========
</TABLE>


(*) Reclassified - see Note 23A.

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


                                     - 3 -
<PAGE>


                           ELBIT MEDICAL IMAGING LTD.
                                 BALANCE SHEETS
                        IN THOUSAND NIS OF DECEMBER 2002


<TABLE>
<CAPTION>
                                                      CONSOLIDATED                        COMPANY
                                            ----------------------------------    ----------------------
                                                                       DECEMBER 31
                                            ------------------------------------------------------------
                                               2002         2002        2001(*)       2002         2001
                                               ----         ----        -------       ----         ----
                                            CONVENIENCE
                                            TRANSLATION
                                   NOTE       US$'000                     (IN THOUSAND NIS)
                                   ----     -----------   ----------------------------------------------

CURRENT LIABILITIES

<S>                                 <C>       <C>        <C>          <C>            <C>          <C>
Short-term borrowings               (13)      351,285    1,664,067    1,445,096      803,382      726,250
Trade accounts payable                         20,506       97,141       64,592           --           --
Payables and other current
  liabilities                       (14)       37,329      176,830      133,825       32,153       25,985
                                            ---------    ---------    ---------    ---------    ---------
                                              409,120    1,938,038    1,643,513      835,535      752,235
                                            ---------    ---------    ---------    ---------    ---------

LONG-TERM LIABILITIES
Loans and other long-term
  liabilities                       (15)      468,136    2,217,605    1,474,286       59,985      106,320
Accrued severance pay               (16)          107          507          436           --           78
                                            ---------    ---------    ---------    ---------    ---------
                                              468,243    2,218,112    1,474,722       59,985      106,398
                                            ---------    ---------    ---------    ---------    ---------

LIABILITIES RELATED TO
  DISCONTINUING OPERATIONS                     23,669      112,120      258,731           --           --
                                            ---------    ---------    ---------    ---------    ---------

MINORITY INTEREST                             104,710      496,020      506,810           --           --
                                            ---------    ---------    ---------    ---------    ---------
CONTINGENT LIABILITIES,
  COMMITMENTS, LIENS AND
  SECURITY                          (18)

SHAREHOLDERS' EQUITY                (19)      228,395    1,081,930      934,378    1,081,930      934,378
                                            ---------    ---------    ---------    ---------    ---------


                                            1,234,137    5,846,220    4,818,154    1,977,450    1,793,011
                                            =========    =========    =========    =========    =========
</TABLE>


       /S/ MORDECHAI ZISSER                       /S/ SHIMON ITZCHAKY
-----------------------------------     ----------------------------------------
         MORDECHAI ZISSER                           SHIMON ITZCHAKY
CHAIRMAN OF THE BOARD OF DIRECTORS      CEO AND MEMBER OF THE BOARD OF DIRECTORS

Board of Directors approval date of the financial statements: April 8, 2003.

         The accompanying notes are an integral part of the statements.


                                     - 4 -
<PAGE>

                           ELBIT MEDICAL IMAGING LTD.
                             STATEMENT OF OPERATIONS
                        IN THOUSAND NIS OF DECEMBER 2002
<TABLE>
<CAPTION>

                                                           CONSOLIDATED                                   COMPANY
                                         -----------------------------------------------       -------------------------------
                                                                         YEAR ENDED DECEMBER 31
                                         -------------------------------------------------------------------------------------
                                            2002          2002      2001 (*)     2000 (*)      2002       2001 (*)    2000 (*)
                                            ----          ----      --------     --------      ----       --------    --------
                                         CONVENIENCE
                                  NOTE   TRANSLATION
                                           US$'000                                (IN THOUSAND NIS)
                                                          --------------------------------------------------------------------
                                                                           (EXCEPT FOR EARNINGS-PER-SHARE DATA)
                                                          --------------------------------------------------------------------
<S>                               <C>        <C>        <C>         <C>          <C>         <C>         <C>         <C>
REVENUES
 Commercial-center
   operations                                60,195     285,151     134,752      28,117          --          --          --
Hotel operations and
   management                     (20a)      44,468     210,650     141,901     108,089          --          --          --
 Long-term projects                             325       1,538      10,223      20,367          --          --          --
                                            -------     -------     -------     -------     -------     -------     -------
                                            104,988     497,339     286,876     156,573          --          --          --
                                            -------     -------     -------     -------     -------     -------     -------
COSTS OF REVENUES
 Commercial-center
   operations                     (20b)      32,274     152,887      67,926      12,917          --          --          --
 Hotel operations and
   management                     (20c)      41,673     197,407     128,653      93,050          --          --          --
 Long-term projects               (20d)         300       1,419       7,452      18,245          --          --          --
                                            -------     -------     -------     -------     -------     -------     -------
                                             74,247     351,713     204,031     124,212          --          --          --
                                            -------     -------     -------     -------     -------     -------     -------
 GROSS PROFIT                                30,741     145,626      82,845      32,361          --          --          --
Initiation costs of projects                  3,578      16,949       5,969       2,819          --          --          --
Research and development
  expenses, net                   (20e)       6,122      29,001      24,663      26,566          --          --          --
Marketing and selling
  expenses                        (20f)       6,036      28,591       8,469       2,257          --          --          --
General and
 administrative expenses          (20g)      18,938      89,711      63,456      55,026      19,862      17,253      20,470
                                            -------     -------     -------     -------     -------     -------     -------
                                             34,674     164,252     102,557      86,668      19,862      17,253      20,470
                                            -------     -------     -------     -------     -------     -------     -------
OPERATING LOSS BEFORE
  FINANCIAL INCOME, NET                      (3,933)    (18,626)    (19,712)    (54,307)    (19,862)    (17,253)    (20,470)
Financial income
  (expenses), net                 (20h)      (1,171)     (5,545)    103,510      33,189       7,492      17,783      30,322
                                            -------     -------     -------     -------     -------     -------     -------
OPERATING INCOME (LOSS)
  AFTER FINANCIAL INCOME, NET                (5,104)    (24,171)     83,798     (21,118)    (12,370)        530       9,852
Other income (expenses), net      (20i)       2,045       9,687      34,731     (15,899)     (3,282)     (2,296)     (4,304)
                                            -------     -------     -------     -------     -------     -------     -------
INCOME (LOSS) BEFORE
  INCOME TAXES                               (3,059)    (14,484)    118,529     (37,017)    (15,652)     (1,766)      5,548
Income taxes                       (17)       4,671      22,128      13,857      18,907      10,327          --          --
                                            -------     -------     -------     -------     -------     -------     -------
INCOME (LOSS) AFTER
  INCOME TAXES                               (7,730)    (36,612)    104,672     (55,924)    (25,979)     (1,766)      5,548
Equity in earnings (losses)
 of investee companies, net                    (624)     (2,962)     (9,899)     (3,303)     11,365      90,510     (49,614)
Minority interest in results
  of subsidiaries, net                        5,269      24,960      (6,029)     15,161          --          --          --
                                            -------     -------     -------     -------     -------     -------     -------
INCOME (LOSS) FROM
 CONTINUING OPERATIONS                       (3,085)    (14,614)     88,744     (44,066)    (14,614)     88,744     (44,066)
Income from discontinuing
  operations, net                  (23)      11,780      55,804      19,119      28,341      55,804      19,119      28,341
                                            -------     -------     -------     -------     -------     -------     -------
NET INCOME (LOSS) FOR THE
  YEAR                                        8,695      41,190     107,863     (15,725)     41,190     107,863     (15,725)
                                            =======     =======     =======     =======     =======     =======     =======
EARNINGS (LOSS) PER SHARE         (20j)
 - (in NIS)
Basic EPS:
  From continuing operations                  (0.14)      (0.66)       4.00       (1.99)      (0.66)       4.00       (1.99)
  From discontinuing
    operations                                 0.52        2.50        0.86        1.28        2.50        0.86        1.28
                                            -------     -------     -------     -------     -------     -------     -------
  Earnings (loss) per share                    0.38        1.84        4.86       (0.71)       1.84        4.86       (0.71)
                                            =======     =======     =======     =======     =======     =======     =======
Diluted EPS                                   0.36        1.75        4.08                     1.75        4.08
                                            =======     =======     =======                 =======     =======
</TABLE>


(*) Reclassified - see Note 23A.

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


                                     - 5 -
<PAGE>

                           ELBIT MEDICAL IMAGING LTD.
                  STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                        IN THOUSAND NIS OF DECEMBER 2002
<TABLE>
<CAPTION>
                                                                                                            LOANS TO
                                                                                                            EMPLOYEES
                                                                                                           TO ACQUIRE
                            NUMBER      SHARE   CAPITAL    TRANSLATION   RETAINED              TREASURY      COMPANY
                           OF SHARES   CAPITAL  RESERVES   ADJUSTMENTS   EARNINGS   SUB-TOTAL    STOCK       SHARES       TOTAL
                           ---------   -------  --------   -----------   --------   ---------    -----       ------       -----
                                                                            (IN THOUSAND NIS)
                                       -----------------------------------------------------------------------------------------
<S>                        <C>          <C>        <C>          <C>            <C>            <C>
BALANCE -
 JANUARY 1, 2000           22,940,177   32,775   453,150    (25,834)     470,769    930,860     (41,065)                 889,795
Loss for the year                  --       --        --         --      (15,725)   (15,725)
Foreign currency
  translation
  adjustments                      --       --        --     13,760           --     13,760
Capital reserve with
  respect to transaction
  with a controlling
  party (see Note
  10B.(3)a)                        --       --        --         --     (113,382)  (113,382)
Options exercised and
  debentures converted
  to shares                    31,543       34     1,553         --           --      1,587
                           ----------   ------   -------    -------      -------  ---------     -------        -------     -------
BALANCE -
 DECEMBER 31, 2000         22,971,720   32,809   454,703    (12,074)     341,662    817,100     (41,065)                   776,035
Net income                         --       --        --         --      107,863    107,863
Foreign currency
  translation
  adjustments (*)                  --       --        --     44,389           --     44,389
Issuance of shares to
  employees (see Note
  19B.)                       550,000      586    14,530         --           --     15,116                    (15,116)
Issuance of shares
  (see Note 19C.)             250,000      266     5,825         --           --      6,091
                           ----------   ------   -------    -------      -------  ---------     -------        -------     -------
BALANCE -
 DECEMBER 31, 2001         23,771,720   33,661   475,058     32,315      449,525    990,559     (41,065)       (15,116)    934,378
                           ----------   ------   -------    -------      -------  ---------     -------        -------     -------
Net income                         --       --        --         --       41,190     41,190
Foreign currency
  translation
  adjustments (*)                  --       --        --    106,041           --    106,041
Options exercised               2,000        2        51         --           --         53
Erosion of loans to
  employees                                         (395)        --          268       (127)                       395
                           ----------   ------   -------    -------      -------  ---------     -------        -------     -------

BALANCE -
 DECEMBER 31, 2002         23,773,720   33,663   474,714    138,356      490,983  1,137,716     (41,065)       (14,721)  1,081,930
                           ==========   ======   =======    =======      =======  =========     =======        =======     =======
CONVENIENCE TRANSLATION
 IN US$'000:
BALANCE -
 DECEMBER 31, 2001         23,771,720    7,106   100,285      6,822       94,895    209,108      (8,669)        (3,190)    197,249
Net Income                         --       --        --         --        8,695      8,695
Foreign currency
  translation
  adjustments (*)                  --       --        --     22,385           --     22,385
Issuance of shares to
  employees (see Note
  20C.)
Exercised options               2,000                 10         --           --         10
Erosion of loans to
  employees                                          (83)        --           57        (27)                        83
                           ----------   ------   -------    -------      -------  ---------     -------        -------     -------
BALANCE -
 DECEMBER 31, 2002         23,773,720    7,106   100,212     29,207      103,647    240,171      (8,669)        (3,107)    228,395
                           ==========   ======   =======    =======      =======  =========     =======        =======     =======
</TABLE>

(*)   Net of a write-down, in respect of realization of capital reserves
      (see Notes 10A, 11A and 20I below).

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

                                     - 6 -
<PAGE>

                           ELBIT MEDICAL IMAGING LTD.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                        IN THOUSAND NIS OF DECEMBER 2002

<TABLE>
<CAPTION>

                                                                                           DECEMBER 31
                                                                ------------------------------------------------------------
                                                                   2002            2002            2001(*)          2000(*)
                                                                   ----            ----           -------
                                                                CONVENIENCE
                                                                TRANSLATION
                                                                  US$'000                     (IN THOUSAND NIS)
                                                                -----------   ----------------------------------------------
<S>                                                              <C>             <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                                                   8,695          41,190         107,863         (15,725)
Adjustments to present cash flows from continuing
  operating activities (Appendix A)                               (12,743)        (60,367)        (98,327)        (12,223)
                                                                 --------        --------        --------        --------
Net cash provided by (used in) continuing operating
  activities                                                       (4,048)        (19,177)          9,536         (27,948)
Net cash provided by (used in) discontinuing operating
  activities                                                        3,195          15,135          14,132         (69,772)
                                                                 --------        --------        --------        --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                  (853)         (4,042)         23,668         (97,720)
                                                                 --------        --------        --------        --------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in initially consolidated subsidiaries
  (Appendix C)                                                    (49,132)       (232,741)          3,600        (452,849)
Additions to fixed assets and other assets                        (79,045)       (374,442)       (604,376)       (326,802)
Proceeds from disposition of fixed assets, investments and
  loans                                                             4,205          19,920          23,292         161,531
Investment (including loans) in affiliated companies,
  other companies and venture capital companies                    (2,824)        (13,378)       (127,184)       (150,822)
Repayment of deposits, investments and long-term loans              3,515          16,649           2,624           7,808
Investment in deposits, debentures and long-term loans               (154)           (730)        (82,503)        (60,560)
Short-term deposits and marketable securities                      16,852          79,828        (261,984)        443,404
Investment in a proportionately consolidated subsidiary
  (Appendix D)                                                         --              --              --         (15,829)
Liquidation of subsidiaries (Appendix E)                               --              --         (47,357)             --
                                                                 --------        --------        --------        --------
Net cash used in continuing investing activities                 (106,583)       (504,894)     (1,093,888)       (394,119)
Net cash provided by (used in) discontinuing investing
  activities                                                         (507)         (2,404)        121,603         (26,757)
                                                                 --------        --------        --------        --------
NET CASH USED IN INVESTING ACTIVITIES                            (107,090)       (507,298)       (972,285)       (420,876)
                                                                 --------        --------        --------        --------

CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to a minority shareholder in a subsidiary                (7,131)        (33,780)             --              --
Issuance of shares to minority interest of a subsidiary               128             608          14,440           1,169
Receipt of long-term loans                                        146,964         696,184         420,787         337,322
Repayment of long-term loans                                     (104,392)       (494,513)       (159,078)       (170,728)
Short-term borrowings, net                                         39,756         188,326         562,330         160,759
                                                                 --------        --------        --------        --------
NET CASH PROVIDED BY CONTINUING FINANCING ACTIVITIES               75,325         356,825         838,479         328,522
                                                                 --------        --------        --------        --------
NET EFFECT ON CASH DUE TO CHANGES
  IN CURRENCY EXCHANGE RATES                                        1,342           6,355          15,075           4,145
                                                                 --------        --------        --------        --------
DECREASE IN CASH AND CASH EQUIVALENTS                             (31,276)       (148,160)        (95,063)       (185,929)

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR             76,762         363,623         458,686         644,615
                                                                 --------        --------        --------        --------
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR                   45,484         215,463         363,623         458,686
                                                                 ========        ========        ========        ========
</TABLE>

 (*) Reclassified - see Note 23A.

      The accompanying notes are an integral part of financial statements.


                                     - 7 -
<PAGE>


                           ELBIT MEDICAL IMAGING LTD.
                  CONSOLIDATED STATEMENT OF CASH FLOWS (CONT.)
                        IN THOUSAND NIS OF DECEMBER 2002
<TABLE>
<CAPTION>

                                                                                           DECEMBER 31
                                                                ---------------------------------------------------------
                                                                   2002            2002            2001(*)       2000(*)
                                                                   ----            ----           -------        ------
                                                                CONVENIENCE
                                                                TRANSLATION
                                                                  US$'000                     (IN THOUSAND NIS)
                                                                -----------   -------------------------------------------
<S>                                                              <C>             <C>             <C>             <C>
APPENDIX A -
ADJUSTMENTS TO PRESENT CASH FLOWS
 FROM OPERATING ACTIVITIES, NET
INCOME AND EXPENSES NOT INVOLVING CASH FLOWS:
    Discontinuing operations                                     (11,780)        (55,804)        (19,119)        (28,341)
    Depreciation and amortization (including a provision
      for impairment of investments and assets)                   35,073         166,143          76,476          25,938
    Company share in losses of affiliates                            625           2,962           9,899           3,303
    Minority interest in profits (losses) of a subsidiary         (5,269)        (24,960)          6,029         (15,161)
    Capital loss (gain) from disposition of fixed assets
      and investments                                                 96             452            (443)             --
    Indexation and exchange-rate differences
      on investments and loans, net                              (21,669)       (102,646)        (97,313)         22,381
    Gain upon liquidation of subsidiaries                             --              --         (56,515)             --
    Gain from realizing investment-type monetary balances
      in investees                                                (6,618)        (31,351)             --              --
    Change in accrued severance pay balance                           --              --            (215)         (3,573)
    Decrease (Increase) in value of securities, net                  114             538          (4,022)        (25,361)
    Deferred income taxes                                          1,355           6,420          11,687          (1,411)

CHANGES IN ASSETS AND LIABILITIES:
    Trade accounts receivable                                     (1,891)         (8,958)         (8,727)         (3,177)
    Receivables and other current assets                          (3,193)        (15,126)         10,022         (61,155)
    Long-term receivables                                            653           3,091              (6)            481
    Inventory                                                        191             907             (78)           (133)
    Trade accounts payable                                         2,136          10,117             270          12,257
    Payables and other current liabilities                        (2,241)        (10,614)        (16,049)         78,314
    Customer advances, net of projects in progress                  (325)         (1,538)        (10,223)        (16,585)
                                                                 -------         -------         -------         -------
                                                                 (12,743)        (60,367)        (98,327)        (12,223)
                                                                 =======         =======         =======         =======

APPENDIX B -
NON-CASH TRANSACTIONS

Liabilities in consideration for land acquisition                     --              --          22,080          32,323
                                                                 =======         =======         =======         =======
Liabilities in consideration for acquisition of
  shares in another company                                           --              --              --          25,916
                                                                 =======         =======         =======         =======
Acquisition of investments, fixed assets and other assets
  on credit and against allocation of shares                       8,281          39,229          59,390           7,935
                                                                 =======         =======         =======         =======
Sale of an affiliate against other accounts receivable                --              --          13,382              --
                                                                 =======         =======         =======         =======

(*) Reclassified.

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


                                     - 8 -
<PAGE>


                           ELBIT MEDICAL IMAGING LTD.
                  CONSOLIDATED STATEMENT OF CASH FLOWS (CONT.)
                        IN THOUSAND NIS OF DECEMBER 2002

                                                                                           DECEMBER 31
                                                                ---------------------------------------------------------
                                                                   2002            2002            2001           2000
                                                                   ----            ----           -------        ------
                                                                CONVENIENCE
                                                                TRANSLATION
                                                                  US$'000                     (IN THOUSAND NIS)
                                                                -----------   -------------------------------------------


APPENDIX C -
INVESTMENT IN INITIALLY CONSOLIDATED COMPANIES

    Deficit in working capital (excluding cash), net               2,537            12,018               820            29,537
    Long-term receivables, investments and deposits               (1,799)           (8,520)               --           (20,285)
    Fixed assets and other assets                               (108,629)         (514,586)         (169,581)         (715,488)
    Long-term loans                                               58,759           278,347            13,363           366,769
    Minority interest                                                 --                --            26,784                --
    Capital reserve with respect to a transaction with
       a controlling party                                            --                --                --          (113,382)
                                                                 -------          --------          --------          --------
                                                                 (49,132)         (232,741)         (128,614)         (452,849)
    Less - investment on the cost basis                               --                --           132,214                --
                                                                 -------          --------          --------          --------
                                                                 (49,132)         (232,741)            3,600          (452,849)
                                                                 =======          ========          ========          ========


APPENDIX D -
INVESTMENT IN A PROPORTIONATELY CONSOLIDATED SUBSIDIARY

    Deficit in working capital (excluding cash), net                                                                    12,883
    Long-term investment and receivables                                                                                (4,804)
    Fixed assets - building under construction                                                                         (80,182)
    Long-term loans                                                                                                     56,274
                                                                                                                        ------
                                                                                                                       (15,829)
                                                                                                                        =======
APPENDIX E -
LIQUIDATION OF A SUBSIDIARY

    Deficit in working capital (excluding cash), net                                                 (47,357)
                                                                                                     =======
</TABLE>


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


                                     - 9 -
<PAGE>

                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 1 - GENERAL

              A.     The Company engages, directly and through its investees, in
                     Israel and abroad, in the following areas:

                     -   Development,  construction  and operation of commercial
                         and entertainment  centers,  through Plaza Centers,  in
                         Central and Eastern Europe.

                     -   Ownership,  management and operation of hotels, through
                         the Park Plaza  network,  primarily  in major  European
                         cities.

                     -   Investments in research and  development  activities of
                         MRI-guided,   focused  ultrasound,   through  Insightec
                         ("IGTX").

                     -   Establishing an entertainment  and commercial center at
                         the Herzliya Marina.

                     -   Venture-capital investments.

                     Until  December 31, 2002 the Company had also been engaged,
                     through  Elscint  Ltd.,  in the  production  of systems and
                     subsystems,  mainly for medical imaging  equipment.  As for
                     the  discontinuation  of this segment's  operations and its
                     sale to a third party - see Note 23A below.

              B.     The shares of the Company are  registered  for trade on the
                     Tel Aviv Stock  Exchange and over the counter in the United
                     States on NASDAQ.

              C.     DEFINITIONS:
<TABLE>
<CAPTION>
<S>                  <C>                                <C>
                     The Company -                      Elbit Medical Imaging Ltd.

                     Subsidiaries -                     companies  in which the  Company  holds  more than 50% of the  voting
                                                        rights or of the rights to  appoint  directors  (other  than cases in
                                                        which control is deemed temporary).

                     Proportionately consolidated
                      subsidiaries  -                   companies and joint  ventures  (including  partnerships)  held by the
                                                        Company,  together  with  other  entities,  among  which  there  is a
                                                        contractual   agreement  for  joint   control,   according  to  which
                                                        resolutions  vital to the joint  venture  are to be made  jointly and
                                                        with the consent of all shareholders  and whose financial  statements
                                                        are (directly or indirectly)  consolidated  with those of the Company
                                                        by the proportionate consolidation method.

                     Affiliated companies -             companies in which the Company's  (direct or indirect) rights entitle
                                                        it  to  exercise   significant   influence  on  their  financial  and
                                                        operating  policies and which have been  included on the basis of the
                                                        equity  method,  in accordance  with the  principles  established  by
                                                        Opinion No. 68 of the Institute of Certified  Public  Accountants  in
                                                        Israel  ("the  ICPAI")  and which  are not  fully or  proportionately
                                                        consolidated.

                     Investee companies -               subsidiaries,    proportionately    consolidated   subsidiaries   and
                                                        affiliates.  (Major investee  companies are presented in the appendix
                                                        to the financial statements.)


                                     - 10 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 1 - GENERAL  (CONT.)

              C.     DEFINITIONS (CONT.):

                     Venture-capital investments-       companies,  which - at the time of the Company's  investment therein -
                                                        are   mainly   engaged   in   research   and   development   of   new,
                                                        knowledge-intensive,  products or processes,  the  investment in which
                                                        constitutes  above-average  risk and at least  90% of whose  financing
                                                        originates  from  shareholders'  investment,   support  of  government
                                                        agencies or investment grants.

                     Group -                            the Company and its investee companies.

                     Parent company -                   Europe Israel (M.M.S.) Ltd. ("EIL").

                     Europe Israel Group -              Europe Israel (M.M.S.) Ltd. and its investee companies.

                     Control Centers  -                 Control  Centers  Ltd.  - the  controlling  party  in  Europe  Israel
                                                        (M.M.S.) Ltd.

                     Control Centers Group -            Control Centers and its investees.

                     Related parties -                  as  defined  in Opinion  No. 29 of the  ICPAI,  including  interested
                                                        parties   as   defined   in  the   Israeli   Securities   Regulations
                                                        (Preparation of Annual Financial Statements), 1993.
</TABLE>
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

              A.     FINANCIAL STATEMENTS IN ADJUSTED VALUES

                     1.     GENERAL

                            The financial  statements are presented on the basis
                            of the  historical-cost  convention  in new  Israeli
                            shekels ("NIS") of constant purchasing power (NIS of
                            December 2002) ("adjusted financial statements").

                            The Company  maintains its  accounting  records on a
                            current  basis  in  nominal  NIS,  which  have  been
                            adjusted  to NIS of  constant  purchasing  power  in
                            accordance  with Opinion No. 36 of the ICPAI, on the
                            basis of the changes in the  Israeli  consumer-price
                            index  ("CPI").  The  comparative  figures have been
                            adjusted to NIS of December 2002.

                            The term "cost" in the financial  statements  refers
                            to adjusted cost, unless otherwise stated.

                            Regarding the  accounting  standard which deals with
                            the cessation of financial  statement  adjustment to
                            the CPI commencing January 1, 2004 see V.1 below.


                                     - 11 -
<PAGE>

                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 2 -      SIGNIFICANT ACCOUNTING POLICIES (CONT.)

              A. FINANCIAL STATEMENTS IN ADJUSTED VALUES (CONT.)

                     2.     PRINCIPLES OF ADJUSTMENTS

                            BALANCE SHEET

                            The  balance-sheet   items  have  been  adjusted  as
                            follows:

                            Non-monetary  items have been adjusted  according to
                            the  changes  in the CPI  from  date of  acquisition
                            through the balance-sheet date.

                            Monetary items  (representing  amounts receivable or
                            payable at stated  values or  reflecting  realizable
                            values) are  presented in the balance sheet at their
                            nominal values.

                            The value of investments  in investee  companies and
                            minority   interest   in   subsidiaries   have  been
                            determined on the basis of the financial  statements
                            of those companies.

                            The adjusted  amounts of non-monetary  assets do not
                            necessarily  represent  realizable  or real economic
                            value, but only the original values adjusted for the
                            changes in the  purchasing  power of the currency of
                            measurement.

                            STATEMENT OF OPERATIONS

                            The  components of the statement of operations  have
                            been adjusted as follows:

                            Income and expenses  (other than those deriving from
                            non-monetary   items  and   except   for   financial
                            expenses,  net) have been adjusted to the changes in
                            the CPI from the  date of each  transaction  through
                            the balance-sheet date.

                            Income and expenses deriving from non-monetary items
                            and items  relating to balance  sheet  accruals have
                            been  adjusted  on the  basis  of  specific  indices
                            corresponding  to  the  adjustment  of  the  related
                            balance-sheet item.

                            The effect of indexation  changes on tax advances is
                            included in current income taxes.

                            The Company's  share as well as that of the minority
                            interest in the results of  investee  companies  has
                            been  determined  on the  basis of  their  financial
                            statements.

                            Net financial income reflects financial expenses and
                            financial  income in real terms (such as interest on
                            loans  and  short-term  borrowings)  as  well as the
                            inflationary  erosion of non-monetary  items arising
                            from  transactions  included  in  the  statement  of
                            operations.

                            SUBSIDIARIES OPERATING ABROAD

                            (A)     Subsidiaries     operating     abroad    and
                                    constituting  "autonomous  entities" prepare
                                    their  financial  statements  in  accordance
                                    with the  principles  established in Opinion
                                    No. 36 of the ICPAI in the currency of their
                                    country   of   residence,   which  is  their
                                    functional    currency.     The    financial
                                    statements   of   these    companies    were
                                    translated  to  NIS,   subsequent  to  their
                                    adjustment to the CPI in their country of

                                     - 12 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

              A. FINANCIAL STATEMENTS IN ADJUSTED VALUES (CONT.)

                     2.     PRINCIPLES OF ADJUSTMENTS (CONT.)

                                    residence, according to the exchange rate in
                                    effect    on   the    balance-sheet    date.
                                    Differences  arising  between the adjustment
                                    of the  Company's  investment  amount in the
                                    investees  (including monetary balances of a
                                    capital  nature) on the basis of the changes
                                    in the Israeli  CPI, and the  adjustment  of
                                    the  Company's  share  in the  shareholders'
                                    equity  of  these  investees,  based  on the
                                    changes  in the  exchange  rate of the local
                                    currency  against the NIS and the local CPI,
                                    are    included   in    "foreign    exchange
                                    translation     differences    of    foreign
                                    investees"    in    shareholders'    equity.
                                    Financial  differences arising from loans in
                                    foreign  currency  used for the financing of
                                    investments in foreign  autonomous  entities
                                    as well as  income  taxes  relating  to such
                                    differences  have also been included in that
                                    component of shareholders' equity.

                                    Upon the realization of an autonomous  unit,
                                    in whole or in part  (including  realization
                                    as  a  result  of  a  decline   in   holding
                                    percentage  arising  from  the  issuance  of
                                    shares  to a  third  party  or  through  the
                                    repayment   of   investment-type    monetary
                                    balances),      accumulated      translation
                                    adjustments   relating   to   the   realized
                                    investment  are released to the statement of
                                    operations  as  other  income.  As  for  the
                                    realization of capital reserves arising from
                                    translation  adjustments due to a decline in
                                    the fair value of investments - see g below.

                            (B)     Subsidiaries     operating     abroad    and
                                    constituting  an  extension of the Group (as
                                    defined  in  Opinion  No.  36 of the  ICPAI)
                                    prepare   their   financial   statements  in
                                    foreign currency.  The financial  statements
                                    of these  companies were  translated to NIS,
                                    with   non-monetary    balance-sheet   items
                                    translated by historical  exchange rates and
                                    adjusted  to  changes  in the CPI.  Monetary
                                    balance-sheet  items  were  adjusted  on the
                                    basis of the exchange  rate in effect on the
                                    balance-sheet            date.           The
                                    statement-of-operations  items were adjusted
                                    by the average  exchange rates prevailing on
                                    the date of the  transactions,  and adjusted
                                    to the CPI.  Differences  arising from these
                                    translations   are   included  in  financial
                                    expenses.

              B. CONSOLIDATED FINANCIAL STATEMENTS

                     The consolidated financial statements include the financial
                     statements of the Company and its subsidiaries. The results
                     of operations of subsidiaries  are included from their date
                     of incorporation or proximate to the date of acquisition by
                     the Company,  as applicable,  until the balance-sheet date,
                     or date of sale (or transfer to liquidator), if earlier.

                     In accordance  with the principles set forth in Opinion No.
                     57 of the ICPAI, the assets,  liabilities and operations of
                     jointly   controlled   companies  and  ventures  have  been
                     included  on the  basis of the  proportionate-consolidation
                     method.

                     The amounts from the financial  statements of  subsidiaries
                     were included upon consolidation  after taking into account
                     the necessary  adjustments in order for them to comply with
                     the group financial accounting policies.

                     Material  inter-company balances and transactions among the
                     Group companies have been eliminated in the consolidation.

                                     - 13 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

              B.     CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

                     Profits  from  transactions  among  Group  companies,   the
                     results of which are  attributable to assets,  which at the
                     respective  balance-sheet  date  had not been  realized  in
                     third-party transactions, were eliminated in consolidation.

                     Company  shares held by a subsidiary  are presented at cost
                     and deducted from the Company's  shareholders' equity using
                     the treasury stock method.

              C.     CASH AND CASH EQUIVALENTS

                     Cash equivalents include  unrestricted liquid deposits with
                     an original maturity not exceeding three months.

              D.     ALLOWANCE FOR DOUBTFUL ACCOUNTS

                     The allowance has been determined on specific balances, the
                     collection  of which,  in the opinion of  management of the
                     companies, is doubtful.

              E.     MARKETABLE SECURITIES

                     Investments   in  marketable   securities,   designated  by
                     management  for sale in the short  term,  are  included  in
                     current  assets at their market value at the  balance-sheet
                     date.  Changes in the value of  securities  are included in
                     the  statement of operations  as incurred.  Investments  in
                     marketable securities not designated by management for sale
                     in the short  term and  which  are not part of the  Group's
                     liquid  resources are presented at cost except when, in the
                     opinion  of  management,  a  decline  in  value  not  of  a
                     temporary nature exists.

              F.     INVENTORY

                     Inventory  is stated at the lower of cost or market  value,
                     with cost determined as follows:

                     Food,  beverages and current  operating hotel supplies - by
                     the "first-in, first-out" method.

                     Regarding projects in process - see Q below.

              G.     INVESTMENTS IN INVESTEES, VENTURE CAPITAL INVESTMENTS AND
                     INVESTMENTS IN OTHER COMPANIES

                     Investments  in investees  are  presented in the  Company's
                     financial  statements by the equity method.  When computing
                     the Company's  share in the results of investee  companies,
                     losses (if any)  deriving  from the expected  conversion of
                     convertible  securities of the exercise of vested  options,
                     which were issued by the Investee  companies,  are included
                     in the  computation  if  such  conversion  or  exercise  is
                     probable.

                     The  excess of the  investment's  cost  over the  Company's
                     share in the fair value of the  investees'  net  identified
                     assets  at  acquisition  or upon the  change  from the cost
                     method to the equity method, as applicable,  is recorded as
                     goodwill and amortized over its estimated  economic benefit
                     period.

                     Financial  expenses in respect of  borrowings  used for the
                     investment  (shares and loans) in companies  engaged solely
                     in the  construction  of hotels or commercial  centers were
                     capitalized to the cost of the investment.

                     An  other-than-temporary  decline  in the fair  value of an
                     investment  in an autonomous  investee is charged  directly
                     against  any credit  balance in the  capital  reserves  for
                     translation  adjustments  previously recorded in respect of
                     this  investment.  The amount of the required  provision in
                     excess  of  the   translation   adjustment  is  charged  to
                     operations. If the translation adjustments are reflected by
                     a debit  balance,  they are charged to operations  together
                     with the provision for the decline in investment's value.

                                     - 14 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

              G.     INVESTMENTS IN INVESTEES, VENTURE CAPITAL INVESTMENTS AND
                     INVESTMENTS IN OTHER COMPANIES (CONT.)

                     Group  investments  in other  companies and  investments of
                     subsidiaries   constituting    venture-capital   funds   in
                     "venture-capital investments", as defined by Standard No. 1
                     of  the  Israeli  Accounting  Standards  Board,  have  been
                     included  based on the lower of: cost net of allowances for
                     other-than-temporary decline in value; or fair value, based
                     on management's estimate.

                     Gain on share issuance to a third party by a company in the
                     research  and  development  stages  has  been  recorded  as
                     deferred  income  and  included  in the  annual  results of
                     operations  as  other   income,   at  the  higher  of:  (i)
                     straight-line  amortization  over three years;  or (ii) the
                     Company's  share in the investee's  losses on an aggregated
                     basis

              H.     FIXED ASSETS

                     (1)    Fixed assets are stated at cost.  Investment  grants
                            received by  subsidiaries  were deducted in arriving
                            at the cost of the  assets in  respect  of which the
                            grant had been made.

                            The  cost  of the  land  and  building  construction
                            includes,  among other  things,  costs in respect of
                            contractual  obligations for the acquisition of land
                            when the Group companies' obligations thereunder are
                            finalized by each  financial  statement  date (i.e.,
                            all major conditions  required for the conclusion of
                            the  transaction  and its  implementation  had  been
                            fulfilled) and their amounts determined. Amounts not
                            yet paid by each  balance-sheet  date are presented,
                            accordingly, as a liability.

                            Improvements   and  renovations   are   capitalized.
                            Maintenance  and  repair  expenses  are  charged  to
                            operations as incurred.

                            Proceeds  paid  for  assets  acquired  as  part of a
                            multiple-element  agreement  ("package")  have  been
                            allocated  to the cost of the assets on the basis of
                            a  valuation  and in relation to their fair value in
                            that package.

                            Financial  expenses  in real  terms  in  respect  of
                            borrowings  used  for  construction  (including  the
                            acquisition  of the related  land) as well as direct
                            supervision and  construction  costs incurred in the
                            pre-operating  period,  have been capitalized to the
                            cost of the buildings.  As for the capitalization of
                            borrowing costs - see item R below.

                            As for fixed assets  acquired from companies  having
                            controlling  interest  in the Company - see item (N)
                            below.

                     (2)    Depreciation is computed by the straight-line method
                            at annual rates considered  sufficient to depreciate
                            the  assets  over  their  useful  lives.   Leasehold
                            improvements  are amortized  over the shorter of the
                            estimated useful period or the lease period.
<TABLE>
<CAPTION>

<S>                         <C>                                   <C>
                            Annual depreciation rates follow:            %
                                                                 ----------------------------------
                            Freehold land                                 0
                            Leasehold land                        Over lease period
                            Hotels                                       1.5
                            Commercial centers                            2
                            Other buildings                            2 - 2.5
                            Building operating systems                    7   (average)
                            Other fixed assets (*)                     6 - 33 (mainly 10% - 20%)
</TABLE>


                            (*)    Consists of motor vehicles,  aircraft, office
                                   furniture   and   equipment,   machinery  and
                                   equipment,     computers    and    peripheral
                                   equipment, software, etc.

                                     - 15 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 2 -      SIGNIFICANT ACCOUNTING POLICIES (CONT.)

              I.     OTHER ASSETS AND DEFERRED EXPENSES

                     (1)    KNOW-HOW

                            Acquired know-how is stated at cost and amortized by
                            the straight-line  method over its estimated benefit
                            period.

                     (2)    PRE-OPERATING HOTEL AND COMMERCIAL CENTER EXPENSES

                            Pre-operating  costs  of  hotels  and/or  commercial
                            centers  (mainly -  employee  training,  testing  of
                            systems  and  preparation  of the  hotels/commercial
                            centers for opening,  operation and  occupancy)  are
                            stated  at  cost  and  amortized  over a  three-year
                            period from commencement of full scale operations.

                     (3)    OPERATING COSTS RELATING TO INITIATION ACTIVITIES

                            Operating  costs  relating to initiation  activities
                            (prior to the finalization of the investment or land
                            acquisition, etc.) are capitalized as incurred, when
                            an investment or a property acquisition  transaction
                            is  foreseen,  and are  charged  to the  cost of the
                            investment  or the  real  estate  project  upon  the
                            investment or acquisition. If the transaction is not
                            reasonably  expected  to  materialize  or  when  the
                            expected   economic   benefit  of  these   costs  is
                            doubtful, these costs are charged to operations.

                     (4)    EXPENSES IN CONNECTION WITH OBTAINING LOANS

                            Expenses incurred in obtaining loans are capitalized
                            as incurred and included in operations over the life
                            of the loan and in relation to their balance.

                     (5)    COST OF OBTAINING LONG-TERM LEASES

                            Costs for obtaining long-term leases are capitalized
                            when  incurred  and charged to  operations  over the
                            lease period.

                     (6)    Acquisition  costs of a long-term  service  contract
                            are stated at cost and  amortized  over the  service
                            period.

              J.     LONG-TERM RECEIVABLES AND LIABILITIES

                     (1)    Long-term  loans  for a fixed  period,  which do not
                            bear  interest or that bear interest at below market
                            rates,  when the  difference  between  the  adjusted
                            value of the balances and their present value at the
                            time of loan  receipt  is  material,  are  stated at
                            present value  (discounted at market  interest rates
                            in effect for similar loans). The effective interest
                            is charged to operations over the term of the loan.

                     (2)    Short-term supplier credit and other liabilities, as
                            well  as  short-term   bank   borrowings   used  for
                            establishing  commercial  centers  and/or hotels and
                            whose  repayment  sources are  arranged by long-term
                            financing  agreements  signed by the Company and its
                            subsidiaries with financial institutions,  have been
                            included as long-term liabilities. Related repayment
                            schedule  disclosure  is included  with those of the
                            corresponding  long-term  loans,  in accordance with
                            the relevant agreements with the lenders.

                                     - 16 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 2 -      SIGNIFICANT ACCOUNTING POLICIES (CONT.)

              K.     INCOME TAXES

                     Deferred  taxes are  calculated  for temporary  differences
                     between  income  and  expenses  included  in the  financial
                     statements  and  for  tax  purposes  due to the  difference
                     between  the  adjusted  value of  non-monetary  depreciable
                     assets and the amount allowed for tax purposes  (except for
                     differences  in respect of  buildings),  and for tax losses
                     and  deductions   carried   forward  to  future  years.  In
                     addition,  deferred  taxes  are  recorded  for  differences
                     between  the  fair  values  of   identifiable   assets  and
                     liabilities  of  subsidiaries   upon   acquisition  of  the
                     investment   therein   (except   for   assets   for   which
                     amortization  is not  allowable for tax purposes) and their
                     values for tax  purposes at that date. A deferred tax asset
                     is created only when there is a reasonable  likelihood that
                     it will be realized against future taxable income. Deferred
                     taxes are computed based on the tax rates expected to be in
                     effect when they are realized, to the extent they are known
                     at the financial statements preparation date.

                     Current  and  deferred  income  taxes  relating  to capital
                     reserves from translation adjustments are included directly
                     in capital reserves.

                     The  deferred  taxes do not  include  taxes  which would be
                     applicable in case of future  realization of investments in
                     subsidiaries,  or upon the receipt of retained  earnings as
                     dividends,  since for some  subsidiaries,  the  receipt  of
                     dividends  and/or  earnings  arising  from  their  sale  is
                     tax-exempt and, for others,  management's  policy is not to
                     sell  and/or  distribute  earnings  as a dividend or in any
                     other  manner in the  foreseeable  future in a manner  that
                     would create a material  additional  tax  liability for the
                     Group.

                     Regarding  deferred  taxes  for  exempted  income  from  an
                     approved enterprise, see Note 17.b.1.e below.

              L.     EXCHANGE RATES AND LINKAGE BASES

                     Assets  and  liabilities  in  foreign  currency  or  linked
                     thereto  are  stated  on the  basis  of the  exchange  rate
                     prevailing on the balance-sheet date.

                     Balances  linked to various indices are stated on the basis
                     of the  relevant  linkage  terms  of each  linked  asset or
                     liability.

                     For details of consumer-price indices and exchange rates of
                     foreign currencies - see Note 24A.

              M.     DERIVATIVE FINANCIAL INSTRUMENTS

                     (1) Financial instruments - see Note 24A.

                     (2)    Derivative    financial    instruments   which   are
                            designated   for   hedging    existing   assets   or
                            liabilities   are  charged  to  the   statement   of
                            operations  when the  results  deriving  from  those
                            assets or liabilities  are included in the statement
                            of operations.  Derivative financial instruments not
                            designated  for  hedging   purposes  are  stated  at
                            estimated  fair  value.  Changes in their fair value
                            during  the  reporting  period are  included  in the
                            statement of operations.

              N.     INVESTMENTS IN COMPANIES ACQUIRED FROM CONTROLLING
                     SHAREHOLDERS

                     Investments in investees,  acquired from companies that are
                     controlling  shareholders  of  the  Company,  are  included
                     according  to  their  adjusted  value  on the  books of the
                     transferring companies immediately prior to acquisition, in
                     accordance with the Securities Regulations (Presentation of
                     Transactions Between a Company and its Controlling Party in
                     the Financial Statements), 1996. The difference between the
                     price paid for that  investment and the  transferor's  book
                     value is recorded directly to shareholders' equity.

                                     - 17 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

              O.     PURCHASE OF ASSETS IN CONSIDERATION FOR ISSUANCE OF SHARES

                     Issuance  of shares  of a  non-public  subsidiary  to third
                     parties for non-cash  consideration  (in  consideration for
                     assets and services) is recorded based on the fair value of
                     the assets and services received.

              P.     REVENUE RECOGNITION

                     Revenues  from  hotel   operations  are   recognized   upon
                     performance of the service.

                     Revenues  from leasing of assets and  management  fees,  as
                     well as other  income  relating  to the  activities  of the
                     commercial  centers,  are recognized pro rata over the term
                     of the lease and/or the service provided.

              Q.     PROJECTS IN PROGRESS AND REVENUE RECOGNITION

                     Revenues  from  contractual  work  are  recognized  by  the
                     "percentage  of  completion"  method,  in  accordance  with
                     Standard No. 4 of the Israeli  Accounting  Standards Board.
                     The completion  rate is determined by the proportion of the
                     costs  incurred to the total  estimated  cost,  based on an
                     evaluation  made by the  Company's  engineers.  The cost of
                     long-term  projects in progress  includes  direct costs and
                     the allocated indirect  expenses.  Differences in estimates
                     emerging at the stage of invoice  approval are reflected in
                     the year determined. Regarding projects for which a loss is
                     anticipated, the expected losses are provided for in full.

              R.     RESEARCH AND DEVELOPMENT COSTS

                     Research  and   development   costs,   net  of  grants  and
                     participation  of  third  parties  (mainly  the  OCS),  are
                     included in operations, as incurred.

              S.     CAPITALIZATION OF BORROWING COSTS

                     The Company capitalizes  borrowing costs in accordance with
                     Standard No. 3 of the Israeli  Accounting  Standards Board;
                     accordingly, both specific and non-specific borrowing costs
                     are capitalized to qualified  assets (assets in preparation
                     or under  construction  not yet in designated use and whose
                     preparation for this purpose requires a prolonged period of
                     time).  Non-specific  borrowing  costs are  capitalized  to
                     these  qualified  assets or to that portion not financed by
                     that  specific  borrowing  by using a rate  constituting  a
                     weighted  average of the costs in  respect  of the  Group's
                     borrowings not specifically capitalized.

              T.     EARNINGS (LOSS) PER SHARE

                     Earnings  (loss) per share have been computed in accordance
                     with   Opinion   No.   55  of  the   ICPAI   based  on  the
                     weighted-average   number  of  paid-up  shares  outstanding
                     during the year net of shares held by a subsidiary.

                     The  number of  shares  used for the  computation  of basic
                     earnings  (loss)  per share take into  account  convertible
                     securities  or other  rights  to shares  (including  shares
                     issued against  non-recourse  loans) (which are vested), if
                     conversion  or  realization   may  reasonably  be  assumed.
                     Diluted   earnings  (loss)  per  share  take  into  account
                     securities  excluded  from the basic  earnings  (loss)  per
                     share  computation if their effect is dilutive.  Net income
                     used in the  computation  of  diluted  earnings  (loss) per
                     share has been reduced by the provision necessary,  if any,
                     assuming the full exercise of the investees' securities not
                     taken into  account in the  computation  of basic  earnings
                     (loss) per share.

                                     - 18 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

              U.     USE OF ESTIMATES

                     The preparation of financial  statements in conformity with
                     generally accepted accounting  principles requires of Group
                     companies'  management to make  estimates  and  assumptions
                     affecting the reported  balance-sheet amounts of assets and
                     liabilities,    disclosure   of   contingent   assets   and
                     liabilities   at  the  issuance   date  of  the   financial
                     statements,  and  the  reported  amounts  of  revenues  and
                     expenses  during the  reporting  periods.  Actual  data and
                     operating results may differ from these estimates.

              V.     NEW ACCOUNTING STANDARDS

                     (1)    In October  2001 the  Israeli  Accounting  Standards
                            Board issued Standard No. 12, Cessation of Financial
                            Statements  Adjustment.  According to this standard,
                            the adjustment of financial statements for inflation
                            will  cease  commencing  January  1,  2003.  Through
                            December  31, 2002 the  Company,  according  to this
                            standard,  was required to continue  preparation  of
                            adjusted financial statements in accordance with the
                            existing   pronouncements   of  the   Institute   of
                            Certified  Public  Accountants  in  Israel.  Amounts
                            presented in the  December  31, 2002  balance  sheet
                            will  serve  as the  opening,  nominal  balances  at
                            January 1, 2003.

                            In October  2001 the  Israeli  Accounting  Standards
                            Board issued  Standard No. 13,  Effect of Changes in
                            Foreign  Currency   Exchange  Rates.  This  standard
                            addresses   the    translation    of    transactions
                            denominated  in  foreign  currency,  as  well as the
                            translation  of  financial  statements  of a foreign
                            operation, for inclusion in the financial statements
                            of the reporting company.

                            The  following  is an outline  of the major  changes
                            included in Standard No. 13:

                            Classification   of   foreign   operations   as   an
                            "autonomous   unit"  or  as  an  "extension  of  the
                            Company"  requires the  application  of judgment and
                            should  be based on the  indicators  established  in
                            this  standard.   This  approach  differs  from  the
                            existing  principles,  which require the fulfillment
                            of   several   cumulative   tests   prior   to   the
                            determination   of  a   foreign   activity   as   an
                            "autonomous  unit" and prohibit the  application  of
                            judgment.

                            Translation  of income and expense  items as well as
                            cash flow amounts of foreign operations constituting
                            "autonomous  units"  based on the  exchange  rate in
                            effect on the transaction/cash  flow date or, due to
                            practicality, using average exchange rates in effect
                            during the reporting  period.  This differs from the
                            current  principles  whereby the  translation of all
                            the autonomous  unit's financial  statement items is
                            carried out based on the current exchange rates.

                            Adjustment   of  an  autonomous   unit's   financial
                            statements  prior  to  their  translation  into  the
                            company's  reporting  currency,   which,  is  always
                            permitted  under the  existing  principles,  will be
                            carried out only when the "autonomous unit" operates
                            in  a  highly  inflationary  environment.  In  these
                            cases, the closing exchange rates should be used for
                            translation.

                            Goodwill   created  upon  the   acquisition   of  an
                            "autonomous unit" will be treated as an asset of the
                            "autonomous   unit"  and  translated  by  using  the
                            closing  exchange  rates.  This differs from current
                            principles,  according to which goodwill is deemed a
                            non-monetary,  independent  item  of  the  acquiring
                            company.

                            A  reduction  in  value  of  an   investment  in  an
                            "autonomous  unit" will not result in the release to
                            the statement of  operations  of amounts  previously
                            recorded   as  foreign   currency   differences   in
                            shareholders'   equity.  This  rule  constitutes  an
                            amendment to Opinion No. 68.

                                     - 19 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

              V.     NEW ACCOUNTING STANDARDS (CONT.)

                     (1)   (CONT.)

                            In December  2002 the Israeli  Accounting  Standards
                            Board  issued   Standard  No.  17   concerning   the
                            postponement  of  the  cessation  date  of  adjusted
                            financial  statements as well as the postponement of
                            the effective  date of Standard  No.13  ("Effects of
                            Fluctuations in Foreign Exchange Rates").  According
                            to  Standard   No.17,   the   reporting  of  nominal
                            financial  statements  based on Standard  No. 12 and
                            the  implementation  of Standard No.13 are postponed
                            by  one  year  -  to  reporting  periods  commencing
                            January 1, 2004.

                            The Company is currently examining the new standards
                            but is unable,  at this stage,  to assess its impact
                            on the financial statements of the period commencing
                            with the effective date of the standard  (January 1,
                            2004).

                     (2)    In  August  2002 the  Israeli  Accounting  Standards
                            Board  published  Standard No.14 (Interim  Financial
                            Reporting),  which  defines the  minimal  content of
                            financial  reporting for interim periods,  including
                            the  disclosure  required  in the notes  thereto and
                            details  the  accounting  principles  pertaining  to
                            recognition and measurement issues to be implemented
                            in interim financial reporting.

                            The major changes  established  by Standard No.14 in
                            relation to current accounting principles:

                            o    Disclosure  requirements  pertaining to segment
                                 income and  expenses  in  respect  of  segments
                                 constituting  the company's  primary format for
                                 segment reporting.

                            o    Provision  for income  taxes during the interim
                                 period  will be accrued on the basis of the tax
                                 rate  applicable to the expected annual pre-tax
                                 income,  i.e.,  the  estimated  average  annual
                                 income tax  amount  multiplied  by the  interim
                                 pre-tax income.  This differs from the existing
                                 rules according to which  provisions for income
                                 tax for the interim periods were established on
                                 the  basis  of  data  known  at the  end of the
                                 reported interim period.

                                 A carryforward  tax loss in respect of which no
                                 deferred  income tax  amount had been  provided
                                 does  affect the  average  annual tax rate and,
                                 therefore,  will be allocated  over the interim
                                 period  by the  ratio  of the  income  reported
                                 during the entire interim period divided by the
                                 estimated  income for the year.  Such  practice
                                 differs from existing rules, according to which
                                 the  determination  of the provision for income
                                 taxes in the  first  interim  period  took into
                                 account previous years' carryforward losses.

                            o    Should the  estimated  amount  reported  in the
                                 interim period change  considerably  during the
                                 reported  year's last  interim  period  without
                                 separate  financial  statements being published
                                 for that last interim  period,  then the nature
                                 and the  amount  of  that  change  in  estimate
                                 require  disclosure  in  the  annual  financial
                                 statements for that particular fiscal year.

                            Standard  No.14  should be  implemented  in  interim
                            financial statements for periods starting January 1,
                            2003.   The  Company  is  currently   examining  the
                            provisions  of  the  new  standard  but  it  is  not
                            possible at this stage to estimate its impact on the
                            interim financial statements commencing in 2003.

                                     - 20 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

              V.     NEW ACCOUNTING STANDARDS (CONT.)

                     (3)    In January  2003 the  Israeli  Accounting  Standards
                            Board Standard issued Standard No.15 ("Impairment of
                            Assets").  The  standard  sets forth,  for the first
                            time in Israel, the accounting  treatment and method
                            of  presentation  required  in the  event  of  asset
                            impairment,  and also  establishes  procedures to be
                            implemented  by the  company in order to ensure that
                            its assets are not  presented  in amounts  exceeding
                            the higher of their net selling price or their value
                            in use  ("recoverable  amount').  This standard also
                            identifies  indicators that may point to the asset's
                            impairment,   the  measurement  principles  for  the
                            recoverable   amount  of  an  individual   asset  or
                            cash-generating  unit, as  appropriate,  and for the
                            loss resulting from the decline in value, the extent
                            of  the   disclosure   required  in  the   financial
                            statements   in  connection   with  the   standard's
                            application,  the  timing of the  cancellation  of a
                            previously  recorded  provision for impairment  etc.
                            Standard  No. 15  establishes  that the  recoverable
                            amount must be assessed whenever indicators point to
                            a  possible   impairment  of  an  asset,  with  that
                            impairment  recorded as a loss in the  statement  of
                            operations.

                            This standard will apply to financial statements for
                            periods  beginning on January 1, 2003 or thereafter,
                            generally on a  prospective  basis.  A loss incurred
                            from an asset  impairment,  equaling the  difference
                            between  the  net  book  value  at  the   standard's
                            effective  date and the  recoverable  amount at that
                            time will be charged to  operations  as  "cumulative
                            effect at the  beginning  of the year of a change in
                            an  accounting  method" if that loss had  previously
                            not been recognized  because the total  undiscounted
                            future cash flows exceeded book value.

                            Until  this  standard's  effective  date,  the Group
                            companies had assessed the need for a computation of
                            asset  impairment  based on the  future  cash  flows
                            expected from the holding and use of these assets in
                            undiscounted  values in accordance with the practice
                            acceptable  in  Israel  and  based  on US  SFAS  121
                            ("Accounting for the Impairment of Long-Lived Assets
                            and Long-Lived Assets to be Disposed of").

                            Upon the effective date of Standard  No.15,  Opinion
                            No.  68  of  the   Institute  of  Certified   Public
                            Accountants in Israel will be amended so that if the
                            value  of  an  investment  in a  foreign  autonomous
                            investee   becomes   impaired   and  a   translation
                            adjustment was previously  recorded to shareholders'
                            equity in  respect of this  investment,  it would no
                            longer be permitted to record the related portion of
                            these  translation  adjustments  in the statement of
                            operations  upon  recognition of impairment.  As for
                            the  accounting  treatment  in  accordance  with the
                            rules in effect on  December  31, 2002 - see Note 2G
                            above.

                            The Group  companies are  examining the  recoverable
                            value of  certain  owned  investments  and assets as
                            well as the ramifications of the initial application
                            of the  provisions  of the standard on their results
                            for  the  first  quarter  of  2003.  Moreover,   the
                            companies' managements believe, based on information
                            available at the financial  statements date, that no
                            provision  in  material  amounts for  impairment  of
                            investments  and/or  assets  will be required in the
                            first  quarter  of  2003  and,  accordingly,   these
                            companies  would  not  incur  material  costs in the
                            statement   of   operations   for  that   period  in
                            connection with the standard's initial application.

              W.     RECLASSIFICATION

                     The   comparative   figures   for  prior  years  have  been
                     reclassified in order to conform with  classifications used
                     in the reported period, mainly due to the classification of
                     activities sold during 2002, as discontinuing operations.

              X.     A statement  of cash flows has not been  presented  for the
                     parent   company  only  since  it  would  not  provide  any
                     significant additional information.

                                     - 21 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 3 - CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>

                                                              CONSOLIDATED                                 COMPANY
                                                    ---------------------------------------          ------------------
                                                                                 DECEMBER 31
                                                    ------------------------------------------------------------------
                                                    2002                 2002          2001          2002          2001
                                           ------------------------      ----          ----          ----          ----
                                           INTEREST     CONVENIENCE
                                             RATE       TRANSLATION
                                               %          US$'000                       (IN THOUSAND NIS)
                                           -------      -----------      ----------------------------------------------
<S>                                         <C>            <C>          <C>           <C>           <C>           <C>
               In foreign currency:
                 US dollar                 0.3-2.5         20,845        98,743     292,805        13,153       2,087
                 Euro                      Mainly 2.75     13,748        65,125       2,854        57,806          --
                 Other (mainly Forint)     Mainly 7.0(1)    8,060        38,183      23,586            --          --
                In NIS                     7.2-8.4          2,831        13,412      44,378         4,677       3,556
                                                           ------       -------     -------        ------       -----
                                                           45,484       215,463     363,623        75,636       5,643
                                                           ======       =======     =======        ======       =====


               (1) Variable rate.

NOTE 4 -      SHORT-TERM DEPOSITS AND INVESTMENTS

              A.     COMPOSITION:

                                                              CONSOLIDATED                                 COMPANY
                                                    ---------------------------------------          ------------------
                                                                                 DECEMBER 31
                                                    ------------------------------------------------------------------
                                                    2002                 2002       2001          2002          2001
                                           ------------------------      ----       ----          ----          ----
                                           INTEREST     CONVENIENCE
                                             RATE       TRANSLATION
                                               %          US$'000                       (IN THOUSAND NIS)
                                           -------      -----------      ----------------------------------------------

                     DEPOSITS IN BANKS
                       AND FINANCIAL
                        INSTITUTIONS
                                            Mainly
                       Dollar-linked (*)    Libor+/-0.3   127,881       605,785     582,446     429,462       406,666
                       Euro-linked (**)     Euribor-1.5     7,545        35,741      25,858          64        24,807
                       Zlote-linked             7.0           109           518      23,946          --            --
                       Pound
                         Sterling-linked        1.0           431         2,041          --          --            --
                       Australian
                         dollar-linked      3.0-3.3         1,075         5,094          --       5,094            --
                       Forint-linked            6.0         1,389         6,582          --          --            --
                       Unlinked (**)        6.7-8.9         5,497        26,038      38,858      26,038        38,826
                                                          -------       -------     -------     -------       -------
                                                          143,927       681,799     671,108     460,658       470,299
                                                          -------       -------     -------     -------       -------

                     MARKETABLE
                       SECURITIES (1)
                       Dollar-linked                         813          3,851      13,677       1,765        10,981
                       Unlinked                            1,282          6,074       9,038       6,017         9,037
                                                          -------       -------     -------     -------       -------
                                                           2,095          9,925      22,715       7,782        20,018
                                                          =======       =======     =======     =======       =======
                     (1) COMPOSITION:
                         Shares                            1,944          9,210      13,026       5,927        10,329
                         Corporate
                           debentures                         --             --       1,082          --         1,082
                         Government
                           bonds                             151            715       8,607       1,855         8,607
                                                          -------       -------     -------     -------       -------
                                                           2,095          9,925      22,715       7,782        20,018
                                                          =======       =======     =======     =======       =======
</TABLE>

(*)  A total of NIS 412 million is used as security for short-term borrowings
    (also see Note 13 below).


(**)Used as security for transactions in derivative financial instruments.

              B. LIENS - see Note 18D.

                                     - 22 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 5 - TRADE ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>

                                                                                     CONSOLIDATED
                                                                      ------------------------------------------
                                                                                     DECEMBER 31
                                                                         2002            2002          2001 (*)
                                                                         ----            ----          --------
                                                                      CONVENIENCE
                                                                      TRANSLATION
                                                                      -----------
                                                                        US$'000           (IN THOUSAND NIS)
                                                                      ------------------------------------------
<S>                                                                   <C>              <C>              <C>
                     Outstanding balances (mainly dollar-linked)      15,742           74,573           45,166
                     Less: allowance for doubtful accounts            (4,279)         (20,270)         (10,621)
                                                                      ------          -------          -------
                                                                      11,463           54,303           34,545
                                                                      ======          =======          =======
                     (*) Reclassified

NOTE 6 - RECEIVABLES AND OTHER CURRENT ASSETS

                                                              CONSOLIDATED                             COMPANY
                                                     -----------------------------------     ---------------------------
                                                                           YEAR ENDED DECEMBER 31
                                                     ----------------------------------------------------------
                                                        2002          2002      2001 (*)     2002 (*)      2001
                                                        ----          ----      --------     --------      ----
                                                     CONVENIENCE
                                                     TRANSLATION
                                                       US$'000                   (IN THOUSAND NIS)
                                                     --------------------------------------------------------------------

               Government agencies in Israel
                 and abroad                            5,882        27,864     38,560         2,469        712
               Prepaid expenses                        1,819         8,618      4,312         1,674      1,510
               Employees                                 127           602        312            --         46
               Advances to suppliers                     308         1,457        472            --         --
               Receivables in respect of the
                 realization of medical equipment
                 (MRI)                                 3,190        15,112         --            --         --
               Control Center Group companies
                 (Mainly EIL)                            913         4,324      4,154            --        226
               Other                                   1,762         8,346     10,677           392        198
                                                      ------        ------     ------         -----      -----
                                                      14,001        66,323     58,487         4,535      2,692
                                                      ======        ======     ======         =====      =====

              (*) Reclassified.

NOTE 7 - INVENTORY

                                                                     CONSOLIDATED
                                                       ---------------------------------------
                                                                     DECEMBER 31
                                                       ---------------------------------------
                                                          2002            2002        2001 (*)
                                                          ----            ----        --------
                                                       CONVENIENCE
                                                       TRANSLATION
                                                         US$'000          (IN THOUSAND NIS)
                                                       -----------        -----------------

              Hotel inventory and hotel beverages      665               3,151          3,468
                                                       ===               =====          =====

</TABLE>


              (*) Reclassified.

                                     - 23 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 8 - DEPOSITS, DEBENTURES, LOANS AND LONG-TERM RECEIVABLES

              A.     COMPONENTS:
<TABLE>
<CAPTION>

                                                                                          CONSOLIDATED
                                                                            ----------------------------------------
                                                                                           DECEMBER 31
                                                                            ----------------------------------------
                                                                                2002         2002        2001 (*)
                                                                                ----         ----        --------
                                                                            CONVENIENCE
                                                                            TRANSLATION
                                                                            -----------
                                                                              US$'000           (IN THOUSAND NIS)
                                                                              -------           -----------------

<S>                                                                         <C>               <C>            <C>
                     Deposits with banks and financial institutions (1)       69,818         330,735       394,073
                     Debentures convertible into shares                           --              --        20,479
                     Loans to holders of rights in affiliates (2)              5,509          26,095        28,300
                     Loan (3)                                                  2,872          13,605        11,809
                     Deferred income taxes                                     2,464          11,673        10,216
                     Receivables and other current assets                        801           3,795         4,604
                                                                              ------         -------       -------
                                                                              81,464         385,903       469,481
                     Less: allowance for doubtful accounts                    (2,309)        (10,940)       (4,540)
                                                                              ------         -------       -------
                                                                              79,155         374,963       464,941
                       Less: current maturities                               (4,350)        (20,605)      (65,839)
                                                                              ======         =======       =======
                                                                              74,805         354,358       399,102
                                                                              ======         =======       =======
</TABLE>

              (*)    Reclassified.

                     (1)    Includes,  primarily, NIS 280 million in US dollars,
                            bearing an annual  variable  interest of Libor+0.7%;
                            NIS 40 million in Hungarian  forint  bearing  annual
                            interest of Libor - 3%.

                            Deposits  pledged as security  for the  repayment of
                            loans obtained by Group  companies  and/or to secure
                            guarantees  provided  by  them  in  favor  of  third
                            parties have been included as amounts due concurrent
                            to the loan repayment dates or release of guarantees
                            for which they had been pledged (see Note 15c).

                     (2)    Loans to the management company of companies that it
                            controls.

                            A loan  of  NIS  7.9  million  is  linked  to the US
                            dollar, bears annual interest of Libor+1% and is due
                            on December 31, 2006. A loan of NIS 15.8 million may
                            be  converted  into shares - see Note 18a(3)  below.
                            Should B.H.  decide not to exercise the option,  the
                            loan would then be  subject  to the  linkage  terms,
                            interest and repayment  outlined above.  The amounts
                            of  money  due to the  management  company  from the
                            Group  companies  in  respect  of its  rights in the
                            hotels  owned by them  (see  Note  10b(1) b  above),
                            other than hotel  management fees (see Note 10b(1) c
                            above) will be used as security for the repayment of
                            the loans. Loans totaling NIS 2.4 million, which are
                            linked to the US dollar,  do not bear  interest  and
                            their  repayment  date has not yet been  determined.
                            B.H.  has not  received  any other  security for the
                            abovementioned loans.

                     (3)    The loan is linked to the CPI, is  unsecured,  bears
                            no  interest  and is due no later than  October  30,
                            2005.

              B.     REPAYMENT DATES:
<TABLE>
<CAPTION>
                                                                                            DECEMBER 31 2002
                                                                                   ----------------------------------
                                                                                   CONVENIENCE
                                                                                   TRANSLATION
                                                                                   -----------
                                                                                     US$'000      (IN THOUSAND NIS)
                                                                                   -----------    -----------------
<S>                 <C>                                                                  <C>          <C>
                    2003 - Current maturities                                         4,350             20,605
                    2004                                                                317              1,500
                    2005                                                              2,872             13,605
                    2006                                                              1,717              8,134
                    2007 and thereafter                                                  53                250
                    Undetermined                                                (*)  72,155        (*) 341,809
                                                                                     ------            -------
                                                                                     81,464            385,903
                                                                                     ======            =======
                    (*) See Note - 15C.
</TABLE>

              C.  LIENS - see Note 18D.

                                     - 24 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 9 -      VENTURE-CAPITAL INVESTMENTS

              A.  COMPOSITION - CONSOLIDATED:
<TABLE>
<CAPTION>

                                                                                                 CONSOLIDATED
                                                                                ----------------------------------------
                                                                                                 DECEMBER 31
                                                                                ----------------------------------------
                                                                                       2002          2002          2001
                                                                                       ----          ----          ----
                                                                                   CONVENIENCE
                                                                                   TRANSLATION
                                                                                   -----------
                                                                                     US$'000          (IN THOUSAND NIS)
                                                                                     -------          -----------------

                     <S>                                                           <C>               <C>         <C>
                     MEDICAL IMAGING LTD. ("EMI") - SEE B.(2) BELOW:
                         THROUGH - ELBIT COMMUNICATION & TECHNOLOGY B.V

                         Olive Software Inc. ("Olive")                                 --             --          24,973

                         THROUGH - SUPERIOR INVESTMENTS LTD

                         Easy Run Ltd. ("E.R.")                                        --             --          14,690
                                                                                     ----           ----          ------
                                                                                       --             --          39,663
                         Provision for impairment of investments                       --             --           4,703
                                                                                     ----           ----          ------
                         Total - Elbit                                                 --             --          34,960
                                                                                     ----           ----          ------

                     ELSCINT GROUP LTD. ("ELSCINT") - SEE B(3) BELOW:
                         (THROUGH ELSCINT BIOMEDICAL LTD.)

                         Gamida Cell Ltd. ("Gamida")                                   --             --          27,846
                         Other                                                         --             --           1,672
                                                                                     ----           ----          ------
                         Total - Elscint                                               --             --          29,518
                                                                                     ----           ----          ------
                                                                                       --             --          64,478
                                                                                     ====           ====          ======
</TABLE>

              B.     ADDITIONAL INFORMATION:

                     (1)    Certain  Group  investments  are carried out through
                            venture-capital  funds, as defined in Standard No. 1
                            of the Israeli Accounting  Standards Board,  engaged
                            in  the   investment  and  management  of  high-tech
                            companies  in Israel and abroad.  These  companies -
                            which have not yet  attained  financial  stability -
                            are engaged in research and development  activities.
                            The value of these  investments  is thus  contingent
                            upon  the   continued   activity  of  the   investee
                            companies,  which  involves  certain risks  stemming
                            from the  nature  of their  activity  including  the
                            uncertainty  associated with the ultimate success of
                            the product development and marketing potential.  It
                            is, therefore, difficult to objectively estimate the
                            fair value of most of these  investments  due to the
                            lack of a verifiable market-value; nevertheless, the
                            funds'  managements are of the opinion that the fair
                            value of the  investments  are not lower  than their
                            cost (net of provisions for decline in values).

                     (2)    The Company agreed, in principle, to receive telecom
                            and  multi-media   consultation   services  from  an
                            employee of the EIL Group,  in exchange for which it
                            would grant the right to purchase a given percentage
                            (to be agreed upon by the parties) of the  Company's
                            holdings in the investee companies, at the Company's
                            cost (shares and shareholders' loans).

                            Due to the  slowdown in the  telecoms  sector and in
                            light of the long  period of time  that has  elapsed
                            since  the  last  investments  carried  out  by  the
                            venture-capital  funds owned by the  venture-capital
                            investments company, the Company's management has at
                            this stage  (starting  the  fourth  quarter of 2002)
                            temporarily postponed additional investments through
                            these  venture-capital  funds.   Consequently,   the
                            Company's  management  believes  that in  accordance
                            with the nature and level of their current activity,
                            the  venture-capital  funds  that it owns  have,  in
                            fact,  lost at this stage their  status as such and,
                            accordingly,  the  investments in Olive and E.R have
                            been  classified in the  financial  statements as of
                            December 31, 2002 as investments in affiliates.

                                     - 25 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 9 - VENTURE-CAPITAL INVESTMENTS (CONT.)

              B.     ADDITIONAL INFORMATION (CONT.):

                     (3)    Elscint   Biomedical   Ltd.   ("EBL")  entered  into
                            agreements  with a company  controlled by its former
                            chief  executive  officer  ("the  CEO"),  within the
                            framework   of  which  he  was  entitled  to  shares
                            representing  2% of  EBL's  issued  and  outstanding
                            share  capital in exchange  for their par value.  In
                            addition,  it was  decided  to make  venture-capital
                            investments  in EBL whereby EBL would invest 92% and
                            the CEO - 8%.  For  financing  his  investment,  EBL
                            would  provide the CEO a  non-recourse  loan bearing
                            interest  of Libor plus 1%. It was also  established
                            that should this or the  consultation  agreement  be
                            cancelled,  EBL would be  entitled  to  acquire  the
                            holdings   of  the   CEO   in  the   venture-capital
                            investments  (in  whole or in  part) at cost  and/or
                            based on their market value, as applicable (based on
                            the acquisition date). In the fourth quarter of 2002
                            EBL and the CEO terminated their  agreement.  Within
                            the   framework   of   this   termination,   Elscint
                            transferred  the rights of the CEO in EBL and in the
                            venture-capital  investments  to its  ownership as a
                            repayment of the loans it had provided him for their
                            acquisition.  The  parties  have not yet  signed  an
                            agreement  for waiving  and/or  settling  any mutual
                            claims (if any). Elscint's management estimates that
                            in any event no  additional  costs are  expected  in
                            respect of the agreements'  termination beyond those
                            already reflected in the financial statements.

                            Concurrent  with the  termination  of the employment
                            contract, as noted, Elscint's management temporarily
                            postponed    additional     investments    in    the
                            biotechnology   field  through  EBL.   Consequently,
                            Elscint believes that in light of the volume as well
                            as nature of its  present  activity it has, in fact,
                            lost at this stage its  status as a  venture-capital
                            fund  and,  accordingly,   has  classified  the  EBL
                            investment  in  Gamida  as  "an   investment  in  an
                            affiliate",    and   its    investments   in   other
                            venture-capital  investments as "investment in other
                            companies".

NOTE 10 -  INVESTMENTS IN INVESTEE AND OTHER COMPANIES

              A.     COMPOSITION AND ACTIVITY:
<TABLE>
<CAPTION>

                                                                                                   CONSOLIDATED
                                                                               ------------------------------------------------
                                                                                                    DECEMBER 31
                                                                               ------------------------------------------------
                                                                                  2002                2002                 2001
                                                                                  ----                ----                 ----
                                                                               CONVENIENCE
                                                                               TRANSLATION
                                                                               -----------
                                                                                 US$'000          (IN THOUSAND NIS)
                                                                                 -------          -----------------
<S>                                                                                <C>               <C>                 <C>
                      AFFILIATED COMPANIES:

                      Shares (1):
                       Cost (*)                                                    25,180            119,279                 --
                       Accumulated losses, net                                       (625)            (2,962)                --
                      Adjustment arising from translation of autonomous
                        investees' financial statements                               (68)              (322)                --
                                                                                   ------            -------             ------
                         Total shares                                              24,487            115,995                 --
                      Debentures convertible into shares (2)                        2,373             11,240                 --
                      A loan (3)                                                      682              3,233                 --
                                                                                   ------            -------             ------
                                                                                   27,542            130,468                 --
                      Provision for impairment of investment (4)                    6,837             32,387                 --
                                                                                   ------            -------             ------
                                                                                   20,705             98,081                 --
                      OTHER COMPANIES- at cost (5)                                    997              4,723             22,638
                                                                                   ------            -------             ------
                                                                                   21,702            102,804             22,638
                                                                                   ======            =======             ======

                      (*) Including - goodwill:

                                                                                  COST              NET BOOK VALVE
                                                              -------------------------------------------------------
                                                                AMORTIZATION                DECEMBER 31
                                                                   RATE           -----------------------------------
                                                                    %             2002           2002            2001
                                                                ------------      ----           ----            ----
                                                                                     (IN THOUSAND NIS)
                                                              -------------------------------------------------------
                                                                    10             79,700             49,800       --
                                                                  ====             ======             ======     ====
</TABLE>

                                     - 26 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 10 -  INVESTMENTS IN INVESTEE AND OTHER COMPANIES (CONT.)

              A.     COMPOSITION AND ACTIVITY: (CONT.)

                     (1) A. GAMIDA CELL LTD. ("GAMIDA")

                            Elscint,  through a wholly owned subsidiary  Elscint
                            Biomedical  ("Bio")  holds  37.1% of the capital and
                            voting rights in Gamida Cell Ltd. ("Gamida") and the
                            rights to appoint 25% of the members of its Board of
                            Directors.

                            Gamida is engaged in the  development  of technology
                            for   multiplying   ("expansion")   of  stem   cells
                            harvested  from cord blood.  The expanded stem cells
                            could   potentially   be  used   for   bone   marrow
                            replacement   for  cancer   patients,   for  genetic
                            therapy,  and at a later stage, for the regeneration
                            of organs and tissues.

                            Some of the shares held by Bio are  ordinary  shares
                            and  some  are  preferred  shares  with  liquidation
                            preference and anti-dilution rights. Bio has options
                            to be  exercised by 2005,  to receive an  additional
                            0.7% in consideration for U.S.$ 165 thousand. Should
                            all the  securities  of  Gamida  in  circulation  be
                            exercised,  Bio's  share in Gamida  will  decline to
                            33.6%.

                            Subsequent to the balance sheet date,  Gamida signed
                            a   memorandum    of    understanding    with   Teva
                            Pharmaceuticals  Ltd. ("Teva"),  in the framework of
                            which Teva will  invest an amount of U.S.$ 3 million
                            in Gamida  against an allotment of shares in it at a
                            rate  of 9%.  Implementation  of the  investment  is
                            subject to signing a detailed  agreement between the
                            parties.

                            In addition,  Gamida signed an additional memorandum
                            of  understanding  with Teva,  in the  framework  of
                            which   Teva  was   given  an  option   for   future
                            cooperation   with   Gamida,   with  regard  to  the
                            technology that Gamida is developing, and subject to
                            conditions agreed between the parties.

                         B. VCON TELECOMMUNICATIONS LTD. ("VCON")

                            Vcon is a public  company whose shares are traded on
                            the French Stock Exchange (Nouveau Marche),  engaged
                            in   the   field   of   long    range    audio   and
                            video-conferencing     equipment    using    various
                            telecommunication  infrastructures.  Vcon's products
                            faciliate  video-conferencing and have been designed
                            primarily  for  business,   distance   learning  and
                            governmental markets.

                            Within  the  framework  of an  investment  agreement
                            between Elbit Ultrasound  (Netherlands) BV ("EUN") -
                            a Dutch corporation owned by the Company - and Vcon,
                            concluded  in August  2002,  a  portion  of the Vcon
                            debentures  held by EUN and totaling $2 million were
                            converted into 2 million  shares.  As a result,  EUN
                            holds 20.3% of the ownership  and control  rights in
                            Vcon as well as the right to appoint one of the nine
                            members of the board of directors.  Accordingly, the
                            investment  of EUN in Vcon has been  included by the
                            equity method starting the fourth quarter of 2002.

                            The value of EUN's holding of Vcon's shares,  on the
                            basis of their quoted price on the stock-exchange in
                            France,  at  December  31,  2002  amounted  to NIS 6
                            million.  The  Company's  adjusted net book value at
                            that time was NIS 19 million.

                            In  addition,  EUN was given  the  right to  acquire
                            during the three years  following the agreement date
                            up to 1.3 million  options in exchange  for $0.3 per
                            each option.  These  options may be  exercised  into
                            non-marketable ordinary options of Vcon within three
                            years from their grant,  in exchange for an exercise
                            price of $1.40 per share  (subject to  adjustments).
                            These  options  may  not be  transferred  to a third
                            party without the consent of Vcon.

                                     - 27 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 10 -  INVESTMENTS IN INVESTEE AND OTHER COMPANIES (CONT.)

              A.     COMPOSITION AND ACTIVITY: (CONT.)

                     (1)    (CONT.)

                         B. VCON TELECOMMUNICATIONS LTD. ("VCON") (CONT.)

                            Following the  conclusion of this  transaction,  EUN
                            holds  2.5  million  out of the  total  4.5  million
                            outstanding debentures (see (2) below).  Assuming an
                            exercise of the rights to acquire the  options,  EUN
                            would also hold  approximately  2.0 million out of 4
                            million outstanding options,  which may be exercised
                            into shares at various  exercise prices up to $18.00
                            (mostly up to $2.00) per option. In addition,  there
                            are 4.0  million  options  outstanding,  which  were
                            issued  to  employees  (of  which  1.5  million  are
                            already  exercisable)  which may be  exercised  into
                            shares at exercise  prices mostly ranging from $1.20
                            to $6.0 per option.  Assuming the  conversion of all
                            the  convertible  debentures  into  shares  and  the
                            exercise of all the outstanding  options,  the share
                            of EUN in Vcon would be approximately 30%.

                            The conversion of part of the convertible securities
                            is contingent upon the advance approval of the Chief
                            Scientist while the sale of the shares issued by the
                            conversion of options or debentures to a third party
                            prior to their  registration for trade is subject to
                            restrictions under the securities  regulation in the
                            US and /or France.

                            Within the terms of the agreement, Vcon undertook to
                            register its shares  (including those resulting from
                            the  conversion  and  options  exercise),  within 18
                            months of the agreement's  conclusion,  for trade on
                            the Nouveau Marche in France.

                            Due to the  continued  considerable  gap between the
                            market  value  of  Vcon  shares  and  the  Company's
                            investment cost therein,  the Company  considered it
                            necessary   to   examine   the  fair  value  of  its
                            investment in Vcon. On the basis of this examination
                            and   based  on  an   economic   valuation   (by  an
                            independent   financial  and  economic  consultation
                            company),  management  decided  to  include  in  the
                            Company's   financial   statements   an   impairment
                            provision of NIS 10.9 million for the investment.

                         C. OLIVE SOFTWARE INC. ("OLIVE")

                            Olive is engaged in the development and marketing of
                            products  enabling a  transparent  link  between the
                            newspapers'  traditional  printing  systems  and the
                            world  of   e-publishing.   These  products   enable
                            newspapers  and magazines to  automatically  present
                            their  printed   edition  on  the  Internet,   while
                            supporting e-commerce applications,  personalization
                            and  interactive   advertising.   In  addition,  the
                            company   develops  and  markets   digital   archive
                            services for newpapers and libraries.

                            Through  EUN,  the Company  owns 36.2% of the equity
                            and  voting  rights in Olive as well as the right to
                            appoint  25% of its board of  directors.  The shares
                            held  by  EUN  have  liquidation  preference  (i.e.,
                            receipt of the Company's  investment in Olive,  plus
                            interest  of  Libor  +  2%  per  annum,  before  any
                            distribution  to  shareholders  holding  ordinary or
                            lower-rank    preferred    shares)    as   well   as
                            anti-dilution  rights.  Olive  and its  shareholders
                            decided to modify the terms of the investment of EUN
                            such that its holding  percentage  would increase by
                            5%. A final agreement in respect thereof has not yet
                            been  signed.  Due  to  Olive's   negotiations  with
                            potential   investors   in  it,   on  the  basis  of
                            fair-value  estimates,  the Company's management has
                            decided to include in these  financial  statements a
                            provision  of NIS 14 million  for the decline in the
                            value of its  investment  in  Olive.  Should  all of
                            Olive's   outstanding   convertible   securities  be
                            converted into shares,  the Company's share in Olive
                            would be diluted to 33%.

                                     - 28 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 10 -  INVESTMENTS IN INVESTEE AND OTHER COMPANIES (CONT.)

              A.     COMPOSITION AND ACTIVITY: (CONT.)

                     (1) (CONT.)

                         D. EASY RUN LTD.  ("E.R.")

                            E.R is engaged in the  development  and marketing of
                            "call  centers"  solutions,  which support under one
                            platform, diversified infrastructure from historical
                            telephonia  to  futuristic   telecom  equipment  (IP
                            switchboards)  and  modern  e-commerce  applications
                            (Web).

                            The  Company's  investment  in ER  was  carried  out
                            through Superior Investments Ltd. ("Superior").  The
                            process of  transferring  the investment to Superior
                            has not yet been concluded.  Through  Superior,  the
                            Company holds 30% of the equity and voting rights in
                            ER as well as the right to appoint  one of the board
                            of  directors'  five  members.   The  Company  holds
                            ordinary as well as  liquidation  shares (as defined
                            in   the   investment   agreements),    before   any
                            distribution  to the ordinary or (the  lower-ranked)
                            preferred  shareholders  as  well  as  anti-dilution
                            rights. Due to delays in the achievement of business
                            goals by ER and in light of the lack of  trading  in
                            its  shares,  the  Company's  management  decided to
                            include in these  financial  statements a provision,
                            which,  at December 31, 2002,  amounted to about NIS
                            7.5  million in  respect of the  decline in value of
                            its investment in ER.

                            Accompanying  financial statements of the affiliates
                            referred  to above  have not been  presented  in the
                            Company's  financial  statements  since they are not
                            significant to the latter's business.

                     (2)    Debentures of $ 2 million bearing annual interest of
                            2%,   whose   principal   is   repayable   in  equal
                            consecutive  quarterly  installments  between  March
                            2004 and December  2006.  These  debentures  will be
                            convertible (in whole or in part), at any time, into
                            non-traded  shares of Vcon, at a conversion price of
                            $ 1.00 per share (subject to adjustments).

                            To effect  repayment of the interest  accrued on the
                            existing  debentures  as well as interest  accruable
                            through  redemption,  the Company  will be issued an
                            additional  non-interest  bearing  debenture of $475
                            thousand,  repayable  at the end of five  years from
                            issuance.  This debenture may be converted, in whole
                            or in  part,  to  non-traded  shares  of  Vcon  at a
                            conversion rate of $1.40 per share.

                            These  debentures  will have  second  priority as to
                            Vcon's repayment of bank loans and have an identical
                            repayment priority to the $2m-debenture  issued to a
                            third party.  As security  for the  repayment of the
                            debentures,  Vcon will record a second-ranking  lien
                            on all its  assets  in  favor of the  Company  and a
                            third party (pari  passu),  with  priority  over all
                            other  pledges other than those granted to the banks
                            and subject to their consent. The debentures are not
                            transferable to a third party without the consent of
                            Vcon.

                            For additional  information regarding the limitation
                            on conversion of the  debentures  into shares and/or
                            the  sale  of the  underlying  shares,  as  well  as
                            contingencies for the transaction's completion - see
                            1b.

                     (3)    The loan is linked to the US dollar,  bears interest
                            of  Libor + 2% and is due in May  2003.  The loan is
                            convertible  into ER  liquidation-preference  shares
                            with anti-dilution rights. In addition,  the Company
                            provided a guarantee  of $90  thousand in favor of a
                            bank as security for a loan granted by it to ER. The
                            Company is  committed  to increase the ER loan up to
                            $100 thousand.

                     (4)    Against  capital   reserves  of  NIS  12.8  million,
                            arising from translation adjustments.

                                     - 29 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 10 -  INVESTMENTS IN INVESTEE AND OTHER COMPANIES (CONT.)

              A.     COMPOSITION AND ACTIVITY (CONT.):

                     (5)    COMPOSITION:
<TABLE>
<CAPTION>

                                                                                         CONSOLIDATED
                                                                                         DECEMBER 31
                                                                            -----------------------------------
                                                                               2002           2002         2001
                                                                               ----           ----         ----
                                                                            CONVENIENCE
                                                                            TRANSLATION
                                                                            -----------
                                                                              US$'000         (IN THOUSAND NIS)
                                                                            -----------    --------------------
<S>                                                                            <C>            <C>          <C>
                            Vcon Telecommunications Ltd.                        --               --        18,953
                            Algotec System Ltd.   (i)                          778            3,685         3,685
                            Other (ii)                                         219            1,038            --
                                                                               ---            -----        ------
                                                                               997            4,723        22,638
                                                                               ===            =====        ======

</TABLE>
                            (i)    Shares  entitling  18.4% of the  capital  and
                                   voting rights.

                            (ii)   Loans   to    companies    engaged   in   the
                                   biotechnology field, linked to the US dollar,
                                   bearing  prevailing market interest rates and
                                   convertible  into  shares  of  the  borrowing
                                   companies,  upon the  fulfillment  of certain
                                   conditions, as defined in the agreements. The
                                   balance of NIS 260 thousand is presented  net
                                   of the allowance of doubtful accounts.

<TABLE>
<CAPTION>

                                                                                         CONSOLIDATED
                                                                                         DECEMBER 31
                                                                            -------------------------------------
                                                                               2002           2002           2001
                                                                               ----           ----           ----
                                                                            CONVENIENCE
                                                                            TRANSLATION
                                                                            -----------
                                                                              US$'000         (IN THOUSAND NIS)
                                                                            -----------    ----------------------
<S>                                                                         <C>          <C>         <C>
                     CONSOLIDATED COMPANIES:
                     Shares -                                               240,183      1,137,769   (*) 1,013,362
                     Company's shares held by a consolidated
                       company                                               (8,669)       (41,065)        (41,065)
                                                                            -------      ---------       ---------
                     TOTAL SHARES                                           231,514      1,096,704         972,297
                     Loans                                                   69,526        329,349     (*) 317,519
                                                                            -------      ---------       ---------
                                                                            301,040      1,426,053       1,289,816
                                                                            =======      =========       =========
              (*) Reclassified.

                     THE INVESTMENT ACTIVITY DURING 2002 FOLLOWS:

                                                                                         (IN THOUSAND NIS)
                                                                                         -----------------

                    BALANCE AT THE BEGINNING OF THE YEAR                                   972,297

                    ACTIVITY DURING THE YEAR:

                    Investment in shares                                                       862
                    Provision for impairment of investment                                  (2,785)
                    Share in profits                                                       123,814
                    Dividends                                                              (54,775)
                    Adjustment arising from translation
                      of autonomous investees' financial statements                        57,291
                                                                                         ---------
                    BALANCE AT THE END OF THE YEAR                                       1,096,704
                                                                                         =========
</TABLE>

                                     - 30 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 10 -  INVESTMENTS IN INVESTEE AND OTHER COMPANIES (CONT.)


              B.     ADDITIONAL INFORMATION CONCERNING INVESTMENT IN INVESTEE
                     COMPANIES

                     (1) HOTELS SEGMENT - BEA HOTELS GROUP ("B.H.")

                         A. GENERAL

                            In September  1999, the Company  acquired Bea Hotels
                            N.V.,  (a company  incorporated  in Holland),  which
                            owns   hotels    (both    operational    and   under
                            construction),  from BEA  Holding  B.V.  ("BEA") - a
                            company controlled by EIL.

                         B. ADDITIONAL  DATA  CONCERNING  THE HOTELS HELD BY THE
                            B.H. GROUP

                            (1)  VICTORIA HOTEL C.V. - A LIMITED PARTNERSHIP
                                 ("VHCV")

                            The  Victoria  Hotel  in  Amsterdam  is  owned  by a
                            limited partnership  registered in Holland.  VHCV is
                            held by a subsidiary of the Company  ("VEII") and an
                            additional  company,  a member of the Red Sea Hotels
                            Group - 50% (directly and  indirectly) by each party
                            (hereafter  - "the Limited  Partnership").  VHRI - a
                            company  owned by the Limited  Partnership  - is the
                            general  partner  in  the  partnership  and  manages
                            VHCV's business under agreement.

                            The   limited   partners   in   the   VHCV   Limited
                            Partnership,  which serve as directors in VHRI,  may
                            be  held  jointly  and  severally   liable  for  the
                            obligations of the limited partnership.

                            (2)  SHAW HOTEL HOLDING B.V. ("SHH")

                            On completion of the  reorganization  process of the
                            structure  of  holdings  of  hotels  in  England  in
                            December  2002,  the Shaw Park Plaza Hotel in London
                            will be  owned  by SHH,  which  is  incorporated  in
                            Holland  and  35% of its  share  capital  is held by
                            B.H.,  35% - held by the Red Sea Hotels  Group while
                            the balance of the shares  (30%) are held by another
                            corporation  (hereinafter - "the Shareholders").  On
                            December  31, 2002 SHH also held  (indirectly)  also
                            the  shares  of  the   Hotel's   operating   company
                            (hereinafter - "ERO"). Concurrently with the leasing
                            of the Hotel to a third  party ("the  Lessee"),  ERO
                            entered  into an  agreement  with the Lessee to sell
                            the hotel's  operations  (including the portfolio of
                            customers, the inventories and goodwill).

                            The  shareholders  and the  companies  controlled by
                            them have an  agreement  between  themselves  in the
                            framework  of which the terms of holding  the shares
                            in  SHH,  inter  alia,   have  been  arranged.   The
                            agreement  stipulates that every shareholder has the
                            right to  appoint  up to 2  directors,  where  every
                            director will have voting power in proportion to the
                            number of shares of the  shareholder  appointing him
                            and  proportionally  to the number of  directors  on
                            behalf of that  shareholder  present at the meeting,
                            without giving a casting vote to the Chairman of the
                            Board of  Directors  or the  Chairman of the General
                            Meeting, as the case may be. Decisions regarding the
                            companies' budgets will be taken after obtaining the
                            agreement   of  every   shareholder.   Decisions  at
                            meetings  of the  Board  of  Directors  and  General
                            Meetings will be passed by a majority,  but a number
                            of important  matters  have been  decided  where the
                            decision must be unanimous.

                            Park Plaza Hotels  Europe Ltd.  (hereinafter  - "the
                            Management Company") has an option to receive 10% of
                            the share capital of SHH (out of the holdings of the
                            Company  and  of  the  Red  Sea  Hotels   Group  and
                            proportionally  to their  holdings - 5% each party),
                            in consideration  for participation at a rate of 10%
                            in all investments of  shareholders,  up to the date
                            of realizing the option.  The validity of the option
                            has been  extended by  agreement  up to December 31,
                            2004.  No  extension  agreement  has yet been signed
                            between the parties. If the option is exercised, the
                            holdings of B.H. in SHH will be reduced to 30%.

                                     - 31 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 10 -  INVESTMENTS IN INVESTEE AND OTHER COMPANIES (CONT.)

              B.     ADDITIONAL   INFORMATION  CONCERNING  INVESTMENT  IN
                     INVESTEE COMPANIES (CONT.)

                     (1) HOTELS SEGMENT - BEA HOTELS GROUP ("B.H.") (CONT.)

                            B.   ADDITIONAL DATA CONCERNING THE HOTELS HELD BY
                                 THE B.H. GROUP (CONT.)

                                 (3)  GRANDIS NETHERLANDS HOLDING B.V.
                                      ("GRANDIS")

                                      B.H. holds 45% of the rights in Grandis, a
                                      Dutch   corporation   holding  a  sublease
                                      interest  in  the  "Sherlock  Holmes  Park
                                      Plaza  Hotel",  an  operational  hotel  in
                                      London.  A  further  45% of the  remaining
                                      rights   are  held  by  a  Red  Sea  Group
                                      subsidiary,  with the  balance of 10% held
                                      by a management company.

                                      The  shareholders  of Grandis  have agreed
                                      that  the  shares  held by the  management
                                      company would not carry any voting rights.
                                      In order to achieve this,  the  management
                                      company has granted  B.H.  and the Red Sea
                                      Group  subsidiary  a power of  attorney to
                                      vote  jointly  in its name and in the name
                                      of  the   management   company   in  every
                                      shareholders  meeting and in every  matter
                                      requiring  the  decision of  shareholders.
                                      B.H. is  entitled to appoint one  director
                                      (of two) in Grandis.

                                 (4)  RIVER BANK HOTEL HOLDING B.V. ("RBH")

                                      On   completion   of  the   reorganization
                                      process of the  structure  of the  hotels'
                                      holdings in England,  from December  2002,
                                      RBH - a company  incorporated in Holland -
                                      will hold the leasehold  rights of land on
                                      the banks of the  Thames  River in London.
                                      B.H.  holds 45% of the  rights of RBH,  an
                                      additional  45%  are  held  by the Red Sea
                                      Group  and 10% are held by the  management
                                      company.  Among the shareholders of RBH it
                                      was agreed that the shares, which are held
                                      by the  management  company,  will have no
                                      voting rights whatsoever.

                                 (5)  VICTORIA LONDON HOTEL HOLDING B.V. ("VLH")

                                      On completing  the  reorganization  of the
                                      structure  of  the  hotels'   holdings  in
                                      England in December  2002, VLH - a company
                                      incorporated  in  Holland  - will hold the
                                      ownership  rights  in  the  land  and  the
                                      Victoria Park Plaza Hotel,  built on it in
                                      London.  B.H.  holds 50% of the  rights in
                                      VLH, an additional 45% are held by the Red
                                      Sea   Group   and  5%  are   held  by  the
                                      management  company. It was agreed between
                                      the  shareholders  of VLH that the  shares
                                      held by the  management  company will have
                                      no  voting  rights  whatsoever,  thus  the
                                      voting  rights are divided 50% to B.H. and
                                      50% to the Red Sea Group.

                                     - 32 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 10 -  INVESTMENTS IN INVESTEE AND OTHER COMPANIES (CONT.)

              B.     ADDITIONAL  INFORMATION  CONCERNING  INVESTMENT IN INVESTEE
                     COMPANIES (CONT.)

                     (1) HOTELS SEGMENT - BEA HOTELS GROUP ("B.H.") (CONT.)

                         B. ADDITIONAL DATA CONCERNING THE HOTELS HELD BY THE
                            B.H. GROUP (CONT.)

                            (6)  PARK PLAZA HOTEL (SANDTON) (PTY) LTD.
                                 ("SANDTON")

                                      B.H. owns (through a company  incorporated
                                      in Holland) 33.3% of the rights in a hotel
                                      operating  in  South  Africa,  which is in
                                      turn  owned  by  Sandton.   The  remaining
                                      rights  are held  (indirectly)  by the Red
                                      Sea Group and another  company (which is a
                                      related party to the  management  company)
                                      (33.3%   to   each   party)   (hereinafter
                                      together - "the Shareholders").

                                      The  agreement   establishing   the  Dutch
                                      incorporated  holding  company  stipulates
                                      that each  party has the right to  appoint
                                      one director and that the  resolutions  of
                                      the  Board of  Directors  and the  General
                                      Meetings  will  be  passed  by a  majority
                                      vote;   however,   it  was  resolved  that
                                      certain  key  matters   would   require  a
                                      unanimous decision.

                                      The parties to the  agreement are entitled
                                      to and are liable for in equal  shares all
                                      the rights and obligations  connected with
                                      and/or  relating to the hotel,  to Sandton
                                      and to the hotel's operating company,  and
                                      this includes,  inter alia, the obligation
                                      to   provide    credit,    guarantees   or
                                      shareholders'  capital,  as necessary  for
                                      the  acquisition  and/or  operation of the
                                      hotel.

                            (7)  SC BUCURESTI TOURISM S.A. ("BUCURESTI")

                                      i.  B.H. holds all the rights (in capital,
                                          voting and the  rights to appoint  all
                                          directors)  in a company  known as BEA
                                          Hotels  Eastern  Europe B.V.  ("BHEE")
                                          (incorporated in Holland) which holds,
                                          indirectly  - through  a wholly  owned
                                          and controlled  company,  incorporated
                                          in   Romania   ("Domino")   -  69%  of
                                          Bucuresti.  Bucuresti  owns a  complex
                                          including an hotel, an apartment hotel
                                          and  a  restaurant,  situated  in  the
                                          center  of  Bucharest,  Romania  ("the
                                          Bucuresti  Complex").   Bucuresti  was
                                          purchased   through  a   privatization
                                          tender    published   by   the   State
                                          Ownership   Fund   of   the   Romanian
                                          government    ("SOF").    The   tender
                                          procedure  was  approved by a decision
                                          of the Supreme  Court of Romania.  The
                                          cost of the  acquisition of the rights
                                          in  the  complex   (including  related
                                          costs of the purchase) totaled NIS 172
                                          million.

                                          The   acquisition  of  the  rights  in
                                          Bucuresti  was  carried out within the
                                          framework   of   a    memorandum    of
                                          understanding    ("MOU")    for    the
                                          establishment  of a joint  venture  in
                                          which  80% of the  rights  were  to be
                                          held by B.H.  and 20% of the rights by
                                          an unrelated third party ("Third Party
                                          Shareholder").  Based on the  terms of
                                          the MOU,  B.H.  is entitled to receive
                                          100%  of   Domino's   profits   to  be
                                          distributed  as  dividends  up  to  an
                                          aggregate  amount of U.S.$ 2  million.
                                          Income   above  this  amount  will  be
                                          distributed  according to the ratio of
                                          holdings (80%: 20%).

                                          In addition,  B.H. has a Put Option to
                                          demand    that   the    Third    Party
                                          Shareholder  increase  its  percentage
                                          shareholding  (in accordance  with the
                                          cost of the full  investment) from 20%
                                          to  50%  for  the  period  and  on the
                                          conditions   as  agreed   between  the
                                          parties.   The  parties  undertook  to
                                          finance the  renovation  of the hotel,
                                          should this be required. Should one of
                                          the parties not provide the  financing
                                          in  proportion   to  its  share,   its
                                          holdings  will be diluted based on the
                                          mechanism to be agreed.

                                          In December  2001 all of the shares in
                                          Domino were transferred to BHEE.

                                     - 33 -
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                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 10 -  INVESTMENTS IN INVESTEE AND OTHER COMPANIES (CONT.)

              B.     ADDITIONAL  INFORMATION  CONCERNING  INVESTMENT IN INVESTEE
                     COMPANIES (CONT.)

                     (1) HOTELS SEGMENT - BEA HOTELS GROUP ("B.H.") (CONT.)

                     B.  ADDITIONAL  DATA CONCERNING THE HOTELS HELD BY THE B.H.
                         GROUP (CONT.)

                            (7)  SC BUCURESTI TOURISM S.A. ("BUCURESTI") (CONT.)

                                      i.  (Cont.) As a result of a dispute which
                                          arose between B.H. and the Third Party
                                          Shareholder  regarding  compliance  by
                                          the Third Party  Shareholder  with its
                                          obligations to provide  indemnities to
                                          B.H.  pertaining  to  the  results  of
                                          certain matters pending against Domino
                                          (the circumstances and causes of which
                                          arose  prior to the  signature  of the
                                          MOU  concluded  between the parties in
                                          respect   of   the    acquisition   of
                                          Bucuresti),  B.H  is  withholding  the
                                          shares of the Third Party  Shareholder
                                          (20%)   in   BHEE  as   security   for
                                          compliance    by   the   Third   Party
                                          Shareholder with its  obligations,  so
                                          that formally B.H. is,  therefore,  on
                                          the   issuance   date   of   financial
                                          statements,  the  owner of 100% of the
                                          capital  and voting  rights in Domino.
                                          The  results  of this  dispute  do not
                                          have  an  effect  on  the  results  of
                                          operations  of B.H.  for the  reported
                                          periods  and/or  on the  amount of its
                                          shareholders'  equity  as at  December
                                          31, 2002.

                                          BHEE  filed a monetary  claim  against
                                          the  Third  Party   Shareholder  as  a
                                          result of its  failure to comply  with
                                          the  terms of the  indemnity  given by
                                          it,  within  the  framework  of  which
                                          attachments were imposed on the assets
                                          of the  Third  Party  Shareholder.  In
                                          October    2002   the   Third    Party
                                          Shareholder  filed an application with
                                          the Court to  transfer  the dispute to
                                          arbitration  in  accordance  with  the
                                          provisions  of the MOU. BHEE filed its
                                          objection to this application,  and in
                                          December  2002 the court  rejected the
                                          Third Party Shareholder's  application
                                          to    transfer    the    dispute    to
                                          arbitration.  As a result, in February
                                          2003 the Third Party Shareholder filed
                                          a statement of defense relating to the
                                          claim.

                                      ii. An  application  submitted to the High
                                          Court of  Romania to cancel the tender
                                          under  which  Domino   purchased   the
                                          controlling  shares of Bucuresti,  was
                                          rejected  by the  Court.  This  ruling
                                          could be  appealed  to the High Court.
                                          Up to  the  date  of  approval  of the
                                          financial  statements  no  appeal  has
                                          been  filed.  As the period of time to
                                          serve an appeal has passed,  the legal
                                          advisors of Domino  consider that this
                                          matter  may  be  considered  as  being
                                          closed.  An  additional  claim for the
                                          cancellation   of  the   tender,   the
                                          cancellation     of     the     entire
                                          privatization   process   relating  to
                                          Bucuresti  and  the   cancellation  of
                                          Domino's rights in Bucuresti's  shares
                                          has been  filed  with the  Magistrates
                                          Court in  Bucharest,  Romania.  In the
                                          pre-trial  hearing which took place on
                                          March 6, 2003 the Court  rejected  the
                                          claim in limine.

                                     iii. A criminal  investigation  carried out
                                          against   a   number    of    suspects
                                          (including  former officers in SOF who
                                          were  involved  in  the  privatization
                                          process and the sale of control in the
                                          Bucuresti  Hotel to Domino) for events
                                          relating  to the  period  prior to the
                                          acquisition of control in Bucuresti by
                                          B.H.,  culminated  in the filing of an
                                          indictment  against  17  accused.  The
                                          hearings  in  these  proceedings  have
                                          been deferred  until  September  2003.
                                          These criminal proceedings may have an
                                          indirect effect on the validity of the
                                          privatization  and thereby an indirect
                                          effect   on    Domino's    rights   in
                                          Bucuresti,   despite   the  fact  that
                                          Domino is not an accused  party  under
                                          the indictment. Domino's legal counsel
                                          cannot  estimate  at  this  stage  the
                                          results of the criminal proceedings or
                                          their  effect  on  Domino's  rights in
                                          Bucuresti.

                                     - 34 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 10 -  INVESTMENTS IN INVESTEE AND OTHER COMPANIES (CONT.)

           B.        ADDITIONAL  INFORMATION  CONCERNING  INVESTMENT IN INVESTEE
                     COMPANIES (CONT.)

                     (1) HOTELS SEGMENT - BEA HOTELS GROUP ("B.H.") (CONT.)

                         B. ADDITIONAL DATA CONCERNING THE HOTELS HELD BY THE
                            B.H. GROUP (CONT.)

                            (7)  SC BUCURESTI TOURISM S.A. ("BUCURESTI") (CONT.)

                                      iv. The Third Party  Shareholder (a former
                                          shareholder  in  Domino - see i above)
                                          cancelled  the  partnership  agreement
                                          that it made with another  third party
                                          ("the   Plaintiff")   regarding  their
                                          joint  investment  in Domino  prior to
                                          its   acquisition   by  B.H.,  on  the
                                          grounds  of   non-compliance   by  the
                                          Plaintiff    with   its    fundamental
                                          obligations   under  the   partnership
                                          agreement.  As a result, the Plaintiff
                                          filed a  monetary  claim in the courts
                                          in Romania  against Domino and others,
                                          for an  amount of $ 2.5  million,  for
                                          commissions  allegedly  due  to  it in
                                          terms     of    the     abovementioned
                                          partnership  agreement,  and to  which
                                          Domino  was a  party.  Domino's  legal
                                          advisors  in  respect  of this  matter
                                          estimate  that the  Plaintiff  will be
                                          unable,  for  procedural  reasons,  to
                                          complete the  proceedings  relating to
                                          the  claim.  This  claim is covered by
                                          the  indemnity  given  to B.H.  by the
                                          Third Party Shareholder.

                                          On  the  date  of   approval   of  the
                                          financial   statements  an  additional
                                          claim filed against  Domino by another
                                          third party is  pending,  in which the
                                          main reliefs  claimed under it are the
                                          payment  of the same  commission  of $
                                          2.5  million  in  accordance  with the
                                          partnership agreement mentioned above,
                                          and the  cancellation  of an agreement
                                          with  a  bank  in  Israel  within  the
                                          framework   of  which  the  shares  of
                                          Domino in  Bucuresti  were  pledged in
                                          favor of the bank.

                                          The Company received an indemnity from
                                          the Third  Party  Shareholder  against
                                          these claims (see i above).

                                          In  Domino's  opinion,  based on legal
                                          advice received,  these claims have no
                                          legal or contractual basis whatsoever,
                                          and  the  third  party  has  no  legal
                                          standing    to   make   its    claims.
                                          Accordingly,  no  provision  for these
                                          claims is  included  in the  financial
                                          statements.

                                      v.  In the  framework  of an  agreement to
                                          establish  a joint  company  owned  by
                                          Bucuresti and a third party, which was
                                          signed  prior  to the  acquisition  of
                                          Bucuresti  by B.H.,  that third  party
                                          undertook  to invest $ 27  million  in
                                          the   said   joint   company   and  in
                                          consideration  Bucuresti  undertook to
                                          transfer  its rights in the  Bucuresti
                                          Complex to the  ownership of the joint
                                          company. As that third party failed to
                                          meet   its   obligations,    Bucuresti
                                          cancelled the partnership contract and
                                          also filed an application to the Court
                                          to  liquidate  the joint  company.  At
                                          this stage, the parties are litigating
                                          regarding  the sole  authority  of the
                                          Romanian    Courts    to    issue   an
                                          instruction  to  liquidate  the  joint
                                          company and not regarding the transfer
                                          of rights in the Bucuresti  Complex to
                                          the joint  company.  If  Bucuresti  is
                                          forced to  transfer  its rights in the
                                          Bucuresti   Complex   to   the   joint
                                          company,  then its rights in the hotel
                                          are   likely   to   be   significantly
                                          prejudiced.  B.H.'s  management  is of
                                          the opinion that it is not  reasonable
                                          that   as  a   result   of  the   said
                                          proceedings  Bucuresti  will be forced
                                          to   transfer   its   rights   in  the
                                          Bucuresti   Complex   to   the   joint
                                          company.

                                     - 35 -
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                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 10 -  INVESTMENTS IN INVESTEE AND OTHER COMPANIES (CONT.)

              B.     ADDITIONAL   INFORMATION  CONCERNING  INVESTMENT  IN
                     INVESTEE COMPANIES (CONT.)

                     (1) HOTELS SEGMENT - BEA HOTELS GROUP ("B.H.") (CONT.)

                         B. ADDITIONAL DATA CONCERNING THE HOTELS HELD BY THE
                         B.H. GROUP (CONT.)

                            (7)  SC BUCURESTI TOURISM S.A. ("BUCURESTI") (CONT.)

                                      vi. In addition, certain legal proceedings
                                          are being  conducted in Romania within
                                          the  framework  of which it is claimed
                                          that resolutions passed at the general
                                          meetings of shareholders of Bucuresti,
                                          were  not   validly   adopted   -  for
                                          procedural  reasons only - and are not
                                          binding.  Some  of  these  proceedings
                                          were  approved  by  the  Court  and in
                                          respect  of  others  Domino  has filed
                                          appeals,    while    some   of   these
                                          proceedings   were   rejected  by  the
                                          Courts.

                                          B.H.'s  management  is of the  opinion
                                          that  the  claims  are   spurious  and
                                          tendentious and that these claims will
                                          not significantly affect B.H.'s rights
                                          in the shares of Bucuresti  and in the
                                          Bucuresti Complex owned by it.

                                    vii.  Two   claims   are   pending   against
                                          Bucuresti,    which    challenge   its
                                          ownership in its properties (including
                                          an appeal  relating  to the  period of
                                          the   State's    ownership    of   the
                                          properties  which are the  subject  of
                                          the  claim,   prior  to  the  sale  of
                                          Bucuresti's shares to Domino).  One of
                                          the  claims  is   rejected,   but  the
                                          plaintiffs  have the  right to  appeal
                                          this ruling,  and  regarding the other
                                          claim, the legal advisors are not able
                                          to estimate the outcome.

                                   viii.  There  are legal  proceedings  against
                                          Domino    and/or    Bucuresti    ("the
                                          Companies")      regarding     various
                                          activities  carried  out in the normal
                                          course of business, for a total amount
                                          of $ 160  thousand.  In the opinion of
                                          B.H.'s management, B.H. will not incur
                                          any significant  additional costs over
                                          and  above   those   included  in  the
                                          provision in the financial statements.

                            (8)  PROVISION FOR IMPAIRMENT IN VALUE OF
                                 INVESTMENTS

                                          Repeated    postponements    in    the
                                          execution  of  infrastructure  work by
                                          the  Belgium  authorities  next to the
                                          hotel owned (but not  controlled) by a
                                          Belgium    investee   have   adversely
                                          affected  its  activity.  In  light of
                                          these postponements  Elscint deemed it
                                          necessary  to  reexamine  the adjusted
                                          value of its investment in the company
                                          owning  the  hotel.   Following   that
                                          examination  Elscint  included  in its
                                          financial  statements  a provision  of
                                          NIS 23.2 million as an  adjustment  of
                                          that  investment's  value  to its fair
                                          value  (NIS  11.3  million  -  against
                                          capital   reserves  from   translation
                                          adjustments  and NIS 11.9 million - in
                                          "other income (expenses)" (see Note 2g
                                          above)).   The   fair   value  of  the
                                          investment  was  determined  based on,
                                          among   other   things,   a  valuation
                                          obtained    from    an     independent
                                          appraiser.

                                     - 36 -
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                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 10 -  INVESTMENTS IN INVESTEE AND OTHER COMPANIES (CONT.)

              B.     ADDITIONAL   INFORMATION  CONCERNING  INVESTMENT  IN
                     INVESTEE COMPANIES (CONT.)

                     (1) HOTELS SEGMENT - BEA HOTELS GROUP ("B.H.") (CONT.)

                            C.   HOTEL MANAGEMENT AGREEMENTS

                                 (1)  HOTELS IN HOLLAND (OWNED BY VHCV AND UVH),
                                      HOTEL IN BELGIUM (OWNED BY AP) AND A HOTEL
                                      IN ENGLAND (OWNED BY SHH, GRANDIS AND VLH)

                                      The Park Plaza  Hotels  Europe Ltd.  ("the
                                      Management  Company")  owns the concession
                                      to use the Park  Plaza  brand  name and to
                                      operate   hotels   under  its   management
                                      system.

                                      The  hotels  are  directly  managed by the
                                      management   company,  in  return  for  an
                                      annual fee of 7% of the operating  profit.
                                      The companies  also share in the necessary
                                      expenses   incurred   by  the   management
                                      company   in   the   performance   of  its
                                      contractual   obligations.    Should   the
                                      companies sell the hotels owned by them or
                                      should  the  control in any one of them be
                                      transferred   to  a   third   party,   the
                                      companies   are  to  pay  the   management
                                      company an amount  calculated  as being 7%
                                      of the  (gross)  operating  profit  of the
                                      year preceding  that sale or transfer.  In
                                      such case, VHCV is also to pay 2.5% of any
                                      gain derived from the sale of the hotel.

                                      Information  pertaining  to the leasing of
                                      SPP Hotel to an unrelated hotel company is
                                      provided in Note11c.1 See (2) below.

                                      With  regard to the hotel  owned by AP, it
                                      has been agreed that should the  operating
                                      profit  (gross)  of the hotel be less than
                                      Euro 1,735  thousand (NIS 8,623  thousand)
                                      during  each  of the  first 5  years,  the
                                      management  company is obligated to pay an
                                      amount  equal  to the  difference  between
                                      that  amount  and the amount of the actual
                                      (gross) operating  profit.  Implementation
                                      of this  condition  has been  postponed by
                                      agreement of the parties,  and the parties
                                      are discussing amending or rescinding this
                                      condition.   Accordingly,   the  financial
                                      statements    do   not   include    income
                                      receivable.

                                 (2)  ANDRASSY  25  KFT.  ("ANDRASSY")  -  HOTEL
                                      UNDER CONSTRUCTION

                                      In  December  2002  the  hotel  management
                                      company ("HMC") signed a 20-year agreement
                                      with  Andrassy  (which  owns the rights in
                                      the  (preserved)  National Ballet Building
                                      for  operating  the  hotel  following  the
                                      building's  renovation and conversion into
                                      a hotel.  In  exchange,  the  operator  is
                                      entitled   to   receive  a  basic   salary
                                      equaling  a  percentage   of  the  (gross)
                                      revenues, plus a management fee equaling a
                                      percentage  of the operating  income.  The
                                      operator   guarantees  that  the  adjusted
                                      operating  income  will not be lower  than
                                      fixed amounts stipulated in the agreement.
                                      Moreover,  Andrassy  participates in other
                                      expenses  incurred  by HMC and which  were
                                      required    within   the    framework   of
                                      fulfillment   of   its    responsibilities
                                      (marketing  expenses etc.). This agreement
                                      is  contingent  upon the  approval  of the
                                      boards of directors of the two contracting
                                      companies.

                                     - 37 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 10 -  INVESTMENTS IN INVESTEE AND OTHER COMPANIES (CONT.)

              B.     ADDITIONAL   INFORMATION  CONCERNING  INVESTMENT  IN
                     INVESTEE COMPANIES (CONT.)

                     (1) HOTELS SEGMENT - BEA HOTELS GROUP ("B.H.") (CONT.)

                            D.   FRANCHISE AGREEMENTS

                                 Within the terms of the  management  agreements
                                 B.H. Group  companies  ("the  Companies")  were
                                 granted a secondary franchise by the management
                                 company  permitting  the use of the name  "Park
                                 Plaza" in consideration  for monthly  royalties
                                 of up to 3% of the  gross  hotel-room  revenues
                                 ("the Franchise Agreement").

                                 The Companies undertook to indemnify Park Plaza
                                 International   and  related  parties  for  any
                                 claim,  damage  or  expense  incurred  by it in
                                 connection  with the hotels or the  performance
                                 of Park Plaza International's commitments under
                                 the agreement.  The Franchise Arrangement is to
                                 remain in force throughout the entire period of
                                 the management agreements.

                            E.   SUBSIDY   IN  RESPECT   OF   PARTICIPATION   IN
                                 HOTEL-EMPLOYEE WAGES

                                 Under Belgian law,  under  certain  conditions,
                                 companies that create employment  opportunities
                                 are  entitled  to  receive a  subsidy  from the
                                 government  in  the  form  of  a   contribution
                                 towards the salary of  employees,  based on the
                                 amount  of  the   investment   to  create  such
                                 positions, up to a certain maximum limit.

                                 Due to a dispute  between AP (a subsidiary) and
                                 the Belgium  government  concerning AP's status
                                 in connection with the scope and  applicability
                                 of  the  subsidy's  provisions,   the  previous
                                 years' financial statements did not include any
                                 income in  respect  of  participation  in hotel
                                 employees'   wages.   In  September   2002  the
                                 government  approved  for  AP  such  a  subsidy
                                 totaling   (euro)1.09   million   (net   of   a
                                 commission) and,  accordingly,  this amount was
                                 included  in  2002 as a  participation  in wage
                                 costs.

                     (2) COMMERCIAL CENTER AT THE HERZLIYA MARINA

                            A.   In September 1999 a subsidiary of Elscint (SLS)
                                 signed an agreement  with the  Herzliya  Marina
                                 Limited  Partnership ("the  Partnership"),  and
                                 Herzliya  Marina  (Holdings) Ltd. ("the Limited
                                 Partner") - a company in which Control  Centers
                                 Ltd. holds a majority of the shares,  entitling
                                 holders   to    management    rights   in   the
                                 partnership,  as well as the majority of shares
                                 entitling holders to voting rights. Pursuant to
                                 the agreement,  SLS acquired the commercial and
                                 entertainment  center being  constructed by the
                                 Partnership  at the marina.  Completion  of the
                                 transaction is contingent  upon the transfer of
                                 the real  estate  (which  is  dependent,  among
                                 other  things,  on the  completion  of  certain
                                 activities  by the  partnership,  and receiving
                                 certain  approvals from various  authorities to
                                 carry out the activities)  and  registration in
                                 the name of the  purchaser  in the Israel Lands
                                 Registry.  As of the  issuance  date  of  these
                                 financial  statements,  the  land  has not been
                                 transferred to SLS. To secure the Partnership's
                                 commitments  under the above agreement,  90% of
                                 the  proceeds  were  deposited  in trust  until
                                 satisfaction of all the obligations  under this
                                 agreement.

                                     - 38 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 10 -  INVESTMENTS IN INVESTEE AND OTHER COMPANIES (CONT.)

              B.     ADDITIONAL   INFORMATION  CONCERNING  INVESTMENT  IN
                     INVESTEE COMPANIES (CONT.)

                     (2) COMMERCIAL CENTER AT THE HERZLIYA MARINA (CONT.)

                            B.   In April 2002,  SLS entered  into an  agreement
                                 with a  company  in the  Control  Center  group
                                 (hereinafter  -  "contractor"),  in  accordance
                                 with which the contractor undertook to complete
                                 the  construction  of  the  Commercial  Center,
                                 including   development   as   defined  in  the
                                 agreement,   for  a   consideration   of  $57.7
                                 million,  which  is to be  paid  based  on  the
                                 progress of the work  (hereinafter  - "the Work
                                 Consideration").  The consideration  amount was
                                 set  based on a  calculation  of the  remaining
                                 work as of March 1,  2002.  The  amount  of the
                                 Work  Consideration was determined on the basis
                                 of a  calculation  of the work  remaining to be
                                 performed  as of March 1, 2002.  As of December
                                 31, 2002, the cost of fee work accrued in SLS's
                                 books  for  the  contract   amounted  to  $16.8
                                 million. The work covered by the agreement does
                                 not  include  specific  activities,  which were
                                 detailed in the  agreement  (mainly - planning,
                                 marketing,  license fees and supervision),  the
                                 cost  of  which  is  to be  borne  by  SLS.  In
                                 addition,   the  agreement  provides  that  the
                                 contractor  is to bear the cost of  alterations
                                 for  tenants,  based on  specifications  in the
                                 agreement.  The contractor undertook to deliver
                                 the   Commercial   Center  to  SLS,  ready  for
                                 commercial  operation  ("turn  key"),  no later
                                 than March 2003.

                                 The  consideration for alterations not included
                                 in the specifications is to be determined based
                                 on a mechanism  described in the agreement.  As
                                 of  the  issuance   date  of  these   financial
                                 statements  the  agreement  had  not  yet  been
                                 closed. Upon execution of the agreement, SLS is
                                 to pay  to  the  contractor  an  advance  of $3
                                 million on  account  of the Work  Consideration
                                 and, concurrently, the contractor is to provide
                                 SLS with a bank  guarantee  to the extent of 5%
                                 of the Work Consideration.  In addition, SLS is
                                 obligated,  as part of the agreement, to assign
                                 all  of  its  rights  and  obligations  to  the
                                 contractor  under  agreements,  which it signed
                                 with  various   suppliers,   except  for  those
                                 specified  in  the  agreement.   The  agreement
                                 includes a number of conditions,  the breach of
                                 which is considered  as a  fundamental  breach,
                                 which  confers  the  remedies   stated  in  the
                                 agreement.  The  agreement  was approved by the
                                 General Meeting of Elscint's shareholders.

                            C.   SLS's  agreements  for leasing  the  commercial
                                 space  are for an  average  term of 5 years and
                                 they are generally on standard conditions.  The
                                 rentals comprise a basic rent per sq. m. and in
                                 certain  cases a percentage  of  turnover.  The
                                 agreements  include,  among other stipulations,
                                 provisions  requiring  the tenant to contribute
                                 to the  advertising  expenses of the commercial
                                 center  while  under  construction,  management
                                 fees etc.

                                     - 39 -
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                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 10 -  INVESTMENTS IN INVESTEE AND OTHER COMPANIES (CONT.)

              B.     ADDITIONAL   INFORMATION  CONCERNING  INVESTMENT  IN
                     INVESTEE COMPANIES (CONT.)

                     (3) COMMERCIAL CENTERS IN CENTRAL AND EASTERN EUROPE

                            A.   GENERAL

                                 In    September    2000,    Elbit    Ultrasound
                                 (Netherlands)  BV ("EUN") under the terms of an
                                 agreement acquired from BEA Holding BV ("BEA" a
                                 subsidiary of EIL) all of its holdings in Plaza
                                 Centers  (Europe)  BV ("PC"),  which up to then
                                 held half of the rights of the  Commercial  and
                                 Entertainment   Centers   in   Eastern   Europe
                                 ("Commercial   Centers").   BEA   undertook  to
                                 indemnify  PC and/or  EUN  during a  seven-year
                                 period from the Closing  Date for any damage or
                                 expense  suffered  by PC and/or EUN as a result
                                 of any breach of commitment  or  representation
                                 made by BEA in the PC Agreement.

                                 In addition,  an agreement  between EUN and Red
                                 Sea Hotels Group  companies ("the sellers") was
                                 finalized in September 2000 for the acquisition
                                 by EUN of the outstanding half of the rights in
                                 the above commercial centers. In addition,  EUN
                                 assumed all liabilities and guarantees provided
                                 by the sellers to the commercial  centers.  EUN
                                 undertook  to  indemnify  the  sellers   and/or
                                 additional  companies  and the  Red Sea  Hotels
                                 Group for any  damage or  expense  suffered  by
                                 them as a result of these liabilities.

                                 Shortly   thereafter,   EUN   transferred   its
                                 holdings in the project companies to PC against
                                 shareholder loans.  Following completion of the
                                 above  two  transactions,  EUN  holds  all  the
                                 rights in PC, while also holding - directly and
                                 through PC - all the rights in these commercial
                                 centers.

                                 During   the   course   of   implementing   the
                                 procedures  necessary for final approval of the
                                 transaction, EIL announced that - following the
                                 publication of the Company's results for 2002 -
                                 an  evaluation  is  to be  made  on  the  gross
                                 revenues of nine  commercial  centers which had
                                 been  appraised  for 2001 and 2002 on the basis
                                 of which  appraisal the PC acquisition had been
                                 effected as compared to actual gross  revenues.
                                 Should  the actual  revenues  be lower than the
                                 estimated  revenues,  as were used to determine
                                 the  appraised  value  of the  centers,  then a
                                 revised   valuation   is  to  be   obtained  by
                                 multiplying  the average  actual  revenues  for
                                 2001 and 2002 by 10. If the  revised  valuation
                                 of the  centers  is lower  than  the  appraised
                                 valuation, EIL is to indemnify EUN for one half
                                 of the  difference.  On  the  basis  of  actual
                                 gross-income  data as included in the financial
                                 statements for those years,  Company management
                                 believes  that EUN will not be  indemnified  at
                                 all in respect of the established formula.

                            B.   ADDITIONAL INFORMATION CONCERNING THE
                                 COMMERCIAL CENTERS HELD BY PLAZA CENTERS ("PC")

                                 1.   GENERAL

                                      Each   commercial   center  is  ordinarily
                                      operated   through  a   separate   company
                                      ("Project  Company"),  so  that PC in fact
                                      holds  companies  that own the  rights  in
                                      operational  centers  or in sites on which
                                      commercial  centers are to be constructed.
                                      The development and  establishment  of the
                                      centers,  as well as the related financing
                                      and  current   operating   activities  are
                                      carried   out  by  PC,   directly   and/or
                                      indirectly, through its subsidiaries.

                                     - 40 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 10 -  INVESTMENTS IN INVESTEE AND OTHER COMPANIES (CONT.)

              B.     ADDITIONAL   INFORMATION  CONCERNING  INVESTMENT  IN
                     INVESTEE COMPANIES (CONT.)

                     (3) COMMERCIAL CENTERS IN CENTRAL AND EASTERN EUROPE

                            B.   ADDITIONAL    INFORMATION    CONCERNING   THE
                                 COMMERCIAL  CENTERS  HELD  BY  PLAZA  CENTERS
                                 ("PC") (CONT.)

                                 2.   PRINCIPAL AGREEMENTS FOR PROPERTY LEASES

                                      PC is committed under principal agreements
                                      with   several   organizations   to  lease
                                      commercial space in its Project Companies'
                                      centers  (built  or that  will be  built).
                                      Control  Centers  is a party  to one  such
                                      agreement.    Principal   agreements   are
                                      ordinarily   entered   into  with  tenants
                                      designated   as   "anchors",   who   lease
                                      relatively large spaces,  for long periods
                                      of time.  In principle,  these  agreements
                                      bind PC and the Project Companies to grant
                                      those  anchors  detailed  leases  for  the
                                      rental of space in every commercial center
                                      ("Detailed   Agreement").   The  principal
                                      agreements   grant  the   anchor   tenants
                                      exclusivity for the rental of space in the
                                      commercial    centers    (in   any    area
                                      appropriate to a tenant).

                                      The  Detailed  Agreements  are  ordinarily
                                      prepared  in  a  standard  form  for  each
                                      anchor tenant, and stipulate that the rent
                                      payments are to comprise  basic rental per
                                      square  meter or in certain  circumstances
                                      the higher of a rental per square meter or
                                      a  specified  percentage  of the  tenant's
                                      turnover.  In  certain  circumstances  the
                                      rental   fees  are  a   function   of  the
                                      occupancy rate of the specific  commercial
                                      center.   The  Detailed   Agreements   are
                                      ordinarily  signed for terms  ranging from
                                      between  five  to  ten  years  (from  each
                                      center's   opening  date)  and  include  a
                                      tenant's renewal option for fixed terms of
                                      from five to ten years,  at  predetermined
                                      and  stipulated  rental fees. The Detailed
                                      Agreements  include  provisions   granting
                                      options  entitling the tenant to determine
                                      the lease in case certain  minimum targets
                                      are not met, contain  restrictions against
                                      leasing areas to third  parties  active in
                                      competing  activities  etc. In addition to
                                      the  Detailed   Agreements,   the  Project
                                      Companies also enter into lease agreements
                                      with  other  tenants,  in each  commercial
                                      center.

                                 3.   COMMITMENTS

                                      As  of  December   31,  2002  the  Project
                                      Companies are party to  pre-contracts  for
                                      land acquisition  which are subject to the
                                      satisfaction    of   specified    material
                                      conditions prior to the signing of a final
                                      purchase  agreement,  amounting to a total
                                      of Euro 12.6 million (NIS 62.7 million).

                                     - 41 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 10 -  INVESTMENTS IN INVESTEE AND OTHER COMPANIES (CONT.)

              B.     ADDITIONAL   INFORMATION  CONCERNING  INVESTMENT  IN
                     INVESTEE COMPANIES (CONT.)

                     (3) COMMERCIAL CENTERS IN CENTRAL AND EASTERN EUROPE

                         B. ADDITIONAL    INFORMATION    CONCERNING   THE
                            COMMERCIAL  CENTERS  HELD  BY  PLAZA  CENTERS
                            ("PC") (CONT.)

                            4.   COORDINATION,  PLANNING,  SUPERVISION AND
                                 MANPOWER SERVICES

                                 A.   The following are the  commitments  of the
                                      Company and its subsidiaries  with Control
                                      Centers Ltd. ("CC") and/or companies under
                                      its control:

                                      (1) A  framework   agreement   to  provide
                                          coordination,  planning, execution and
                                          supervisory   services  in  connection
                                          with   the    establishment   of   the
                                          commercial  centers by Control Centers
                                          (or by companies  owned by CC).  These
                                          services    are   to    include    the
                                          coordination  and  supervision  of the
                                          entire  planning phase of the projects
                                          initiated  by the  Company,  including
                                          the  selection  of   consultants   and
                                          planners  and  carrying  out  relevant
                                          negotiations  with  them.  CC (or  its
                                          representative)  is to be  remunerated
                                          at  a  rate   of  5%  of  the   actual
                                          development  costs  incurred  for each
                                          project  (excluding  the  cost  of the
                                          land,   general   and   administrative
                                          expenses and  financial  expenses) for
                                          provision  of  these  services.  These
                                          services  are to be provided  for each
                                          separate project as agreed upon by the
                                          parties.  These  payments will be paid
                                          to CC based on milestones  established
                                          in the  agreements.  In  addition,  CC
                                          will   be    entitled    to    receive
                                          reimbursement for reasonable  expenses
                                          directly   incurred   by  it  in   the
                                          appointment of  consultants  (to carry
                                          out the agreed  services) at an amount
                                          not  to  exceed   $50   thousand   per
                                          project.

                                      (2) An  agreement  with Jet Link  Ltd.,  a
                                          company   controlled  by  CC  for  the
                                          supply of air transportation services,
                                          with  payment  based on the price list
                                          of  Jet  Link   Ltd.,   net  of  a  5%
                                          discount.

                                 B.   PC  has  entered   agreements  with  third
                                      parties   for  the  supply  of   manpower,
                                      management,   supervisory   and   logistic
                                      services, for a commission payment.

                                 C.   An agreement between the Company,  PC, EUN
                                      and a company controlled by PC's President
                                      (Triple-S),  under  which  Triple-S  is to
                                      provide services - through its controlling
                                      party who also  functions as PC's CEO - to
                                      include initial  feasibility,  location of
                                      suitable   sites  and   negotiations   for
                                      acquisition,    obtaining    real   estate
                                      financing, supervision and coordination of
                                      development and construction  work as well
                                      as additional  related services.  Triple-S
                                      is  to  receive  a  monthly   fee  of  $40
                                      thousand  (NIS  190  thousand)  for  these
                                      services.  In  addition,  the  controlling
                                      individual of Triple-S is to be reimbursed
                                      for  living  and  other  normal  expenses.
                                      Triple-S is entitled to receive  from PC a
                                      monthly  loan of $5  thousand,  at  market
                                      interest rates and repayable no later than
                                      December 31, 2004.

                                      This  agreement  will be in  effect  until
                                      December 31, 2003.The  Company is entitled
                                      to terminate the service agreement, at any
                                      time, by giving 90 days advance notice.

                                     - 42 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 10 -     INVESTMENTS IN INVESTEE AND OTHER COMPANIES (CONT.)

              B.     ADDITIONAL   INFORMATION  CONCERNING  INVESTMENT  IN
                     INVESTEE COMPANIES (CONT.)

                     (3) COMMERCIAL CENTERS IN CENTRAL AND EASTERN EUROPE

                            B.   ADDITIONAL    INFORMATION    CONCERNING   THE
                                 COMMERCIAL  CENTERS  HELD  BY  PLAZA  CENTERS
                                 ("PC") (CONT.)

                                 5.   AGREEMENT OF SHAREHOLDERS IN SADYBA CENTRE
                                      S.A. ("SADYBA")

                                      Sadyba  owns  and  operates  a  commercial
                                      center in Warsaw, Poland.

                                      PC  holds  50% of the  ownership  in,  and
                                      control of,  Sadyba,  which  includes  the
                                      right to appoint its  directors.  Sadyba's
                                      Board resolutions  require a majority vote
                                      (legal  quorum - at least one director per
                                      party) to be  passed.  Resolutions  deemed
                                      fundamental to its business  activities as
                                      well as other material  decisions  require
                                      the  approval of all the  directors  and a
                                      majority of the shareholders.  A committee
                                      is to supervise Sadyba's operations,  with
                                      each shareholder entitled to appoint three
                                      out of its six members.  Any  voluntary or
                                      non-voluntary     transaction    involving
                                      Sadyba's  shares  requires the supervisory
                                      committee's approval.

                                      PC's  partner  in  Sadyba  (50%)  has been
                                      granted a put  option,  exercisable  until
                                      September  2003,  to compel PC to  acquire
                                      the partner's  shares in Sadyba at a price
                                      computed  as the  multiple  of 8 times the
                                      operating income (before  depreciation and
                                      financing),  as defined in the  agreement,
                                      net of long-term liabilities.

                                      PC was granted a call option to compel its
                                      partner to sell to PC the partner's shares
                                      in  Sadyba,  at a  price  computed  as the
                                      multiple of 9.5 times the operating income
                                      (before  depreciation and financing),  net
                                      of long-term  liabilities.  This option is
                                      exercisable  within 30 days  following the
                                      expiration of the put-option period.

                                 6.   In   February   2002,   PC   completed   a
                                      transaction  on the basis of an  agreement
                                      in principle  originating  during 2001 for
                                      the acquisition of companies  holding full
                                      ownership  and  control of three  shopping
                                      and entertainment  centers in Hungary with
                                      a  total  area  of  approximately   75,000
                                      square meters, for a consideration of Euro
                                      47.2  million  (NIS  234.6  million).  The
                                      consideration  reflects  a gross  value of
                                      the  centers  acquired  (before  deducting
                                      long-term financing) of Euro 111.2 million
                                      (NIS 552.6 million).

                                      The parties  decided  that,  in  addition,
                                      they  would  prepare a  reconciliation  in
                                      respect   of   the   acquired   companies'
                                      working-capital  upon their acquisition by
                                      PC. Such a reconciliation has not yet been
                                      prepared  by the  approval  date of  these
                                      financial   statements.   PC's  management
                                      estimates   that   the   outcome   of  the
                                      reconciliation  will not materially affect
                                      amounts and/or results of the transaction.

                                      Assets in the  amount  of NIS 617  million
                                      were  included  in the  December  31, 2002
                                      balance sheet. Revenues,  operating income
                                      and net  income  included  during the year
                                      ended   December  31,  2002   amounted  to
                                      approximately  NIS  73  million,   NIS  26
                                      million and NIS 34 million, respectively.

                                 7.   LIENS - see Note 18D below.

                                     - 43 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 10 -  INVESTMENTS IN INVESTEE AND OTHER COMPANIES (CONT.)

              B.     ADDITIONAL  INFORMATION  CONCERNING  INVESTMENT IN INVESTEE
                     COMPANIES (CONT.)

                     (3) COMMERCIAL CENTERS IN CENTRAL AND EASTERN EUROPE

                         B. ADDITIONAL  INFORMATION  CONCERNING THE COMMERCIAL
                            CENTERS HELD BY PLAZA CENTERS ("PC") (CONT.)

                         8. PROVISION FOR IMPAIRMENT IN VALUE OF INVESTMENTS

                            Due to the  continued  devaluation  of the  euro  in
                            relation to the Hungarian  forint,  coupled with the
                            deterioration in the operating parameters of some of
                            the  project   companies,   the  Company  deemed  it
                            necessary  to reexamine  the  adjusted  value of its
                            investments  in the project  companies.  The Company
                            included in its  financial  statements  an after-tax
                            net provision of NIS 33.1 million,  against  capital
                            reserves from translation adjustments, in respect of
                            the   adjustment   of  the  value  of  these   owned
                            investments to their fair value (see Note 2g above).
                            The  investments'  fair value has been determined on
                            the basis of  valuations of the  commercial  centers
                            owned by those  companies,  obtained  from  external
                            appraisers.

                     (4) INSIGHTEC - IMAGE GUIDED TREATMENT LTD. ("IGTX")

                         A. Through  December  31, 2001 EUN had (in trust by the
                            Company), 100% of the ownership and control of IGTX,
                            a company engaged in the development and manufacture
                            of   non-invasive   methods  for  the  treatment  of
                            (malignant  and  benign)  blood  vessel  tumors  and
                            localized   injection   of   medication,   and   the
                            development   of   decision   support   systems  for
                            operating rooms and trauma units.

                         B. Through  December 31, 2001 Texonics Ltd.  (Texonics)
                            was held by IGTX and GE Medical Systems (GEMS) ("the
                            shareholders"). The shareholders' agreement provided
                            that should any additional  shareholder  investments
                            and/or shareholders' loans be required for Texonics,
                            the  shareholders  would be required to provide them
                            ratably to their  relative  percentage  holdings  in
                            Texonics,  and any party not so  contributing  would
                            have its holdings  diluted on the basis of a formula
                            set out in the  agreement.  As at December  31, 2001
                            GEMS had not  provided  its  quota of  shareholders'
                            loans as  required,  and  therefore  its holdings in
                            Texonics were diluted to 5% while, concurrently, the
                            holdings of IGTX  therein had  increased  to 95%. In
                            accordance  with the  agreement  GEMS  was  given an
                            option to sell its  holdings in Texonics to IGTX for
                            $1.25  million  or  in  exchange  for  royalties  on
                            Texonics' sales at rates and over periods stipulated
                            in the  agreement  for the  acquisition  of know-how
                            from GEMS.

                         C. IGTX has an employee  share option plan in operation
                            in  accordance  with  Section  102 of the Income Tax
                            Ordinance,  under  which it has issued  2.5  million
                            options to a trustee. These options will be released
                            to the employees,  upon vesting and may be exercised
                            into  shares  at an  exercise  price of NIS 0.01 per
                            share. The options vest over a four-year period from
                            the grant date. Under this plan, IGTX has designated
                            2,106,000  shares for  employees  options  for which
                            were granted as of December 31, 2002.  The rights to
                            1,314,063  shares of that  amount  were vested as of
                            December 31, 2002. The exercise  period has been set
                            for  seven  years  from  the  date  of  grant.   The
                            employees will bear any tax burden under law for the
                            plan.  Regarding  shares had by the  trustee not yet
                            designated  for  employees,   IGTX's   shareholders'
                            meeting  approved,  after the balance sheet date, to
                            allot the shares  under two  additional  plans - see
                            (f) and (g) below.  In addition,  IGTX has an option
                            plan for its  directors  for the purchase of 150,000
                            shares.  Of this amount,  100,000  options have been
                            granted, exercisable into 100,000 ordinary shares of
                            IGTX, for an exercise price of $3.33 per option. The
                            vesting period is 4 years from the grant date. As of
                            December 31, 2002,  75,000 options were vested.  The
                            exercise period is for seven years.

                                     - 44 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 10 -  INVESTMENTS IN INVESTEE AND OTHER COMPANIES (CONT.)

              B.     ADDITIONAL INFORMATION CONCERNING INVESTMENT IN INVESTEE
                     COMPANIES (CONT.)

                     (4) INSIGHTEC - IMAGE GUIDED TREATMENT LTD.
                         ("IGTX") (CONT.)

                         D. On  December  31,  2001 a  transaction  ("the  Share
                            Agreement") was concluded  between the Company,  EUN
                            and IGTX,  and GEMS,  under which GEMS  invested $10
                            million in the share  capital of IGTX (made up as to
                            $3  million  in cash and $7  million  in assets  and
                            services to be provided over a five-year period), in
                            return  for  11.8%  of  the  (fully  diluted)  share
                            capital of IGTX.  It was also agreed that GEMS would
                            convert its holdings in Texonics, as outlined above,
                            into an  additional 5% of the share capital of IGTX.
                            EUN's  shareholdings in IGTX will thereby be diluted
                            to 61.14% on a fully  diluted  basis.  In  addition,
                            GEMS was granted a  three-year  option to acquire an
                            additional  5% of  the  share  capital  of  IGTX  in
                            exchange for $3 million.  If the option granted GEMS
                            is exercised into shares, EUN's shareholding in IGTX
                            would decrease to 58.1% (fully diluted).

                            At the time of this transaction, IGTX was classified
                            as a  development-stage  company.  Accordingly,  the
                            resulting  increase in the Company's share in IGTX's
                            equity  is  reported  as  deferred  income,   to  be
                            included in the Company's statement of operations as
                            income  at the  higher of the  amortization  of such
                            deferred  income over these years or up to an amount
                            equal to the Company's share in IGTX's losses during
                            that period based on a cumulative  computation  (see
                            Note 20H).

                            The  shareholders'  agreement  also provided that in
                            the  event  of a share  issuance  by IGTX to a third
                            party  within  two  years  from  the   transaction's
                            conclusion  date  which  values  IGTX lower than its
                            value for the purposes of the Share  Agreement,  the
                            percentage-holdings  of GEMS would be adjusted based
                            on the  value  used in the later  transaction.  This
                            agreement also  established a number of restrictions
                            on  the  carrying   out  of  certain   material  and
                            exceptional  transactions or activities  without the
                            prior consent of GEMS.

                         E. Employee options plans - 2003

                            Subsequent to the  balance-sheet  date, IGTX adopted
                            an additional  equity-based  employee  options plan,
                            which was approved by its shareholders' meeting held
                            on  February   10,  2003.   Under  the  plan,   IGTX
                            employees,  as  well  as  employees  of its  related
                            companies,  will be awarded 1,094,000 options,  each
                            exercisable  into one  ordinary  share  of IGTX,  in
                            exchange  for an  exercise  price  of NIS  0.01  per
                            option. This award will vest at the end of two years
                            from the year in which the options  were  granted to
                            the  participant.  The exercise  period is for seven
                            years from a date to be established  for each grant.
                            The shares issued  pursuant to this plan are subject
                            to capital-gains tax under Section 102 of the Income
                            Tax Ordinance.

                         F. Options plan for non-employees - 2003

                            Subsequent to the balance-sheet date, IGTX adopted a
                            non-employee options plan, which was approved by its
                            shareholders'  meeting  held on February  10,  2003.
                            Under the plan, IGTX suppliers will be granted up to
                            300,000 options,  each exercisable into one ordinary
                            share  of  IGTX.   The   exercise   price  for  each
                            participant  will be set in his grant  notification.
                            The grant award  notification  will also outline the
                            vesting terms for each  participant's  options.  The
                            exercise  period  will  expire  at the end of  seven
                            years  from a date to be  established  in each grant
                            notification.  The shares  issued  pursuant  to this
                            plan are subject to the  provisions  of Article 3(i)
                            of the Income Tax Ordinance.

                         G. On  April 1,  2003  GEMS  exercised  its  option  to
                            acquire  additional  IGTX shares (see d above).  The
                            Company's gain from the decline in the percentage of
                            holding in IGTX amounts to 4.0 million.

                                     - 45 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 10 -  INVESTMENTS IN INVESTEE AND OTHER COMPANIES (CONT.)

              B.     ADDITIONAL   INFORMATION  CONCERNING  INVESTMENT  IN
                     INVESTEE COMPANIES (CONT.)

                     (4)    INSIGHTEC - IMAGE GUIDED TREATMENT LTD. ("IGTX")
                            (CONT.)

                         H. Assuming the conversion of all the IGTX  convertible
                            securities  (including  those  allotted  within  the
                            framework   of  the  plans   adopted  in  2003)  the
                            Company's  holding   percentage  in  IGTX  would  be
                            reduced to 53.8%.

                         I. IGTX filed a request with the income tax authorities
                            to merge with Texonics Ltd.  effective  December 31,
                            2002,  pursuant  to  Article  103 of the  Income Tax
                            Ordinance.  This merger is contingent  upon approval
                            by the income tax authorities, the Investment Center
                            and  the  Office  of  the  Chief  Scientist  of  the
                            Ministry   of  Industry   and  Trade.   A  temporary
                            approval-in-principle    was   received   from   the
                            Investment  Center  subsequent to the  balance-sheet
                            date. The final approval is contingent  upon a share
                            issuance by IGTX,  as  detailed in the  in-principle
                            approval document.

                            Should it be  approved,  this  merger  would have no
                            effect  on  assets  and  liabilities   and/or  their
                            classification   in  these   financial   statements.
                            Nevertheless,  the Company  and/or its  shareholders
                            would  be  subject  to  certain   restrictions,   as
                            stipulated   by  law,   including   limitations   in
                            connection  with  the  holdings  that  may be  sold,
                            amounts  of  third  party  issuances  and/or  public
                            offerings,  as  well  as  the  sale  of  the  merged
                            company's assets, during a two-year period following
                            the merger date, as well as  additional  limitations
                            pertaining  to  the   utilization   of  the  merging
                            companies' losses accumulated prior to the merger.

                     (5)    SONOTRON HOLDING AG IN LIQUIDATION  ("SONOTRON")

                            Following   a   resolution   of  its   shareholders,
                            Sonotron,  a wholly-owned and controlled  subsidiary
                            operating  in  Switzerland   and   constituting   an
                            independent entity,  commenced voluntary liquidation
                            proceedings during 2001. As a consequence, on August
                            29, 2001,  Sonotron was  registered  as a company in
                            liquidation  in accordance  with the decision of the
                            Swiss   Companies   Registrar.   The  liquidator  of
                            Sonotron  reported that the liquidation  proceedings
                            for  Sonotron  were  completed in August 2002 and it
                            was,  subsequently,  deleted from the records of the
                            Swiss Registrar of Companies.

                            As for the outcome of  Sonotron's  liquidation - see
                            Note 20(i) below.

                     (6)    ADDITIONAL DATA CONCERNING THE INVESTMENT IN ELSCINT

                            In December  2001 Elscint  issued  802,500  ordinary
                            shares  (of  850,000  ordinary  shares  approved  by
                            Elscint's  shareholders)  to directors and employees
                            of  Elscint,   and  also   employees  of  the  Group
                            companies of Europe Israel which provide services to
                            Elscint. Of those,  365,000 shares were allocated to
                            directors of Elscint  (including  175,000  shares to
                            offerees who also serve on the Company's  board). At
                            December 31, 2002, 734,000 of the outstanding shares
                            were earmarked for employees.

                            The vesting of the options will occur ratably over a
                            two or three-year period (50% or 33.3% at the end of
                            each  year -  depending  on the  offeree)  from  the
                            allotment  date  and is  subject  to  the  offerees'
                            continued  employment  with  the  company  in  which
                            he/she  was  employed  at the grant  date;  however,
                            immediate  vesting will arise upon a termination  of
                            employment   entitling   the  offeree  to  severance
                            payment.  The recipients paid an amount equal to the
                            closing  price of Elscint  shares on the last day of
                            trading prior to issuance (NIS 15.65 per share). The
                            price of Elscint's  shares on the stock  exchange at
                            the time of the board's resolution was $ 3.8.

                                     - 46 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 10 -  INVESTMENTS IN INVESTEE AND OTHER COMPANIES (CONT.)

              B.     ADDITIONAL   INFORMATION  CONCERNING  INVESTMENT  IN
                     INVESTEE COMPANIES (CONT.)

                     (6) ADDITIONAL DATA CONCERNING THE INVESTMENT IN ELSCINT
                         (CONT.)

                            To finance payment of the issuance proceeds, Elscint
                            advanced to the  recipients  an amount  equal to the
                            full  acquisition  price  of  the  shares,   bearing
                            interest  at 6% per  annum  and  repayable  after  5
                            years.  The loan is non-recourse and the shares will
                            be the sole  security  for  repayment  of the  loan.
                            Notwithstanding the above, should an offeree (who is
                            eligibile  to receive the shares from the trustee or
                            sell them)  elect to transfer  the  shares,  he will
                            then be required to provide as security  for payment
                            of the loan and for those shares a deposit  equaling
                            the outstanding  amount of the loan, thus converting
                            it into a recourse  loan.  Tax,  if any,  imposed on
                            offerees and arising from the applicable interest on
                            the loan is to be paid by Elscint.  Elscint will not
                            bear tax liability in  connection  with the issue of
                            shares  to  offerees  and their  subsequent  sale to
                            third parties.

                            Should  Elscint   distribute  cash  dividends  whose
                            ex-dividend date falls in the period that the shares
                            are held in trust for the  offerees,  including  the
                            vesting  period,  then Elscint will  transfer to the
                            trustee,  on behalf  of the  offeree,  dividends  in
                            respect  of  shares  held in trust on behalf of that
                            offeree,  and the trustee will then  transfer  these
                            dividends  to the offerees  irrespective  of whether
                            their  rights to  receive  the  offered  shares  had
                            already been vested.

                            The rights to 296,583 shares were vested by December
                            31, 2002,  while the remaining  437,417  shares will
                            vest during 2003 and 2004.  If, after the completion
                            of the vesting  period,  all the employees  exercise
                            their rights for shares,  the Company's  holdings in
                            Elscint  would be  diluted to 58.9%.  The  Company's
                            potential  loss in respect of such a dilution  would
                            amount to NIS 14.6 million.

                            In  October  2002  Elscint  paid  its   shareholders
                            dividends  totaling $19.3 million  (reflecting $1.10
                            per share). Of that amount, NIS 4.0 million, paid in
                            respect  of  dividends  allotted  to  employees  and
                            directors  of Elscint as well as to Group  employees
                            providing services to Elscint,  have been charged to
                            operations as wage expense.

                            Elscint's  shares  are  traded on the New York Stock
                            Exchange.  The market value of the Company's Elscint
                            shares at December  31,  2002  amounted to NIS 179.5
                            million ($ 38 million). Their adjusted book value at
                            that  date was NIS  517.7  million  ($ 108  million)
                            (gross,  before  deducting the cost of the Company's
                            shares held by Elscint).

                            As for  Elscint's  commitment  to maintain a minimal
                            level of shareholders'  equity until 2003 - see Note
                            18A.(2).b below.

                                     - 47 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 10 -  INVESTMENTS IN INVESTEE AND OTHER COMPANIES (CONT.)

              C.     THE  FOLLOWING IS  SUMMARIZED  DATA  OUTLINING  THE GROUP'S
                     SHARE  IN  ITEMS   OF  THE   PROPORTIONATELY   CONSOLIDATED
                     SUBSIDIARIES' FINANCIAL STATEMENTS.

                     AT DECEMBER 31, 2002 AND FOR THE YEAR THEN ENDED:
<TABLE>
<CAPTION>

                                                                 PROPORTIONATELY CONSOLIDATED SUBSIDIARIES
                                                            --------------------------------------------------
                                                                50%          33.3%         35%           TOTAL
                                                                ---          -----         ---           -----
                                                                           (IN THOUSAND NIS)
                                                            --------------------------------------------------
<S>                                                         <C>                <C>       <C>         <C>
                      Current assets                          25,580            334        6,202       32,116
                      Fixed assets and other assets          698,737          3,391      123,532      825,660
                      Deposits and long-term receivables       2,107            799           --        2,906
                      Current liabilities                   (126,276)          (234)     (10,242)    (136,752)
                      Long-term liabilities                 (313,082)        (3,502)     (60,172)    (376,756)
                                                            --------         ------      -------     --------
                                                             287,066            788       59,320      347,174
                                                            ========         ======      =======     ========
                      Group companies' liabilities           281,237          9,219       73,833      364,289
                      Shareholders' equity (deficiency)        5,829         (8,431)     (14,513)     (17,115)
                                                            --------         ------      -------     --------
                                                             287,066            788       59,320      347,174
                                                            ========         ======      =======     ========
                      Revenues                               125,922          1,659       25,842      153,423
                                                            ========         ======      =======     ========
                      Gross profit                            46,936            518        9,137       56,591
                                                            ========         ======      =======     ========
                      Operating income                        12,674            238        1,133       14,045
                                                            ========         ======      =======     ========
                      Net income (loss)                       (8,901)         4,631         (390)      (4,660)
                                                            ========         ======      =======     ========

                      AT DECEMBER 31, 2001 AND FOR THE YEAR THEN ENDED:

                                                                 PROPORTIONATELY CONSOLIDATED SUBSIDIARIES
                                                            --------------------------------------------------
                                                                50%          33.3%         35%           TOTAL
                                                                ---          -----         ---           -----
                                                                           (IN THOUSAND NIS)
                                                            --------------------------------------------------

                      Current assets                           23,516            159        4,276       27,951
                      Fixed assets and other assets           612,905(*)       4,901      111,216      729,022
                      Deposits and long-term receivables        2,062            801           --        2,863
                      Current liabilities                     (76,515)          (206)      (8,535)     (85,256)
                      Long-term liabilities                  (294,164)(*)     (2,350)     (56,826)    (353,340)
                                                            ---------         ------      -------     --------
                                                              267,804          3,305       50,131      321,240
                                                            =========         ======      =======     ========
                      Group companies' liabilities            222,649          8,834       62,495      293,978
                      Shareholders' equity (deficiency)        45,155(*)      (5,529)     (12,364)      27,262
                                                            ---------         ------      -------     --------
                                                              267,804          3,305       50,131      321,240
                                                            =========         ======      =======     ========
                      Revenues                                 70,935          1,095       22,799       94,829
                                                            =========         ======      =======     ========
                      Gross profit                             24,417            113        6,832       31,362
                                                            =========         ======      =======     ========
                      Operating income (loss)                  12,212            (77)          (7)      12,128
                                                            =========         ======      =======     ========
                      Net income (loss)                        15,042         (2,009)      (3,998)       9,035
                                                            =========         ======      =======     ========
                           (*) Reclasified
</TABLE>

                                     - 48 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 11 - HOTELS, COMMERCIAL CENTERS AND OTHER FIXED ASSETS, NET

A.     COMPOSITION  - CONSOLIDATED:

<TABLE>
<CAPTION>
                                                                           DECEMBER 31
                                       ----------------------------------------------------------------------------------
                                                                             2 0 0 2
                                       ----------------------------------------------------------------------------------
                                                               REAL ESTATE                                   MACHINERY,
                                                  HOTELS                COMMERCIAL CENTERS                   EQUIPMENT,
                                       ---------------------------- --------------------------                COMPUTERS
                                                           UNDER                     UNDER                       AND
                                                          CONST-                     CONST-                  PERIPHERAL
                                           ACTIVE       RUCTION(1)      ACTIVE     RUCTION(1)     OTHER       EQUIPMENT
                                       -------------  ------------- ------------ -------------  ----------  -------------
                                                                       ( I N T H O U S A N D    N I S )
                                       ----------------------------------------------------------------------------------
COST
<S>                                       <C>           <C>        <C>             <C>            <C>          <C>
Balance - January 1 (*)                    971,866       101,477    1,331,103       557,312        44,355       32,813
Additions in respect of
 initially  consolidated companies              --            --      488,393        29,655            --           --
Adjustments from
 translation of foreign
 subsidiaries' financial
 statements                                166,014        22,362      434,680        31,977         5,678           53
Additions during the year                    3,597        48,399       58,184       205,306           463          157
Hotels and commercial
 centers  whose construction
 ended during the year                          --            --      129,716      (129,716)           --           --
Current dispositions                        (1,980)           --           --       (10,009)           --      (14,358)
                                       -------------  ------------- ------------ -------------  ----------  -------------
Balance - December 31                    1,139,497       172,238    2,442,076       684,525        50,496       18,665
                                       -------------  ------------- ------------ -------------  ----------  -------------

ACCUMULATED DEPRECIATION:

Balance - January 1 (*)                    109,040            --       58,220            --         2,162        2,393
Additions in respect of
 initially  consolidated subsidiaries           --            --           --            --            --           --
Additions during the year                   30,329            --       64,300            --         1,952          622
Adjustments from translation
 of foreign subsidiaries'
 financial statements                       18,987            --       15,204            --           192            4
Current dispositions                        (1,512)           --         (144)           --            --           --
                                       -------------  ------------- ------------ -------------  ----------  -------------
Balance - December 31                      156,844            --      137,580            --         4,306        3,019
                                       -------------  ------------- ------------ -------------  ----------  -------------

Payments on account of
 fixed Assets                                   --            --           --         6,257            --           --
                                       -------------  ------------- ------------ -------------  ----------  -------------
Provision for impairment of
 investments and assets (2)                 23,153         4,400       39,816         4,552            --           --
                                       -------------  ------------- ------------ -------------  ----------  -------------

NET BOOK VALUE:

   December 31, 2002                       959,500       167,838    2,264,680       686,230        46,190       15,646
                                       =============  ============= ============ =============  ==========  =============
   December 31, 2001                       862,826       101,477    1,272,883       573,070        42,193       30,420
                                       =============  ============= ============ =============  ==========  =============

                                                                 DECEMBER 31
                                       ---------------------------------------------------------------------
                                                                   2 0 0 2                          2001
                                       -------------------------------------------------------  ------------
                                                        FIXED
                                                         AND
                                             LEASE-     OTHER                    CONVENIENCE
                                              HOLD      ASSETS       TOTAL       TRANSLATION       TOTAL
                                       -------------  ------------  -----------  ------------  ------------
                                              ( I N T H O U S A N D   N I S )       US$'000       NIS'000
                                       ----------------------------------------  ------------  ------------


Balance - January 1 (*)                      4,744        35,807     3,079,477       650,078     2,095,692
Additions in respect of
 initially  consolidated companies              --            --       518,048       109,360       214,833
Adjustments from
 translation of foreign
 subsidiaries' financial
 statements                                      5         6,027       666,796       140,761       233,058
Additions during the year                      158           560       316,824        66,882       686,927
Hotels and commercial
 centers  whose construction
 ended during the year                          --            --            --            --            --
Current dispositions                          (278)       (1,661)      (28,286)       (5,972)     (151,033)
                                       -------------  ------------  -----------  ------------  ------------
Balance - December 31                        4,629        40,733     4,552,859       961,109     3,079,477
                                       -------------  ------------  -----------  ------------  ------------
ACCUMULATED DEPRECIATION:

Balance - January 1 (*)                      1,588         8,792       182,195        38,461       219,224
Additions in respect of
 initially  consolidated subsidiaries           --            --            --            --        45,252
Additions during the year                    1,402         4,568       103,173        21,780        53,235
Adjustments from translation
 of foreign subsidiaries'
 financial statements                          (24)        1,259        35,622         7,520        12,593
Current dispositions                          (278)       (1,393)       (3,327)         (702)     (148,109)
                                       -------------  ------------  -----------  ------------  ------------
Balance - December 31                        2,688        13,266       317,663        67,059       182,195
                                       -------------  ------------  -----------  ------------  ------------
Payments on account of
 fixed Assets                                   --            --         6,257         1,321        15,758
                                       -------------  ------------  -----------  ------------  ------------
Provision for impairment of
 investments and assets (2)                     --            --        71,921        15,183            --
                                       -------------  ------------  -----------  ------------  ------------
NET BOOK VALUE:
   December 31, 2002                         1,941        27,507     4,169,532       880,188
                                       =============  ============  ===========  ============
   December 31, 2001                         3,156        27,018                                2,913,040
                                       =============  ============                             ============
</TABLE>

(1)  Includes land designated for the construction of hotels/commercial centers.
     Hotels under  construction  include a hotel in Romania that, since December
     2002, has been  undergoing  renovation,  the net book value of which is NIS
     203,555.
(2)  See Note 10B(3)b(8) and 10B(1)b(8) above and d below.
(*)  Reclassified.

                                     - 49 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 11 -     HOTELS, COMMERCIAL CENTERS AND OTHER FIXED ASSETS, NET (CONT.)

              A.     COMPOSITION - CONSOLIDATED (CONT.):

                     THE FIXED ASSETS INCLUDE:
<TABLE>
<CAPTION>
                                                                               ACCUMULATED DEPRECIATION
                                                                   -------------------------------------------
                                                                      CONVENIENCE
                                                                      TRANSLATION
                                                                   ---------------
                                                                                      DECEMBER 31
                                                                   -------------------------------------------
                                                                        2002            2002          2001
                                                                   ---------------  ------------  ------------
                                                                        US$'000            (IN THOUSAND NIS)
                                                                   ---------------  --------------------------
<S>                                                                     <C>            <C>             <C>
                     Financial expenses capitalized to the
                       cost of the buildings                            30,355         143,794         104,731
                                                                   ===============  ============  =============
                     Capitalized coordination, planning,
                       execution and supervision costs (*)              21,421         101,475         66,408
                                                                   ===============  ============  =============

</TABLE>
                     (*) See Note 10B(3)b(4)a(1) above.

                     According to  applicable  laws, AP is entitled to a subsidy
                     from the Government of Belgium in respect of investments in
                     fixed  assets.  The amount of the subsidy  claimed by AP in
                     accordance with these laws amounted to Euro 1.83 million.

                     Following  a  dispute   that  arose   between  the  Belgium
                     authorities  and AP concerning the latter's  status and the
                     amount it is entitled  to receive  (see Note 10B (1) e), AP
                     recorded a provision in its books for the disputed amounts.
                     Payment of the grant's  balance was  approved in  September
                     2002.  Accordingly,  the net book  value  of  fixed  assets
                     decreased by Euro 1,074 thousand (NIS 5,366 thousand) as of
                     December 31, 2002.

              B.     COMPOSITION OF LAND,  CLASSIFIED  BETWEEN OWNERSHIP AND
                     LEASING RIGHTS:

<TABLE>
<CAPTION>
                                                                           CONSOLIDATED
                                         ------------------------------------------------------------------------------
                                                                        DECEMBER 31, 2002
                                         ------------------------------------------------------------------------------
                                                                    COMMERCIAL
                                                      COMMERCIAL     CENTER
                                           HOTELS      CENTERS         IN                                 CONVENIENCE
                                           ABROAD       ABROAD       ISRAEL(2)    OTHERS(3)     TOTAL     TRANSLATION
                                          ---------   ---------      ---------    ---------   ---------   -----------

                                                                 (IN THOUSAND NIS)                            US$'000
                                         ----------------------------------------------------------------   -----------

<S>                                       <C>         <C>            <C>           <C>          <C>           <C>
                     Freehold land (1)      879,971   2,255,402             -       46,190       3,181,563     671,628
                     Capitalized
                      leasehold land (1)    247,367     243,735       451,773            -         942,875     199,041
                                          ---------   ---------      ---------    ---------      ---------   ----------
                                          1,127,338   2,499,137       451,773       46,190       4,124,438     870,669
                                          =========   =========      =========    =========      =========   ==========
</TABLE>
                     (1)    The ownership rights are mostly recorded in the name
                            of the  subsidiaries,  which  own the  rights in the
                            land   and,   in  part,   are   undergoing   various
                            registration proceedings - see D below.

                     (2)    The  leasing  period  extends  over 49 years  plus a
                            renewal  option for an identical  period,  ending in
                            2086 and subject to the lessee's  fulfillment of the
                            terms of the lease - see 10B(2) above.

                      (3)   Mainly abroad.  Includes NIS 4.4 million in respect
                            of properties in Israel (see D below).

                                     - 50 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 11 -     HOTELS, COMMERCIAL CENTERS AND OTHER FIXED ASSETS, NET (CONT.)

   C.     ADDITIONAL  DATA  CONCERNING  THE  RIGHTS IN LAND OWNED BY
          THE GROUP COMPANIES:

          1.     HOTELS

<TABLE>
<CAPTION>
                                                            PERCENTAGE                                 NATURE          STATUS OF
        HOTEL NAME                                          OF RIGHTS             LOCATION            OF RIGHTS       REGISTRATION
        ----------                                          ---------             --------            ---------       ------------
                                                                %
                                                                -
        ACTIVE HOTELS:
<S>                                     <C>                     <C>        <C>                    <C>               <C>
          Victoria Amsterdam            ("VHA")                 50         Amsterdam, Holland     Ownership         Completed
          Utrecht Park Plaza            ("PPU")                 50         Utrecht, Holland       Leased(1)         Completed
          Astrid Park Plaza             ("APP")                100         Antwerp, Belgium       Ownership         Completed
          Show Park Plaza               ("SPP")                 35         London, England        Ownership(2)      Completed
          Sherlock Holmes Park Plaza    ("HPP")                 45         London, England        Sublease(3)       Completed
          Victoria Park Plaza           ("VPP")                 50         London, England        Ownership         Completed
          Park Plaza (Sandton)          ("PPS")                33.3        Johannesburg, S.A.     Ownership         Completed
          Bucuresti Apartment Hotel
          (Apart. Hotel)                ("APH")                 69         Bucurest, Romania      Ownership         Completed

        UNDER CONSTRUCTION AND/OR
         LAND DESIGNATED FOR HOTEL
         CONSTRUCTION:
          River Bank Park Plaza         ("RPP")                 45         London, England        Leased(4)         Completed
          Andrassy - building
          designated for renovation     ("Andrassy")            50         Budapest, Hungary      Ownership         Completed
          Bucuresti Hotel               ("BPP")                 69         Budapest, Hungary      Ownership         Completed

                                                              NO.                         NOTE
        HOTEL NAME                                         OF ROOMS        CLASS        10B(1)B
        ----------                                         --------        -----        -------
                                                                          (STARS)
        ACTIVE HOTELS:

          Victoria Amsterdam            ("VHA")             305           4- deluxe       (1)
          Utrecht Park Plaza            ("PPU")             120           4
          Astrid Park Plaza             ("APP")             229           4
          Show Park Plaza               ("SPP")             310           4- deluxe       (2)
          Sherlock Holmes Park Plaza    ("HPP")             119           4- deluxe       (3)
          Victoria Park Plaza           ("VPP")             300           4- deluxe       (5)
          Park Plaza (Sandton)          ("PPS")             138           4               (6)
          Bucuresti Apartment Hotel
          (Apart. Hotel)                ("APH")             230           N/A             (7)

        UNDER CONSTRUCTION AND/OR
         LAND DESIGNATED FOR HOTEL
         CONSTRUCTION:
          River Bank Park Plaza         ("RPP")             537(5)        4-5 (5)         (4)
          Andrassy - building
          designated for renovation     ("Andrassy")        196           4-5 (5)
          Bucuresti Hotel               ("BPP")             446           4               (7)

           ---------------------------
           Notes - on the following page.
</TABLE>

                                     - 51 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 11 -     HOTELS, COMMERCIAL CENTERS AND OTHER FIXED ASSETS, NET (CONT.)

              C.     ADDITIONAL  DATA  CONCERNING  THE  RIGHTS IN LAND OWNED BY
                     THE GROUP COMPANIES (CONT.):

                     1.     HOTELS (CONT.)

                            (1)    The  leasing  rights were  acquired  from the
                                   Municipality  of  Utrecht  for  an  unlimited
                                   period  of  time,   with  the  leasing   cost
                                   reflecting a  capitalization  of leasing fees
                                   for  a  50-year   period  (until  2036).   In
                                   addition,  the execution of any change in the
                                   use  of  the  land  or  the  demolition  of a
                                   building   thereon   requires   approval   as
                                   aforementioned.  The lessee cannot  terminate
                                   the  leasing  rights.  The  Municipality  may
                                   terminate  the  leasing  rights,  only  if it
                                   determines  that  the  land is  required  for
                                   public  needs  or if a court  rules  that the
                                   lessee  had not  fulfilled  its  undertakings
                                   under the terms of the lease.

                            (2)    Following  the  balance  sheet date  (January
                                   2003),  the owner of this hotel  entered into
                                   an agreement  with an  unrelated  third party
                                   for the leasing of this hotel for a period of
                                   25 years.  The  annual  lease fees were fixed
                                   for the initial 4 years,  whereas  commencing
                                   the fifth year,  the annual lease fee will be
                                   adjusted  and  increased  annually  by  2.5%.
                                   Lease fees are paid  quarterly,  in  advance.
                                   Payment  of the lease fees will be secured by
                                   a GBP 2.5  million  deposit.  The third party
                                   was  granted  an option to extend the term of
                                   the  lease by two  additional  periods  of 15
                                   years  each.  The  cost  of the  hotel  as at
                                   December 31, 2002 was GBP 46 million.

                            (3)    For a period of 99 years  (commencing  1996),
                                   in exchange  for GBP 450  thousand  annually,
                                   adjusted  every  five  years on the  basis of
                                   "open market value".  The company holding the
                                   property    ("Grandis"),    has   an   option
                                   exercisable  at the  end  of a 3 year  period
                                   commencing from the agreement date, to notify
                                   the owners as to either the  extension of the
                                   sub-lease  period  up to  125  years  or  the
                                   purchase  of the  owner's  rights in the main
                                   lease. Furthermore, Grandis has the option to
                                   terminate  the lease as of 2059 with an early
                                   notice of 2.5 years.  A Red Sea Group company
                                   ("guarantor")  guaranteed  fulfillment of all
                                   undertakings of Grandis as if it were a party
                                   to  the  agreement.  The  guarantee  contains
                                   provisions,   by  which,  in  the  event  the
                                   guarantee is exercised,  the  land-owners may
                                   require  the  guarantor  to  assume  Grandi's
                                   position  as a  lessee.  Two  documents  were
                                   signed between the guarantor and B.H.,  which
                                   establishes  the  indemnification  procedures
                                   amongst   them,   in  relation  to  the  said
                                   guarantee.   The  parties  will  endeavor  to
                                   substitute  the  guarantee  provided  by  the
                                   guarantor.

                            (4)    For a period of 125 years (commencing  2000),
                                   in exchange  for GBP 500  thousand per annum,
                                   adjusted  each five years based on the CPI in
                                   England.  Several  previous  rights  exist on
                                   this  property,   as  well  as  easements  of
                                   various  authorities,  contingent  upon which
                                   the leasing of the  property had been carried
                                   out;  based on the framework  agreement,  the
                                   lessee is  disallowed to assign its rights to
                                   a third party  without the lessor's  consent;
                                   taxes,  surcharges  and fees  related  to the
                                   property  will be paid by the lessee;  in any
                                   event of breach of  contract  by the  lessee,
                                   the  lessor  would  have the right to forfeit
                                   the  property  in  accordance  with the terms
                                   stipulated  in the  agreement;  in cases when
                                   the  lessor   receives  a  proposal  for  the
                                   acquisition  of the  ownership  rights in the
                                   property,  the lessee  shall be  entitled  to
                                   have the right of first refusal to purchase.

                             (5)   Planned.

                                     - 52 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 11 -     HOTELS, COMMERCIAL CENTERS AND OTHER FIXED ASSETS, NET (CONT.)

              C.     ADDITIONAL  DATA  CONCERNING  THE  RIGHTS IN LAND OWNED BY
                     THE GROUP COMPANIES (CONT.):

                     2.    COMMERCIAL CENTERS IN EASTERN EUROPE - CLASSIFICATION
                           BY PROJECT
<TABLE>
<CAPTION>
                                                    DECEMBER 31
                                                       2002                                  GENERAL INFORMATION
                                                   ------------  ----------------------------------------------------------------
                                                                                                                        DATE OF
                                                       SHARE                             STATUS OF     OPERATIONAL     COMMENCING
         PROJECT                       LOCATION    HOLDING RATE  NATURE OF RIGHTS      REGISTRATION      PERMIT        OPERATIONS
         ---------------------------   --------    ------------  ----------------      ------------    -----------     ----------
                                                         %
                                                   ------------
   A.    ACTIVE CENTERS:

<S>                                    <C>              <C>      <C>                      <C>          <C>                <C>
         Csepel Plaza Kft.             Hungary          100      Ownership                Completed    Final permit       12/1997
         Gyor Plaza Kft.               Hungary          100      Ownership                Completed    Final permit(1)     9/1998
         Debrecen Kft.                 Hungary          100      Ownership                Completed    Final permit       12/1998
         Alba Plaza Kft.               Hungary          100      Ownership                Completed    Final permit        6/1999
         Pecs Plaza Kft.               Hungary          100      Ownership(2)             Completed(2) Final permit(2)    10/1999
                                                                 Partly - ownership;
         Szeged Plaza Kft.             Hungary          100      partly - leasing(3)      Completed    Final permit        5/2000
         Miskolc Plaza Kft.            Hungary          100      Ownership                Completed    Final permit        6/2000
         Kanizsa Plaza Kft.            Hungary           90(8)   Ownership                Completed    Final permit       12/2000
         Kaposvar Plaza Kft.           Hungary          100      Ownership                Completed    Final permit       12/2000
         Szolnok Plaza Kft.            Hungary          100      Ownership                Completed    Final permit       12/2001
         Zalaegerszeg Plaza Kft.       Hungary          100      Ownership                Completed    Final permit       12/2001
         Szombathely Plaza Kft.        Hungary          100      Ownership                Completed    Temporary (4)       7/2002
         Duna Plaza Kft.               Hungary          100      Ownership                Completed    Final permit        2/2002
         Sopron Plaza Kft.             Hungary          100      Ownership                Completed    Final permit        2/2002
         Nyir Plaza Kft.               Hungary          100      Ownership                Completed    Final permit        2/2002
         Sadyba Center S.A             Poland            50      Leasing for 25 years(5)  Completed    Final permit        9/2000
         Ruda Slaska Plaza Sp.z.oo     Poland           100      Perpetual usufruct (6)   Completed    Final permit       11/2001
         Krakow Plaza Sp.z.oo          Poland           100      Ownership                Completed    Final permit       12/2001

  B. YIELDING REAL ESTATES:

                                                                 Main part in ownership;
                                                                 remainder in leasehold
         Praha Plaza S.R.O.(7)        Czech Republic    100      for 99 years             Completed    Final permit        1/2002

</TABLE>
         1.       There is a commitment for  preparation of a place for cultural
                  events.  Lack of  performance  may trigger  fines of which the
                  Company's  share  would  amount to HUF 50  million  (NIS 1,053
                  thousand).

         2.       In addition,  Pecs has an obligatory  option,  valid until May
                  2003,  for the  acquisition  of additional  plots of land. Not
                  exercising  this  option in case of  building  the road  would
                  trigger a payment of which the Company's  share amounts to HUF
                  19.5 million (NIS 411 thousand).

         3.       Leased for 50 years for no additional consideration.

         4.       Temporary  permit has no expiration date. The final permit can
                  be  received  once the  center is fully  occupied.

         5.       Annual   leasing  fees  of  PLN  are  828  thousand  (NIS  979
                  thousand).

         6.       Annual   leasing  fees  of  PLN  are  500  thousand  (NIS  591
                  thousand).

         7.       The land is partially leased as a logistic  center.  8. 10% is
                  held in trust for PC.

                                     - 53 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 11 -     HOTELS, COMMERCIAL CENTERS AND OTHER FIXED ASSETS, NET (CONT.)

              C.     ADDITIONAL  DATA  CONCERNING  THE  RIGHTS IN LAND OWNED BY
                     THE GROUP COMPANIES (CONT.):

                     2.    COMMERCIAL CENTERS IN EASTERN EUROPE - CLASSIFICATION
                           BY PROJECT

                           C.     CENTERS UNDER CONSTRUCTION/LAND:

<TABLE>
<CAPTION>
                                                                             DECEMBER 31
                                                                                 2002
                                                                            -------------
                                                                            SHARE HOLDING  NATURE OF               STATUS OF
                                  PROJECT                       LOCATION        RATE       RIGHTS(5)              REGISTRATION
                                  ---------------------------   ----------  -------------  ---------------     ------------------
                                                                                 %

                                  CENTERS UNDER CONSTRUCTION:
<S>                               <C>                            <C>           <C>             <C>               <C>
                                                                                                               Not yet carried
                                  Veszprem Plaza Kft.            Hungary        100        Owned(2)            out(6)
                                  Poznan Plaza Sp z.o.o.         Poland         100        Owned               Completed
                                                                                           Partly owned,
                                                                                           partly leased
                                  Lodz Centrum Plaza Sp z.o.o.   Poland         100        (until 2089)        Completed
                                  Elblag Plaza Sp.z..oo          Poland         100        Leased to 2100      Completed


                                  Sosnowiec Plaza Sp.z.oo        Poland         100        Owned               Completed (6)
                                                                                                               Not yet carried
                                  Rybnik Plaza Sp.z.oo           Poland         100        Owned(3)            out(6)
                                  Katowice Plaza Sp z.o.o. (4)   Poland         100        Leased until 2089   Completed


                                  Pilsen Plaza S.R.O             Czech          100        leased for 99 years Not yet carried out
                                                                 Republic

                                  Gdansk Plaza Sp z.o.o.         Poland         100        Lease until 2100    Completed
                                                                                           Primarily owned;
                                                                 Czech                     balance leased for   Not yet
                                  Entertainment Plaza S.R.O      Republic       100        99 years             completed(7)
                                                                 Czech                                          Not yet carried
                                  Brno Plaza S.R.O               Republic       100        Owned                out(10)
                                  Bucharesti Plaza Centers S.R.L Romania        100        Owned                Completed

                                  Timisoara Plaza Centers
                                  S.R.L(11)                      Romania        100        Owned                Completed
                                  Helios Plaza S.A               Greece         100(8)     Owned                Completed


                                                                         RECEIPT OF PERMIT/AUTHORIZATION(1)
                                                                 ----------------------------------------------------
                                                                                   MUNICIPAL
                                  PROJECT                        ACQUISITION     BUILDING PLAN    CONSTRUCTION
                                  ---------------------------    ------------    -------------    -------------------


                                  CENTERS UNDER CONSTRUCTION:
                                                                                                    Request not yet
                                  Veszprem Plaza Kft.             N/A               Obtained        submitted
                                  Poznan Plaza Sp z.o.o.          Obtained          Obtained        Obtained


                                  Lodz Centrum Plaza Sp z.o.o.    Obtained          Obtained        Obtained
                                  Elblag Plaza Sp.z..oo           Obtained          Obtained        Obtained
                                                                                                    Request not yet

                                  Sosnowiec Plaza Sp.z.oo         Obtained          Obtained        submitted
                                                                                                    Request not yet
                                  Rybnik Plaza Sp.z.oo            Obtained          Obtained        submitted
                                  Katowice Plaza Sp z.o.o. (4)    Obtained          Obtained        N/A
                                                                                    Application
                                                                                    has not yet     Request not yet
                                  Pilsen Plaza S.R.O              N/A               been submitted  submitted
                                                                                                     Request submitted

                                  Gdansk Plaza Sp z.o.o.          Obtained          Obtained        and denied(9)


                                  Entertainment Plaza S.R.O                         Obtained        Obtained

                                  Brno Plaza S.R.O                                  Obtained        Request submitted
                                  Bucharesti Plaza Centers S.R.L  Obtained          Obtained        Obtained

                                  Timisoara Plaza Centers S.R.L(11) Obtained         Obtained        Request submitted
                                  Helios Plaza S.A                  N/A              Obtained        Obtained

</TABLE>
                                  Comments (1) to (11) appear on next page.

                                     - 54 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 11 -     HOTELS, COMMERCIAL CENTERS AND OTHER FIXED ASSETS, NET (CONT.)

              C.     ADDITIONAL  DATA  CONCERNING  THE  RIGHTS IN LAND OWNED BY
                     THE GROUP COMPANIES (CONT.):

                     2.    COMMERCIAL CENTERS IN EASTERN EUROPE - CLASSIFICATION
                           BY PROJECT

                           C.      CENTERS UNDER CONSTRUCTION/LAND (CONT.):

                                   1.     The  acquiring  company is  ordinarily
                                          entitled  to  cancel  the  preliminary
                                          agreement for the purchase of the land
                                          if it does not  receive  the  purchase
                                          permit   and/or    approval   of   the
                                          Municipal  Building  Plan  and/or  the
                                          building permit in accordance with the
                                          dates  stipulated  in the  preliminary
                                          agreements.

                                   2.     Final  purchase  agreement has not yet
                                          been signed.

                                   3.     A  final  purchase  agreement  will be
                                          signed   upon  the   receipt   of  the
                                          construction permit.

                                   4.     In  December   1998   Katowice   Plaza
                                          entered  into  agreement  with a third
                                          party for  acquiring  the usage rights
                                          in several adjacent parcels of land as
                                          well as the ownership of the buildings
                                          located    thereon   ("the    Purchase
                                          Agreement")   for   the   purpose   of
                                          establishing    a    commercial    and
                                          entertainment  center, in exchange for
                                          5.5 million PLN (NIS 6.5 million). The
                                          Purchase   Agreement  also  stipulated
                                          that  Katowice  Plaza  would  pay  all
                                          liabilities and payments stemming from
                                          the  acquisition  of the asset and its
                                          registration  in the name of  Katowice
                                          Plaza.  An  amount of 4  millions  PLN
                                          (NIS  4.7  million)  was  paid  on the
                                          contract-signing  date, with 1 million
                                          PLN  (NIS 1.2  million)  to be paid to
                                          the  seller  upon the  receipt  of the
                                          construction  permit and the remaining
                                          PLN  500,000 to be paid when the local
                                          development  plan  is  changed  to the
                                          purposes of trade and services.

                                          An   examination   conducted  for  the
                                          purpose   of   granting   construction
                                          permits revealed a defect in the land,
                                          which  prevents  the  commencement  of
                                          construction  at the level planned and
                                          the  company  withheld  payment of the
                                          remaining  amount of 1.5  million  PLN
                                          (NIS 1.8 million).  The seller claimed
                                          it was  entitled to the  balance.  The
                                          seller  has  filed  a  claim  for  the
                                          balance due of 1 million PLN. Katowice
                                          Plaza, in turn, notified the seller in
                                          August 2000 that it was  canceling the
                                          contract.  In 2001 the  court  decided
                                          against Katowice Plaza. Katowice Plaza
                                          was  ordered  to  pay  1  million  PLN
                                          together with interest accrued thereon
                                          from  October 8, 1999 as well as court
                                          fees- a total  amount  of 0.5  million
                                          PLN (NIS 0.6 million).

                                          A  subsequent  claim by the seller for
                                          the payment of the  balance  amount of
                                          0.5 million PLN (NIS 0.6  million) was
                                          denied  and  as  a   consequence   the
                                          consideration   amount   (as  per  the
                                          agreement)  was set at 5  million  PLN
                                          (NIS  6.5   million).   Following  the
                                          rejection of the subsequent amount the
                                          parties have expressed their intention
                                          to  negotiate  a  settlement   of  the
                                          entire claim.

                                          The  management  of PC estimates  that
                                          cost of the land,  as  recorded in the
                                          financial statements,  will not exceed
                                          its   realization   amount   and  that
                                          Katowice  will  not  bear   additional
                                          costs as a result  of the  proceedings
                                          described  above  over the  provisions
                                          included in its books.

                                   5.     The  recording  of rights in a portion
                                          of  the   project  has  not  yet  been
                                          performed/completed,     since     the
                                          necessary   conditions  for  recording
                                          such   rights   have   not  yet   been
                                          completely fulfilled.

                                     - 55 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 11 -     HOTELS, COMMERCIAL CENTERS AND OTHER FIXED ASSETS, NET (CONT.)

              C.     ADDITIONAL  DATA  CONCERNING  THE  RIGHTS IN LAND OWNED BY
                     THE GROUP COMPANIES (CONT.):

                     2.    COMMERCIAL CENTERS IN EASTERN EUROPE - CLASSIFICATION
                           BY PROJECT

                           C.      CENTERS UNDER CONSTRUCTION/LAND (CONT.):

                                   6.     Amounts   paid  on   account   of  the
                                          acquisition     (including     awarded
                                          guarantees)  will not be  returned  to
                                          the project  company  even if building
                                          permits   are   not   received.   PC's
                                          management   estimates  that  at  this
                                          stage,  nothing  prevents  the company
                                          from receiving  such permits.  Amounts
                                          paid on account of land  purchases  in
                                          Vesprem,  Sosnowiec  and Rybnik total,
                                          at December 31, 2002, Euro 1.3 million
                                          (NIS 6.5 million).

                                   7.     A  preliminary  acquisition  agreement
                                          was signed. An advance,  in the amount
                                          of Euro 1.3 million, was guaranteed by
                                          a bank guarantee.

                                   8.     An additional 50% was acquired in 2002
                                          for  Euro  6.4   million   (NIS   31.8
                                          million).

                                   9.     Rights   were    acquired   from   the
                                          municipality.  Concurrently  with  the
                                          rejection  of  the  application  for a
                                          building   permit,   the  municipality
                                          undertook  to provide the company with
                                          an  alternative  land.  The company is
                                          negotiating  with the municipality the
                                          terms of the  provision  of such land.
                                          The  management  of PC estimates  that
                                          the  cost   amount   recorded  in  its
                                          financial statements,  will not exceed
                                          the amount  Gdansk will be  reimbursed
                                          in    the    settlement    with    the
                                          municipality.

                                   10.    A  preliminary  acquisition  agreement
                                          was  signed.  An advance in the amount
                                          of Euro 1.6 million was  guaranteed by
                                          a banking guarantee,  which expired as
                                          at the  date  of the  approval  of the
                                          financial  statements.  The  seller is
                                          taking steps for the  cancellation  of
                                          the acquisition agreement claiming the
                                          Brno did not fulfill its  obligations,
                                          and  intends  to  return  to Brno  the
                                          acquisition costs. Seller has returned
                                          to  Brno  Euro  1  million  out of the
                                          consideration  amount paid,  up to the
                                          date of the approval of the  financial
                                          statements.  Brno  has  filed  a claim
                                          against    the    seller     demanding
                                          performance  as  well as  against  the
                                          bank  for  wrongfully   canceling  the
                                          guarantee  it  awarded  to  Brno.  The
                                          court  placed  an  attachment  on  the
                                          land, in favour of Brno preventing its
                                          sale to a third party.

                                   11.    Timisoara    had   entered    into   a
                                          memorandum of  understanding  in 2003,
                                          for the  sale  of its  land to a third
                                          party, in exchange for $ 1.25 million.
                                          The  management of OPC estimates  that
                                          the results of this transaction on the
                                          financial   results   of  PC  are  not
                                          significant.

              D.     Elscint holds the rights in a contract for the  development
                     of land in the  vicinity of Ma'alot in the  Galilee.  After
                     the  completion  of the  development  period  and  upon the
                     fulfillment of all  conditions,  a lease  agreement will be
                     signed for a 49-year period.  According to the terms of the
                     bid, Elscint would establish within a period of three years
                     (through  the end of 2003) and  subject  to the  receipt of
                     construction permits and other approvals, a 650 residential
                     unit recreation village. In addition,  within the framework
                     of the terms of the tender bid, Elscint entered into public
                     infrastructure       development       agreements      with
                     Ma'alot-Tarshicha   Municipality   and  the  Ma'ale   Yosef
                     Regional  Council.  Elscint  committed  to  invest  NIS 9.2
                     million in respect of long-term  leasing and development of
                     the  land  infrastructure.  The  project's  total  cost  is
                     estimated at $ 45 million. Elscint invested NIS 8.8 million
                     in the project  through  December 31, 2002.  Due to various
                     causes,  including  adverse economic  conditions in Israel,
                     continuing  since  the  bid  was  won,  and in  view of the
                     condition  of  the  tourism  industry  in  particular,  the
                     project has been  delayed.  Elscint's  management  believes
                     that the net book value of its  investment  as of  December
                     31, 2002, does not exceed its recoverable amount.

              E.     ANNUAL DEPRECIATION RATES - see Note 2H above.

              F.     LIENS - see Note 18D below.


                                     - 56 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 12 -    OTHER ASSETS AND DEFERRED EXPENSES

<TABLE>
<CAPTION>
                                                                                           CONSOLIDATED
                                                                             ----------------------------------------
                                                                                           DECEMBER 31
                                                                             ----------------------------------------
                                                                                2002            2002          2001
                                                                             ------------   -----------   -----------
                                                           AMORTIZATION      CONVENIENCE
                                                               RATE          TRANSLATION
                                                           ------------      ------------
                                                                %              US$'000          (IN THOUSAND NIS)
                                                           ------------      ------------   -------------------------
<S>                                                             <C>          <C>            <C>            <C>
              COST
              Acquired know-how                                 10               6,236          29,540         29,493
              Pre-opening expenses                             33.3              2,877          13,630         13,411
              Expenses for obtaining loans                     (*)               5,742          27,200         11,151
              Project-development costs                        (*)               1,387           6,572          7,221
              Cost of obtaining long-term leases               (*)               4,632          21,943         12,835
              Cost of long-term service contract                20                 745           3,528          3,964
                                                                             ------------   -----------   -----------
                                                                                21,619         102,413         78,075
                                                                             ------------   -----------   -----------
              ACCUMULATED AMORTIZATION
              Acquired know-how                                                  2,493          11,814         8,844
              Pre-opening expenses                                               1,475           6,986          3,478
              Expenses for obtaining loans                                         822           3,893          1,741
              Cost of obtaining long-term leases                                 1,117           5,293          2,252
                                                                             ------------   -----------   -----------
                                                                                 5,907          27,986         16,315
                                                                             ------------   -----------   -----------
              NET BOOK VALUE                                                    15,712          74,427         61,760
                                                                             ============   ===========   ===========
</TABLE>
              (*) See Note 2I.3-5

NOTE 13 -     SHORT-TERM BORROWINGS

<TABLE>
<CAPTION>
                                                                        CONSOLIDATED                        COMPANY
                                                           ----------------------------------------  -------------------------
                                                                                      DECEMBER 31
                                                           -------------------------------------------------------------------
                                                                2002          2002         2001         2002         2001
                                                           -------------  -----------  ------------  -----------  ------------
                                            INTEREST        CONVENIENCE
                                              RATE          TRANSLATION
                                         ----------------  -------------
                                                %             US$'000                      (IN THOUSAND NIS)
                                         ----------------  -------------  ----------------------------------------------------
<S>                 <C>                  <C>                 <C>           <C>          <C>          <C>          <C>
                Short-term bank
                 loans (1):
                    US dollars           Libor+ 0.7-3.0      230,529       1,092,035      994,514       742,746       726,250
                    Euro                 Euribor+ 1.9-2.5     53,239         252,197      159,599             -             -
                    Pounds sterling      Libor+ 1.9-2.5       31,433         148,901      108,030             -             -
                    NIS                  9.0-10.8              4,080          19,326            -         8,353             -
                                                           -------------  -----------  ------------  -----------  ------------
                                                             319,281       1,512,459    1,262,143       751,099       726,250

                Current maturities                            32,004         151,608      182,953        52,283             -
                                                           -------------  -----------  ------------  -----------  ------------
                                                             351,285       1,664,067    1,445,096       803,382       726,250
                                                           =============  ===========  ============  ===========  =============
</TABLE>
               (1)   The balance includes loans in the amount of NIS 784 million
                     received by the Company from an Israeli bank and in respect
                     of which the Company  recorded a lien on deposits  totaling
                     NIS 367 million while  undertaking to provide the bank with
                     additional  security  (see Note  18D(1)).  The balance also
                     includes a loan of NIS 302 million received by Elscint from
                     that  same bank and in  respect  of which  Elscint  agreed,
                     among other  matter,  to provide  additional  security (see
                     Note  18D(2)).  Within the  framework  of the  negotiations
                     between the  Company  and the bank and between  Elscint and
                     the bank,  for  establishing  a long-term  credit line, the
                     bank  notified  each of the  companies of its  agreement in
                     principle to schedule the loans, together with the deposits
                     provided as security,  for repayment over 10 years, subject
                     to providing  additional,  agreed-upon security and signing
                     detailed  agreements  among  the  parties.  The  companies'
                     managements believe,  based on the understandings  reached,
                     that the loan balance will be  re-scheduled  on a long-term
                     basis.

              LIENS - see Note 18D.

                                     - 57 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 14 -     PAYABLES AND OTHER CURRENT LIABILITIES

<TABLE>
<CAPTION>
                                                                   CONSOLIDATED                        COMPANY
                                                      ----------------------------------------  -------------------------
                                                                                 DECEMBER 31
                                                      -------------------------------------------------------------------
                                                           2002          2002       2001(*)         2002         2001
                                                      -------------  -----------  ------------  -----------  ------------
                                                       CONVENIENCE
                                                       TRANSLATION
                                                      -------------
                                                         US$'000                      (IN THOUSAND NIS)
                                                      -------------  ----------------------------------------------------

<S>                                                       <C>           <C>            <C>           <C>           <C>
                Deferred revenues due to decrease
                in percentage holding in
                development stage company                  2,569         12,169         30,391           -              -
                Liabilities arising from the
                  acquisition of assets or
                  services (including land)                8,035         38,064          7,407           -              -
                Government agencies                        4,550         21,555         14,109           -              -
                Wages and fringe benefits                  3,773         17,873         18,349        3,768         3,869
                Payables in respect of
                  currency transactions                    1,101          5,214         10,331        5,214        10,331
                Accrued interest payable                   1,415          6,702          1,907            -             -
                Deferred income                              950          4,501          1,596            -             -
                Advances in respect of
                Projects in progress, net of
                  related costs                                -               -         1,538            -             -
                CC Group companies                             -               -             -        1,160             -
                Deferred taxes                               353          1,670          1,585            -             -
                Accrued expenses and
                  commissions and others                  14,583         69,082         46,612       22,011        11,785
                                                      -------------  -----------  ------------  -----------  ------------
                                                          37,329        176,830        133,825       32,153        25,985
                                                      =============  ===========  ============  ===========  ============

              (*)      Reclassified.
</TABLE>

                                     - 58 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 15 -     LONG-TERM LOANS AND LIABILITIES

              A.  COMPONENTS

<TABLE>
<CAPTION>
                                                                CONSOLIDATED                        COMPANY
                                                   ----------------------------------------  -------------------------
                                                                              DECEMBER 31
                                                   -------------------------------------------------------------------
                                                        2002          2002       2001(*)         2002         2001
                                                   -------------  -----------  ------------  -----------  ------------
                                                    CONVENIENCE
                                                    TRANSLATION
                                                   -------------
                                                      US$'000                      (IN THOUSAND NIS)
                                                   -------------  ----------------------------------------------------
<S>                                                   <C>          <C>            <C>             <C>          <C>
                  LOANS -
                  From Banks and financial
                    institutions                      467,699      2,215,534      1,483,066       72,416        51,927
                                                   -------------  -----------  ------------  -----------  ------------

                  OTHER LIABILITIES:
                  Trade accounts payable                  228          1,081         78,333            -             -
                  Deferred income taxes                22,466        106,424         65,055            -             -
                  Liability for the acquisition
                   of shares in subsidiaries
                   (Note 19C)                           4,704         22,283         21,935       22,283        21,935
                  Pre-paid rent received                5,043         23,891          8,850            -             -
                  Subsidiaries                              -               -             -       17,569        32,458
                                                   -------------  -----------  ------------  -----------  ------------
                                                       32,441        153,679        174,173       39,852        54,393
                                                   -------------  -----------  ------------  -----------  ------------
                                                      500,140      2,369,213      1,657,239      112,268       106,320
                  Less: current maturities            (32,004)      (151,608)      (182,953)     (52,283)            -
                                                   -------------  -----------  ------------  -----------  ------------
                                                      468,136      2,217,605      1,474,286       59,985       106,320
                                                   =============  ===========  ============  ===========  ============

</TABLE>
              B. LINKAGE BASIS AND INTEREST RATES ON LOANS:
<TABLE>
<CAPTION>
                                                                                                CONSOLIDATED
                                                                                 -----------------------------------------
                                                                                                 DECEMBER 31
                                                                                 -----------------------------------------
                                                            INTEREST RATES            2002           2002         2001
                                                                AT THE           --------------  -----------   -----------
                                                             BALANCE-SHEET        CONVENIENCE
                                                                 DATE             TRANSLATION
                                                        -------------------      --------------
                                                                   %                US$'000           (IN THOUSAND NIS)
                                                        -------------------      --------------  -------------------------
<S>                    <C>                              <C>                     <C>               <C>           <C>
                     Loans in foreign currency:
                       US dollar                        Libor+ 0.1-2.2                127,102       602,093       482,876
                       Pound sterling                   Libor+ 1.25-1.40               56,867       269,384       239,548
                       Euro                             Euribor+ 1.35-2.10            232,850     1,103,030       528,392
                       Euro                             4.90 - 6.46(1)                 50,136       237,499       213,068
                       US dollar                                                            -             -        16,826
                       South African rand               5.00(2)                           745         3,528         2,356
                                                                                 --------------  -----------   -----------
                                                                                      467,700     2,215,534     1,483,066
                                                                                 ==============  ===========   ===========

</TABLE>
                     (1)  Fixed  interest  through  2004.  Thereafter  at market
                          rates.
                     (2)  Fixed interest rate.

                                     - 59 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 15 -     LONG-TERM LOANS AND LIABILITIES (CONT.)

              C.     REPAYMENT SCHEDULE:

<TABLE>
<CAPTION>
                                                                                                CONSOLIDATED
                                                                                                 DECEMBER 31
                                                                                 -----------------------------------------
                                                                                      2 0 0 2                 2 0 0 2
                                                                                 -----------------      ------------------
                                                                                    CONVENIENCE
                                                                                    TRANSLATION
                                                                                 -----------------
                                                                                     US$'000            (IN THOUSAND NIS)
                                                                                 -----------------      ------------------
<S>                                                                                      <C>                 <C>
                     First year - current maturities                                     32,004              151,608
                     Second year                                                         32,686              154,835
                     Third year                                                          20,099               95,213
                     Fourth year                                                         20,893               98,971
                     Fifth year                                                          17,760               84,130
                     Sixth year and thereafter                                          294,353            1,394,377
                     Undetermined                                                   (*)  82,346          (*) 390,079
                                                                                 -----------------      ------------------
                                                                                        500,141            2,369,213
                                                                                 =================      ==================
</TABLE>
                      (*)   Includes  a bank loan of NIS 261  million  against
                            which the Company placed a deposit of equal amount
                            as security.


              D.     LIENS - see Note 18D.

NOTE  16 -    ACCRUED  SEVERANCE  PAY (CONSOLIDATED)

              A.     COMPOSITION:

<TABLE>
<CAPTION>
                                                                                                DECEMBER 31
                                                                                  --------------------------------------------
                                                                                     2002            2002          2001 (*)
                                                                                  ------------   -------------  --------------
                                                                                  CONVENIENCE
                                                                                  TRANSLATION
                                                                                  ------------
                                                                                     US$'000          (IN THOUSAND NIS)
                                                                                  ------------   -----------------------------
<S>                                                                                    <C>            <C>            <C>
                     Provision for severance pay                                       268            1,269          1,500
                     Less: amounts deposited in the severance-pay fund                (161)            (762)        (1,064)
                                                                                  ------------   -------------  --------------
                                                                                       107              507            436
                                                                                  ============   =============  ==============
                     (*) Reclassified.
</TABLE>

              B.     IN ISRAEL:

                     The  liability of the Group  companies  to  employees  upon
                     termination include, primarily,  severance pay, termination
                     pay and  advance-notice  pay. The liabilities are partially
                     covered by current  deposits to accounts on the  employees'
                     behalf at recognized pension and severance-pay funds and/or
                     by  acquiring  policies  from  insurance  companies.  These
                     deposits  are not under the  custody or  management  of the
                     Group  companies and,  therefore,  are not reflected in the
                     balance  sheet.  The accrued  severance pay included in the
                     balance sheet  represents  the balance of the liability not
                     covered by the  above-mentioned  deposits and/or  insurance
                     policies for which a fund is  maintained  (in the Company's
                     name) at a recognized pension fund.

              C.     ABROAD:

                     The liability of foreign  subsidiaries for severance pay to
                     their  employees,  pursuant to the laws of the countries in
                     which those  companies  reside and the labor  agreements in
                     effect,  is  ordinarily  covered  by  current  payments  to
                     government  agencies  with  respect  to  the  voluntary  or
                     involuntary  termination  of  employment,  as  well  as  by
                     regular   payments  to  insurance   companies  for  pension
                     benefits and by the balance-sheet accrual.


                                     - 60 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 17 -     INCOME TAXES

              A.     COMPOSITION:

<TABLE>
<CAPTION>
                                                                                        CONSOLIDATED
                                                                 -----------------------------------------------------------
                                                                                          DECEMBER31
                                                                 -----------------------------------------------------------
                                                                     2002            2002           2001          2000
                                                                 -----------     ------------  -------------   -------------
                                                                 CONVENIENCE
                                                                 TRANSLATION
                                                                 -----------
                                                                   US$'000                      (IN THOUSAND NIS)
                                                                 -----------     -------------------------------------------
<S>                                                                    <C>            <C>            <C>            <C>
                     Current income taxes                              590            2,795          9,524          14,576
                     Deferred income taxes                           1,355            6,420         12,272           4,545
                     Taxes in respect of prior years                 2,726           12,913         (7,939)           (214)
                                                                 -----------     ------------  -------------   -------------
                                                                     4,671           22,128         13,857          18,907
                                                                 ===========     ============  =============   =============

</TABLE>

              B.     TAX LAWS  APPLICABLE  TO THE  MAJOR  GROUP  COMPANIES  IN
                     THEIR COUNTRY OF RESIDENCE:

                     1)     ISRAEL

                            A.     The Company and its Israeli  subsidiaries are
                                   subject to income tax under the provisions of
                                   the    Income    Tax    Law     (Inflationary
                                   Adjustments),   1985,  which  introduced  the
                                   concept of measuring results for tax purposes
                                   on a real basis,  according to the changes in
                                   the CPI.  Corporate  tax rate  applicable  to
                                   companies incorporated in Israel is 36%.

                            B.     1.     Starting  January  1,  2003,  new  tax
                                          regulations  go into effect  relating,
                                          among other  things,  to the change in
                                          the   Israeli   taxation   system   in
                                          connection   with  income  of  foreign
                                          companies  controlled  (in  excess  of
                                          10%)  by an  Israeli  resident.  These
                                          provisions  apply to  companies  whose
                                          income   consists  mostly  of  passive
                                          income, as defined by law, or revenues
                                          stemming from passive income,  the tax
                                          rate of  which  does not  exceed  20%,
                                          controlled, directly or indirectly, by
                                          Israeli residents  ("CFC").  According
                                          to the  Law,  a  controlling  party in
                                          those companies  having  undistributed
                                          earnings,  as defined by law, would be
                                          deemed   as   having    received   his
                                          proportionate  share in these earnings
                                          in the form of a dividend,  which will
                                          be subject to Israeli taxes of 25%.

                                   2.     A  dividend  received  in  Israel  and
                                          originating  from income  generated or
                                          derived  abroad as well as a  dividend
                                          originating  abroad will be subject to
                                          tax of 25%.

                                   The  law  also  stipulates   provisions  with
                                   regard to the tax  amount  and its  rate,  in
                                   instances where income taxes were paid abroad
                                   in respect of this income.

                            C.     Starting  January 1, 2003 an Israeli resident
                                   will be subject to tax on his income  even if
                                   derived or generated abroad.  Through the end
                                   of the 2002 tax-year, an Israeli resident was
                                   taxed on such income only if it was initially
                                   received in Israel.

                            D.     Starting  January  1, 2003 the  capital-gains
                                   tax on the sale of assets was  reduced to 25%
                                   and will be  computed  on the  portion of the
                                   gain  pertaining to the period  subsequent to
                                   that date through the date of the sale.

                            E.     Two  investment  programs  of  IGTX  and  its
                                   subsidiary   were   granted   the  status  of
                                   "approved  enterprise"("AE")  pursuant to the
                                   Law  for   the   Encouragement   of   Capital
                                   Investments,  1959  ("the  Law"),  within the
                                   framework of which income stemming from an AE
                                   will be exempt  from tax during  the  initial
                                   two  years,  starting  from the first year in
                                   which  the  AE  has   taxable   income,   and
                                   subsequently subject to a reduced tax rate of
                                   25% during the remaining five-year period for
                                   one program,  and  entitlement for a full tax
                                   exemption  over a  ten-year  period  for  the
                                   other program.  The  investment  schedule was
                                   extended  to  November  2003.  The  period of
                                   benefits  of the  two  programs  has  not yet
                                   begun.

                                     - 61 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 17 -     INCOME TAXES (CONT.)

              B.     TAX LAWS  APPLICABLE  TO THE  MAJOR  GROUP  COMPANIES  IN
                     THEIR COUNTRY OF RESIDENCE (CONT.):

                     1)     ISRAEL (CONT.)

                            E. (cont.)

                                   Should   the   investment   rate  of  foreign
                                   residents  (as defined by law) in IGTX exceed
                                   25%,  the  period  of  benefits   would  then
                                   increase  from  seven to ten  years.  If this
                                   rate exceeds 49%, the tax rate would decrease
                                   from 25% to 10%-20%,  based on the investment
                                   amount during each of the relevant tax-years.

                                   The  period  of  benefits  to  these  AEs  is
                                   limited to 12 years  from the  earlier of the
                                   commencement   of   production  or  14  years
                                   following  receipt of the approval  document.
                                   The benefits are  determined  by the ratio of
                                   the  additional  sales  revenues  during  the
                                   period of benefits over the sales revenues in
                                   the entire last year of  production  prior to
                                   the activation of each program  (adjusted for
                                   the  change in the  wholesale-price  index of
                                   the industrial output),  divided by the total
                                   revenues in each of the tax-benefit years).

                                   Those  benefits are subject to the conditions
                                   stipulated   in  the  Law,  the   regulations
                                   thereunder and the approval  documents  based
                                   on which the investments  were made.  Failure
                                   to  meet  those  conditions  may  lead to the
                                   cancellation of the benefits and also trigger
                                   a demand  for  reimbursement  of the  amounts
                                   received (in whole or in part), plus interest
                                   and   linkage.   Change   in  the   ownership
                                   structure  of  a  company  owned  by  an  AE,
                                   including  a public  offering  of over 49% or
                                   any  private  placement  during the period of
                                   the approved  investment  program through the
                                   end of the period of  benefits  is subject to
                                   the  advance   approval  by  the   Investment
                                   Center.

                                   In the event of a distribution  of tax-exempt
                                   earnings,   as  noted,   in  the  form  of  a
                                   dividend,  the distributing  company would be
                                   subject  to  tax  of  up  to  25%  while  the
                                   distribution   of   earnings   of  an  AE  as
                                   dividends  would be taxable to the  recipient
                                   at a rate of 15%.

                     2)     USA

                            a.     US   tax   laws   set   limitations   on  the
                                   utilization  of  carry-forward  tax losses in
                                   companies  that  have  undergone  a  material
                                   change  in  ownership.  Accordingly,  if  the
                                   transfer of the  Company's  shares to EIL (in
                                   1999) is  defined  as a  material  change  in
                                   ownership  of  Elscint,  then the  ability to
                                   utilize  the  tax-losses  of a US  subsidiary
                                   against   future   income  would  be  limited
                                   considerably.

                                   The  restriction  referred  to above (even if
                                   applicable)  would not have a material impact
                                   on Elscint's shareholders' equity at December
                                   31,  2002 and its results of  operations  for
                                   the year then ended,  since those losses have
                                   not yet been offset against  taxable  income,
                                   and  no  deferred   income  taxes  have  been
                                   recorded in respect thereof.

                            b.     A   non-US   company   may   (under   certain
                                   conditions)  be  deemed  for  US  income  tax
                                   purposes  as  a  Passive  Foreign  Investment
                                   Company  ("PFIC")  on the basis of an "income
                                   test" and an "assets test",  as determined by
                                   the IRS. Once so defined, the US shareholders
                                   may be subject to  additional  taxes upon the
                                   distribution  of  earnings  or assets  and/or
                                   upon their  realization  of their holdings in
                                   such a defined company. Following the sale of
                                   the Company's and  Elscint's  activities  and
                                   due  to  their  entry  into  other  areas  of
                                   activity,  the  management of both  companies
                                   believe - based on advice  received  for this
                                   matter   -  that   in   light   of   existing
                                   indications,   they  may  not  -  under   the
                                   circumstances  - be  considered  as  a  PFIC.
                                   Nevertheless,  there is no certainty that the
                                   companies'  position  would  prevail with the
                                   IRS.

                                     - 62 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 17 -     INCOME TAXES (CONT.)

              B.     TAX LAWS  APPLICABLE  TO THE  MAJOR  GROUP  COMPANIES  IN
                     THEIR COUNTRY OF RESIDENCE (CONT.):

                     3)     THE NETHERLANDS

                            a.     Corporate   tax   applicable   to   companies
                                   incorporated in the country - 34.5%.

                            b.     Under  the   "Participation   Exemption",   a
                                   dividend  received  by  a  Dutch  company  in
                                   respect of an  investment  in shares of other
                                   companies is exempt from corporate tax in The
                                   Netherlands.  A capital gain derived upon the
                                   sale of the  shares  of an  investee  company
                                   would be  exempt  from  tax,  subject  to the
                                   fulfillment of the following criteria:

                                   1.     The company  holds  at least 5% of the
                                          share capital of the investee.

                                   2.     The investing company and the investee
                                          are not investment funds as defined by
                                          Dutch law.

                                   3.     The   investment   is  not   held   in
                                          inventory.

                                   Four additional  criteria are required for an
                                   exemption  in  respect  of an  investment  in
                                   foreign companies:

                                   1.     The  profits of the  investee  must be
                                          taxed in its country of residence.

                                   2.     The  investment  is  not  carried  out
                                          within the  framework of an investment
                                          portfolio.

                                   3.     The investee is an active company.

                                   4.     A subsidiary  acting as the  financier
                                          must be  active  and  meet  additional
                                          conditions in order not to be deemed a
                                          passive company.

                                   Capital  losses  cannot be offset  unless the
                                   investee   is   liquidated,   under   certain
                                   conditions.

                     4)     JERSEY

                            a.     A   company   with  international  commercial
                                   activity:

                                   -   Income   from   operating  activities  is
                                       subject to tax at the rate of 30%.

                                   -   Income   from   international    activity
                                       (including receipt of dividends) would be
                                       taxed at rates ranging from 0.5% to 2%.

                                   -   Capital gains would be exempt from tax.

                                   -   Dividends  received would be taxed at a
                                       rate of 20% subject to international tax
                                       treaties.

                            b.     A  company  without  international commercial
                                   activity:

                                   -   Income  except for bank  interest  if not
                                       earned  in  Jersey,  in excess of a fixed
                                       annual  amount of 600 pounds  sterling is
                                       exempt from tax.

                                   -   Income derived in Jersey except for bank
                                       interest would be taxed at 20%.

                                   -   Capital gains would be exempt from tax.

                                   -   A  dividend  distributed   from   income
                                       originating  in  Jersey  entitles  a tax-
                                       credit of 20%.

                                     - 63 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 17 -     INCOME TAXES (CONT.)

              B.     TAX LAWS  APPLICABLE  TO THE  MAJOR  GROUP  COMPANIES  IN
                     THEIR COUNTRY OF RESIDENCE (CONT.):

                     5)     ENGLAND

                            a.     A UK resident - company:

                                   -   Operating  income and capital gains would
                                       be subject to tax rates  ranging  from 0%
                                       to  32.75%,   subject  to  the  level  of
                                       profitability.

                                   -   Dividends  received  from  a  UK-resident
                                       company are exempt from tax.

                                   -   No tax  credits  are given for  dividends
                                       distributed.

                            b.     A  non-resident  company having an investment
                                   activity in property in England:

                                   -   Net rental income from leasing buildings
                                       in England would be taxed at 22%.

                                   -   Capital gains are exempt from tax.

                     6)     BELGIUM

                            The  corporate  tax rate  applicable  to  income  of
                            companies  incorporated in Belgium is 34%. Dividends
                            paid from such income are subject to additional  tax
                            of 25%, other than a dividend  received by companies
                            incorporated  in Belgium or in the EU, whose holding
                            rate in the Belgian company is at least 25%, subject
                            to international tax treaties.

                     7)     ROMANIA

                            The corporate income tax rate for resident companies
                            and    non-resident    entities    with    permanent
                            establishments  in Romania is generally 25%. Capital
                            gains are  generally  treated as  ordinary  business
                            income.  Dividends paid to resident and non-resident
                            companies are subject to a final  withholding tax of
                            10%,  unless  reduced double  taxation  treaty rates
                            apply  for  non-residents.   Losses  may  be  offset
                            against  taxable  income  for a period of five years
                            from the period they were incurred.

                     8)     HUNGARY

                            The   corporate   tax  rate   applicable  to  income
                            (including    capital    gains)   of    subsidiaries
                            incorporated  in the country is 18%.  Dividends paid
                            out of these  profits are taxed an  additional  20%,
                            subject to the terms of the relevant  treaty for the
                            prevention of double taxation. Losses from the third
                            year onward may be offset against taxable income for
                            a period of five years,  subject to the  fulfillment
                            of a losses/revenues  ratio,  pursuant to the income
                            tax  regulations.  The  losses  incurred  during the
                            first two years of operation may be carried  forward
                            for an unlimited period of time.

                     9)     POLAND

                            The corporate  tax  applicable  to  subsidiaries  in
                            Poland is 28%.  Dividends paid out of these earnings
                            are  subject to an  additional  (final)  tax of 20%,
                            subject   to  the   relevant   tax  treaty  for  the
                            prevention  of  double  taxation.  The  tax  rate on
                            taxable  income will be gradually  reduced to 22% by
                            2004.  Losses may be offset  against  taxable income
                            over a  five-year  period,  limited  each  year to a
                            maximum  utilization of up to 50% of the accumulated
                            loss.

                                     - 64 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 17 -     INCOME TAXES (CONT.)

              C.     Effective tax rate:

                     The  following is a  reconciliation  between the income tax
                     expense  computed on the pretax  income at the ordinary tax
                     rates ("the  theoretical  tax") and the tax amount included
                     in the consolidated statement of operations:

<TABLE>
<CAPTION>
                                                                                        CONSOLIDATED
                                                                                         DECEMBER3 1
                                                                       2002           2002          2001          2000
                                                                    ------------  -----------   ------------   ------------
                                                                    CONVENIENCE
                                                                    TRANSLATION
                                                                    ------------
                                                                      US$'000                 (IN THOUSAND NIS)
                                                                    ------------ ------------------------------------------
<S>                                                                       <C>           <C>           <C>            <C>
                     Company's theoretical tax rate (%)                    36            36            36             36
                                                                    ============  ===========   ============   ============
                     Income (loss) before taxes -
                       per statement of operations                     (3,058)      (14,484)      118,529        (37,017)
                                                                    ============  ===========   ============   ============
                     The theoretical tax                               (1,101)       (5,214)       42,670        (13,326)
                     Differences in tax liability in respect of:
                        Utilization of prior-year losses for
                          which deferred taxes had not been
                          created in the past                          (5,667)      (26,846)      (16,960)       (13,206)
                        Losses and other timing differences for
                          which deferred taxes had not been
                          created                                      18,475        87,518        68,029         77,620
                        Variances from different measurement
                          rules applied for the financial
                        statements and those applied for income
                          tax purposes (including exchange-rate
                          differences)                                 (3,186)      (15,092)      (28,583)        (9,836)
                        Differences in the tax rates on income
                        of foreign subsidiaries                        (3,917)      (18,554)      (16,266)        (6,176)
                        Taxes for prior years                           2,726        12,913        (7,939)          (214)
                        Other differences, net (*)                     (2,659)      (12,597)      (27,094)       (15,955)
                                                                    ------------  -----------   ------------   ------------
                                                                        4,671        22,128        13,857         18,907
                                                                    ============  ===========   ============   ============

                     (*) Mainly tax-exempt income and disallowed expenses.
</TABLE>


              D.     Carryforward losses and deductions:

                     At December 31, 2002 the Group  companies  had  accumulated
                     tax losses and  deductions  amounting  to NIS 630  million,
                     which may be  utilized  in  future  years  against  taxable
                     income at rates ranging from 18% to 34.5%  depending on the
                     country of residence.  The  utilization  of these losses is
                     contingent upon generating taxable income during the period
                     in which these losses may be offset.

              E.     Deferred    taxes   in   respect  of  non-monetary   assets
                     (consolidated):

                     Deferred taxes not allocated in respect of the CPI-adjusted
                     amounts of  buildings  and net book  value of assets  whose
                     depreciation  for tax  purposes  would be  disallowed  (for
                     which it had been  determined not to record deferred income
                     taxes) amounted at December 31, 2002 to NIS 91million ($ 19
                     million).

                                     - 65 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 17 -     INCOME TAXES (CONT.)

              F.     Deferred income taxes (consolidated):

<TABLE>
<CAPTION>
                                                                                                DECEMBER 31
                                                                                  -----------------------------------------
                                                                                     2002            2002          2001
                                                                                  ------------  ------------   ------------
                                                                                  CONVENIENCE
                                                                                  TRANSLATION
                                                                                  -----------
                                                                                    US$'000          (IN THOUSAND NIS)
                                                                                  -----------   --------------------------
<S>                                                                                 <C>           <C>            <C>
                     Accelerated depreciation differences in respect of
                        fixed assets                                                (14,016)      (66,395)       (25,881)
                     Difference between fair value of land at acquisition and
                     related cost for income tax purposes                            (7,988)      (37,841)       (42,707)
                     Temporary differences - income and expenses                     (3,968)      (18,797)        (9,653)
                     Carryforward tax losses and deductions                           5,618        26,612         21,817
                                                                                  ------------  ------------   ------------

                     Deferred taxes                                                 (20,354)      (96,421)       (56,424)
                                                                                  ============  ============   ============
                     PRESENTED IN:

                     Long-term liabilities                                          (22,465)     (106,424)       (65,055)
                     Current liabilities                                               (353)       (1,670)        (1,585)
                     Long-term loans and receivables                                  2,464        11,673         10,216
                     Current assets                                                       -             -              -
                                                                                  ------------  ------------   ------------
                                                                                    (20,354)      (96,421)       (56,424)
                                                                                  ============  ============   ============
</TABLE>

              G.     Final tax assessments:

                     The  Company,  Elscint and some of the Group  companies  in
                     Israel have received  final tax  assessments  through 1998.
                     Some of the Group companies  abroad have received final tax
                     assessments  from 1991 to 1999 while some have not yet been
                     assessed since incorporation.

                                     - 66 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 18 -     COMMITMENTS AND CONTINGENT LIABILITIES

              A.     COMMITMENTS

                     (1)    The  minimum  annual  future  rental  fees under the
                            building and equipment  operating  leases,  based on
                            prices  and terms in effect at  December  31,  2002,
                            (including renewal options),  for periods subsequent
                            to December 31, 2002,  are immaterial to the Group's
                            business.

                            As  for   the   commitments   in   respect   of  the
                            land-leasing  fees of the Hotel  Division and the PC
                            Group - see Note 11C1 and 11C2.

                     (2)    In   connection   with  the  sale  of  the   Elscint
                            operations to GEMS and Phillips Medical Systems Ltd.
                            ("Phillips") (as outlined in Note 23 below), Elscint
                            undertook not to make dividend  distributions either
                            in kind, cash or  extraordinary  distributions,  and
                            not  file for  liquidation  or  merge  with  another
                            entity unless the following conditions are met:

                            A.     In the event of merger or consolidation,  the
                                   acquiring   company  must  assume   Elscint's
                                   liability to Phillips.

B.                                 The  value  of the net  tangible  assets  (as
                                   defined in the  agreement)  must not  decline
                                   below $10 million in 2003, as a result of the
                                   merger or distribution. Commencing in 2004 no
                                   restrictions  exist on such a distribution or
                                   merger,  provided that - at the time of those
                                   transactions  - there is no pending  claim by
                                   Phillips  against  Elscint  in  excess of $10
                                   million.

                     (3)    B.H.  was  granted  an  option  from the  management
                            company,  exercisable  until  September 30, 2003, to
                            purchase  from  the  management  company  33% of its
                            ownership and controlling  rights in a company under
                            its ownership, which was incorporated to acquire the
                            business   (including    tangible   assets,    hotel
                            management agreements,  management rights, rights to
                            use trade  names,  etc.) of the Park Plaza  chain in
                            Europe (hereinafter "the acquired company"). As part
                            of  the  agreement,   B.H.  granted  the  management
                            company a loan of $ 5 million.

                            The level of B.H.'s  investment  may  increase  by $
                            2.25 million,  if and to the extent that this amount
                            is required  for the purchase of other assets by the
                            acquired  company.  The  management  company  has an
                            option,  exercisable up to the end of one year or at
                            any time in the event of  disagreement  between  the
                            parties  regarding the management  company's rights,
                            to acquire part of the company, in consideration for
                            the   refund   of  the  cost  of   B.H.'s   original
                            investment.

                     (4)    Elscint is required to pay  royalties  to the Office
                            of the Chief  Scientist  ("OCS") in respect of sales
                            of products  developed  with grants  provided by the
                            latter.  The  royalties  are  computed  on the sales
                            volume of these products at percentages ranging from
                            1% to 5%  limited  to the  aggregate  amount  of the
                            grants.  Elscint  received  correspondence  from the
                            OCS,  requesting  the  submission of certain data in
                            order to  ascertain  its  obligation  in  respect of
                            royalties due to the OCS.

                            The  liability  to the OCS in respect of the sale of
                            the  MRI  operations  to  GEMS,  determined  at  $11
                            million,  was  allocated  60% to Elscint  and 40% to
                            GEMS.  Elscint received a written  notification from
                            the OCS, requiring details concerning the allocation
                            of the proceeds  received  from GEMS,  in connection
                            with the sale,  to the MRI  project,  based on which
                            the royalties had been computed. In addition, it was
                            agreed  that the NM and MRI  technologies,  products
                            and  components  would  not  be  transferred  out of
                            Israel unless GEMS first seeks OCS approval.

                            Pursuant to the agreement between Elscint,  GEMS and
                            the OCS, Elscint undertook that should GEMS sell MRI
                            products  containing certain know-how and components
                            financed  with the  assistance  of the OCS, it would
                            pay the OCS royalties in excess of $ 1.5 million.

                            The Company and Elron Ltd. notified Elscint that the
                            outcome of the settlement of their disagreement with
                            the OCS in  connection  with  the  sale  of  Elron's
                            holdings  in  the  Company   will  not  involve  any
                            additional cost to Elscint.

                                     - 67 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 18 -     COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)

              A.     COMMITMENTS (CONT.)

                     (5)    IGTX  is  required  to pay  royalties  to the OCS on
                            proceeds  from  the  sale  of  products,   in  whose
                            research and development  the OCS has  participated,
                            at a rate of 3% for the first  three  years and 3.5%
                            thereafter  up to a  maximum  of 100% of the  grants
                            received.  The total amount of grants received as of
                            December 31, 2002 is NIS 37.2 million.

                     (6)    Hotel management agreements - see Note 10B.1.c.

                     (7)    Hotel franchise agreements - see Note 10B.1.d

                     (8)    Principal   agreements  for  leasing  space  in  the
                            commercial centers - see Note 10B.3.b.2.

                     (9)    Commitments  to acquire and/or  construct  assets at
                            the   Commercial   Centers   Division   -  see  Note
                            10B.3.b.3.

                     (10)   Agreements for management,  supervisory and manpower
                            services for the establishment of commercial centers
                            - see Note 10B.3.b.4.

                     (11)   A commitment to effect a final payment in respect of
                            the Triple-S transaction - see Note 19c above.

                     (12)   Pursuant to the  agreements  between the Company and
                            Elbit Ltd., from which the Company and Elbit Systems
                            Ltd.  were  spun-off  ("the  spun-off   companies"),
                            effective  January  1, 1996,  Elbit  Ltd.  agreed to
                            grant  the  Company,   for  no  consideration,   the
                            ownership  of  know-how  and  intellectual  property
                            rights in connection with the Company's  operations,
                            the  right to use the  "Elbit"  name and to  provide
                            various  services  for  consideration.  The  parties
                            undertook mutual  indemnifications in respect of the
                            activities preceding the spin-off.

                     (13)   CURRENCY TRANSACTIONS- see Note 24b.

                     (14)   Within  the  terms  of an  agreement  with  EIL  and
                            Elscint,  extended to be in effect through  December
                            31, 2005, direct as well as indirect expenses of the
                            internal    departments   of   EIL   Group   (legal,
                            investments,  accounting  and  taxation)  are  to be
                            allocated.  Each party to the  agreement is entitled
                            to  terminate  the  agreement  at the  end  of  each
                            12-month  period  by  giving  prior  notice  to that
                            effect. Under the agreement,  the expenses are to be
                            divided so that EIL bears 35%,  with the Company and
                            Elscint,  each, 32.5%, unless the actual utilization
                            rate   deviates   by  more   than  10%  from   these
                            percentages.  Should the deviation be more than 10%,
                            the  parties  would  be  charged  on  the  basis  of
                            actual-cost  allocation.  The renewal  agreement was
                            approved  by  the  audit   committees   of  all  the
                            participating companies' boards of directors.

                     (15)   In October 2001 an agreement between Bucuresti and a
                            company  controlled by Control Centers  (CDPM),  was
                            approved at the shareholders' meeting. In accordance
                            with that  agreement  CDPM will provide  logistical,
                            planning,  and  supervisory  services in  connection
                            with the  renovation of the Bucuresti  hotel,  for a
                            fee equal to the lower of 5% of the renovation costs
                            (excluding  general  and  administrative  costs  and
                            financing) or 5% of $ 30 million.

                     (16)   On February  14, 2001 the Company was  notified,  by
                            the Government  Companies'  Authority ("GCA"),  that
                            the Elezra Group had won the right to purchase  from
                            the State the shares of  Afridar  -The  Housing  and
                            Development  Company of Ashkelon  Ltd.  ("Afridar").
                            The Elezra Group consists of Elezra Developments and
                            Investments Ltd.  ("Elezra"),  an unrelated  company
                            and Elbit Medical Holdings Ltd., a subsidiary of the
                            Company ("Elbit  Holdings"),  as well as the Company
                            and Mr. Eli Elezra as interested  parties (together,
                            "the   Group").   Afridar   is  a  highly   regarded
                            real-estate company with extensive experience.

                                     - 68 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 18 -     COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)

              A.     COMMITMENTS (CONT.)

                     (16)   CONT.

                            Immediately  following  that notice,  Group  members
                            signed an  agreement  in  principle  to govern their
                            business  relationship,  according  to which  Elezra
                            would pay the total  acquisition cost of the Afridar
                            shares  (NIS 80 million ($ 19.8  million))  and,  in
                            exchange,  the Company  and/or Elbit  Holdings would
                            hold the Afridar  shares that would be registered in
                            their name, in trust for Elezra.

                            The parties also agreed that in consideration of the
                            above,  Elezra  would pay the Company NIS 1 million,
                            an amount that Elezra converted - in accordance with
                            the  agreement-in-principle  - into an option for 24
                            months to be granted  to the  Company  and/or  Elbit
                            Holdings for the acquisition of up to 15% of Afridar
                            shares in exchange for a payment to Elezra  equaling
                            15% of the  Afridar  share  price paid by the latter
                            (or any other  percentage  equalling  the  number of
                            shares  to be  purchased).  In  March  2003  Company
                            management decided not to exercise the option and it
                            thus expired.

                            The  transfer  of shares  between the members in the
                            Group is subject to the  approval  of the GCA during
                            the initial 12 months  following  the  conclusion of
                            the  transaction.  In the absence of such  approval,
                            the Company  and/or Elbit  Holdings would remain the
                            owners of the Afridar  shares until the  restriction
                            on their  transfer  is lifted.  In this case,  Elbit
                            Holdings and Elezra will be,  jointly and  severally
                            liable to the GCA and the  State of  Israel  for all
                            charges  applicable to purchasers of Afridar shares.
                            In  addition,  after 12 months  from the date of the
                            transaction's  conclusion,  any  direct or  indirect
                            sale of control in  Afridar is  contingent  upon the
                            transfer of the seller's  commitments  to the GCA to
                            the  potential  purchaser,   as  stipulated  in  the
                            agreement. Elezra undertook to indemnify the Company
                            and/or Elbit  Holdings for any expense and/or damage
                            and/or claim and/or loss and/or  request for payment
                            and/or any other  expense  incurred  by the  Company
                            and/or Elbit  Holdings in connection  with the offer
                            for  the  acquisition  of the  Afridar  shares,  the
                            related  transaction,  the acquisition of the shares
                            and their  holding  in trust,  receipt  of the above
                            option,  transfer of the shares  between the parties
                            and the above agreement in principle.

                            The Company,  together with Elezra,  was negotiating
                            with  the  Government  Companies  Authority  for the
                            assignment of the Company's  rights and  obligations
                            in Afridar to Elezra.  At the issuance date of these
                            financial statements, these rights have not yet been
                            assigned.

              B.     CLAIMS

                     (1)    In  November   1999,   a  number  of   institutional
                            investors  and  others,  holding  shares in Elscint,
                            filed, a lawsuit in the Haifa District Court against
                            the Company, Elscint, EIL and others. The plaintiffs
                            also requested the certification of their claim as a
                            class  action  in the name of all those who had held
                            Elscint  shares on September 6, 1999,  and continued
                            to do so when the  claim was  filed  (excluding  the
                            Company    and    others).    The   claim    alleges
                            discrimination     against    Elscint's     minority
                            shareholders  arising from various  transactions  or
                            activities    carried   out   by   its   controlling
                            shareholders  and  directors,  which -  allegedly  -
                            caused them financial loss, manifested by the 45% ($
                            100  million)  decline  in the  value  of  Elscint's
                            shares in the period from  February  24, 1999 to the
                            claim's filing date.

                            The  principal  remedy  requested  in the claim is a
                            court order  instructing  the Company to carry out a
                            tender offer for Elscint's shares at $ 14 per share.
                            Alternatively,  the  plaintiffs,  inter  alia,  also
                            asked the court to issue an  injunction  prohibiting
                            implementation of the September 9, 1999 transactions
                            and the refund of any amounts paid thereunder.  Part
                            of the relief was requested as a derivative claim by
                            Elscint.

                                     - 69 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 18 -     COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)

              B.     CLAIMS (CONT.)

                     (1)    (CONT.)

                            The Haifa  District  Court  summarily  dismissed the
                            request for  certification  as a class action.  This
                            decision was appealed by some of the  plaintiffs  to
                            the Supreme Court. Concurrently,  the district court
                            ruled  that  the  plaintiffs  may -  notwithstanding
                            having   rejected   the  request  for  class  action
                            proceedings -  nevertheless  pursue the matter.  The
                            State  Attorney  General  has  submitted  a position
                            paper to the  Supreme  Court  regarding  the appeal.
                            According to his opinion,  the district  court erred
                            in its two  legal  conclusions  when  rejecting  the
                            request for class-action certification. Accordingly,
                            he believes that the plaintiffs should be allowed to
                            appeal  and that the  appeal - if filed - should  be
                            accepted.   Moreover,  the  State  Attorney  General
                            believes that,  subsequent to the acceptance of this
                            appeal, it will be necessary to evaluate the request
                            and approve it as a class action. At this stage, the
                            Registrar has deferred the dates for  submitting the
                            defense   documents,   until  the  question  of  the
                            required court fees due in these procedures has been
                            decided, as outlined below:

                            On  November  21,  2001  hearings  were  held in the
                            Supreme Court at following  which it granted a right
                            of appeal.  The Company  and the parties  filing the
                            class action presented their respective  motions. On
                            February 27, 2002,  the court  decided to permit the
                            State Attorney  General to present his final motion,
                            in writing, within seven days.

                            A dispute has arisen  between the parties  regarding
                            the question of the fee,  which is determined  based
                            on the  classification  of the relief  sought in the
                            claim.  For the  time  being,  the  plaintiffs  have
                            defined  the  relief  sought by them as  declaratory
                            relief and have paid a fee for it. The  position  of
                            the defendants is that the true relief sought in the
                            claim is monetary,  and that the  plaintiffs  should
                            pay a court fee which is substantially  greater than
                            the sum that the plaintiffs  have paid. On August 3,
                            2001, the Registrar of the Haifa District Court held
                            that part of the relief sought by the  plaintiffs is
                            not  declaratory as claimed by the  plaintiffs,  but
                            rather monetary as the defendants claim.  Therefore,
                            the Registrar  decided that the plaintiffs  must pay
                            the  fee for  these  reliefs  totalling  2.5% of the
                            amount  claimed  (totalling  NIS 20 million) and, in
                            addition, itemize the monetary reliefs sought by the
                            plaintiffs.  As for the other  relief  sought by the
                            plaintiffs,  the  court  ruled  that  they  are  not
                            monetary   remedies,    rather    applications   for
                            injunctive releif, on which the plaintiffs will have
                            to pay a fee of an insignificant amount.

                            To date, the plaintiffs  have not yet paid the court
                            fee  and  also   have  not   advanced   satisfactory
                            arguments to support the relief they are seeking. As
                            a  consequence,  Elscint  has  applied  the court to
                            strike  out  from the list of  relief  sought  those
                            deemed   by  the   court   as   needing   additional
                            substantiation.  The Company has joined in Elscint's
                            application. On February 28, 2002 a hearing was held
                            before the registrar of the district court regarding
                            the  defendants'  application to strike out portions
                            of the claim in view of the fact that the plaintiffs
                            failed to pay the court fee. The  Registrar  decided
                            that the proceedings regarding this application will
                            be heard after the appellate court decides regarding
                            the court fee as  described  below.  The court  also
                            ruled  that,  at  this  stage,  the  filing  by  the
                            defendants of defense motions would be postponed.

                            Two appeals on the Registrar's decision of August 3,
                            2001 were  filed  with the Haifa  District  Court on
                            September  20,  2001.  Elscint and other  plaintiffs
                            petitioned  the court to determine  that the primary
                            relief and the  alternative  relief  demanded in the
                            claim are both  monetary,  and  subject  to a fee of
                            2.5%  of  the  amount.   In  another   appeal,   the
                            plaintiffs  petitioned  the court to establish  that
                            the  relief  categorized  as  monetary  is, in fact,
                            injunctive   relief.  In  addition,   the  plaintiff
                            petitioned  the court to  overrule  the  Registrar's
                            decision  concerning the  postponement of the filing
                            of the  defense-motion.  On  October  28,  2001  the
                            Company filed a counter-appeal, claiming, as Elscint
                            had,  that the  primary  and the  alternative  claim
                            constitute  a stated  monetary  remedy  and are thus
                            subject  to a fee of 2.5% on the  amount of  damages
                            claimed.  The hearing on these appeals took place in
                            April  2002.  The  court  has not yet  rendered  its
                            decision.

                                     - 70 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 18 -     COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)

              B.     CLAIMS (CONT.)

                     (1)    (CONT.)

                            The  Company's  management  believes  - based on the
                            opinion  of  its  legal  counsel  - that  the  final
                            outcome of this case cannot be estimated.

                            On January 26, 2003,  the Company  received a letter
                            from one of the  insurers  ("the  Insurer")  of EIL,
                            Elscint and the Company (the  "Insured  Companies"),
                            that  provides  insurance  to the Insured  companies
                            including     insurance     pertaining    to    this
                            representative claim.

                            In this letter, the Insurer made certain allegations
                            against  the  Insured  Companies,  including,  inter
                            alia,  that the  Insured  Companies  breached  their
                            disclosure   duties   under   section  6(a)  to  the
                            Insurance Contract Law, 1981, by failing to disclose
                            to the  Insurer  material  information  prior to the
                            issuance of additional cover to the policy purchased
                            by EIL (the  "Policy"),  effective  as of July  1999
                            (the   "Additional   Cover"),   and   prior  to  the
                            replacement of the Policy and the  Additional  Cover
                            by the  issuance  of a new  policy  effective  as of
                            August 1999 (the  "Replacement  Cover").  The letter
                            states  that  the  Policy,   Additional   Cover  and
                            Replacement  Cover  issued  by the  Insurer  will be
                            cancelled unless the Insured Companies  indicate the
                            circumstances were different than those described in
                            the letter. The Company's legal counsel sent a reply
                            on behalf of EIL,  Elscint  and the Company on March
                            20, 2003,  in which the  allegations  of the Insurer
                            were rejected. As of the date of the issuance of the
                            financial statements the company has not received an
                            answer from the Insurer to the Company's letter.

                     (2)    In  September  1999, a lawsuit for $ 158 million was
                            filed against the Company, Elscint and others, along
                            with a request for  recognition  as a class  action.
                            The  plaintiffs  assert  that the  Company,  through
                            Elscint's Board of Directors, caused damages to, and
                            discriminated  against, the minority shareholders of
                            Elscint. Based on the parties' agreement,  the court
                            hearings  were  postponed  until the  Supreme  Court
                            decides  in the  appeal  described  in item 1 above.
                            Based on the advice  received  from  legal  counsel,
                            management  believes  that at this  stage  it is not
                            possible to  ascertain  the outcome of the claim and
                            whether it will be recognized as a class action.

                     (3)    The  Company and its  subsidiaries  are parties in a
                            number of lawsuits in the courts as well as to other
                            claims by third  parties-  in part,  with no amounts
                            stipulated,  and, in part, in an aggregate amount of
                            approximately  $39  million,   as  compensation  for
                            damages  allegedly  caused by the activities  and/or
                            products  of  the   companies   and  which   relate,
                            primarily,  to the  operations of the Company and of
                            Elscint  which  were  sold  during  1998  and  1999.
                            Regarding a portion of the claims,  amounting  to $8
                            million,  management of the companies estimates,  on
                            the  basis of the  opinion  of their  legal  counsel
                            dealing  with these  matters  and/or on the basis of
                            counsel of insurance  advisors,  that no significant
                            costs  will  result  therefrom,  over and  above the
                            relevant amounts accrued in the financial statements
                            and that the  provisions  recorded in the  financial
                            statements  are  adequate  to cover  the  costs  and
                            resources  that  will be  necessary  to  settle  any
                            obligations  resulting from the claims.  Regarding a
                            portion  of the  claims  amounting  to $31  million,
                            legal  counsel  of the  companies  is unable at this
                            stage to estimate  the  outcome.  Nevertheless,  the
                            companies have recorded  accruals in their financial
                            statements  in  amounts  that are  adequate,  in the
                            opinion of their management,  to cover the costs and
                            resources necessary to resolve the obligations under
                            these  claims  as of the  date  of  issuance  of the
                            financial  statements  based,  inter  alia,  on  the
                            counsel of their  relevant  advisors in such matters
                            and on past experience.  The aggregate amount of the
                            claims as  mentioned  above,  was  decreased  during
                            2002, as a result of  negotiations  carried out with
                            some of the distributors,  which negotiations led to
                            settlements  with  claimants.  As a  result  of such
                            settlements  no  costs  were  incurred   beyond  the
                            provisions  that  were  included  in  the  financial
                            statements.

                                     - 71 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 18 -     COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)

              B.     CLAIMS (CONT.)

                     (4)    A claim for $ 14.3  million is pending in an Israeli
                            court by two foreign  companies  against the Company
                            and its  subsidiary,  which - for  the  purposes  of
                            filing   fees  -  was   set   at   NIS  20   million
                            (approximately  $  5  million).  The  claim  alleges
                            damages,  mainly,  loss of  profits  and  damage  to
                            goodwill,  allegedly  sustained due to the Company's
                            breach of its obligation to take part in a tender in
                            Brazil to set up a medical  diagnostic  center.  The
                            Company requested the court to summarily dismiss the
                            claim due to lack of jurisdiction  or,  alternately,
                            due to the Israeli  courts  being an  "inappropriate
                            forum" to adjudicate  the matter.  In May 2001,  the
                            District  Court  rejected  the request to  summarily
                            dismiss  the claim  and the  Company  appealed  this
                            decision in the District  Court.  In  addition,  the
                            Company  will submit a request to extend the date to
                            file  a  defense  motion  until  after  the  court's
                            decision on the appeal.  The  parties  agreed  that,
                            should the Company's  appeal  concerning the lack of
                            legal   jurisdiction   by  the  Israeli   courts  be
                            rejected,  the  Company  would  then  file a defense
                            motion within 30 days  thereafter.  On March 2, 2003
                            the Haifa  District  Court  rejected  the  Company's
                            appeal and stated that the court handling this claim
                            is empowered to decide the appropriate and qualified
                            jurisdiction for hearing the case. The Company filed
                            a  defense  motion  against  the  actual  claim.  In
                            addition,  the  Company is  contemplating  filing an
                            appeal with the Supreme Court.

                            On the  basis of legal  advice,  Company  management
                            considers the  likelihood of acceptance of the claim
                            against  the  Company  to be remote  and that,  with
                            regard to the subsidiary, there are good grounds for
                            defense.  Management believes that should any of the
                            plaintiff's  assertions  be accepted  with regard to
                            the breach of  contract,  then the  amounts  claimed
                            would appear to be exaggerated and groundless. These
                            financial statements do not include any provision in
                            respect of this claim.

                     (5)    During  2001  GEMS  drew  the  balance  of the  $3.5
                            million credit  facility  provided by the Company in
                            connection   with   the   sale  of  the   ultrasound
                            operations.   In  addition,  it  demanded  from  the
                            Company  an  additional  $1  million  in  respect of
                            damages  allegedly  suffered  by  it  following  the
                            implementation  of the  sales  agreement  under  the
                            indemnification  had been  awarded.  In January 2003
                            the  Company  reached  a  comprehensive   and  final
                            arrangement with GEMS under arbitration proceedings.
                            In accordance  with a signed  agreement  between the
                            parties,  GEM  reimbursed  the Company $1.3 million,
                            resulting  in a gain of $0.8  million to be reported
                            by the Company in the first quarter of 2003.

                     (6)    In respect of the legal proceedings  underway in the
                            Romanian  courts which may have an adverse effect on
                            the Group - see Note 10b(1) b (7) above.

                     (7)    In July  2002 a third  party  filed a  lawsuit  in a
                            Polish court against a contractor in Poland for $3.6
                            million,  alleging  an unpaid  debt  arising  from a
                            service agreement.  In addition, the plaintiff asked
                            the court to seize a debt owed by three lessees,  in
                            order to  secure  the  repayment  of that  company's
                            debt.  In  September  2002 the  court  accepted  the
                            plaintiff's request to seize the rental payments. In
                            October  2002,  the  court  rejected  the  Company's
                            appeal in respect thereof. In that month the Company
                            also filed its response to the main claim,  in which
                            it rejected most of the  plaintiff's  assertions and
                            requested  the court to reduce the  payment  for the
                            construction  services it owes the  plaintiff due to
                            the   alleged   incomplete   construction   and  the
                            execution    of    the    construction    work    at
                            lower-than-agreed standards.

                            Concurrently,  the Company filed a counter-claim for
                            $3.4  million,  alleging  damages  due to defects in
                            discharging  the  agreement  as well  as  additional
                            losses  incurred  as a results  of its  actions.  In
                            addition to these proceedings,  the Company asked to
                            be  included  in  a  compromise   settlement   being
                            finalized   between  the   plaintiff   and  all  his
                            creditors.  The Company was formally approved as one
                            of  the   plaintiff's   creditors   and  will   thus
                            participate in all the proceedings pertaining to the
                            arrangement. Company management does not foresee any
                            additional  expenses  in  respect  of  these  claims
                            beyond  those  already  included in these  financial
                            statements.

                                     - 72 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 18 -     COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)

              B.     CLAIMS (CONT.)

                      (8)   In addition,  the Company and its  subsidiaries  are
                            currently  involved in litigation in connection with
                            matters  in their  ordinary  course  of  activities.
                            Although the final outcome of these claims cannot be
                            foreseen  at this  time,  the  management  of  these
                            companies  believes - based on advice of their legal
                            counsel - that the claims will not have any material
                            impact on the Group companies.

              C.     OTHER CONTINGENT LIABILITIES

                     (1)    The   allocation  of  the  proceeds  in  respect  of
                            operations  sold in  1998  between  Elscint  and its
                            subsidiaries in 1998 is based on an estimate of fair
                            value of the assets (both  tangible and  intangible)
                            sold  by  each  one of the  companies;  on  separate
                            negotiations  held with each selling Group  company;
                            and on the basis of the provisions stipulated in the
                            sales  agreement.  A different  method of allocation
                            may cause  Elscint and its  subsidiaries  additional
                            liabilities  and/or  expense.  Elscint's  management
                            believes  that the  estimates  used as the basis for
                            this  allocation  of proceeds is adequate  under the
                            circumstances.

                     (2)    The General  Meeting of the  Company's  shareholders
                            approved  the  granting  of advance  indemnification
                            contracts to directors  and officers  (including  in
                            their capacity as officers of the subsidiaries). The
                            total  indemnification  amount  will not  exceed the
                            lower of 25% of the Company's  shareholders'  equity
                            in accordance  with the financial  statements at the
                            time of  indemnification  or $40 million,  above the
                            amounts  to  be  paid,   if  at  all,  by  insurance
                            companies  under its policies  for risks  covered by
                            those  policies.  In addition,  the General  Meeting
                            approved an exemption for the directors and officers
                            (other than controlling parties) from responsibility
                            for any damage  caused by breach of due care towards
                            the Company.

                     (3)    There  is  a  commitment  to  indemnify   additional
                            officers  (including  directors)  subject to, and up
                            to, the limit allowed by law, in  connection  with a
                            financial  obligation  incurred  in favor of a third
                            party and in respect of  reasonable  legal  expenses
                            incurred  by or  charged  to any  one of  them.  The
                            Company  took  out  an  insurance  policy  to  cover
                            officers and directors in an amount,  which - in the
                            opinion  of  management  - is  sufficient  to  cover
                            reasonable risks.

                     (4)    Elscint is committed  to indemnify  its officers and
                            directors at the maximum amount permitted by law and
                            by its own  bylaws,  in  connection  with any act or
                            deed carried out in the discharge of their duties.

                            Notwithstanding  the above,  Elscint's  shareholders
                            approved in their General  Meeting,  the granting of
                            advanced  indemnification  certificates  to officers
                            and  directors,   including   those  acting  in  its
                            subsidiaries.  The total  indemnity  will not exceed
                            the lower of 25% of the  share  capital  of  Elscint
                            presented in the financial statements at the time of
                            the indemnification,  or $50 million, in addition to
                            such amounts,  if any, to be paid by the insurers in
                            accordance with its insurance  policy, at times, for
                            causes covered by such indemnification policies. The
                            General  Meeting  also  approved an  exemption  from
                            liability in respect to any damage caused to Elscint
                            by breach of duty of care  committed by officers and
                            directors.

                     (5)    Regarding  several  sales,  which were  effected  by
                            Elscint  prior to the sale of its  assets  (November
                            1998),  Elscint  undertook  towards  a number of its
                            customers to  repurchase,  under  certain  specified
                            conditions,  at an agreed price,  equipment they had
                            purchased.  The price of the equipment repurchase by
                            Elscint  as of  December  31,  2002  was  NIS  3,752
                            thousand.

                                     - 73 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 18 -     COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)

              C.     OTHER CONTINGENT LIABILITIES (CONT.)

                     (6)    Within the  framework of the  agreement  for selling
                            Elscint's  plant,  as  described  in Note 23  below,
                            Elscint  undertook to indemnify the  purchasers  for
                            any losses  incurred in  connection  with,  and as a
                            result of, the  liabilities not acquired by them. It
                            also agreed to pay the income-tax liability incurred
                            by the  plant up to  December  31,  2002,  including
                            those arising from environmental-quality matters, in
                            connection   with   employee   benefits   (including
                            subcontractor and workers of manpower agencies),  in
                            connection  with breach of the  contract  signed for
                            the   leasing   of  land  from  the   Israel   Lands
                            Administration, in connection with taxes due for the
                            transfer  of the rights in the lands to  purchasers,
                            that  apply  to  Elscint,   etc.).   Some  of  these
                            liabilities  are limited in amount  while others are
                            not; some are for a 24-month period while others are
                            for  unlimited  periods of time.  In any event,  the
                            total  indemnification  will not  exceed  20% of the
                            transaction   price,   other  than  the  liabilities
                            pertaining to the environmental quality.

              D.     LIENS AND COLLATERAL

                     (1)    A.     As  security  for  credit  totaling  NIS  784
                                   million   received   by  the  Company  and  a
                                   subsidiary from a bank in Israel, the Company
                                   agreed   to   fulfill    several    financial
                                   covenants, including the maintenance - during
                                   the term of the loan - of a minimum  ratio of
                                   shareholders'  equity  to its  total net book
                                   value   (NBV),   as   defined   in  the  loan
                                   agreement. As security for the loan received,
                                   the  subsidiary  granted  to the bank for the
                                   entire  term  of  the  credit  agreement,   a
                                   first-tier  fixed lien,  unlimited  in amount
                                   and  assigned  by way of a pledge over all of
                                   its  PC  shares.  In  addition,  the  Company
                                   registered  a fixed  and a  floating  lien on
                                   deposits  totaling NIS 367  million.  It also
                                   undertook  not to grant  additional  liens on
                                   its  present,  as well as  future,  assets in
                                   favor  of  third   parties,   without   first
                                   obtaining the bank's  consent (other than the
                                   mortgaging  of assets  and/or new projects in
                                   favor of the entity  financing them or in the
                                   event of a  refinancing).  The  Company  also
                                   undertook   to   provide,    under    certain
                                   conditions,  additional security, as outlined
                                   in the agreement, including second-tier liens
                                   on assets and rights to be  acquired by means
                                   of the line of  credit.  It was  agreed  that
                                   should  the   Company  not  comply  with  the
                                   stipulated  financial covenants or in case of
                                   certain  specified  events,   (including  not
                                   providing  additional  security),   the  bank
                                   would  be   entitled   to  demand   immediate
                                   repayment of any amounts  drawn.  During 2001
                                   and 2002, the Company at the bank's  request,
                                   provided  additional  security,  including  a
                                   first-tier  lien  on its  Sadyba  shares  and
                                   agreed to provide  its rights in real  estate
                                   held in Prague  held by Praha  Plaza.  Within
                                   the framework of the  understandings  reached
                                   between the Company and the bank (as outlined
                                   in Note 13 above),  which are contingent upon
                                   the fulfillment of certain conditions as well
                                   as  the  signing  of  a  detailed   agreement
                                   between the parties,  certain  changes are to
                                   be made  regarding the financial  parameters,
                                   within the  framework  of which,  among other
                                   things,  the minimal  ratio of  shareholders'
                                   equity would be reduced and the mechanism for
                                   accelerating    loan   repayment   would   be
                                   determined,   in  agreement,   at  an  amount
                                   equaling the proceeds received,  in any event
                                   of sale or issuance  of PC and/or  commercial
                                   center or in the event of a refinancing.

                            B.     As security for a loan  obtained from another
                                   bank in Israel  the  Company  also  undertook
                                   towards that bank that no part of its Elscint
                                   shares   would  be  pledged   without   first
                                   receiving that bank's consent.

                                     - 74 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 18 -     COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)

              D.  LIENS AND COLLATERAL (CONT.)

                      (2)   A.     To  secure  a  credit  of  approximately  NIS
                                   563million that Elscint  received from a bank
                                   in Israel,  Elscint  undertook to comply with
                                   covenants  which  include,   inter  alia,  an
                                   undertaking   to  the  bank   regarding   the
                                   maintenance  of a minimum  ratio of Elscint's
                                   shareholders' equity during the credit period
                                   to its total  assets.  To secure  the  credit
                                   that it received, Elcint granted the bank for
                                   the  period  of the  credit,  a  fixed  first
                                   charge   unlimited  in  an  amount,   and  an
                                   assignment by way of a charge on deposits and
                                   securities totaling NIS 261 million.  Elscint
                                   pledged  in favor  of the bank the BH  shares
                                   and  shares  of  subsidiaries  owned by it as
                                   demanded by the bank.  In  addition,  Elscint
                                   undertook  not  to  create  charges  (current
                                   and/or fixed of any degree) in favor of third
                                   parties  on its  existing  or future  assets,
                                   without   receiving   the   bank's   approval
                                   (excluding   charges  on  new  assets  and/or
                                   projects -in favor of the party financing the
                                   acquisition  and/or  execution  and/or in the
                                   event of refinancing). Elscint also undertook
                                   to provide additional collateral, as detailed
                                   in the agreement,  including: first or second
                                   tier  charges on assets and  rights,  that it
                                   will   purchase  with  the  proceeds  of  all
                                   advances  provided  under  the  terms  of the
                                   facility.  Should Elscint not comply with the
                                   financial  covenants in whole or in part,  or
                                   on the occurrence of certain events specified
                                   in the  agreement,  the bank will be entitled
                                   to demand immediate payment of these credits.

                            B.     To secure a subsidiary company's liability to
                                   the Bank of NIS 133 million, Elscint granted,
                                   in addition, specific charges on deposits and
                                   investments  held in banks,  whose balance as
                                   at December 31, 2002 was NIS 66 million.

                     (3)    Approximately NIS 12.7 million of Elscint's deposits
                            are used as collateral for bank letters of guarantee
                            totaling approximately NIS 17.3 million which a bank
                            provided in favor of  financial  institutions.  (See
                            Note 24D above).

                     (4)    ASTRID PARK PLAZA N.V. ("AP" )

                            As security for a credit-line provided to a supplier
                            of AP by a local bank,  AP  deposited  with the bank
                            Euro 0.9 million (NIS 4.3 million ($ 0.9  million)).
                            The  amount  of the  deposit  was  offset  from  the
                            supplier's  trade accounts payable balance for which
                            the bank guarantee had been provided.

                     (5)    VICTORIA HOTEL C.V. ("VHCV") AND UTRECHT VICTORIA
                            HOTEL B.V. (UVH)

                            To secure amounts  received under a loan  agreement,
                            designated for refinancing hotel activities, between
                            VHCV,  VHRI,  UVH and Mandarin Hotel B.V. (a company
                            in the Red Sea Hotel  Group),  as joint and  several
                            borrowers ("the  Borrowers") and Depfa Bank AG ("the
                            Bank"), the Borrowers received a loan of Euro 56.7m.
                            the  shareholders  of the Borrowers  (VEI,  VEII and
                            VEIII)  provided a  guarantee  to the Bank to secure
                            the  liability  of  each  of  the  Borrowers  to it.
                            According to the agreement between the Borrowers and
                            their shareholders, Euro 49.9m out of the total loan
                            amount was  designated  for the hotels owned by VHCV
                            and UVH,  and the  balance of Euro 6.8  million  was
                            earmarked for Mandarin Hotel B.V.

                            As security for repayment of the loan,  the Bank was
                            granted, among other things, a first mortgage on the
                            Victoria  Hotel,  Utrecht  Hotel and Mandarin  Hotel
                            properties and a first-tier lien on all the moveable
                            property located  thereon;  a first-tier lien on the
                            Borrowers' rights under existing rental  agreements;
                            rights under  insurance  policies  covering the real
                            estate; rights under management  agreements;  issued
                            share capital  (including  accompanying  rights) and
                            rights in certain bank accounts.

                            In addition,  the Borrowers subordinated to the Bank
                            all shareholder loans to rank after the bank's loans
                            and  undertook  not to pay the  shareholders'  loans
                            without the Bank's consent.

                                     - 75 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 18 -     COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)

              D.  LIENS AND COLLATERAL (CONT.)

                     (5)   (CONT.)

                            The   borrowers   and  the   guarantors   signed   a
                            mutual-indemnification agreement, according to which
                            the Mandarin Hotel Company and VEI (its shareholder)
                            would indemnify  VEII,  VEIII and the Borrowers (not
                            including Mandarin) for any amount borne by VEII and
                            VEIII  in  respect  of that  guarantee.  It was also
                            agreed  between  VEI and VEII that they  would  both
                            indemnify  each other for any  expense  incurred  by
                            either one of them which  exceeds  50% of the amount
                            due in respect of the loan.

                     (6)    SHAW HOTELS HOLDINGS B.V. ("SHH")

                            To secure  its  liabilities  under a loan  agreement
                            designated  to finance  the SPP Hotel in London (see
                            Note  11.C.1) the  following  liens were  granted in
                            favor  of the  Bank:  a first  mortgage  on its real
                            estate and moveable property, including a first-tier
                            lien on rights to use the trade name of Park  Plaza,
                            insurance  rights  connected to real estate,  rights
                            under  management   agreements,   the  issued  share
                            capital of SHH and the  Hotel's  operating  company,
                            rights in certain  bank  accounts  and  goodwill;  a
                            floating lien on all SHH's assets; the subordination
                            of all  shareholders'  loans to the  demands  of the
                            bank.

                            In  addition,  the  Bank  obtained  from the Red Sea
                            Hotels  Group a guarantee  for the  repayment of the
                            credit-line  up to (pound) 5 million.  EIL undertook
                            to indemnify the Red Sea Hotels Group for up to half
                            of that guarantee, if ever called.

                            As security for an additional line of credit granted
                            to SHH by the Bank, EIL and the Red Sea Hotels Group
                            jointly and severally  provided a guarantee of up to
                            the line's  ceiling of pound  sterling 2.25 million.
                            In addition to the abovementioned,  and with respect
                            to   the   hotel   lease   transaction   (see   Note
                            11.C.1.(ii)),  the financing  bank received from the
                            Company an indemnification  commitment regarding any
                            damage  incurred by the bank following its agreement
                            to the  said  transaction,  as well as a  commitment
                            from B.H.  to provide  additional  security  besides
                            that mentioned above if the hotel is not refinanced.
                            As  at  the  date  of  approval  of  the   financial
                            statements  B.H. and a company of the Red Sea Hotels
                            Group are conducing  negotiations with foreign banks
                            regarding  the  refinancing  of the  SPP  hotel.  In
                            addition,  as security for a credit-line  granted by
                            other Bank to SPP and VPP (see item 7), EIL provided
                            the Bank a guarantee of pound sterling 0.25 million.

                     (7)    VICTORIA LONDON HOTEL HOLDING B.V. ("VLH")

                            In order to secure loans  designated  for  financing
                            VPP Hotel (see Note 11.C.1),  VLH provided the banks
                            first-tier  (fixed  and  floating)  liens on all its
                            assets, including land, moveable property,  goodwill
                            and  intangibles.  In  addition,  a  lien  has  been
                            granted over the shares of the investee companies by
                            their  shareholders.  VLH also  undertook to refrain
                            from  disposing  of the  guaranteed  assets  without
                            approval from the financing banks.

                            Furthermore,  VLH agreed that all of its liabilities
                            would be second  priority  in  relation  to the bank
                            loans. VLH also gave covenants and undertakings with
                            respect to, inter alia, the scope of the development
                            and  date  of   completion,   and  meeting   certain
                            performance   milestones   by   certain   deadlines;
                            concerning  the sale of  assets,  amendments  to the
                            articles  of  incorporation,   modification  in  its
                            holding structure,  carrying out transactions not in
                            the  ordinary  course  of  business,  management  of
                            operations  other  than  the  hotels,   issuance  of
                            additional  shares,   minimal  shareholders'  equity
                            (including  shareholder  loans),  transactions  with
                            related companies, dividend distribution,  repayment
                            of   shareholder   loans,   rights   stemming   from
                            management   agreements,   rights  in  certain  bank
                            accounts,  ratio  of  shareholders'  equity  to  the
                            project's cost,  ratio of net income to current bank
                            loan,  occupancy  rate,  average  room  price  etc.,
                            during the entire credit term.

                            The Company has guaranteed VLH's  undertakings under
                            the loan agreement up to an amount of pound sterling
                            1.25 million or 2.5% of the cost of constructing the
                            hotel whichever higher.

                                     - 76 -
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                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 18 -     COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)

              D.     LIENS AND COLLATERAL (CONT.)

                     (8)   GRANDIS NETHERLANDS HOLDING B.V. ("GRANDIS")

                            In order to secure  loans  received  by it,  Grandis
                            provided the banks  first-tier  (fixed and floating)
                            liens on all its assets,  including  land,  moveable
                            property,  goodwill and intangibles.  In addition, a
                            lien has been  granted over the shares of Grandis to
                            the  financing  bank.   Grandis  also  undertook  to
                            refrain  from  disposing  of the  guaranteed  assets
                            without approval from the financing banks.

                            Furthermore,   Grandis   agreed   that  all  of  its
                            liabilities  would be second priority in relation to
                            the bank  loans.  Grandis  also gave  covenants  and
                            undertakings  with respect to, inter alia, the scope
                            of the  development  and  date  of  completion,  and
                            meeting  certain  performance  milestones by certain
                            deadlines; concerning the sale of assets, amendments
                            to the articles of  incorporation,  modification  in
                            its holding structure, carrying out transactions not
                            in the ordinary  course of business,  management  of
                            operations  other  than  the  hotels,   issuance  of
                            additional  shares,   minimal  shareholders'  equity
                            (including  shareholder  loans),  transactions  with
                            related companies, dividend distribution,  repayment
                            of   shareholder   loans,   rights   stemming   from
                            management   agreements,   rights  in  certain  bank
                            accounts,  ratio  of  shareholders'  equity  to  the
                            project's cost,  ratio of net income to current bank
                            liabilities,  occupancy  rate,  average  room  price
                            etc., during the entire credit term.

                     (9)    RIVER BANK HOTEL HOLDING B.V. ("RBH")

                            In order to  secure  RBH's  liabilities  to the bank
                            financing  the  construction  of RPP Hotel (see Note
                            11.C.1),  RBH  granted a first  mortgage  (fixed and
                            floating)  on all its  assets,  including  rights in
                            real estate, movables, agreements, goodwill, etc. In
                            addition  RBH  assigned its rights under the leasing
                            agreements.  RBH shares were pledged to the bank and
                            its liabilities  were  subordinated to the repayment
                            of the bank loans.

                            The  Company  and a  company  of the Red Sea  Hotels
                            Group  are   guarantors   for  the   fulfillment  of
                            commitments  under an  agreement  for an increase in
                            financing by up to (pound) 10 million. The guarantee
                            of  each  one of the  guarantors  is for  50% of the
                            additional credit facility.  As of December 31, 2002
                            additional  credit  in the  amount  of  (pound)  6.1
                            million has been utilized.

                     (10)   PARK PLAZA HOTEL (SANDTON) (PTY) LTD. ("SANDTON")

                            To  ensure  Sandton's   undertakings  to  the  bank,
                            Sandton  mortgaged the Hotel in a first mortgage and
                            registered  a charge  on its  movable  property.  In
                            addition,  Sandton's  shareholders made a deposit in
                            the bank in the  name of  Sandton  in  which  B.H.'s
                            share  totals  NIS 799  thousand.  In the event of a
                            breach  of the  terms  of the loan by  Sandton,  the
                            deposit will be forfeited and  concurrently the bank
                            will be  entitled  to sell the Hotel on  account  of
                            repaying the balance of the loan.

                     (11)   SC BUCURESTI TOURISM SA ("BUCURESTI")

                            The  Company  granted  a  first-tier  lien on a bank
                            deposit of $ 14 million and on the rights and income
                            deriving from it in order to secure  borrowings of $
                            28  million   from  a  bank  that  the   controlling
                            shareholder in Domino ("BHEE") obtained,  to finance
                            its investment,  indirectly  through Domino,  in the
                            rights in a hotel  complex in Romania.  In addition,
                            BHEE granted a fixed lien on the Domino  shares that
                            it  owns  and a  floating  lien  on all of  Domino's
                            assets  and a lien  on  the  Bucuresti  shares.  The
                            Company  undertook  to  place a lien on BHEE  shares
                            that it owns and a floating  lien on BHEE's  assets.
                            The bank  received a  commitment  that no changes in
                            the company's  ownership and control structure would
                            take place  throughout  the entire  credit term.  In
                            addition,   the   Company   provided  a   guarantee,
                            unlimited in time or amount,  to secure  BHEE's bank
                            loans. The bank restricted its right to realize this
                            guarantee,  by  linking  it  to  the  terms  of  the
                            realization of the Bucuresti  shares owned by Domino
                            (except  for  certain  instances  stipulated  in the
                            agreement).

                                     - 77 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 18 -     COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)

              D.    LIENS AND COLLATERAL (CONT.)

                    (12)    DEVELOPMENT BANK FINANCING

                            In order to secure the  commitments of  subsidiaries
                            made  in   agreements   with  banks   providing  the
                            financing  for  construction   projects  (commercial
                            centers in Central  and Eastern  Europe),  companies
                            ("the Project  Companies") granted first-tier (fixed
                            and   floating)   liens  on  all  of  their   assets
                            (including rights in land and the projects for which
                            the loans had been  provided);  liens on all  rights
                            arising  from  the  agreements  they  are a party to
                            (leases,   operating  and   management   agreement);
                            assignment of insurance rights etc.

                            It was agreed that the loans obtained by the Project
                            Companies   from  their   shareholders   and/or  any
                            existing or future  right of the  rights'  owners in
                            these  companies  would be  subordinated to the bank
                            loans.   No  payment   would  be  permitted  to  the
                            shareholders    (including   the   distribution   of
                            dividends  and  excluding  amounts for  managing the
                            projects)  before  securing  repayment  of the  bank
                            loans.  A  lien  was  placed  on the  shares  of the
                            Project Companies in favor of the bank.

                            Regarding  certain  projects,  PC's  holdings in the
                            Project Companies are transferred to a trustee to be
                            appointed  by the  bank,  as part  of the  security.
                            Based on the provisions of the trust agreement,  the
                            trustee  will use the  voting  rights  based on PC's
                            instructions, except for cases when the value of the
                            security would be impaired or the financial position
                            of the borrowing  company would  negatively  change.
                            Profits  arising from these holdings would belong to
                            PC. Regarding these projects,  the lending bank will
                            have the right to elect one  board  member  for each
                            relevant Project Company.

                            In  addition,  in  the  event  of  refinancing,  the
                            project  companies  are  to  use  the  excess  funds
                            obtained  from  such  refinancing   remaining  after
                            repayment   of  any   construction   debt  to  repay
                            shareholder  loans  to PC or to pay the  latter  for
                            various services.  Several project companies granted
                            loans  to  PC  from  excess  refinancing  funds.  At
                            December  31,  2002 the total  outstanding  PS loans
                            payable to the  project  companies  amounted  to NIS
                            98.6 million.

                            PC  and/or  EUN   undertook  in  some  of  the  loan
                            agreements to supplement  the minimal  shareholders'
                            equity (including  shareholder loans) of the Project
                            companies,   in   accordance   with  the   financing
                            agreements  or provide  additional  financing in the
                            event of any deviation from the business plans or if
                            any financing is required for the project  operation
                            or maintenance.  The Project  Companies  agreed,  in
                            certain  circumstances,  not to  sell,  transfer  or
                            lease any material part of their properties  without
                            the consent of the financing  bank. Some of the loan
                            agreements are secured by guarantees  limited to NIS
                            12.5  million.  In certain  events the same  Project
                            Companies  agreed  not to  carry  out the  following
                            transactions  without  the  bank's  consent:  change
                            control structure;  carry out material  transactions
                            (detailed in the agreement); exceed a given level of
                            liabilities  to third  parties;  obtain loans and/or
                            provide guarantee to third parties.

                     (13)   As security  for bank loans  totaling NIS 46 million
                            received by the project companies abroad, PC pledged
                            in favor of these banks deposits of equal amount.

                     (14)   A subsidiary provided Sadyba with a guarantee of $ 5
                            million   as   security   for  the   completion   of
                            construction  work  carried  out on  its  commercial
                            center.  The subsidiary has taken steps to terminate
                            this  guarantee   since  the   construction  of  the
                            commercial center has been completed.

                     (15)   The Company  provided a bank guarantee of $5 million
                            as security for the IGTX bank loans.

                                     - 78 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 19 -     SHARE CAPITAL

              A.     COMPOSITION

                                                          ORDINARY SHARES
                                                    OF NIS 1.00 PAR VALUE EACH
                                                 ------------------------------
                                                            DECEMBER 31
                                                 ------------------------------
                                                      2002               2001
                                                 --------------   -------------

                     Authorized share capital        50,000,000      50,000,000
                     Issued and outstanding      (*) 23,773,720   (*)23,771,720

                     (*)    Includes 550,000 shares issued to employees  against
                            non-recourse  loans (see b below) as well as 887,144
                            shares held by Elscint Ltd.

                     During February and March,  2001, within the framework of a
                     program to compensate  employees and officers,  the Company
                     allotted  550,000  Company  ordinary shares of NIS 1.00 par
                     value to its  employees  and  directors,  as well as to the
                     employees of the EIL Group (including  employees of Elscint
                     and  employees  of EIL).  Of  these  shares,  280,000  were
                     allotted to  directors  of the  Company.  Of those  shares,
                     527,000 shares allotted to employees were outstanding as of
                     December 31, 2002. In exchange for each share, the offerees
                     paid NIS 24.10 ($ 5.9) - the  closing  market  price on the
                     Tel Aviv Stock Exchange on the day prior to this allotment.
                     The vesting period will be over a two or three-year  period
                     (50%  or 33% at the  end of each  year -  depending  on the
                     position)  from  the  allotment  date  and  subject  to the
                     offerees'  continued  employment  with their company at the
                     time  of  the  grant  or in the  event  of  dismissal  that
                     entitles  severance  pay.  The  market  value of the  share
                     immediately  prior to the Board's  resolution  (December 4,
                     2000) was NIS 30.15 per share ($ 7.46).

                     Payment for these  shares was made from a loan  provided by
                     the Company to be repaid at the end of a five-year  period.
                     The loan bears annual interest of 6%. Any tax stemming from
                     the  loan's  interest  rate  will be  paid by the  Company.
                     However, the Company will not pay tax if imposed in respect
                     of the allotment of these shares and their eventual sale to
                     third parties.

                     The shares were deposited with a trustee,  and will be used
                     as the sole,  security for  repayment  of the  non-recourse
                     loan. Despite the above, if one of the recipients elects to
                     transfer  the  vested  shares  from the  trustee to him or,
                     alternatively,  to sell them,  he must  deposit as security
                     for  repayment  of the loan in  respect  of these  shares a
                     deposit  equal to the loan balance and turn the loan into a
                     recourse loan.

                     Should the  Company  distribute  cash  dividends,  with the
                     ex-dividend  date  falling  during  the period in which the
                     shares were held by the trustee for the offerees, including
                     the  vesting  period,  the  Company  will  transfer  to the
                     trustee, for the offeree,  dividends in accordance with the
                     number of shares  held on  behalf  of the  offeree  and the
                     trustee  will then  transfer  the  dividends to the offered
                     party,  irrespective  whether the right to receive them has
                     already vested.

              C.     RIGHT TO ACQUIRE SHARES

                     In  February  2001,  an  agreement  was signed  between the
                     Company  and EUN  and  Triple-S,  under  which  the  latter
                     transferred  to PC those  rights  granted  to it under  the
                     cancelled  agreement,  to  acquire  shares  in the  project
                     companies,  and which had vested by that  date,  and waived
                     the remainder of its rights under that agreement (including
                     the  remaining  rights to  acquire  shares  in the  project
                     companies  which had not vested at that date). In exchange,
                     the Company issued Triple-S  250,000  ordinary (fully paid)
                     shares of the Company.  The parties agreed that, on January
                     15, 2004, an evaluation of the market value of those shares
                     is to be performed at that date (calculated by reference to
                     the  average  price of the  Company's  shares on the NASDAQ
                     during the 30 days of trading  prior to that date).  If the
                     market  value of the  shares at that date is lower than $ 6
                     million,  the  Company  is to issue  additional  shares  to
                     Triple-S,  such that the total value of shares allocated to
                     Triple-S will be equal to $ 6 million, based on the average
                     price per share,  as indicated  above.  Alternatively,  the
                     Company may at its sole discretion pay the  difference,  if
                     any,  in cash.  If Triple-S  disposes of the shares  before
                     January 15,  2004,  the above  calculation  will be carried
                     out, by reference to the actual sale proceeds.

                                     - 79 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 19 -     SHARE CAPITAL (CONT.)

              C.     RIGHT TO ACQUIRE SHARES (CONT.)

                     Taxes due,  if any,  in respect of the  issuance  of shares
                     and/or payment to Triple-S,  as outlined above, will be the
                     responsibility of Triple-S.  It was further agreed that the
                     execution of the  agreement  would not be contingent in any
                     way upon the implementation of other existing contracts, if
                     applicable, between the parties.

                     The transaction consideration, in the NIS equivalent of $ 6
                     million,  was recorded as the cost of acquiring the rights,
                     against the issuance of shares  according to their value at
                     the date of the  transaction  (in the NIS  amount  equal to
                     approximately   $  1.4  million)   and  against   long-term
                     liabilities  for the amount of the  difference.  As for the
                     balance of the  liabilities at December 31, 2002 - see Note
                     15A above.

              D.     OUTSTANDING OPTIONS

                     350,000  options  were  issued (in a private  placement  in
                     September  2001),  for no  consideration,  to a controlling
                     party who also serves as its  Chairman of the Board.  These
                     options  may be  exercised,  from the date of issue  over a
                     three-year period  (contingent upon the holder then being a
                     Company  officer),  into 350,000 Company ordinary shares of
                     NIS 1.00 par value  each  (constituting  1.45% of its share
                     capital), in exchange for an exercise price of NIS 44.0 per
                     share.  The  exercise  price of each option in October 2002
                     amounted to NIS 40.0,  linked to the US dollar. In December
                     2002 the Company's General Meeting of shareholders approved
                     the  change  in  these   terms.   These   options  are  non
                     transferable.  Any options not  exercised by the end of the
                     three-year   period  will  be  cancelled  with  the  holder
                     forfeiting  any  rights  represented  by the  options.  The
                     computed   theoretical   economic  value  of  the  proposed
                     options,  based on the  Black - Scholes  model,  at July 9,
                     2001,  amounted  to  NIS  1.2  million  (calculated  with a
                     standard  deviation of 34.6% and an annual discount rate of
                     6%).

                     The options' computed  theoretical economic value, based on
                     the Black-Scholes model on October 8, 2002 (date of board's
                     resolution to changes the exercise  terms)  totaled NIS 0.7
                     million  (computed on the basis of an annual  volatility of
                     40% and an annual  discount rate of 9%). The closing quoted
                     price  of the  Company's  shares  on  the  Tel  Aviv  Stock
                     Exchange  and Nasdaq just prior to the  board's  resolution
                     concerning  the new exercise price was NIS 23.54 and $4.70,
                     respectively.

                     The  Company  will  not  bear  any  tax,  if  imposed,   in
                     connection with the allotment of the proposed options or in
                     connection with their exercise.


                                     - 80 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 20 -    ADDITIONAL DETAILS CONCERNING OPERATING ITEMS (CONSOLIDATED)
<TABLE>
<CAPTION>
                                                                                 YEAR ENDED DECEMBER 31,
                                                                 -------------------------------------------------------
                                                                     2002           2002          2001           2000
                                                                 ------------   ------------  ------------   -----------
                                                                 CONVENIENCE
                                                                 TRANSLATION
                                                                 -----------
                                                                   US$'000                  (IN THOUSAND NIS)
                                                                 ------------   ----------------------------------------
<S>                                                               <C>           <C>             <C>           <C>
             A.     REVENUES FROM OPERATING AND
                    MANAGING HOTELS
                    Rooms                                             28,996        137,359         94,314        70,062
                    Food and beverages                                10,715         50,757         36,769        29,691
                    Rental of commercial space                         1,343          6,361          5,527         4,008
                    Other services                                     3,414         16,173          5,291         4,328
                                                                 ------------   ------------  ------------   -----------
                                                                      44,468        210,650        141,901       108,089
                                                                 ============   ============  ============   ===========
             B.     COST OF OPERATING COMMERCIAL CENTERS
                    DIRECT EXPENSES
                    Wages and fringe benefits                          2,452         11,617          5,229         1,140
                    Maintenance of property                           15,873         75,190         32,925         6,414
                                                                 ------------   ------------  ------------   -----------
                                                                      18,325         86,807         38,154         7,554
                                                                 ============   ============  ============   ===========

                    OTHER OPERATING EXPENSES                             841          3,982          3,000           421
                                                                 ------------   ------------  ------------   -----------

                    DEPRECIATION OF BUILDING AND EQUIPMENT            13,108         62,098         26,772         4,942
                                                                 ------------   ------------  ------------   -----------
                                                                      32,274        152,887         67,926        12,917
                                                                 ============   ============  ============   ===========

             C.     COST OF OPERATING AND MANAGING HOTEL DIRECT EXPENSES:

                    Wages and fringe benefits (*)                     15,059         71,335         51,098        39,560
                    Food and beverages                                 3,713         17,591         14,078         6,771
                    Other direct expenses                              9,888         46,840         32,519        23,594
                                                                 ------------   ------------  ------------   -----------
                                                                      28,660        135,766         97,695        69,925
                                                                 ------------   ------------  ------------   -----------

                    OTHER OPERATING EXPENSES                           5,777         27,367         12,682        10,343
                                                                 ------------   ------------  ------------   -----------
                    DEPRECIATION AND AMORTIZATION                      7,236         34,274         18,276        12,782
                                                                 ------------   ------------  ------------   -----------
                                                                      41,673        197,407        128,653        93,050
                                                                 ============   ============  ============   ===========
                    (*)    2002 - Net of a subsidy - see Note 10b(1) e above.

             D. COST OF LONG-TERM DEVELOPMENT
                    Wages and fringe benefits                              -              -            827         1,113
                    Subcontractors                                       300          1,419          6,589        17,049
                    Others                                                 -              -             36            83
                                                                 ------------   ------------  ------------   -----------
                                                                         300          1,419          7,452        18,245
                                                                 ============   ============  ============   ===========

             E. RESEARCH AND DEVELOPMENT EXPENSES, NET
                    Wages and fringe benefits                          3,550         16,819         17,518        16,591
                    Materials and subcontractors                       2,933         13,895         15,200        20,290
                    Depreciation and amortization                        837          3,966          4,160         3,498
                    Others                                               446          2,111          2,263           972
                                                                 ------------   ------------  ------------   -----------
                                                                       7,766         36,791         39,141        41,351
                    Less: participation of the OCS                     1,644          7,790         14,478        14,785
                                                                 ------------   ------------  ------------   -----------
                                                                       6,122         29,001         24,663        26,566
                                                                 ============   ============  ============   ===========
</TABLE>

                                     - 81 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 20 -     ADDITIONAL DETAILS CONCERNING OPERATING ITEMS (CONSOLIDATED)
              (CONT.)

<TABLE>
<CAPTION>
                                                                                 YEAR ENDED DECEMBER 31,
                                                                 -------------------------------------------------------
                                                                     2002           2002        2001(*)        2000(*)
                                                                 ------------   ------------  ------------   -----------
                                                                 CONVENIENCE
                                                                 TRANSLATION
                                                                 -----------
                                                                   US$'000                  (IN THOUSAND NIS)
                                                                 ------------   ----------------------------------------
<S>                                                               <C>           <C>             <C>           <C>

             F. MARKETING AND SELLING EXPENSES
                    Advertising                                        2,166         10,262          5,560         1,038
                    Bad debt                                           2,880         13,641          1,249           474
                    Depreciation and amortization                        613          2,904          1,176           291
                    Other                                                377          1,784            484           454
                                                                 ------------   ------------  ------------   -----------
                                                                       6,036         28,591          8,469         2,257
                                                                 ============   ============  ============   ===========

             G. MARKETING AND SELLING EXPENSES
                    Wages and fringe benefits (**)                     6,881         32,598         22,239        22,582
                    Depreciation and amortization                        630          2,982          2,366         2,368
                    Other                                             11,427         54,131         38,851        30,076
                                                                 ------------   ------------  ------------   -----------
                                                                      18,938         89,711         63,456        55,026
                                                                 ============   ============  ============   ===========
                    (*)  Reclassified.
                    (**) See Note 21A below

             H. FINANCIAL INCOME (EXPENSES), NET
                    In respect of:
                      Long-term loans                                 (4,425)       (20,962)        (3,414)      (18,573)
                      Short-term loans                               (15,097)       (71,515)      (134,458)      (44,599)
                      Deposits, debentures and long-term
                        receivables                                    6,348         30,072        136,976        54,487
                    Gains (losses) from currency
                      transactions                                     2,477         11,734         26,745        (4,599)
                    Gains (losses) on securities                        (377)        (1,787)         4,279        14,909
                    Others (including erosion of monetary
                      items and other, net)                           (4,429)       (20,982)        (7,405)       10,525
                                                                 ------------   ------------  ------------   -----------
                                                                     (15,503)       (73,440)        22,723        12,150
                    Financial costs capitalized to buildings
                      under construction (1)                           5,911         28,004         73,964        21,039
                    Financial costs credited to capital
                      Reserves from translation differences            8,421         39,891          6,823             -
                                                                 ------------   ------------  ------------   -----------
                                                                      (1,171)        (5,545)       103,510        33,189
                                                                 ============   ============  ============   ===========
</TABLE>
                    (*)  Reclassified.

                    (1)  The discount rate applicable to non-specific credit (in
                         accordance   with   Standard   No.  3  of  the  Israeli
                         Accounting Standards Board) is 4% (2001 - 10.5%, 2000 -
                         7%).

                                     - 82 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 20 -    ADDITIONAL DETAILS CONCERNING OPERATING ITEMS (CONSOLIDATED)
             (CONT.)

<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31,
                                                                 -------------------------------------------------------
                                                                     2002           2002        2001(*)        2000(*)
                                                                 ------------   ------------  ------------   -----------
                                                                 CONVENIENCE
                                                                 TRANSLATION
                                                                 -----------
                                                                   US$'000                  (IN THOUSAND NIS)
                                                                 ------------   ----------------------------------------
<S>                                                               <C>           <C>             <C>           <C>

             I. OTHER INCOME (EXPENSES), NET
                    Gain (loss) from realizing investments
                     in investees, net                                 5,317         25,185              -         1,428
                    Net gain arising from a voluntary
                     liquidation of subsidiaries                          64            303     (1) 54,820             -
                    Gain on realization (payment) of
                      Investment-type monetary balances in
                      Investees (2)                                    6,618         31,351              -             -
                    Cost of a cable-laying project (3)                     -              -         (1,551)      (24,799)
                    Gain (loss) from disposition of fixed
                     assets                                             (109)          (517)          (754)        5,184
                    Provision for impairment of investments
                       and assets (4)                                 (9,479)       (44,901)       (17,707)            -
                    Other income (expenses), net                        (366)        (1,734)           (77)        2,288
                                                                 ------------   ------------  ------------   -----------
                                                                       2,045          9,687         34,731       (15,899)
                                                                 ============   ============  ============   ===========

</TABLE>
                     (*)    Reclassified.

                     (1)    The  balance  during  2001  stems  mainly  from  the
                            realization of the "capital reserve from translation
                            adjustments"  previously  created  in respect of the
                            Company's investment in a subsidiary.  The amount is
                            presented net of related  liquidation  expenses (see
                            Note 10B(5) above).

                     (2)    In November 2002 PC,  together  with other  contract
                            companies  under its ownership,  signed an agreement
                            with  a   consortium   of  foreign   banks  for  the
                            refinancing of four  commercial  centers in Hungary.
                            Out of the total loans  obtained,  PC transferred to
                            its  shareholders   certain  financing  excesses  as
                            repayment  of  shareholder  loans  to  the  Company.
                            Consequently,  the capital reserves from translation
                            adjustments  attributed to the shareholder loans had
                            been released.

                     (3)    The Company has examined the  possibility of joining
                            a  project  of an  international  consortium,  which
                            contemplates  the  laying  as  well as  operating  a
                            global  fiber-optic  telecom network,  together with
                            others,  mostly from Asia and  Australia  at a total
                            planned  amount  of $4.3  billion.  Due to delays in
                            commencing  the  project  and in light of the recent
                            material  changes  occurring  in  the  international
                            telecom  market,  coupled  with  the  difficulty  in
                            securing  financial and strategic  investors for the
                            project,  the Company's management decided to charge
                            to the 2000  operations  the  entire  cost  incurred
                            thereof.

                            The  Company and other  partners  in the  consortium
                            have the right to use know-how  gained in connection
                            with this project.

                     (4)    See Notes 10A.1 and 10B.1.b.8.

                                     - 83 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 20 -    ADDITIONAL DETAILS CONCERNING OPERATING ITEMS (CONSOLIDATED)
             (CONT.)

             J.     EARNINGS PER SHARE
<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31,
                                                                 -------------------------------------------------------
                                                                     2002           2002          2001          2000
                                                                 ------------   ------------  ------------   -----------
                                                                 CONVENIENCE
                                                                 TRANSLATION
                                                                 -----------
                                                                   US$'000                  (IN THOUSAND NIS)
                                                                 ------------   ----------------------------------------
<S>                                                               <C>           <C>             <C>           <C>
                     1.     EARNINGS PER SHARE

                            Basic earnings (loss) per share -
                            per statement of operations                8,695         41,190        107,863      (15,725)
                            Allowance for decline in value of
                            investments in respect of
                            realization of shares and
                            exercise of options in
                            subsidiaries                                (206)          (974)       (14,936)           -
                            Adjustment in respect of real
                            interest computed on the proceeds
                            from share and
                            option allotment                             (46)          (216)           115            -
                                                                 ------------   ------------  ------------   -----------
                                                                       8,443         40,000         93,042      (15,725)
                                                                 ============   ============  ============   ===========

                     2.     NUMBER  OF  SHARES   USED  IN  FULLY   DILUTED   EPS
                            COMPUTATION (IN THOUSANDS)

                            Weighted average outstanding
                            share capital at December 31                             22,337         22,224        22,087
                            Weighted average number of shares
                            stemming from exercise
                            of rights and options                                       550            567             -
                                                                                ------------  ------------  ------------
                                                                                     22,887         22,791        22,087
                                                                                ============  ============   ===========
</TABLE>

                                     - 84 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 21 -     RELATED AND INTERESTED PARTIES

              A.     TRANSACTIONS

                     (1)    COMPONENTS
<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31,
                                                                 -------------------------------------------------------
                                                                     2002           2002         2001(*)        2000(*)
                                                                 ------------   ------------  ------------   -----------
                                                                 CONVENIENCE
                                                                 TRANSLATION
                                                                 -----------
                                                                   US$'000                  (IN THOUSAND NIS)
                                                                 ------------   ----------------------------------------
<S>                                                               <C>           <C>             <C>           <C>
                            Revenues from long-term
                              projects (see Note 10b(2))                 325          1,538         10,223       20,367
                            General and administrative
                              expenses (1)                             2,279         10,795          7,354        3,749
                            Royalty income from an affiliate               -              -            305            -
                            Financial income (expenses), net (I)         (56)          (266)        (1,329)       8,113
                            Project expenses (development,
                              supervision, aviation,
                              management and services)(II)             6,396         30,297         24,999        2,485
                           (I)   INCLUDES:

                           A.        BENEFITS GRANTED TO INTERESTED PARTIES, AS FOLLOWS:

                                                                                  YEAR ENDED DECEMBER 31,
                                                                 -------------------------------------------------------
                                                                     2002           2002         2001(*)        2000(*)
                                                                 ------------   ------------  ------------   -----------
                                                                 CONVENIENCE
                                                                 TRANSLATION
                                                                 -----------
                                                                   US$'000                  (IN THOUSAND NIS)
                                                                 ------------   ----------------------------------------

                                          PAYMENTS TO
                                            DIRECTORS:
                                            Non-employee -
                                             Cost                         50            235            284           331
                                                                 ============   ============  ============   ===========
                                             Number of recipients          4              4              4             4
                                                                 ============   ============  ============   ===========

                                            Employed -
                                             Cost                      1,552      (2) 7,353      (2) 5,446     (1) 2,323
                                                                 ============   ============  ============   ===========
                                             Number of recipients          -              4              3             4
                                                                 ============   ============  ============   ===========


                                          (1)    Includes  a  provision  of  NIS
                                                 1.35  million for the salary of
                                                 the  Chairman  of the  Board of
                                                 Directors charged as an expense
                                                 in  1999   and,   subsequently,
                                                 cancelled   in  2000   since  a
                                                 decision  concerning the salary
                                                 for his employment period up to
                                                 December   31,  2000  had  been
                                                 removed  from the agenda of the
                                                 Company  shareholders'  general
                                                 meeting held in February 2001.

                                          (2)    Includes NIS 266 thousand (2001
                                                 - 1,070 thousand)  constituting
                                                 an   annual    bonus   to   the
                                                 investment department's manager
                                                 (a Company director) in respect
                                                 of  that  department's  results
                                                 (see item 7 below).

                                   B.     PARTICIPATION IN
                                          EIL EXPENSES

                                          (see Note 18A(14))             416          1,969          1,620         855
                                                                 ============   ============  ============   ===========
</TABLE>

                          (II) See Notes 10B(3) b (4) (a) and item a(8).

                 (*)    Reclassified.

                                     - 85 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 21 -     RELATED AND INTERESTED PARTIES (CONT.)

              A.     TRANSACTIONS (CONT.)

                     (2)    In  December   2002  the  General   Meeting  of  the
                            Company's   shareholders   approved   a   three-year
                            employment  contract  of the  Chairman of the Board,
                            retroactively  from  August 1,  2002,  according  to
                            which he  agreed  to devote at least 80% of his time
                            as the Company's  active  chairman.  In exchange for
                            his  services,  the Company is to pay him (by itself
                            or through its  investees)  a salary plus  customary
                            fringe benefits.  The chairman's  employment  period
                            with Europe Israel (MMS) Ltd. (the Company's parent)
                            would  be  counted   towards   his  total  years  of
                            seniority  with  the  Company  for all  intents  and
                            purposes.

                            The  following   table   presents   pro-forma   data
                            pertaining  to the relevant  statement-of-operations
                            items for each one of the reported  periods included
                            in these financial statements and which reflects the
                            Company's  activities  as  well as  results  had the
                            abovementioned  contract  terms,  been in  effect on
                            January 1, 2000:

<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31,
                                                       -------------------------------------------------------
                                                           2002           2002          2001          2000
                                                       ------------   ------------  ------------   -----------
                                                       CONVENIENCE
                                                       TRANSLATION
                                                       -----------
                                                         US$'000                  (IN THOUSAND NIS)
                                                       ------------   ----------------------------------------
<S>                                                     <C>           <C>             <C>           <C>
                       GENERAL AND ADMINISTRATIVE
                        EXPENSES:
                           As reported                     18,938          89,711        63,456        55,026
                           Pro-forma adjustment               254           1,204         2,064         2,064
                                                       ------------   ------------  ------------   -----------
                           Total adjusted amount           19,192          90,915        65,520        57,090
                                                       ============   ============  ============   ===========
                       EARNINGS PER SHARE -
                        ADJUSTED                            8,441          39,986       105,799       (17,789)
                                                       ============   ============  ============   ===========
                       BASIC EARNINGS (LOSS) PER
                        SHARE - ADJUSTED (IN NIS)            0.38            1.79          4.77         (0.80)
                                                       ============   ============  ============   ===========
</TABLE>
                     (3)    As for shares and  options  allotted  to  interested
                            parties and loans  provided for their purchase - see
                            Notes 19C, 19D, and 10B.(6) above. As for the change
                            in the terms of the  exercise  price of the  options
                            granted to an interested  party in the Company - see
                            Note 19E above.

                     (4)    The  directors  and  officers  of the Company and in
                            Group  companies (and in companies  these  directors
                            serve on behalf of the Company) are covered  through
                            September  2003 by  insurance of up to $ 40 million,
                            within the framework of a joint insurance policy for
                            the EIL Group  companies.  Each Group  company bears
                            33% of the  pro-rata  insurance  cost.  Approval  to
                            increase  the coverage to $ 40 million is subject to
                            shareholder approval.

                     (5)    As for  the  directors  indemnification  - see  Note
                            18C.3. above.

                     (6)    EIL  acquired  "Run off"  coverage  for itself,  the
                            Company and  Elscint,  up to a limit of $ 20 million
                            beyond the coverage of $ 40 million  included in the
                            additional  policies,  up to a six-year period.  The
                            premium for this  coverage  would be $ 0.81  million
                            for the  entire  six years  (33% for each  company).
                            This insurance  covers officers in respect of events
                            occurring  prior to this date so long as  unreported
                            and unknown in May 1999.

                     (7)    The   employees   of   the   Company's    investment
                            department,  headed by a director,  are  entitled to
                            receive an annual bonus of 2.5% of realized  profits
                            (as  defined  in the  agreement)  from  activity  in
                            derivatives  and from the  management of investments
                            portfolios,  carried  out by  the  Company  by  this
                            department  or  under  its  supervision  (net of its
                            cost).  This bonus is  distributed  to the employees
                            based on the discretion of the department manager.

                     (8)    B.H. receives,  from time to time, aviation services
                            from Jet Link Ltd. (a company  controlled by Control
                            Centers)  in  exchange  for a  payment  based on the
                            latter's price list, net of a discount of 5%.

                     (9)    The  Company  and Elscint  lease  office  space from
                            Control Centers at market prices.

                                     - 86 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 21 -     RELATED AND INTERESTED PARTIES (CONT.)

              B.     BALANCES

<TABLE>
<CAPTION>
                                                                               YEAR ENDED DECEMBER 31,
                                                       ---------------------------------------------------------------------
                                                           2002           2002          2001          2002          2000
                                                       ------------   ------------  ------------   ------------   ----------
                                                       CONVENIENCE
                                                       TRANSLATION
                                                       -----------
                                                         US$'000                       (IN THOUSAND NIS)
                                                       ------------   ------------------------------------------------------
<S>                                                     <C>           <C>             <C>            <C>             <C>
                     ASSETS:
                     Trade accounts
                       receivable                             913           4,324         4,154              -            -
                     Investment in loans and
                       capital notes                            -               -             -        329,342      317,519

                     LIABILITIES:
                     Long-term loans and
                       liabilities                              -               -        17,572         32,458            -

</TABLE>
              C.     Commitments - see Note 18A above.

              D.     Liens and guarantees - see Note 18D.

              E.     The Group companies conduct credit,  deposit and management
                     of security portfolio transactions with a bank, which is an
                     interested party in the Company.  Since these  transactions
                     are  during  the  ordinary  course  of  business  and under
                     customary  market terms and conditions,  no segregation has
                     been made in respect  thereof  and no  disclosure  has been
                     provided in the financial statements.



                                     - 87 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 22 -     BUSINESS AND GEOGRAPHIC SEGMENTS

              A.     DATA REGARDING BUSINESS SEGMENTS - CONSOLIDATED

                     1.  PRIMARY REPORTING
<TABLE>
<CAPTION>
                                                                                      R&D AND
                                                      COMMERCIAL AND                  VENTURE       GENERAL
                                                       ENTERTAINMENT                  CAPITAL        ASSETS/
                                                          CENTER         HOTELS     INVESTMENTS    LIABILITIES     TOTAL
                                                      --------------  -----------  -------------   -----------  -----------
                                                                      ( I N T H O U S A N D    N I S )
                                                      ---------------------------------------------------------------------
                         YEAR  ENDED
                           DECEMBER 31 2002:

<S>                                                        <C>            <C>        <C>                <C>        <C>
                         REVENUES                          285,151        210,650           -           1,538      497,339
                                                      ==============  ===========  =============   ===========  ===========
                         OPERATING INCOME (LOSS)
                           BY SEGMENT                       62,275         1,064      (41,100)           (398)      21,841
                                                      ==============  ===========  =============   ===========
                         Plus (less) unallocated
                           expenses:
                            General and
                             administrative expenses                                                                (40,467)
                            Financial expenses, net                                                                  (5,545)
                            Other income, net                                                                         9,687
                                                                                                                ------------
                         INCOME (LOSS) BEFORE INCOME
                           TAXES                                                                                    (14,484)

                         Income taxes                                                                               (22,128)
                                                                                                                ------------
                         LOSS AFTER TAXES                                                                           (36,612)

                         Company's share in
                           income of affiliates                                        (2,962)                       (2,962)
                                                                                   =============
                         Minority   interest in
                           results of subsidiaries,
                           net                                                                                       24,960
                                                                                                                ------------
                         INCOME FROM CONTINUING
                           OPERATIONS                                                                               (14,614)

                         LOSS FROM A DISCONTINUING
                           OPERATION                                                                                 55,804
                                                                                                                ------------
                         NET INCOME                                                                                  41,190
                                                                                                                ============
                         PURCHASE COST OF
                           SEGMENT FIXED AND
                           INTANGIBLE ASSETS (*)           805,135        51,996       13,389           1,394       871,914
                                                      ==============  ===========  =============   ===========  ===========
                         DEPRECIATION AND
                           AMORTIZATION OF SEGMENT
                           ASSETS                           87,180        52,570       20,979           5,414       166,143
                                                      ==============  ===========  =============   ===========  ===========
                         PROVISION
                           FOR IMPAIRMENT OF
                           INVESTMENTS AND ASSETS            9,901        16,327       15,470           3,203        44,901
                                                      ==============  ===========  =============   ===========  ===========

                         DECEMBER 31 2002:

                         SEGMENT ASSETS (*)              3,098,629     1,179,356      159,417       1,408,818     5,846,220
                                                      ==============  ===========  =============   ===========  ===========

                         EQUITY METHOD
                           INVESTMENT                            -             -       98,081               -        98,081
                                                      ==============  ===========  =============   ===========  ===========

                         SEGMENT LIABILITIES               109,463        53,715       20,695       4,084,402     4,268,275
                                                      ==============  ===========  =============   ===========  ===========

</TABLE>
                        (*) As for the balance of, and  transactions  in, assets
                            under  construction  during the reporting year - see
                            Note 11A. above.


                                     - 88 -
<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 22 -     BUSINESS AND GEOGRAPHIC SEGMENTS (CONT.)

              A.     DATA REGARDING BUSINESS SEGMENTS - CONSOLIDATED (CONT.)

                     1.  PRIMARY REPORTING (CONT.)
<TABLE>
<CAPTION>
                                                                                      R&D AND
                                                      COMMERCIAL AND                  VENTURE       GENERAL
                                                       ENTERTAINMENT                  CAPITAL        ASSETS/
                                                          CENTER         HOTELS     INVESTMENTS    LIABILITIES     TOTAL
                                                      --------------  -----------  -------------   -----------  -----------
                                                                      ( I N T H O U S A N D    N I S )
                                                      ---------------------------------------------------------------------
<S>                                                        <C>            <C>        <C>                <C>        <C>
                         YEAR ENDED
                           DECEMBER 31 2001 (*):

                         REVENUES                          134,752        141,901           -          10,223      286,876
                                                      ==============  ===========  =============   ===========  ===========

                         OPERATING INCOME (LOSS)
                           BY SEGMENT                       47,295          5,682     (35,883)          2,542       19,636
                                                      ==============  ===========  =============   ===========

                         Plus (less) unallocated
                           expenses:
                            General and
                             administrative expenses                                                               (39,348)
                            Financial income, net                                                                  103,510
                            Other income, net                                                                       34,731
                                                                                                                ------------

                         INCOME BEFORE INCOME TAXES                                                                118,529
                         Income taxes                                                                               13,857
                                                                                                                ------------

                         INCOME AFTER TAXES                                                                        104,672

                         Company's share in
                           income of affiliates                                        (9,899)                      (9,899)
                                                                                   =============
                         Minority   interest in
                           results of subsidiaries,
                           net                                                                                      (6,029)
                                                                                                                ------------

                         INCOME FROM CONTINUING
                           OPERATIONS                                                                               88,744

                         LOSS FROM A DISCONTINUING
                           OPERATION                                                                                19,119
                                                                                                                ------------

                         NET INCOME                                                                                107,863
                                                                                                                ===========
                         PURCHASE COST OF
                          SEGMENT FIXED AND
                           INTANGIBLE ASSETS (**)          541,354        345,912      57,323           7,076      951,665
                                                      ==============  ===========  =============   ===========  ===========

                         DEPRECIATION AND
                           AMORTIZATION OF SEGMENT
                           ASSETS                           31,194         18,564      22,467           4,251       76,476
                                                      ==============  ===========  =============   ===========  ===========

                         PROVISION
                           FOR IMPAIRMENT OF
                           INVESTMENTS                           -              -      17,707               -       17,707
                                                      ==============  ===========  =============   ===========  ===========

                         DECEMBER 31 2001:
                         SEGMENT ASSETS (**)             2,002,048      1,004,958     131,445       1,679,703    4,818,154
                                                      ==============  ===========  =============   ===========  ===========
                         SEGMENT LIABILITIES               126,009         38,991       8,531       3,203,435    3,376,966
                                                      ==============  ===========  =============   ===========  ===========

</TABLE>
                         (*)    Reclassified.

                         (**)   As for the  balance  of,  and  transactions  in,
                                assets under  construction  during the reporting
                                year - see Note 11A., above.


                                     - 89 -
<PAGE>

                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 22 -     BUSINESS AND GEOGRAPHIC SEGMENTS (CONT.)

              A.     DATA REGARDING BUSINESS SEGMENTS - CONSOLIDATED (CONT.)

                     1.  PRIMARY REPORTING (CONT.)

<TABLE>
<CAPTION>
                                                                                      R&D AND
                                                      COMMERCIAL AND                  VENTURE       GENERAL
                                                       ENTERTAINMENT                  CAPITAL        ASSETS/
                                                          CENTER         HOTELS     INVESTMENTS    LIABILITIES     TOTAL
                                                      --------------  -----------  -------------   -----------  -----------
                                                                      ( I N T H O U S A N D    N I S )
                                                      ---------------------------------------------------------------------
<S>                                                        <C>            <C>        <C>                <C>        <C>
                         YEAR ENDED
                           DECEMBER 31 2000 (*):

                         REVENUES                           28,117        108,089           -          20,367      156,573
                                                      ==============  ===========  =============   ===========  ===========
                         OPERATING INCOME (LOSS)
                           BY SEGMENT                       11,944         12,642     (33,710)          2,124       (7,000)
                                                      ==============  ===========  =============   ===========

                         Plus (less) unallocated
                           expenses:
                            General and
                             administrative expenses                                                               (47,307)
                            Financial income, net                                                                   33,189
                            Other income, net                                                                      (15,899)
                                                                                                                ------------

                         LOSS BEFORE INCOME TAXES                                                                  (37,017)

                         Income taxes                                                                               18,907
                                                                                                                ------------

                         LOSS AFTER TAXES                                                                          (55,924)

                         Company's share in
                           income of affiliates                                        (3,303)                      (3,303)
                                                                                   =============
                         Minority   interest in
                           results of subsidiaries,
                           net                                                                                      15,161
                                                                                                                ------------

                         INCOME  FROM CONTINUING
                           OPERATIONS                                                                              (44,066)

                         LOSS FROM A DISCONTINUING
                           OPERATION                                                                                28,341
                                                                                                                ------------

                         NET INCOME                                                                                (15,725)
                                                                                                                ===========

                         PURCHASE COST OF
                          SEGMENT FIXED AND
                           INTANGIBLE ASSETS              906,720         138,622      30,909          19,848    1,096,099
                                                      ==============  ===========  =============   ===========  ===========
                         DEPRECIATION AND
                           AMORTIZATION OF SEGMENT
                           ASSETS                           8,135          12,781       3,497           1,525       25,938
                                                      ==============  ===========  =============   ===========  ===========

                         (*)    Reclassified.
</TABLE>


                                     - 90 -
<PAGE>

                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 22 -     BUSINESS AND GEOGRAPHIC SEGMENTS (CONT.)

              A.     DATA REGARDING BUSINESS SEGMENTS - CONSOLIDATED

                     2.  SECONDARY REPORTING
<TABLE>
<CAPTION>
                                                                                    EAST AND
                                                                          WEST       CENTER
                                                         ISRAEL         EUROPE       EUROPE      OTHERS          TOTAL
                                                      -----------     -----------  -----------  -----------    -----------
                                                                         (I N T H O U S A N D    N I S)
                                                      --------------------------------------------------------------------
<S>                                                         <C>          <C>          <C>           <C>            <C>
                         YEAR ENDED
                          DECEMBER 31 2002:

                         REVENUES BY GEOGRAPHICAL
                          MARKETS                           1,538        173,598      320,543       1,660          497,339
                                                      ============    ===========  ===========  ===========    ===========

                         PURCHASE COST OF SEGMENT
                           ASSETS (FIXED AND
                           INTANGIBLES)                   127,702         96,518      641,874       5,820          871,914
                                                      ============    ===========  ===========  ===========    ===========

                         SEGMENT ASSETS                   480,360      1,169,801    2,760,594      26,647        4,437,402
                                                      ============    ===========  ===========  ===========    ===========

                         YEAR ENDED
                          DECEMBER 31 2001:

                         REVENUES BY GEOGRAPHICAL
                          MARKETS                          10,223        109,847      165,710       1,096          286,876
                                                      ============    ===========  ===========  ===========    ===========

                         PURCHASE COST OF SEGMENT
                           ASSETS (FIXED AND
                           INTANGIBLES)                   134,486        128,118      681,345       7,716          951,665
                                                      ============    ===========  ===========  ===========    ===========

                         SEGMENT ASSETS                   453,879        800,701    1,856,435      27,436        3,138,451
                                                      ============    ===========  ===========  ===========    ===========

                         YEAR ENDED DECEMBER 31 2000:

                         REVENUES BY GEOGRAPHICAL
                           MARKETS                         20,367        106,686       28,117       1,403          156,573
                                                      ============    ===========  ===========  ===========    ===========

                         PURCHASE COST OF SEGMENT
                           ASSETS (FIXED AND

                           INTANGIBLES)                    98,368        149,380      848,351          -         1,096,099
                                                      ============    ===========  ===========  ===========    ===========
</TABLE>


              B.     As for  additional  data  concerning  the  Hotels  and  the
                     Commercial  Centers Division  segments- see Note 10B(1) and
                     (3) above.


                                     - 91 -
<PAGE>

                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 23 -     DISCONTINUING OPERATIONS

              A.     On December 31,  2002,  Elscint sold to a third party ("the
                     acquirers")  (based  on an  agreement  signed  by  them  on
                     November  13,  2002)  all  the   manufacturing,   assembly,
                     engineering,  and integration activities of the systems and
                     sub-systems  segment,  (mainly related to medical imaging),
                     which  were  performed  in  Elscint's  plant in  Maalot  in
                     northern  Israel  ("the  Plant").  Based on the  agreement,
                     Elscint  sold to the  acquirers  the  assets  of the  plant
                     (tangible  and  intangible   assets),  as  defined  in  the
                     agreement.  In addition,  the acquirers will assume certain
                     liabilities in connection with the plant  (agreed-upon  on-
                     and off-balance sheet liabilities).  The acquirers will not
                     assume the  liabilities  arising  from  claims  relating to
                     events or circumstances that occurred or arose prior to the
                     consummation  date,  as  defined  in  the  agreement.   The
                     consideration  was set  based on the net book  value of the
                     net assets  transferred (trade  receivables,  inventory and
                     fixed  assets  less  recorded  liabilities)  as  such  were
                     included in the audited  financial  statements of the plant
                     as of December  31, 2002,  plus a set amount for  goodwill.
                     The net book value of the transferred assets as of December
                     31, 2002,  amounted to $12  million.  The capital gain from
                     this  transaction   (net,   after  minority   interest)  is
                     approximately $4.8 million (NIS 22 million).  To secure the
                     potential  purchase price  adjustments that may be required
                     (if at all) an amount of the consideration was deposited in
                     trust,   equal  to  15%  of  the  net  book  value  of  the
                     transferred  assets (gross),  for a period not to exceed 90
                     days from  consummation  date,  and an amount  equal to the
                     balance  of  trade   receivables  which  amounts  were  not
                     confirmed by the customers as to their propriety. At a date
                     proximate to the financial statements' approval date (March
                     25,  2003)  the  balance  deposited  in trust  for  Elscint
                     amounted to $3.2  million.  Regarding  the  indemnification
                     that the acquirers  received from Elscint - see Note 18C(6)
                     above.

                     Upon completion of the  transaction,  the activities of the
                     Group in the  sub-assemblies  and  components  segment,  in
                     particular,  and in the medical  imaging  area, in general,
                     were   discontinuing.   As  a  result,   the  prior  years'
                     comparative  amounts have been  reclassified to present the
                     assets,  liabilities,  income and expenses,  and cash flows
                     relating to the discontinuing  operations,  separately from
                     continuing operations. Accordingly, assets and liabilities,
                     which relate to the discontinuing operations,  are included
                     in   separate   line   items  in  the   balance   sheet  as
                     "assets/liabilities  relating to discontinuing operations."
                     In   addition,   the  activity  and  cash  flows  from  the
                     discontinuing  operations are presented in the statement of
                     operations  and the statement of cash flows as "income from
                     discontinuing    operations"    and   "cash    flows   from
                     discontinuing operations," respectively.

              B.     Following the sale of the  ultrasound  activity in the area
                     of  diagnostics  and medical  services that was  previously
                     consolidated  in certain  subsidiaries  and the sale of the
                     NM, MRI and CT  activities  by Elscint , the  Group's  core
                     activity in these areas was  terminated in 1998. Due to the
                     sale of these businesses, their results have been presented
                     in these financial statements as discontinuing operations.

                     The  corresponding  amounts in the  statement of operations
                     reflect  primarily  settlements  or  resolution of lawsuits
                     and/or  claims  relating  to the  ultrasound,  CT  and  MRI
                     businesses  and  their  ultimate  sale by the  Company  and
                     Elscint.


                                     - 92 -
<PAGE>

                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 23 -     DISCONTINUING OPERATIONS (CONT.)

              C.     Following is the break-down of assets, liabilities,  income
                     and expenses relating to the discontinuing operations:
<TABLE>
<CAPTION>
                                                                             DECEMBER 31,
                                                                     ---------------------------
                                                                         2002            2001
                                                                     -----------     -----------
                                                                            (IN THOUSAND NIS)
                                                                     ---------------------------

       CURRENT ASSETS

<S>                                                                      <C>            <C>
        Trade accounts receivable                                        2,548          89,582
        Receivables and other current assets                           102,223          31,202
        Inventories                                                          -          57,363
                                                                     -----------     -----------
                                                                       104,771         178,147

       LONG-TERM INVESTMENTS AND RECEIVABLES                             9,364          11,681

       FIXED ASSETS                                                          -          13,362
                                                                     -----------     -----------
                                                                       114,135         203,190
                                                                     ===========     ===========
       CURRENT LIABILITIES

        Trade accounts payable                                               -          95,716
        Payables and other current liabilities                         111,797         161,326
                                                                     -----------     -----------
                                                                       111,797         257,042
                                                                     -----------     -----------
       LONG-TERM LIABILITIES

        Loans and other long-term liabilities                              323             781
        Accrued severance pay                                                -             908
                                                                     -----------     -----------
                                                                           323           1,689
                                                                     -----------     -----------
                                                                       112,120         258,731
                                                                     ===========     ===========

                                                                               YEAR ENDED DECEMBER 31,
                                                                     -----------------------------------------
                                                                         2002            2001           2000
                                                                     -----------    -----------     ----------
                                                                                    (IN THOUSAND NIS)
                                                                     -----------------------------------------

       Revenues                                                        430,165         400,923        388,853
       Cost of revenues                                                377,259         367,107        363,268
                                                                     -----------    -----------     ----------
                                                                        52,906          33,816         25,585
       Marketing and selling expenses                                   (1,096)           (980)        (1,357)
       General and administrative expenses                              (8,745)        (12,399)       (12,173)
                                                                     -----------    -----------     ----------

       OPERATING INCOME BEFORE FINANCING INCOME, NET                    43,065          20,437         12,055

       Financing income (expenses), net                                 (5,733)            (15)         1,864
       Other income, net                                                15,498          12,093         52,778
                                                                     -----------    -----------     ----------

       INCOME BEFORE INCOME TAXES                                       52,830          32,515         66,697

       Income taxes                                                          -               -         12,270
                                                                     -----------    -----------     ----------

       INCOME AFTER INCOME TAXES                                        52,830          32,515         54,427

       Equity in earnings of investee companies                              -               -          7,101
                                                                     -----------    -----------     ----------
                                                                        52,830          32,515         61,528
       Gain on sale of activity                                         37,863          -                   -
                                                                     -----------    -----------     ----------
                                                                        90,693          32,515         61,528
       Minority interest                                               (34,889)        (13,396)       (33,187)
                                                                     -----------    -----------     ----------

       NET INCOME FROM DISCONTINUING OPERATIONS                         55,804          19,119         28,341
                                                                     ===========    ===========     ==========
</TABLE>


                                     - 93 -
<PAGE>

                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 24 -     FINANCIAL INSTRUMENTS

              A.     CURRENCY RISKS

              LINKAGE-BASIS REPORT AS OF DECEMBER 31, 2002 (IN MILLION DOLLARS):

<TABLE>
<CAPTION>
MEASUREMENT CURRENCY(1):                       NIS                     (POUND)           EC CURRENCIES (EURO)          HUF
LINKAGE CURRENCY(3):               $       (EURO)  (POUND)  UN-     (EURO)   UN-     $      HUF   (POUND)    UN-      (EURO)
                                                           LINKED          LINKED                          LINKED
                               ----------------------------------------------------------------------------------------------
<S>                    <C>        <C>        <C>      <C>   <C>     <C>    <C>      <C>      <C>    <C>     <C>      <C>
CURRENT ASSETS:
Cash and cash equivalents          81         63       -       13      -       5      2        -      -        7         -
Short-term deposits and
 investments                      592          -       -       32      -       1     22        -      -       29         7
Trade accounts receivable           -          -       -        -      -       8      -        -      -        9         -
Receivables and other current
 assets                             -          -       -       12      -       5     24        -      1       24         -
Inventories                         -          -       -        -      -       -      -        -      -        -         -
                                  673         63       -       57      -      19     48        -      1       69         7
LONG-TERM INVESTMENTS AND
 RECEIVABLES:
Deposits, debentures and
 long-term loans and
 receivables                      262          -       -       45      -       -     26        -      -       18         8
Investments in investees and
 others
  Shares                           17        344       -    1,135      -       -     51      544    (38)     222         -
  Loans                           971        141      91       20      -       -    920        -     74      305        49
FIXED ASSETS
Other assets and deferred
 expenses
Assets related to
 discontinuing operation          101          4       -        9      -       -      -        -      -        -         -
                                1,351        489      91    1,209      -       -    997      544     36      525        57
TOTAL ASSETS                    2,024        552      91    1,266      -      19  1,045      544     37      614        64
                               ==============================================================================================
CURRENT LIABILITIES:
Short-term borrowings             838(4)(7)  187(5)   79(5)    19      -      83    120(4)     -      -       70         -
Trade accounts payable              -          -       -        1      -      11      -        -      -       10         -
Payables and other current         20          1       -       52      -      24      2        -      -       39         5
liabilities                       858        188      79       72      -     118    122        -      -      119         5
                               ----------------------------------------------------------------------------------------------
LONG-TERM LIABILITIES:
 Group companies                   25         10       -       11    177      74  1,626        -     91       89       176
 Others                           355(4)       -       -        3      -     255     16        -      -      106     1,215(6)
Accrued severance pay               -          -       -        1      -       -        -      -      -        -         -
Liabilities related to
 discontinuing operations          99         10       -        3      -       -        -      -      -        -         -
                               ----------------------------------------------------------------------------------------------
                                  479         20       -       18    177     329      1,642    -     91      195      1,391
                               ----------------------------------------------------------------------------------------------
 MINORITY INTEREST
 SHAREHOLDERS' EQUITY
 TOTAL LIABILITIES AND
  EQUITY-BASED RIGHTS           1,337        208      79       90    177    447      1,764     -     91     314       1,396
                               ==============================================================================================
 TOTAL ASSETS LESS
   LIABILITIES AND
   EQUITY-BASED RIGHTS (8)        687        344      12    1,176   (177)  (428)    (719)    544    (54)    300      (1,332)
                               =============================================================================================

                                                                     CONSOLI-
MEASUREMENT CURRENCY(1):                PLZ           ROL   OTHER(2) DATION        TOTAL
LINKAGE CURRENCY(3):                                                 ADJUST-     CONSOLI-
                                  (EURO)      $        $              MENTS        DATED
                               --------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents           -          -       2       42           -        215
Short-term deposits and
 investments                        -          -       -        8           -        691
Trade accounts receivable           -          -       -       37           -         54
Receivables and other current
 assets                             -          -       -       49         (48)        67
Inventories                         -          -       -        -           3          3
                               --------------------------------------------------------------
                                    -          -       2      136         (45)     1,030
LONG-TERM INVESTMENTS AND
 RECEIVABLES:
Deposits, debentures and
  long-term loans and
  receivables                       -          -       -       38         (42)       355
Investments in investees and
others
  Shares                            -          -       -      (16)     (2,156)       103
  Loans                             -          -       -      124      (2,695)         -
FIXED ASSETS                                           -    4,170       4,170
Other assets and deferred                              -       74          74
 expenses
Assets related to
 discontinuing                      -          -       -        -           -        114
 operation                          -          -       -      146        (649)     4,816
                               --------------------------------------------------------------
TOTAL ASSETS                        -          -       2      282        (694)     5,846
                               ==============================================================
CURRENT LIABILITIES:
Short-term borrowings               -          1     133        -         134     1,664
Trade accounts payable              -          -       -       75           -        97
Payables and other current          -          -       1       43         (10)      177
 liabilities                        -          1     134      118         124     1,938
                               --------------------------------------------------------------
LONG-TERM LIABILITIES:
  Group companies                  50        220      53      108      (2,710)  -
   Others                         247(6)      37(6)    -       76         (93)    2,217
Accrued severance pay               -          -       -        -           -         1
Liabilities related to
discontinuing
 operations                         -          -            -  -            -       112
                               --------------------------------------------------------------
                                  297        257         53  184       (2,803)    2,330
                               --------------------------------------------------------------
 MINORITY INTEREST                                                        496       496
 SHAREHOLDERS' EQUITY                                                   1,082     1,082
 TOTAL LIABILITIES AND
  EQUITY-BASED RIGHTS             297        258        187  302       (1,101)    5,846
                               ==============================================================
 TOTAL ASSETS LESS
   LIABILITIES AND
   EQUITY-BASED RIGHTS (8)       (297)      (258)       (185) (20)        407        0
                               ==============================================================
Notes (1) - (13): see following pages.
</TABLE>


                                     - 94 -
<PAGE>

                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 24 -     FINANCIAL INSTRUMENTS (CONT.)

       A.    CURRENCY RISKS (CONT.)

       LINKAGE-BASIS REPORT AS OF DECEMBER 31, 2002 (IN MILLION DOLLARS):

       NOTES (1) - (13):

       (1)   Adjusted to the CPI of the resident country.

       (2)   Includes  linkage bases  regarding  which all  financial  assets or
             liabilities  denominated  or linked thereto do not exceed 5% of the
             total  financial   assets  or  liabilities,   respectively,   on  a
             consolidated basis.

       (3)   Regarding  investments  in shares of  investees,  the term "linkage
             currency"  connotes  the  measurement  currency  of each  investee.
             Regarding   investment-type   loans  the  term  "linkage  currency"
             connotes  the currency in which the loan is  denominated  or linked
             thereto.

       (4)   Loans  amounting  to NIS  526  million,  as of  December  31,  2002
             (mainly,  taken by units whose measurement  currency is the shekel)
             are linked to the US dollar, the exchange rate effects of which are
             included  in the cost of the asset under  construction,  during the
             construction period (expected completion - 2003-2004).

       (5)   Primarily  loans  for  financing  an  investment  in an  autonomous
             investee  taken in the  functional  currency of the investees  (for
             hedging,  qualified hedges for accounting purposes).  The effect of
             the  exchange   rats  on  these  loans  are  charged   directly  to
             shareholders' equity and not to the statement of operations.

       (6)   The  loans  are  generally  linked  to the  currency  in which  the
             commercial  center rental fees are  denominated or linked  thereto.
             The loans were  designated  for the  financing of the  construction
             (economic hedging, not qualified for accounting purposes).

       (7)   Includes a NIS 22  million  liability  which is likely to  decrease
             corresponding  to the increase of the market price of the Company's
             share - see Note 19C above.

       (8)   Consists of(9):

<TABLE>
<CAPTION>
MEASUREMENT CURRENCY(1):                NIS                                   (POUND)        EURO ZONE CURRENCIES (EURO)   HUF
LINKAGE CURRENCY(3):       $       (EURO)  (POUND) UN-LINKED  (EURO)    UN-LINKED     $       HUF  (POUND)    UN-LINKED   (EURO)
                        ------------------------------------------------------------------------------------------------------------
<S>                      <C>        <C>       <C>  <C>        <C>         <C>      <C>       <C>      <C>        <C>     <C>
Monetary items,
net(10)                 (276)(7)   (131)(5)  (79)     31         -        (353)     (64)       -        -       (138)    (1,206)(6)
Intercompany
balances
  (investment-type
  loans)(11)             946(4)     130       91       8      (177)        (75)    (705)(4)    -      (16)       216       (126)
Investments in
shares
  of investees(11)        17        345        -   1,135         -           -       51      544      (38)       222          -
Non-monetary items,
  net                      -          -                -         -           -        -        -        -          -          -
                        ------------------------------------------------------------------------------------------------------------
                         687        344       12   1,176      (177)       (428)    (719)     544      (54)       300     (1,332)
                        ============================================================================================================


MEASUREMENT CURRENCY(1):         PLZ          ROL   OTHER(2)     CONSOLI
                                                                DATION   TOTAL
LINKAGE CURRENCY(3):     (EURO)        $       $                ADJUST-  CONSOLI-
                                                                MENTS    DATED
                        ---------------------------------------------------------

Monetary items,
net(10)                    (247)(6)   (38)(6) (132)  (20)(5)    (121)    (2,774)
Intercompany
balances
  (investment-type
  loans)(11)                (50)     (220)     (53)   16          15          -
Investments in
shares
  of investees(11)            -         -        -   (16)     (2,156)       105
Non-monetary items,
  net                         -         -        -     -       2,669      2,669
                        ---------------------------------------------------------
                           (297)     (258)    (185)  (20)        407          -
                        =========================================================

</TABLE>


                                     - 95 -
<PAGE>

                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 24 -    FINANCIAL INSTRUMENTS (CONT.)

       A. CURRENCY RISKS (CONT.)

       LINKAGE-BASIS REPORT AS OF DECEMBER 31, 2002 (IN MILLION DOLLARS):

       NOTES (1) - (13):

       (9)   THE TABLE ABOVE INCLUDES ITEMS OF ELSCINT  (61.53% OF ITS SHARES
             ARE HELD BY THE COMPANY) AS FOLLOWS:

<TABLE>
<CAPTION>
                         -----------------------------------------------------------------------------------------------------------
                                                                                                                    CONSOLI-
MEASUREMENT CURRENCY(1):                  NIS                   (POUND)        EURO ZONE CURRENCIES  ROL  OTHER(2)  DATION   TOTAL
                                                                                      (EURO)                        ADJUST- CONSOLI-
LINKAGE CURRENCY(3):         $    (EURO)  (POUND)     UN-   (EURO)   UN-       $  (POUND)    UN-      $             MENTS    DATED
                                                    LINKED         LINKED                  LINKED
                         -----------------------------------------------------------------------------------------------------------
<S>                        <C>   <C>        <C>      <C>     <C>    <C>       <C>    <C>     <C>    <C>    <C>      <C>      <C>
Monetary items, net(10)     170   (176)(5)  (79)(5)   26       -    (355)      24      -     (102)  (131)  (12)       -       (635)
Intercompany balances
  (investment-type
  loans)(11)                533    198       91        -    (177)    (74)    (487)   (17)      (1)   (37)  (29)       -          -
Investments in shares
  of investees(11)           17   (259)       -       42       -       -        -    (38)       -      -    (4)     275         33
Non-monetary items,
  net                         -      -        -        -       -       -        -      -        -      -     -      602        602
                         -----------------------------------------------------------------------------------------------------------
                            720   (237)      12       68    (177)   (429)    (463)   (55)    (103)  (168)  (45)     877          -
                         ===========================================================================================================

</TABLE>
       (10)  Effects of exchange rates and CPI-indexing (inflationary erosion of
             monetary items, net) are included in the statements of operations.

       (11)  Effects of exchange rates on these balances are charged directly to
             equity and not to the statement of operations.

       (12)  EXCHANGE RATES:

<TABLE>
<CAPTION>
                                                                                                                         1,000,000
                                                                                                                            LEI
MEASUREMENT CURRENCY:               NIS                (POUND) EURO ZONE CURRENCIES (EURO)   HUF             PLZ            ROL
---------------------   ----------------------------   ------- ---------------------------  --------  -----------------   ---------
LINKAGE CURRENCY:          $       (EURO)    (POUND)    (EURO)     $         1,000 HUF      (EURO)    (EURO)        $        $
---------------------   -------    -------   -------   -------  -------      ----------     --------  ------      ------  ---------
DECEMBER 31:

<S>                     <C>        <C>       <C>       <C>      <C>           <C>            <C>      <C>         <C>        <C>
      2002               4.737      4.969     7.633     0.652    0.952         4.239          235.9    4.02        3.84       33.50
                        =======    =======   =======   =======  =======       =======       ========  ======      ======  ==========

      2001               4.416      3.908     6.400     0.611    1.135         4.060          246.3    3.52        3.99       31.60
                        =======    =======   =======   =======  =======       =======       ========  ======      ======  ==========

</TABLE>


                                     - 96 -
<PAGE>

                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 24 -     FINANCIAL INSTRUMENTS (CONT.)


A.      CURRENCY RISKS (CONT.)

        LINKAGE-BASIS REPORT AS OF DECEMBER 31, 2002 (IN MILLION DOLLARS):

       NOTES (1) - (13):

       (13)     CHANGES IN THE CONSUMER  PRICE INDEX AND  PREVAILING  EXCHANGE
                RATES (%):

<TABLE>
<CAPTION>
                                                                CHANGES IN THE CONSUMER PRICE INDEX (%)
           -----------------------------------------------------------------------------------------------------------------
                                          ISRAEL     ENGLAND     HOLLAND     BELGIUM    HUNGARIA     POLAND      RUMANIA
           -----------------------------------------------------------------------------------------------------------------
           YEAR ENDED DECEMBER 31:

<S>              <C>                       <C>        <C>         <C>         <C>         <C>         <C>         <C>
                 2002                      6.49       2.94        3.24        1.37        5.00        0.69        17.80
                                        ========   =========   =========    ========   =========   ==========   =========

                 2001                      1.40       1.28        4.45        2.18        6.90        3.61        30.30
                                        ========   =========   =========    ========   =========   ==========   =========

                 2000                      0.00       2.93        2.89        2.49       10.13        8.90        40.70
                                        ========   =========   =========    ========   =========   ==========   =========


                                                       CHANGES IN PREVAILING EXCHANGE RATES (%)
           -------------------------------------------------------------------------------------------------------------------------
                                                                                                                           1,000,000
                                                                        EURO ZONE CURRENCIES                                  LEI
           MEASUREMENT CURRENCY:           NIS                (POUND)           (EURO)             HUF        PLZ             ROL
           LINKAGE CURRENCY:      $      (EURO)    (POUND)    (EURO)     $     1,000 HUF          (EURO)  (EURO)    $          $
           -------------------------------------------------------------------------------------------------------------------------

           DECEMBER 31:

             2002                7.27      27.18    19.27      6.71    (16.12)   4.41            (4.23)   14.20    (3.76)     6.01
                               ========  ========  =======   =======  ======== ========         =======  =======  ========  =======

             2001                9.28       3.85     6.10     (1.86)     5.40    7.58            (7.02)   9.00)    (3.80)        -
                               ========  ========  =======   =======  ======== ========         =======  =======  ========  =======

           -------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                     - 97 -
<PAGE>

                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 24-     FINANCIAL INSTRUMENTS


       B.     The following table presents a summary of the outstanding currency
              forward transactions open at December 31, 2002:

              1.     FORWARD TRANSACTIONS

<TABLE>
<CAPTION>
                                                                    SETTLEMENT             FAIR VALUE
                         AMOUNTS               AMOUNTS          -------------------        RECEIVABLE
                       RECEIVABLE              PAYABLE           DATE         PRICE         (PAYABLE)
                     ----------------    -----------------      --------   ---------       ----------
                                                                                             NIS'000
                                                                                           ----------
<S>                   <C>                   <C>                 <C>          <C>             <C>
                      $ 31 million       (Y)3,839 million       01.2003      122.92          (5,214)
                                                                                           ==========
</TABLE>
              2.     The results of several short-term currency transactions not
                     carried out for hedging  purposes,  totaling $8 million and
                     settled by the approval date of these financial statements,
                     is immaterial to the Company's business activities.

              3.     As for loans  denominated in foreign currency  obtained for
                     the purpose of accounting hedging - see item a, comment (5)
                     above.  As  for  loans   denominated  in  foreign  currency
                     obtained for general hedging purposes - see item a, comment
                     (6) above.

       C.     FAIR VALUE OF FINANCIAL INSTRUMENTS

              The Group's  financial  instruments  include monetary assets (cash
              and cash equivalents, short and long-term deposits, trade accounts
              receivable, marketable securities as well as other receivables and
              current assets) and monetary liabilities  (short-term  borrowings,
              long-term liabilities, trade accounts payables as well as payables
              and other current liabilities). Due to the nature of the financial
              instruments  included  in  working  capital,   their  fair  values
              approximate those presented in the balance sheet.

              It is  difficult  to  estimate  the fair  value  of many  accounts
              receivable and notes receivable  bearing different  maturity dates
              and interest  rates in the different  countries in which the Group
              companies   are  active.   Nevertheless,   the  Group   companies'
              management  estimates  that the fair value of these  accounts  and
              notes is not lower than their book value.

              The  fair  value  of  trade  accounts  receivable,   deposits  and
              long-term  liabilities is ordinarily based on the present value of
              future receipts and disbursements, discounted by the interest rate
              applicable to the Company's lending or borrowing  activities under
              similar  terms  as of  the  balance  sheet  date,  and  it is  not
              materially  different  than  the one  presented  in the  financial
              statements.

              As for the  presentation  of  long-term  balances not under market
              conditions - see Note 2J.

              Derivative  financial  instruments  having an active  market  were
              valued based on market value.

       D.     CONCENTRATION OF CREDIT RISKS

              Cash and amounts on deposit in Israel and abroad are  deposited in
              banks.

              As  for   composition  of  the  short  and  long-term   investment
              portfolio- see Note 4 and Note 8. Such  investments are exposed to
              market-price  fluctuation,  with the Group affected by fluctuation
              of the Israeli capital market over which the Group has no control.
              Such changes may have an impact on the value of these  investments
              upon realization.

              Due to their nature,  of the Group  companies  are not  materially
              exposed  to  credit  risks  stemming  from  dependence  on a given
              customer.  The Group  companies  examine on an  ongoing  basis the
              amount of the credit extended to their customers and, accordingly,
              record a provision  for doubtful  accounts  based on those factors
              affecting  credit  risks of certain  customers  in the  opinion of
              these companies' management.

              As  security  for  contingent  liabilities  of Elscint  arising in
              connection  with loans  received by former  customers from foreign
              banks,  Elscint  provided bank guarantees  totaling NIS 17.3m (see
              Note 18d (3) above).  Elscint has fully  provided in its financial
              statements for these contingent liabilities.

       E.     INTEREST-RATE RISKS

              As for interest rates - see Notes 3, 4, 8, 13 and 15 above.


                                     - 98 -
<PAGE>

                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 25 -     SUBSEQUENT EVENTS

       A.     As  for  the  leasing  of a  hotel  in the  UK  subsequent  to the
              balance-sheet date - see Note 11c.1, comment (2).

       B.     In March 2003,  IGTX signed a memorandum  of  understanding  (MOU)
              with Ktec Corporation Inc. ("Ktec"),  a Japanese company,  for the
              exclusive   distribution  of  its  products  in  Japan.  This  MOU
              constitutes  the  basis  for a  three-year  distribution  contract
              within the  framework of which Ktec would manage all the licensing
              and  regulatory  activities  as well as the  marketing,  sales and
              technical  and clinical  support of IGTX in Japan.  The  agreement
              establishes  minimum sales of five systems in 2003, 10 in 2004 and
              20 during  2005,  at a total value of  approximately  $36 million.
              Ktec  provided  bank  guarantees  as security for carrying out its
              contractual  obligations.  The MOU is contingent upon the approval
              of the two  companies'  boards of  directors  and the signing of a
              detailed distribution contract between the parties.

       C.     As for the employee and supplier  option plans - see Note 10B(4) e
              and f above.

       D.     As  for  the  exercise  of an  option  granted  to  GEMS  for  the
              acquisition of IGTX shares - see Note 10B(4) d above.


                                     - 99 -
<PAGE>

                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

              LIST OF MAJOR INVESTEE COMPANIES - DECEMBER 31, 2002

<TABLE>
<CAPTION>
                                                                                                   RATE OF
                                                                                               (DIRECT AS WELL
                                                                                                AS INDIRECT)    COUNTRY
                                                                                                  OWNERSHIP        OF
NAME OF COMPANY                                               NATURE OF ACTIVITY                 AND CONTROL   RESIDENCE
---------------                                               ------------------                 -----------   ---------
                                                                                                      %
                                                                                                      -

<S>                                            <C>            <C>                                    <C>         <C>
ELSCINT LTD.                                   ("Elscint")    Manufacture of components(*)            61.53      Israel

   Bea Hotels N.V.                              ("B.H.")      A holding company in the hotel         100.0      Holland
                                                              segment, mainly in Europe
   SLS Sails Ltd.                                ("SLA")      Establishment of a commercial          100.0       Israel
                                                              and entertainment center
   Elscint Biomedical Investment N.V.            ("EBM")      Venture capital for investing          100.0      Holland
                                                              in biotechnology companies

ELBIT ULTRASOUND B.V. (NETHERLANDS)              ("EUN")      A holding company of the               100.0      Holland
                                                              commercial centers in Central
                                                              and Eastern Europe

   Plaza Centers (Europe) B.V.                  ("P.C.")      A holding company of the               100.0      Holland
                                                              commercial centers in Central
                                                              and Eastern Europe

   Elscint Communication Technology B.V.         ("ECT")      Venture capital for investing          100.0      Holland
                                                              in foreign telecom companies
   Insightec - Image Guided Treatment Ltd.      ("IGTX")      Development of means of                 69.2(**)   Israel
                                                              imaging-guided treatment
   Superior Investments Ltd.                     ("SIL")      Venture capital for investing          100.0       Israel
                                                              in telecom companies
</TABLE>
(*)    As for the  discontinuing  operations  at the  end of 2002 - see  Note 23
       above. Starting in 2003 - an investee.

(**)   Taking  into  account  the  allotment  of shares to  employees  (for more
       details see Note 10b(4)).


                                    - 100 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 26 -     MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP
              AND THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS

              The consolidated  financial statements of the Company are prepared
              in accordance with  accounting  principles  generally  accepted in
              Israel  ("Israeli  GAAP"),  which differ,  in certain  significant
              respects from those generally accepted in the United States ("U.S.
              GAAP"), as follows:

              A.     DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP

                     1.    "AS IF" POOLING OF INTERESTS

                            In September  2000, the Company  purchased,  through
                            EUL,  the  Commercial  Centers  Division  ("PC")  in
                            Central and Eastern  Europe,  which had been equally
                            held by a controlling shareholder and by the Red Sea
                            Hotel Group (see Note 10B(3) a. above).

                            IN ACCORDANCE WITH ISRAELI GAAP:

                            With  respect  to the  purchase  of a portion of the
                            business  from  the  controlling  shareholder,   the
                            assets  acquired  and the  liabilities  assumed were
                            recorded, by the company, at their historical values
                            in the books of the  controlling  shareholder at the
                            transfer date, and the excess of the amount paid for
                            the  shares  over the book  value of the net  assets
                            acquired,   was   offset   against   the   Company's
                            shareholders'  equity at that date.  Restatement  of
                            prior periods for inclusion of the acquired business
                            in the financial  statements of the Company prior to
                            the transfer date, is not required.

                            IN ACCORDANCE WITH U.S. GAAP:

                            The transaction with the controlling shareholder was
                            treated as a reorganization of entities under common
                            control.  Accordingly, the acquisition was accounted
                            for in a manner  similar to a pooling of  interests.
                            The net  assets  acquired  were  recorded  at  their
                            historical  values in the  books of the  controlling
                            shareholder  at the transfer date, and the excess of
                            the  amount  paid  over  the  book  value of the net
                            assets  acquired  was offset  against the  Company's
                            shareholders' equity at that date. In addition,  the
                            Company's  financial  statements  were  restated  to
                            include the results of  operations  of PC commencing
                            January 1, 2000 (see B.1.a and B.2.below).

                            For proforma information related to the rights (50%)
                            in the commercial centers, acquired from the Red Sea
                            Hotel Group - see B.5.c. below.

                     2.     EFFECT OF INFLATION

                            IN ACCORDANCE WITH ISRAELI GAAP:

                            The consolidated financial statements of the Company
                            are presented in adjusted New Israeli Shekels (NIS).
                            For the basis of presentation  and principles of the
                            adjustment - see Note 2A, above.

                            IN ACCORDANCE WITH U.S. GAAP:

                            The  financial  statements  should be  expressed  in
                            nominal historical terms.

                            The effect of this difference between measurement on
                            the  inflation  adjusted  basis  and on the basis of
                            historical  terms, is not required to be included in
                            the reconciliation to the U.S. GAAP.


                                    - 101 -

<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE  26 -    MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              A.     DIFFERENCES BETWEEN ISRAELI GAAP AND US GAAP (CONT.)

                     3.    JOINTLY CONTROLLED COMPANIES

                            IN ACCORDANCE WITH ISRAELI GAAP:

                            The  financial   statements  of  jointly  controlled
                            companies are included in the consolidated financial
                            statements  in  accordance  with the  "proportionate
                            consolidation method."

                            IN ACCORDANCE WITH US GAAP:

                            Investments  in  jointly  controlled  companies  are
                            accounted for by the "equity method".  However,  use
                            of  the   proportionate   consolidation   method  is
                            permitted  by  Securities  and  Exchange  Commission
                            rules for a  foreign  issuer.  Use of  proportionate
                            consolidation does not have any effect on the income
                            (loss) and/or shareholders'  equity.  Differences in
                            classifications  or display of items in the  balance
                            sheet,  in the  statement of  operations  and in the
                            statement  of cash  flow,  that  result  from  using
                            proportionate  consolidation,  is not required to be
                            included  in the  reconciliation  to the  U.S.  GAAP
                            financial statements.  However, summarized data on a
                            pro forma  basis,  regarding  reporting  differences
                            between the proportionate  consolidation  method and
                            the equity method, are given in B3 below.

                     4.     DEFERRED TAX

                            A)     DEFERRED   TAXES  IN  RESPECT  OF   INFLATION
                                   ADJUSTMENT

                                   IN ACCORDANCE WITH ISRAELI GAAP:

                                   Deferred   taxes  in  respect  of   inflation
                                   adjustments to fixed assets are provided only
                                   to the  extent  that such  fixed  assets  are
                                   amortized within 20 years.

                                   IN ACCORDANCE WITH U.S. GAAP:

                                   Deferred  taxes  are  provided  on  all  such
                                   inflation  adjustments,  to the  extent  that
                                   they are temporary differences, regardless of
                                   the  period   through   which  they  will  be
                                   amortized or when they will be deductable for
                                   tax purposes.

                              B)   DEFERRED   TAXES  IN  RESPECT   OF   BUSINESS
                                   COMBINATION

                                   IN ACCORDANCE WITH ISRAELI GAAP

                                   Deferred  taxes are recorded for  differences
                                   between  the  assigned  values  and the  book
                                   value  for  tax  purposes,   of  identifiable
                                   assets and liabilities of  subsidiaries  upon
                                   acquisition of the investment therein, except
                                   for  assets  for  which  amortization  is not
                                   allowable for tax purposes (e.g. land and the
                                   like).

                                   IN ACCORDANCE WITH U.S GAAP:

                                   Deferred  taxes  are  recorded  for  all  the
                                   temporary   differences   mentioned   in  the
                                   preceding paragraph.

                                    - 102 -

<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 26 -     MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              A.     DIFFERENCES BETWEEN ISRAELI GAAP AND US GAAP (CONT.)

                     5.     COMPENSATION  COMPONENT OF OPTION  PLAN  AND  SHARES
                            INCENTIVE PLAN

                            IN ACCORDANCE WITH ISRAELI GAAP:

                            The  compensation  component  of  stock  and  option
                            awards (including  shares granted to employees,  for
                            consideration  of  non-recourse   loans,   that  are
                            treated  as  options)  granted,   by  companies  the
                            securities  of which are  traded  on stock  exchange
                            markets,  to their employees and/or directors,  at a
                            lower price than quoted  market  prices (if any), is
                            charged as compensation expenses in the statement of
                            operations. Since the stock based awards are granted
                            by the Company and by its subsidiary  (Elscint Ltd.)
                            at prices essentially equal to their market price at
                            the date of granting,  no compensation expenses were
                            charged to the statement of operations.

                            IN ACCORDANCE WITH US GAAP:

                            The  compensation   component  of  such  shares  and
                            options  granted,  by each company of the group,  to
                            their employees or directors,  are treated according
                            to the provision set forth in APB No. 25.

                            The  compensation  component of shares  granted (for
                            consideration of non-recourse loans) to employees of
                            the parent  company,  is computed,  according to the
                            provisions  of SFAS No.  123,  based  on their  fair
                            value  (according  to the B&S  model) and is charged
                            directly to  shareholders'  equity,  as compensation
                            expenses to the controlling shareholders, during the
                            period in which each employee  performs its services
                            for the company for which the benefit was granted.

                            Regarding the effect on pro forma data, according to
                            SFAS No. 123, see B.5A.4 below.

                     6.     VENTURE CAPITAL INVESTMENTS

                            IN ACCORDANCE WITH ISRAELI GAAP:

                            Venture   capital  fund's   investments  in  venture
                            capital  investments have been included at the lower
                            of:  (i)  their   cost,   net  of   allowances   for
                            other-than-temporary decline in value, or (ii) their
                            fair value, based on management's estimate.

                            IN ACCORDANCE WITH U.S. GAAP:

                            Venture capital fund's  investments are presented at
                            fair value.

                     7.     ISSUANCE OF SHARES BY AN INVESTEE IN THE DEVELOPMENT
                            STAGE, TO A THIRD PARTY

                            IN ACCORDANCE WITH ISRAELI GAAP:

                            The increase in the Company's share of an investee's
                            net  assets  value,  as a result of an  issuance  of
                            shares by the  investee,  is  recorded  as  deferred
                            income,   which  is  charged  to  the  statement  of
                            operations  over a three  year  period  or up to the
                            Company's  share in  investee's  losses  during  the
                            relevant   period,   whichever  is  higher,   on  an
                            accumulated basis.

                                    - 103 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 26 -     MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              A.     DIFFERENCES BETWEEN ISRAELI GAAP AND US GAAP (CONT.)

                     7.     ISSUANCE OF SHARES BY AN INVESTEE IN THE DEVELOPMENT
                            STAGE, TO A THIRD PARTY (CONT.)

                            IN ACCORDANCE WITH U.S. GAAP:

                            The   increase  in  the   Company's   share  of  the
                            investee's net assets value, is charged  directly as
                            a capital reserve within shareholders' equity.

                     8.     INITIAL IMPLEMENTATION OF THE EQUITY METHOD

                            In circumstances where the Company's ownership in an
                            investee is in the form of preferred  securities  or
                            other  senior  securities,  the  Company  recognizes
                            equity method losses based on the ownership level of
                            the particular investee securities or loans extended
                            by the Company to which the equity method losses are
                            being applied.

                            Investment  previously  accounted  for on  the  cost
                            basis which becomes  qualified for use of the equity
                            method, due to an increase in the level of ownership
                            as a result  of  acquisition  of  additional  voting
                            stock of the  investee  by the  Company  or due to a
                            change in  investor's  status  because  of no longer
                            meeting the applicable  Venture  Capital  Investment
                            Fund  conditions  (see  11  below),  is  treated  as
                            follows:

                            IN ACCORDANCE WITH ISRAELI GAAP:

                            The company  (the  Investor)  should  implement  the
                            equity  method  only  from the  date the  investment
                            become  qualified  for use the equity  method  (i.e.
                            from  the  date  the   change  has   occurred)   and
                            thereafter.  Restatement  of previous  years'  data,
                            presented  within the financial  statements,  is not
                            required or permitted.

                            IN ACCORDANCE WITH U.S. GAAP:

                            The investment,  results of operations  (current and
                            prior periods) and retained earnings of the company,
                            should be adjusted,  retroactively, in a manner with
                            the accounting for a step-by-step acquisition of the
                            investee's stock.

                            The effect of the above mentioned restatement, is as
                            follows:

<TABLE>
<CAPTION>
                                                                                  AS OF DECEMBER 31, 2001
                                                                    -------------------------------------------------
                                                                     AS REPORTED (1)     RESTATEMENT       ADJUSTED
                                                                    ----------------     ------------     ----------
                                                                                    NIS (IN THOUSANDS)
                                                                    -------------------------------------------------
<S>                                                                         <C>              <C>                <C>
                            Venture capital investments                     64,478           (62,805)          1,673
                                                                    ===============      ============     ===========
                            Investment in investee companies (2)            22,638            34,827          57,465
                                                                    ===============      ============     ===========
                            Capital reserve - foreign currency
                              translation adjustment                        16,501               488          16,989
                                                                    ===============      ============     ===========
                            (1) According to U.S. GAAP

                            (2)  Including goodwill at the amount                -            26,440          26,440
                            of                                      ===============      ============     ===========
</TABLE>
                                    - 104 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 26 -     MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP
              AND THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              A.     DIFFERENCES  BETWEEN  ISRAELI  GAAP AND US GAAP  (CONT.)

                     8.     INITIAL IMPLEMENTATION OF THE EQUITY METHOD (CONT.)
<TABLE>
<CAPTION>
                                                                    FOR THE YESR ENDED DECEMBER 31
                                          ---------------------------------------------------------------------------------
                                                            2001                                      2000
                                          ---------------------------------------    --------------------------------------
                                               AS                                         AS
                                          REPORTED (1)    RESTATEMENT    ADJUSTED    REPORTED (1)   RESTATEMENT    ADJUSTED
                                          ------------    -----------    --------    ------------   -----------    --------
                                                            NIS (IN THOUSANDS), EXEPET FOR PER SHARE DATA
                                          ---------------------------------------------------------------------------------
                     Equity loss in
                       Investee
<S>                                          <C>             <C>          <C>            <C>            <C>           <C>
                       companies             (8,874)         (32,454)     (41,328)       (4,327)        (1,028)       (5,355)
                                          ============    ===========    ========    ============   ===========    ========

                     Net income (loss)
                       for the year           4,659          (26,177)     (21,518)      (24,713)          (594)      (25,307)
                                          ============    ===========    ========    ============   ===========    ========

                     Basic earning per
                       share -
                       (EPS) in NIS            0.21            (1.17)       (0.96)        (1.12)         (0.02)        (1.14)
                                          ============    ===========    ========    ============   ===========    ========

                     Diluted
                       (EPS) in NIS            0.20            (1.18)       (0.98)        (1.12)         (0.02)        (1.14)
                                          ============    ===========    ========    ============   ===========    ========

</TABLE>
                     (1) According to the U.S. GAAP

                     9.     FOREIGN CURRENCY TRANSLATION

                            IN ACCORDANCE WITH ISRAELI GAAP:

                            The financial  statements of an "autonomous  foreign
                            entity"  (after  adjustment  to the  Consumer  Price
                            Index in the  country of its  respective  residence)
                            are  being  translated  into  the  currency  of  its
                            holding  company (Euro or NIS), at the exchange rate
                            as  of  the  balance  sheet  date   ("closing   rate
                            method").

                            IN ACCORDANCE WITH U.S. GAAP:

                            In  accordance  with FAS No.  52,  the  transactions
                            included in items in the  statement of operations of
                            an  "autonomous  foreign  entity," are translated at
                            the actual transaction rates or the average rate for
                            the period.  The  difference  between the net profit
                            (loss),  translated  as  mentioned  above,  and  the
                            entity's  retained  earnings which are translated at
                            the exchange  rate as of the balance  sheet date, is
                            charged   to   capital   reserve   for   translation
                            adjustments in the sherholders equity.

                     10.    PRE-OPENING COSTS

                            IN ACCORDANCE WITH ISRAELI GAAP:

                            Pre-operating  expenses of hotels and/or  commercial
                            centers  (mainly -  employee  training,  testing  of
                            systems  and  preparation  of the  hotels/commercial
                            centers for opening,  operation and  occupancy)  are
                            stated  at  cost  and  amortized  over a  three-year
                            period from commencement of full scale operations.

                            IN ACCORDANCE WITH US GAAP:

                            In accordance with the statement of Position ("SOP")
                            98-5.   "Reporting   on  the   costs   of   start-up
                            activities,"   all  costs  of  start-up   activities
                            (pre-opening,   pre-operating   and   organizational
                            costs) are expensed as incurred.

                                    - 105 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 26 -     MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              A.     DIFFERENCES BETWEEN ISRAELI GAAP AND US GAAP (CONT.)

                     11.    MARKETABLE SECURITIES

                            IN ACCORDANCE WITH ISRAELI GAAP:

                            Israeli GAAP divides marketable  securities into two
                            categories:

                            Investments in marketable securities,  designated by
                            management  for sale in the short term, are included
                            in  current  assets  at  their  market  value at the
                            balance-sheet  date. Changes in value are charged to
                            the   statement   of   operations,    as   incurred.
                            Investments in marketable  securities not designated
                            by  management  for sale in the short term and which
                            are not part of the Group's  liquid  resources,  are
                            presented at cost,  except  when,  in the opinion of
                            management,  a decline in value,  not of a temporary
                            nature, exists. See also Note 2E above.

                            IN ACCORDANCE WITH U.S. GAAP:

                            FAS No. 115 divide marketable  securities into three
                            categories:

                            (1)    Marketable  securities  that are acquired and
                                   held  principally  for the purpose of selling
                                   them within the near future,  are  classified
                                   as "trading  securities"  and are reported at
                                   their fair value. Unrealized gains and losses
                                   are included in the statement of operations.

                            (2)    Debt  securities  that  the  company  has the
                                   positive   intent  and  ability  to  hold  to
                                   maturity,  are  classified  as  "held  - to -
                                   maturity"  securities  and  are  reported  at
                                   amortized cost.

                            (3)    Marketable   securities   not  classified  as
                                   either "held - to - maturity"  securities  or
                                   "trading   securities",   are  classified  as
                                   "available - for - sale"  securities  and are
                                   reported  at  their  fair  value.  Unrealized
                                   gains and losses are  included  in a separate
                                   item  within  the  shareholders  equity,  and
                                   reported as other comprehensive income.

                     12.    CAPITALIZATION OF FINANCIAL EXPENSES

                            IN ACCORDANCE WITH ISRAELI GAAP:

                            The amount of financial  expenses to be  capitalized
                            for qualifying assets is intended to be that portion
                            of the financial  expenses in real terms,  including
                            exchange  rate  differences,   incurred  during  the
                            assets' construction period.

                            IN ACCORDANCE WITH U.S. GAAP:

                            Financial  expenses eligible for  capitalization for
                            qualifying  assets include only interest costs,  and
                            do not include exchange rate gains and losses.

                     13.    CERTAIN  INITIATION  COSTS OF  PROJECTS  AND WRITE -
                            DOWN OF INVESTMENTS

                            IN ACCORDANCE WITH ISRAELI GAAP:

                            Initiation  costs  of  projects  and  write-down  of
                            investments,   included  on  the  cost  basis,   are
                            presented as "other expenses".

                            IN ACCORDANCE WITH U.S. GAAP:

                            These expenses are included within  operating income
                            (loss).

                                    - 106 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 26 -     MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              A.     DIFFERENCES BETWEEN ISRAELI GAAP AND US GAAP (CONT.)

                     14.    INVESTMENT  IN  INVESTEE   COMPANIES  -  FAIR  VALUE
                            MEASURMENT

                            A.     IDENTIFICATION OF REPORTING UNIT

                                   IN ACCORDANCE WITH ISRAELI GAAP:

                                   Each investment  ("reporting unit") is tested
                                   and  treated  separately,  regardless  of any
                                   other  reporting  unit, even if the reporting
                                   units are  components  of the same  operating
                                   segment.

                                   IN ACCORDANCE WITH U.S. GAAP:

                                   Components   of  an  operating   segment  (as
                                   defined  in SFAS  142)  shall  be  aggregated
                                   within one  reporting  unit,  for  impairment
                                   tests   purposes,   if  the  components  have
                                   similar economic characteristics,  as defined
                                   in SFAS 142.

                            B.     DETERMINATION    OF   TESTS   PROCEDURS   FOR
                                   IMPAIRMENT AND THE MANNER OF IMPAIRMENT  LOSS
                                   RECOGNITION

                                   IN ACCORDANCE WITH ISRAELI GAAP:

                                   According  to the  provisions  set  forth  in
                                   statement   No.  68  of  the   Institute   of
                                   Certified  Public  Accountant  in Israel,  in
                                   case of a decline  (other than of a temporary
                                   nature)  that  causes  the  fair  value of an
                                   investment   in   an    autonomous    company
                                   (including, subsidiaries) to be less than its
                                   carrying  amount, a provision for the decline
                                   in fair  value  is  provided  and is  charged
                                   directly  against  any credit  balance in the
                                   capital reserves for translation  adjustment,
                                   previously   recorded   in  respect  of  this
                                   investment.   The  amount  of  the   required
                                   provision  in excess of the  capital  reserve
                                   for translation adjustment, is charged to the
                                   statement of operations.  If the  translation
                                   adjustments are reflected by a debit balance,
                                   they  are   charged  to  the   statement   of
                                   operations  together  with the  provision for
                                   the decline in the  investment's  fair value.
                                   The provision provided (if any) in respect of
                                   an investee in a  subsidiary,  is  attributed
                                   (in the consolidated  financial statements of
                                   the  company)  to the  assets'  value  of the
                                   subsidiary.

                                   As for the  accounting  method for  measuring
                                   fair value of  investments  and/or long lived
                                   assets,   which  will   apply  to   financial
                                   statements  for periods  beginning in January
                                   1,  2003 or  thereafter  - see note 2V.  (3),
                                   above.

                                   IN ACCORDANCE WITH U.S. GAAP:

                                   The  principles  set  forth  in  APB  18,  in
                                   respect  of fair value  measurement  and loss
                                   recognition   for  decline  in   investment's
                                   value,  refers to  investments  in affiliates
                                   only (not to  subsidiaries).  In  respect  of
                                   subsidiaries  - tests  and  measurements  for
                                   impairments  of the  company's  share  in the
                                   subsidiary's   equity,   is  performed  on  a
                                   consolidated   basis   and  is   covered   by
                                   provisions, included in other statements, for
                                   measuring assets and/or  liabilities.  As for
                                   test   for    impairment   of   goodwill   in
                                   subsidiaries - see c. below.

                                   However,  capital  reserves  for  translation
                                   adjustments  are  realized  only upon sale or
                                   upon  complete  or   substantially   complete
                                   liquidation  of an  investment  in a  foreign
                                   entity.  Realization of such capital  reserve
                                   as a result of  recording a  provision  for a
                                   decline in fair value, is prohibited.

                                    - 107 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE  26 -    MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              A.     DIFFERENCES BETWEEN ISRAELI GAAP AND US GAAP (CONT.)

                     14.    INVESTMENT  IN  INVESTEE   COMPANIES  -  FAIR  VALUE
                            MEASURMENT

                            C.     AMORTIZATION  AND  TESTS  FOR  IMPAIRMENT  OF
                                   GOODWILL

                                   IN ACCORDANCE WITH ISRAELI GAAP:

                                   Goodwill  is  amortized  over its  respective
                                   estimated   useful  life,   and  is  reviewed
                                   periodically, for impairment.

                                   IN ACCORDANCE WITH U.S. GAAP:

                                   According to principles set forth in SFAS 142
                                   - goodwill  determined  to have an indefinite
                                   useful life  acquired in a purchase  business
                                   combination  completed  after June 30,  2001,
                                   (but   before   January   1,   2002)  is  not
                                   amortized,  but  is  tested  for  impairment,
                                   together  with the  entire  investment,  as a
                                   whole.    Goodwill   acquired   in   business
                                   combinations  completed  before  July 1, 2001
                                   continued  to be  amortized  and  tested  for
                                   impairment  until January 1, 2002. After that
                                   date the goodwill is no longer  amortized but
                                   rather  tested,   at  least   annually,   for
                                   impairment.  The two  steps  which  should be
                                   applied by testing goodwill  impairment,  are
                                   as follows:

                                   (I)    Determining   if  fair  value  of  the
                                          reporting   unit  is  less   than  its
                                          carrying  amount  (step  1); if no, no
                                          further   testing  of   goodwill   for
                                          impairment is necessary.  If yes, step
                                          2 should be applied, by using the fair
                                          value of the reporting unit determined
                                          in step 1,  allocating  the fair value
                                          of  the  reporting  unit  to  all  the
                                          assets and  liabilities  of that unit,
                                          as if  the  reporting  unit  had  been
                                          acquired in a business combination and
                                          the fair value of the  reporting  unit
                                          was the purchase price,  and comparing
                                          goodwill  resulting  from the purchase
                                          price   allocation   to  its  carrying
                                          amount,  in order to  determine if and
                                          by how much goodwill is impaired.

                                   (II)   If goodwill is  impaired,  a provision
                                          for   loss   is    recorded    against
                                          operations, up to the amount impaired.

                     15.    REALIZATION  OF  CAPITAL   RESERVE  FOR  TRANSLATION
                            ADJUSTMENTS

                            IN ACCORDANCE WITH ISRAELI GAAP:

                            Upon realization of an autonomous foreign entity, in
                            whole  or  in  part,   through  a  repayment  of  an
                            investment-type  monetary  balance,  the accumulated
                            translation  adjustment  relating  to that  monetary
                            balance is released to the statement of operations.

                            IN ACCORDANCE WITH U.S. GAAP:

                            Capital  reserves for  translation  adjustments  are
                            realized   only  upon  sale  or  upon   complete  or
                            substantially  complete liquidation of an investment
                            in a foreign entity.

                    16.     CONVERTIBLE SECURITIES OF INVESTEES

                            IN ACCORDANCE WITH ISRAELI GAAP:

                            A parent  company is  required to record a provision
                            for  losses  which  may  incur  as a  result  of the
                            dilution of its holdings in investees, upon exercise
                            of vested share options  (including shares issued to
                            employees for consideration of non-recourse  loans),
                            when it is probable that they will be exercised.

                                    - 108 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 26 -     MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              A.    DIFFERENCES BETWEEN ISRAELI GAAP AND US GAAP (CONT.)

                    16.     CONVERTIBLE SECURITIES OF INVESTEES (CONT.)

                            IN ACCORDANCE WITH U.S. GAAP:

                            A loss in the  parent  company  resulting  from  the
                            dilution  of its  holdings,  in the  event the share
                            options  (including  shares  issued to employees for
                            consideration    of   non-recourse    loans)   being
                            exercised, is recorded only at the time of exercise.

                     17.    CONTINGENT CONSIDERATION BASED ON SECURITY PRICE

                            Consideration   for  business   combination  may  be
                            contingent  on  the  market  price  of  a  specified
                            security  issued  by the  acquirer.  Under  such  an
                            agreement,  unless the price of the security equals,
                            at least, an agreed amount ("Specified Amount") on a
                            certain date, the acquiring  corporation is required
                            to issue  additional  equity or to transfer cash (at
                            the Company's sole  discretion) in order to make the
                            current  value of the total  consideration  equal to
                            the Specified Amount (see Note 19C.).

                            IN ACCORDANCE WITH ISRAELI GAAP:

                            The securities,  which are issued unconditionally at
                            the date the transaction is  consummated,  should be
                            recorded  at their  market  price at such date.  The
                            difference   between   the  market   price  of  such
                            securities upon issuance,  and the Specified Amount,
                            is  recorded  as  a  long-term  monetary  liability.
                            Changes in the value of the liability,  are recorded
                            in the  statement of operations  for each  reporting
                            period.

                            IN ACCORDANCE WITH U.S. GAAP:

                            The securities  issued  unconditionally  at the date
                            the transaction is  consummated,  should be recorded
                            at the Specified  Amount,  discounted to its present
                            value.   No  adjustments   are  required  until  the
                            contingency is resolved.

                     18.    DERIVATIVE FINANCIAL INSTRUMENTS

                            The  Company  leases its  commercial  centers  under
                            long-term  contracts (see also Note 10B.(3)b.).  The
                            leases are denominated,  generally, in Euro, most of
                            which  are  linked to the CPI in  Germany  (some are
                            denominated in dollars).

                            IN ACCORDANCE WITH ISRAELI GAAP:

                            Derivatives    embedded    within    non-derivatives
                            instruments  should not be bifurcated  from the host
                            instruments  and is treated for accounting  purposes
                            together with the host instrument.

                            IN ACCORDANCE WITH U.S. GAAP:

                            On January 1, 2001, the Company adopted Statement of
                            Financial  Accounting Standards No. 133, "Accounting
                            for Derivative  Instruments and Hedging  Activities"
                            (collectively referred to as SFAS 133).

                            A "derivative" is typically defined as an instrument
                            whose   value   is   derived   from  an   underlying
                            instrument,  index or rate,  has a notional  amount,
                            requires no or little initial  investment and can be
                            net  settled.   Derivatives  include,  but  are  not
                            limited  to,  the  following  types of  investments:
                            interest rate swaps,  interest rate caps and floors,
                            put and call options,  warrants,  futures,  forwards
                            and   commitments   to   purchase   securities   and
                            combinations of the foregoing.

                                    - 109 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE  26 -    MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              A.     DIFFERENCES BETWEEN ISRAELI GAAP AND US GAAP (CONT.)

                     18.    DERIVATIVE FINANCIAL INSTRUMENTS (CONT.)

                            IN ACCORDANCE WITH U.S. GAAP (CONT.):

                            Derivatives    embedded    within     non-derivative
                            instruments,   must  be  bifurcated  from  the  host
                            instrument and accounted for in accordance with SFAS
                            133, when the embedded derivative is not clearly and
                            closely related to the host  instrument  (rental for
                            the  use  of  leased  assets  and   adjustments  for
                            inflation on similar  property are  considered to be
                            clearly   and    closely    related.    Thus,    the
                            inflation-related    derivative   embedded   in   an
                            inflation-indexed  lease  contract is not bifurcated
                            from the host cotract).

                            In  conformity  with  SFAS  133,   foreign  currency
                            forward  contracts  that are  embedded  within  such
                            lease  contract  ("the  host  contract")  should  be
                            bifurcated   and  accounted  for   separately.   The
                            bifurcated  forward  contracts are recorded at their
                            fair value  while  changes in their fair  values are
                            charged  to  the   statement   of   operations   and
                            classified under financial income, net.

                            An  embedded  foreign  currency  instrument  is  not
                            bifurcated from the host contract,  if (i) contracts
                            in which  specified  volumes  of sales of one of the
                            parties  to the  contract  serve  as the  basis  for
                            settlement ("underlying"); (ii) the host contract is
                            not a financial  instrument and it requires payments
                            denominated  in  the  functional   currency  of  any
                            substantial party to that contract.

                     19.    DISCONTINUING OPERATIONS - GAIN RECOGNITION.

                            As for  the  description  of the  sale of  plant  by
                            Elscint ("Ma'alot transaction")- see note 23.A.

                            IN ACCORDANCE WITH ISRAELI GAAP:

                            A gain from a sale  transaction  is recognized  only
                            after providing an acceptable  level of assurance of
                            the   existence   and  amount  of  the  gain.   Gain
                            generation  process is deemed to be culminated when:
                            (i) realized (assets are exchanged for cash or claim
                            to  cash)  or   realizable   (ii)  the   seller  has
                            substantially  accomplished what it must do in order
                            to be entitled to the  benefits  represented  by the
                            gain. Gain from business' sale  transactions  should
                            be   recognized,   generally,   when  the  following
                            conditions have been  satisfied:  (i) the seller has
                            transferred to the buyer the  significant  risks and
                            rewards  of  ownership;   (ii)  the  seller  retains
                            neither  continuing  managerial  involvement  to the
                            degree   usually   associated   with  ownership  nor
                            effective  control  over the  assets/business  sold;
                            (iii)  any  major   uncertainties   as  to  ultimate
                            realization  of  profit  have been  removed  and the
                            amount  of the gain can be  measured  reliably;  and
                            (iv)  it is  probable  that  the  economic  benefits
                            associated  with the  transaction  will  flow to the
                            seller  and the  collection  of the  sale  price  is
                            reasonably  assured. In light of the above mentioned
                            , the  gain was  recognized  in the  Company's  2002
                            financial statements.

                            IN ACCORDANCE WITH U.S. GAAP :

                            Gain  from  such  sale  of  business  should  not be
                            recognized  unless all consideration was in the hand
                            of the seller at the balance  sheet  date.  Since in
                            the Ma'alot  transaction,  a significant  portion of
                            the cash  consideration  was, according to the buyer
                            request, deposited in escrow, for future release, in
                            order  to  secure  the  potential   purchase   price
                            adjustments, that may be required (if any), the gain
                            on  the  sale  will  be  recognized,   for  US  GAAP
                            purposes,    in   the   Company's   2003   financial
                            statements.

                                    - 110 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

EEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              A.     DIFFERENCES BETWEEN ISRAELI GAAP AND US GAAP (CONT.)

                     20.    OTHERS

                            Balance sheet items - mainly  differences in respect
                            of issues which  belongs to reporting  periods ended
                            before January 1, 2000 and others.

                            Profit  and loss items -  differences  in respect of
                            land lease  fees  expended,  as direct  construction
                            costs, during the construction period.

                     21.    EARNINGS PER SHARE ("EPS")

                            IN ACCORDANCE WITH ISRAELI GAAP:

                            A.     Share  options and shares issued to employees
                                   for consideration of non-recourse loans (that
                                   are treated as options)  are  included in the
                                   computation  of basic earnings per share only
                                   if  their   exercise  is   considered  to  be
                                   probable.  In such case  basic  earnings  are
                                   adjusted for  "notional  interest"  resulting
                                   from  such  securities.  Calculation  of  the
                                   probability is based on the ratio between the
                                   market  price of the shares  and the  present
                                   value  of the  exercise  price  of the  stock
                                   options  into shares or the present  value of
                                   the repayment amount of the loans granted for
                                   the purchase of such shares, as applicable.

                            B.     Shares  or  share  options  issued  upon  the
                                   fulfillment   of   certain   conditions   are
                                   considered  outstanding common shares and are
                                   included in the computation of the basic EPS,
                                   as of the date that all necessary  conditions
                                   have been met.

                            C.     Share   options    (including    shares   for
                                   consideration of non-recourse  loans),  which
                                   are  unvested  and/or  whose  exercise is not
                                   probable,  are  nevertheless   considered  as
                                   exercised, for the purpose of calculating the
                                   diluted  earnings  per share,  in addition to
                                   the  outstanding  and issued shares,  whereas
                                   the basic earnings are adjusted for "notional
                                   interest"    resulting   from   such   option
                                   exercised.

                            D.     In  addition to the above and for the purpose
                                   of  calculating  the  diluted   earnings  per
                                   share,  the  net  income  of the  Company  is
                                   adjusted  for the  provision  for losses,  if
                                   any,  as  a  result  of  a  dilution  of  its
                                   shareholding in investees,  assuming that all
                                   of  the  investees'   convertible  securities
                                   (including those which are unvested and those
                                   whose   exercise   is   not   probable)   are
                                   considered as exercised.

                            E.     In  computating,  basic  EPS,  the  Company's
                                   share in investees' results of operations, is
                                   taken  into  account in  accordance  with the
                                   amount  which is  included  in the  financial
                                   statements.

                            F.     Shares  which will be  issued,  if and to the
                                   extent   they  will  be  issued,   and  which
                                   issuance is  contingent  on Company's  future
                                   share price ("Contingently issuable shares"),
                                   are  not  included  in the  total  number  of
                                   issued   shares  for  the   purpose  of  both
                                   calculating  the  basic  EPS and the  diluted
                                   EPS.

                                    - 111 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 26 -     MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              B.     DIFFERENCES BETWEEN ISRAELI GAAP AND US GAAP (CONT.)

                     21.    EARNINGS PER SHARE ("EPS") (CONT.)

                            IN ACCORDANCE WITH U.S. GAAP:

                            A.     In accordance  with FAS 128,  Basic  earnings
                                   per  share is  computed  on the  basis of the
                                   weighted average number of shares outstanding
                                   during   the  year,   without   taking   into
                                   consideration any convertible securities.

                            B.     Diluted earnings per share is computed on the
                                   basis  of  the  weighted  average  number  of
                                   shares  outstanding during the year, plus the
                                   dilution potential of the options exercisable
                                   into  shares   outstanding  during  the  year
                                   (including shares issued for consideration of
                                   non-recourse  loans),  applying the "Treasury
                                   Stock Method".

                            C.     The Company's share in the investees' results
                                   of operations is computed by multiplying  the
                                   number of the  investee's  shares held by the
                                   Company by the investee's EPS.

                            D.     If all  necessary  conditions  have  not been
                                   satisfied by the end of the year,  the number
                                   of  contingently  issuable shares included in
                                   diluted  EPS shall be based on the  number of
                                   shares, if any, that would be issuable if the
                                   end of the reporting year were the end of the
                                   contingency  year and if the result  would be
                                   dilutive.

                     22.    RECENTLY ISSUED ACCOUNTING STANDARDS

                            A.     In June  2001,  The  FASB  issued  SFAS  143,
                                   "Accounting for Asset Retirement Obligations"
                                   (hereinafter SFAS 143). SFAS 143 requires the
                                   Company  to  record  fair  value  of an asset
                                   retirement  obligation  as a liability in the
                                   period in which it incurs a legal  obligation
                                   associated  with the  retirement  of tangible
                                   long-lived   assets   that  result  from  the
                                   acquisition, construction, development and/or
                                   normal use of the assets.  The  Company  also
                                   records  a   corresponding   asset  which  is
                                   depreciated  over  the  life  of  the  asset.
                                   Subsequent to the initial  measurement of the
                                   asset retirement  obligation,  the obligation
                                   will be adjusted at the end of each period to
                                   reflect  the  passage of time and  changes in
                                   the  estimated  future cash flows  underlying
                                   the  obligation.  SFAS 143 is  effective  for
                                   financial  statements  issued  for the  years
                                   2003 and thereafter.  Earlier  Application is
                                   permitted.  The adoption of SFAS 143 does not
                                   have a  significant  impact on the  Company's
                                   consolidated financial statements.

                            B.     In July  2002,  the  FASB  issued  SFAS  146,
                                   "Accounting for Costs Associated with Exit or
                                   Disposal Activities"  (hereinafter SFAS 146).
                                   SFAS 146  nullifies  EITF 94-3.  According to
                                   SFAS  146,  commitment  to a plan  to exit an
                                   activity or dispose of long-lived assets will
                                   no longer  be  enough  to  record a  one-time
                                   charge for most anticipated  costs.  Instead,
                                   companies  will record exit or disposal costs
                                   when they are  "incurred" and can be measured
                                   at fair  value,  and they  will  subsequently
                                   adjust the recorded  liability for changes in
                                   estimated  fair value.  SFAS 146 also revises
                                   accounting   for   specified   employee   and
                                   contract   terminations   that  are  part  of
                                   restructuring   activities.   SFAS   146   is
                                   effective  for exit and  disposal  activities
                                   that are initiated  after  December 31, 2002.
                                   Earlier   application  is   encouraged.   The
                                   Company  believes  that the  adoption of SFAS
                                   146 will not have a significant impact on its
                                   consolidated financial statements.

                                    - 112 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE  26 -    MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              A.     DIFFERENCES BETWEEN ISRAELI GAAP AND US GAAP (CONT.)

                     22.    RECENTLY ISSUED ACCOUNTING STANDARDS (CONT.)

                            C.     In December 2002,  the FASB issued  Statement
                                   of Financial  Accounting  Standards Board No.
                                   148, "Accounting for Stock-Based Compensation
                                   - Transition and Disclosure - an amendment of
                                   FASB  Statement No. 123" ("SFAS  148").  SFAS
                                   148   amends   SFAS   No.   123  to   provide
                                   alternative   methods  of  transition  for  a
                                   voluntary  change  to the  fair  value  based
                                   method of accounting for stock-based employee
                                   compensation.  In  addition,  SFAS 148 amends
                                   the  disclosure  requirements  of SFAS 123 to
                                   require prominent  disclosures in both annual
                                   and interim  financial  statements  about the
                                   method of accounting for stock-based employee
                                   compensation  and the  effect  of the  method
                                   used  on  reported   results  The  transition
                                   guidance and annual disclosure  provisions of
                                   SFAS  148  are  effective  for  fiscal  years
                                   ending after  December 15, 2002.  The Company
                                   has not decided yet to voluntarily adopt SFAS
                                   123.

                            D.     In November  2002,  FASB  Interpretation  No.
                                   ("FIN")  45,   "Guarantor's   Accounting  and
                                   Disclosure   Requirements   for   Guarantees,
                                   Including Indirect Guarantees of Indebtedness
                                   of Others"  was issued.  This  interpretation
                                   requires  elaborating on the disclosures that
                                   must be made by a  guarantor  in its  interim
                                   and  annual  financial  statements  about its
                                   obligations under certain  guarantees that it
                                   has  issued.   It  also   clarifies   that  a
                                   guarantor  is required to  recognize,  at the
                                   inception of a guarantee, a liability for the
                                   fair value of the  obligation  undertaken  in
                                   issuing  the  guarantee.  The  Interpretation
                                   requires   the   guarantor   to  recognize  a
                                   liability for the non-contingent component of
                                   the  guarantee,  that  is the  obligation  to
                                   stand  ready to  perform  in the  event  that
                                   specified  triggering  events  or  conditions
                                   occur.   The  initial   measurement  of  this
                                   liability is the fair value of the  guarantee
                                   at   inception.   The   recognition   of  the
                                   liability is required even it is not probable
                                   that  payments  will be  required  under  the
                                   guarantee or if the guarantee was issued with
                                   a premium payment or as part of a transaction
                                   with  multiple   elements.   The   disclosure
                                   requirements  of  this   Interpretation   are
                                   effective   for   statements   issued   after
                                   December   15,   2002  and  its   recognition
                                   requirements  are  applicable  for guarantees
                                   issued or modified  after  December 31, 2002.
                                   The  Company   has  adopted  the   disclosure
                                   requirements of the  Interpretation  and will
                                   apply   the   recognition   and   measurement
                                   provisions for all guarantees entered into or
                                   modified after December 31, 2002.  Management
                                   does not expect that  adoption of FIN 45 will
                                   have   material   impact  on  its   financial
                                   statements.

                            E.     FIN 46 - In  January,  2003,  the FASB issued
                                   FASB Interpretation No. 46, "Consolidation of
                                   Variable Interest  Entities" ("FIN 46"). This
                                   Interpretation    of   Accounting    Research
                                   Bulletin  No.  51,  "Consolidated   Financial
                                   Statements",   addresses   consolidation   by
                                   enterprises of variable  interest entities in
                                   which  equity   investors  do  not  have  the
                                   characteristics  of a  controlling  financial
                                   interest or do not have sufficient  equity at
                                   risk for the entity to finance its activities
                                   without   additional   support   from   other
                                   parties.   FIN  46  applies   immediately  to
                                   variable   interest  entities  created  after
                                   January 31,  2003,  and to variable  interest
                                   entities  in which an  enterprise  obtains an
                                   interest  after  that date.  With  respect to
                                   variable interest entities,  if any, in which
                                   the   Company   holds  a  variable   interest
                                   acquired   before   February  1,  2003,   the
                                   guidance  in FIN 46 will be in effect for the
                                   Company's financial statements beginning July
                                   1,  2003.  While  the  Company  is  currently
                                   evaluating  the impact of the adoption of FIN
                                   46 on its  financial  position and results of
                                   operations, it does not expect such impact to
                                   be material.

                                    - 113 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 26 -     MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              A.     DIFFERENCES BETWEEN ISRAELI GAAP AND US GAAP (CONT.)

                     22.    RECENTLY ISSUED ACCOUNTING STANDARDS (CONT.)

                            F.     In November  2002,  the  Emerging  Task-Force
                                   issued its consensus on EITF 00-21,  "Revenue
                                   Arrangements   with  Multiple   Deliverables"
                                   ("EITF  00-21") on an approach  to  determine
                                   whether   an   entity    should   divide   an
                                   arrangement with multiple  deliverables  into
                                   separate  units of  accounting.  According to
                                   the  EITF  in an  arrangement  with  multiple
                                   deliverables, the delivered item(s) should be
                                   considered a separate  unit of  accounting if
                                   all of the  following  criteria  are met: (1)
                                   The  delivered   item(s)  has  value  to  the
                                   customer on a standalone  basis, (2) There is
                                   objective  and reliable  evidence of the fair
                                   value of the undelivered  item(s), (3) If the
                                   arrangement   includes  a  general  right  of
                                   return,   delivery  or   performance  of  the
                                   undelivered  item(s) is  considered  probable
                                   and  substantially  in  the  control  of  the
                                   vendor.  If all the conditions  above are met
                                   and there is objective and reliable  evidence
                                   of fair value for all units of  accounting in
                                   an arrangement, the arrangement consideration
                                   should be allocated to the separate  units of
                                   accounting   based  on  their  relative  fair
                                   values.  However, there may be cases in which
                                   there is objective  and reliable  evidence of
                                   the fair value(s) of the undelivered  item(s)
                                   in an  arrangement  but no such  evidence for
                                   one or more of the delivered  items. In those
                                   cases,  the residual method should be used to
                                   allocate the arrangement  consideration.  The
                                   guidance  in  EITF  00-21  is  effective  for
                                   revenue  arrangements  entered into in fiscal
                                   years  beginning  after  June 15,  2003.  The
                                   Company is currently evaluating the effect of
                                   EITF  00-21  on  the  consolidated  financial
                                   statements.

                                    - 114 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE  26 -    MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              B.     THE EFFECT OF THE MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP
                     AND U.S. GAAP ON THE FINANCIAL STATEMENTS

                     1.     STATEMENTS OF OPERATIONS:

                            A.     IN  ACCORDANCE  WITH U.S. GAAP - COMPRISED AS
                                   FOLLOWS:

<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31
                                                   ----------------------------------------------------------------
                                                                               U.S. GAAP
                                                   ----------------------------------------------------------------
                                                   CONVENIENCE
                                                    TRANSLATION          2002            (1) 2001         (1) 2000
                                                   ------------     ------------        -----------     -----------
                                                      US$'000                      IN THOUSANDS NIS
                                                   ------------     -----------------------------------------------
<S>                                                      <C>             <C>               <C>              <C>
REVENUES

 Commercial-center operations                            54,288          257,162           125,029          57,705
 Hotel operations and management                         41,722          197,638           138,440         110,248
 Long-term projects                                         325            1,538            10,223          20,367
                                                   ------------     ------------        -----------     -----------
                                                         96,335          456,338           273,692         188,320
                                                   ------------     ------------        -----------     -----------
COSTS OF REVENUES

 Commercial-center operations                            30,001          142,114            65,162          24,498
 Hotel operations and management                         38,754          183,579           131,996          93,759
 Long-term projects                                         300            1,419             7,452          18,245
                                                   ------------     ------------        -----------     -----------
                                                         69,055          327,112           204,610         136,502
                                                   ------------     ------------        -----------     -----------
                                                         27,280          129,226            69,082          51,818
                                                   ------------     ------------        -----------     -----------
 Initiation costs of projects                             4,645           22,005             7,595          34,869
 Research and development expenses, net                   6,115           28,966            23,675          26,676
 Marketing and selling expenses                           5,413           25,644             7,802           5,315
 General and administrative expenses                     19,835           93,956            63,408          56,164
                                                   ------------     ------------        -----------     -----------
                                                         36,008          170,571           102,480         123,024
                                                   ------------     ------------        -----------     -----------
OPERATING LOSS BEFORE NET

  FINANCIAL INCOME                                       (8,728)         (41,345)          (33,398)        (71,206)
Financial income, net                                     7,466           35,368             6,637          30,127
                                                   ------------     ------------        -----------     -----------
OPERATING LOSS AFTER NET

  FINANCIAL INCOME                                       (1,262)          (5,977)          (26,761)        (41,079)
Other income (expenses), net                             (3,326)         (15,754)           40,484           6,035
                                                   ------------     ------------        -----------     -----------

INCOME (LOSS) BEFORE INCOME TAXES                        (4,588)         (21,731)           13,723         (35,044)
Income taxes                                              8,379           39,690            11,128          27,270
                                                   ------------     ------------        -----------     -----------
INCOME (LOSS) AFTER INCOME TAXES                        (12,967)         (61,421)            2,595         (62,314)
Equity losses of investee
  companies, net                                         (4,174)         (19,771)          (41,328)(2)   (2)(5,355)
Minority interest in results of
  subsidiaries, net                                       4,309           20,406             6,680 (2)  (2) 11,903
                                                   ------------     ------------        -----------     -----------

LOSS FROM CONTINUING OPERATIONS                         (12,832)         (60,786)          (32,053)        (55,766)
Income from discontinued

  operations, net                                         6,862           32,507            19,276          30,459
Cumulative effect of a change in
  accounting principles at the beginning
  of the year                                                 -                -            (8,741)              -
                                                   ------------     ------------        -----------     -----------

NET LOSS FOR THE YEAR                                    (5,970)         (28,279)          (21,518)        (25,307)
                                                   =============    ============        ===========     ===========
</TABLE>
(1) Reclassified - see note 23A.
(2) Restated - see A8 above.

                                    - 115 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE  26 -    MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              B.     THE EFFECT OF THE MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP
                     AND U.S. GAAP ON THE FINANCIAL STATEMENTS

                     1.     STATEMENTS OF OPERATIONS:

                            B.     THE  STATEMENT OF  OPERATIONS  IN  ACCORDANCE
                                   WITH ISRAELI GAAP IS  RECONCILED TO U.S. GAAP
                                   AS FOLLOWS:

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31, 2002
                                                   -------------------------------------------------------------

                                                    ISRAELI GAAP                               U.S. GAAP
                                                    AS REPORTED
                                                     IN THESE
                                                     FINANCIAL         RECONCI-                      CONVENIENCE
                                                     STATEMENTS        LIATIONS         TOTAL        TRANSLATION
                                                   -------------    --------------  ------------     -----------
                                                                 IN THOUSANDS NIS                      US$'000

<S>                                                     <C>              <C>           <C>                <C>
REVENUES

 Commercial-center operations                           285,151          (27,989)      257,162            54,288
 Hotel operations and management                        210,650          (13,012)      197,638            41,722
 Long-term projects                                       1,538                -         1,538               325
                                                   -------------    --------------  ------------     -----------
                                                        497,339          (41,001)      456,338            96,335
                                                   -------------    --------------  ------------     -----------
COSTS OF REVENUES

 Commercial-center operations                           152,887          (10,773)      142,114            30,001
 Hotel operations and management                        197,407          (13,828)      183,579            38,754
 Long-term projects                                       1,419                -         1,419               300
                                                   -------------    --------------  ------------     -----------
                                                        351,713          (24,601)      327,112            69,055
                                                   -------------    --------------  ------------     -----------
                                                        145,626          (16,400)      129,226            27,280
                                                   -------------    --------------  ------------     -----------
 Initiation costs of projects                            16,949            5,056        22,005             4,645
 Research and development expenses, net                  29,001              (35)       28,966             6,115
 Marketing and selling expenses                          28,591           (2,947)       25,644             5,413
 General and administrative expenses                     89,711            4,245        93,956            19,835
                                                   -------------    --------------  ------------     -----------
                                                        164,252            6,319       170,571            36,008
                                                   -------------    --------------  ------------     -----------
OPERATING LOSS BEFORE FINANCIAL
  INCOME (EXPENSES), NET                                (18,626)         (22,719)      (41,345)           (8,728)
Financial income (expenses), net                         (5,545)          40,913        35,368             7,466
                                                   -------------    --------------  ------------     -----------
OPERATING LOSS AFTER

FINANCIAL INCOME (EXPENSES), NET                        (24,171)          18,194        (5,977)           (1,262)
Other income (expenses), net                              9,687          (25,441)      (15,754)           (3,326)
                                                   -------------    --------------  ------------     -----------

LOSS BEFORE INCOME TAXES                                (14,484)          (7,247)      (21,731)           (4,588)
Income taxes                                             22,128           17,562        39,690             8,379
                                                   -------------    --------------  ------------     -----------
LOSS AFTER INCOME TAXES                                 (36,612)         (24,809)      (61,421)          (12,967)
Equity in losses of investee
  companies, net                                         (2,962)         (16,809)      (19,771)           (4,174)
Minority interest in results of
  subsidiaries, net                                      24,960           (4,554)       20,406             4,309
                                                   -------------    --------------  ------------     -----------
LOSS FROM CONTINUING OPERATIONS                         (14,614)         (46,172)      (60,786)          (12,832)
Income from discontinued
  operations, net                                        55,804          (23,297)       32,507             6,862
                                                   -------------    --------------  ------------     -----------
NET INCOME (LOSS) FOR THE YEAR                           41,190          (69,469)      (28,279)           (5,970)
                                                   =============    ==============  ============     ===========
</TABLE>

                                    - 116 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE  26 -    MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              B.     THE EFFECT OF THE MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP
                     AND U.S. GAAP ON THE FINANCIAL STATEMENTS

                     1.     STATEMENTS OF OPERATIONS:

                            B.     THE  STATEMENT OF  OPERATIONS  IN  ACCORDANCE
                                   WITH ISRAELI GAAP IS  RECONCILED TO U.S. GAAP
                                   AS FOLLOWS: (CONT.):

<TABLE>
<CAPTION>
                                                                           YEAR ENDED DECEMBER 31, 2001
                                                              -------------------------------------------------
                                                                ISRAELI GAAP                         U.S. GAAP
                                                              ----------------                     ------------
                                                                AS REPORTED
                                                                 IN THESE
                                                                 FINANCIAL           RECONCI-
                                                               STATEMENTS (1)        LIATIONS           TOTAL
                                                              ----------------   ---------------   ------------
                                                                                IN THOUSANDS NIS
                                                              -------------------------------------------------
              REVENUES
<S>                                                                   <C>               <C>              <C>
               Commercial-center operations                           134,752           (9,723)          125,029
               Hotel operations and management                        141,901           (3,461)          138,440
               Long-term projects                                      10,223                -            10,223
                                                              ----------------   ---------------   ------------
                                                                      286,876          (13,184)          273,692
                                                              ----------------   ---------------   ------------
              COSTS OF REVENUES

               Commercial-center operations                            67,926           (2,764)           65,162
               Hotel operations and management                        128,653            3,343           131,996
               Long-term projects                                       7,452                -             7,452
                                                              ----------------   ---------------   ------------
                                                                      204,031              579           204,610
                                                              ----------------   ---------------   ------------
                                                                       82,845          (13,763)           69,082
                                                              ----------------   ---------------   ------------
               Initiation costs of projects                             5,969            1,626             7,595
               Research and development expenses, net                  24,663             (988)           23,675
               Marketing and selling expenses                           8,469             (667)            7,802
               General and administrative expenses                     63,456              (48)           63,408
                                                              ----------------   ---------------   ------------
                                                                      102,557              (77)          102,480
                                                              ----------------   ---------------   ------------
              OPERATING LOSS BEFORE FINANCIAL

                INCOME , NET                                          (19,712)         (13,686)          (33,398)
              Financial income , net                                  103,510          (96,873)            6,637
              OPERATING INCOME (LOSS) AFTER
                                                              ----------------   ---------------   ------------

                FINANCIAL INCOME, NET                                  83,798         (110,559)          (26,761)
              Other income, net                                        34,731            5,753            40,484
                                                              ----------------   ---------------   ------------

              INCOME BEFORE INCOME TAXES                              118,529         (104,806)           13,723
              Income taxes                                             13,857           (2,729)           11,128
                                                              ----------------   ---------------   ------------
              INCOME AFTER INCOME TAXES                               104,672         (102,077)            2,595
              Equity in losses of investee
                companies, net                                         (9,899)     (2) (31,429)      (2) (41,328)
              Minority interest in results of
                subsidiaries, net                                      (6,029)          12,709 (2)   (2)   6,680
                                                              ----------------   ---------------   ------------
              INCOME (LOSS) FROM CONTINUING OPERATIONS                 88,744         (120,797)          (32,053)
              Income from discontinued

                operations, net                                        19,119              157            19,276
              Cumulative effect of a change in
                accounting principles at the beginning
                of the year                                                 -           (8,741)           (8,741)
                                                              ----------------   ---------------   ------------
              NET INCOME (LOSS) FOR THE YEAR                          107,863         (129,381)          (21,518)
                                                              ================   ===============   ==============
              (1) Reclassified - see note 23A.
              (2) Restated - see A8 above.

</TABLE>

                                    - 117 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE  26 -    MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              B.     THE EFFECT OF THE MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP
                     AND U.S. GAAP ON THE FINANCIAL STATEMENTS

                     1.     STATEMENTS OF OPERATIONS:

                            B.     THE  STATEMENT OF  OPERATIONS  IN  ACCORDANCE
                                   WITH ISRAELI GAAP IS  RECONCILED TO U.S. GAAP
                                   AS FOLLOWS: (CONT.):

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31, 2000
                                           ---------------------------------------------------------------------
                                            ISRAELI GAAP                                              U.S. GAAP
                                           -------------                                             -----------
                                            AS REPORTED          EFFECT OF
                                              IN THESE         "AS IF" POOLING         OTHER
                                              FINANCIAL         OF INTERESTS          RECONCI
                                           STATEMENTS (1)      (SEE A1 ABOVE)         LIATIONS        T O T A L
                                           --------------      --------------      -------------     ------------
                                                                     IN THOUSANDS NIS
                                           ---------------------------------------------------------------------
REVENUES

<S>                                               <C>                   <C>             <C>            <C>
Commercial-center operations                      28,117                27,813          1,775          57,705
Hotel operations and management                  108,089                     -          2,159         110,248
Long-term projects                                20,367                     -              -          20,367
                                           --------------      ---------------     -------------     ------------
                                                 156,573                27,813          3,934         188,320
                                           --------------      ---------------     -------------     ------------
COSTS OF REVENUES

Commercial-center operations                      12,917                10,866            715          24,498
Hotel operations and management                   93,050                     -            709          93,759
Long-term projects                                18,245                     -              -          18,245
                                           --------------      ---------------     -------------     ------------
                                                 124,212                10,866          1,424         136,502
                                           --------------      ---------------     -------------     ------------
                                                  32,361                16,947          2,510          51,818
                                           --------------      ---------------     -------------     ------------
Initiation costs of projects                       2,819                 7,092         24,958          34,869
Research and development expenses,                26,566                     -            110          26,676
  net

Marketing and selling expenses                     2,257                 2,915            143           5,315
General and administrative expenses               55,026                 1,031            107          56,164
                                           --------------      --------------      ------------     ------------
                                                  86,668                11,038         25,318         123,024
                                           --------------      ---------------     -------------     ------------

OPERATING INCOME (LOSS) BEFORE

  FINANCIAL INCOME (EXPENSES), NET               (54,307)                5,909        (22,808)        (71,206)
Financial income (expenses), net                  33,189               (16,254)        13,192          30,127
                                           --------------      ---------------     -------------     ------------

OPERATING LOSS AFTER FINANCIAL

  FINANCIAL INCOME (EXPENSES), NET               (21,118)              (10,345)        (9,616)        (41,079)
Other income (expenses), net                     (15,899)               (2,713)        24,647           6,035
                                           --------------      ---------------     -------------     ------------

LOSS BEFORE INCOME TAXES                         (37,017)              (13,058)        15,031         (35,044)
Income taxes                                      18,907                 1,624          6,739          27,270
                                           --------------      ---------------     -------------     ------------

LOSS AFTER INCOME  TAXES                         (55,924)              (14,682)         8,292         (62,314)
Equity loss of investee
  companies, net                                  (3,303)                    -     (2) (2,052)     (2) (5,355)
Minority interest in results of
  subsidiaries, net                               15,161                     -     (2) (3,258)     (2) 11,903
                                           --------------      ---------------     -------------     ------------

LOSS FROM

 CONTINUING OPERATIONS                           (44,066)              (14,682)         2,982         (55,766)
Income from discontinued
   operations, net                                28,341                     -          2,118          30,459
                                           --------------      ---------------     -------------     ------------

NET LOSS FOR THE YEAR                            (15,725)              (14,682)         5,100         (25,307)
                                           ==============      ===============     =============     =============
</TABLE>
(1) Reclassified - see note 23A.
(2) Restated - see A8 above.

                                    - 118 -

<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE  26 -    MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              B.     THE EFFECT OF THE MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP
                     AND U.S. GAAP ON THE FINANCIAL STATEMENTS

                     1.     STATEMENTS OF OPERATIONS:

                            C.     THE  RECONCILIATION OF EPS IN ACCORDANCE WITH
                                   ISRAELI GAAP TO EPS IN  ACCORDANCE  WITH U.S.
                                   GAAP,  IS AS FOLLOWS  (RECONCILING  ITEMS ARE
                                   SHOWN NET OF TAXES):

<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31,
                                                      ---------------------------------------------------------------------
                                                           2002            2002           2001 (1)             2000 (1)
                                                      ---------------  ------------   ---------------    ------------------
                                                        CONVENIENCE
                                                        TRANSLATION
                                                            US$                                N I S
                                                      ---------------  ----------------------------------------------------

<S>                                                        <C>             <C>                 <C>                 <C>
              BASIC EPS ACCORDING TO:

                ISRAELI GAAP:
                  Continuing operations                    (0.14)          (0.65)              4.00                (1.99)
                  Discontinued operations                   0.53            2.50               0.86                 1.28
                                                        ---------        ---------        ----------           ----------
                                                            0.39            1.85               4.86                (0.71)
                                                        =========        =========        ==========           ==========
                US GAAP:
                  Continuing operations                    (0.57)          (2.72)         (2) (1.44)           (2) (2.52)
                  Discontinued operations                   0.31            1.46               0.87                 1.38
                  Cumulative effect of a change in
                    accounting principles at the
                    beginning of the year                      -               -              (0.39)                   -
                                                        ---------        ---------        ----------           ----------
                                                           (0.26)          (1.26)             (0.96)               (1.14)
                                                        =========        =========        ==========           ==========


               DILUTED EPS ACCORDING TO:

                ISRAELI GAAP                               0.37            1.75               4.08
                                                        =========        =========        ==========

                US GAAP:
                  From Continuing operations              (0.60)          (2.83)          (2) (1.44)           (2) (2.52)
                  Discontinued operations                  0.31            1.45                 0.85                 1.38
                  Cumulative effect of a change in
                    accounting principles at the
                    beginning of the year                      -               -              (0.39)                   -
                                                        ---------        ---------        ----------           ----------
                                                          (0.29)          (1.38)              (0.98)               (1.14)
                                                        =========        =========        ==========           ==========

</TABLE>
              (1) Reclassified - see Note 23A.
              (2) Restated - see A8 above.

                                    - 119 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE  26 -    MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              B.     THE EFFECT OF THE MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP
                     AND U.S. GAAP ON THE FINANCIAL STATEMENTS

                     1.     STATEMENTS OF OPERATIONS:

                            D.     THE  RECONCILIATION  OF NET INCOME  (LOSS) IN
                                   ACCORDANCE  WITH  ISRAELI  GAAP TO NET INCOME
                                   (LOSS) IN  ACCORDANCE  WITH U.S.  GAAP, IS AS
                                   FOLLOWS  (RECONCILING  ITEMS ARE SHOWN NET OF
                                   TAXES):

<TABLE>
<CAPTION>
                                                                                         YEAR ENDED DECEMBER 31,
                                                                   ----------------------------------------------------------------
                                                                        2002            2002           (1) 2001           (1) 2000
                                                                   ------------     -----------     --------------    -------------
                                                                    CONVENIENCE
                                                           SUB-     TRANSLATION
                                                         SECTION      US$'000                       IN THOUSANDS NIS
                                                         -------   ------------     -----------------------------------------------
<S>                                                                     <C>            <C>                 <C>              <C>
             Net income (loss) from continuing
               Operations, as reported according to
               Israeli GAAP                                             (3,085)        (14,614)            88,744           (44,066)

             Effect of "as if" pooling of interests        A1                -               -                  -           (14,682)
             Deferred taxes in respect of
               inflation adjustments                       A4a          (1,582)         (7,492)            (7,780)           (4,519)
             Deferred taxes in respect of
               business combination                        A4b               -               -               (521)                -
             Compensation component of option
               plan and share incentive plan               A5           (1,500)         (7,106)                 -                 -
             Venture capital investments                   A6                -               -              1,025            (1,025)
             Issuance of shares by an investee in
               the development stage, to a third party     A7           (5,341)        (25,300)                 -            (1,855)
             Implementation of the equity method           A8             (470)         (2,227)       (2) (27,750)       (2) (1,028)
             Translation of profit and loss items          A9           (1,578)         (7,478)            (5,973)              786
             Pre-opening costs                             A10             815           3,862             (8,136)            1,203
             Marketable securities                         A11             584           2,765             (1,990)            1,369
             Capitalization of finance expenses            A12            (483)         (2,287)           (23,624)            9,579
             Investment in investee companies - fair
               value measurment                            A14           2,518          11,927                  -                 -
             Realization of capital reserve for
               translation adjustments                     A15          (6,618)        (31,351)                 -                 -
             Convertible securities of investees           A16               -               -                  -             1,730
             Contingent consideration based on
               security price                              A17              73             348              1,630                 -
             Derivative financial instruments              A18           4,960          23,494            (60,387)                -
             Others                                        A20            (401)         (1,900)                 -                 -
             Minority-interest in the
               abovementioned reconciliations                             (724)         (3,427)        (2) 12,709        (2) (3,258)
                                                                   ------------     -----------     --------------    -------------
                                                                       (12,832)        (60,786)           (32,053)          (55,766)
             Income from discontinued operations,
               net                                         A19           6,862          32,507         (3) 19,276        (3) 30,459
             Cumulative effect of a change in
               accounting principles at the begining
               of the year                                 A18               -               -             (8,741)                -
                                                                   ------------     -----------     --------------    -------------
             NET LOSS ACCORDING TO
               U.S. GAAP                                                (5,970)        (28,279)           (21,518)          (25,307)
                                                                   ============     ===========     ==============    ==============
</TABLE>
(1) Reclassified - see Note 23A.
(2) Restated - see A8 above.
(3) 2001 and 2000 includes only  reconciliations according to subsection A9.

                                    - 120 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE  26 -    MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              B.     THE EFFECT OF THE MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP
                     AND U.S. GAAP ON THE FINANCIAL STATEMENTS

                     2.     THE RECONCILIATION OF THE BALANCE SHEETS PREPARED IN
                            ACCORDANCE  WITH  ISRAELI GAAP TO U.S.  GAAP,  IS AS
                            FOLLOWS:

                            RECONCILIATION AS OF DECEMBER 31, 2002
                            --------------------------------------

<TABLE>
<CAPTION>
                                                                AS REPORTED
                                                                  IN THESE
                                                                 FINANCIAL       RECONCI-         AS PER        CONVENIENCE
                                                                 STATEMENTS      LIATIONS       U.S. GAAP       TRANSLATION
                                                                ------------  -------------    ------------     ------------
                                                                              IN THOUSANDS NIS                    US$'000
                                                                -------------------------------------------     ------------
<S>                                                                 <C>            <C>               <C>             <C>
                            Investments in investees and other
                              companies                             102,804        (27,984)          74,820          15,795
                            Hotels, commercial centers
                              and other property                  4,169,532        235,714        4,405,246         929,965
                            Other assets and deferred expenses       74,427         27,185          101,612          21,451
                            Assets related  to
                              discontinuing operation               114,135         42,226          156,361          33,008
                            Total assets                          5,846,220        277,141        6,123,361       1,292,666

                            Payables and other current
                            liabilities -
                              Deferred revenues due to
                            decrease
                                in percentage holding in
                                development stage companies          12,169        (12,169)               -               -
                            Long-term liabilities -

                              Deferred taxes                        106,424        119,530          225,954          47,700
                            Liability for the acquisition
                              of shares in subsidiary                22,283        (22,283)               -               -
                            Currency transactions on
                              long-term agreements                        -        228,816          228,816          48,304
                            Liabilities related to
                              discontinuing operations              112,120         80,089          192,209          40,576
                            Minority interest                       496,020        (25,148)         470,872          99,403
                            Receipts on account of options                -          4,623            4,623             976
                            Capital reserve                         474,714         56,514          531,228         112,144
                            Deferred stock based compansation             -         (2,420)          (2,420)           (511)
                            Foreign currency translation
                              adjustments                           138,356         55,583          193,939          40,942
                            Retained earnings                       490,983       (205,994)         284,989          60,162
                            Total shareholders' equity            1,081,930        (96,317)         985,613         208,067

</TABLE>

                                    - 121 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE  26 -    MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              B.     THE EFFECT OF THE MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP
                     AND U.S. GAAP ON THE FINANCIAL STATEMENTS

                     2.     THE RECONCILIATION OF THE BALANCE SHEETS PREPARED IN
                            ACCORDANCE  WITH  ISRAELI GAAP TO U.S.  GAAP,  IS AS
                            FOLLOWS (CONT.):

                            RECONCILIATION AS OF DECEMBER 31, 2001 (1)
                            ------------------------------------------

<TABLE>
<CAPTION>
                                                                 AS REPORTED
                                                                  IN THESE
                                                                  FINANCIAL       RECONCI-        AS PER
                                                                 STATEMENTS       LIATIONS       U.S. GAAP
                                                                 -------------  ------------   -------------
                                                                              IN THOUSANDS NIS
                                                                 --------------------------------------------
<S>                                                                   <C>           <C>               <C>
                            Venture capital investment                64,478    (2) (62,805)      (2) 1,673
                            Investments investees and other
                            companies                                 22,638     (2) 34,827      (2) 57,465
                            Hotels, commercial centers
                              and other property                   2,913,040     (3) 53,456   (3) 2,966,496
                            Other assets and deferred expenses        61,760     (3) 20,980      (3) 82,740
                            Total assets                           4,818,154     (2) 46,458   (2) 4,864,612

                            Payables and other current
                            liabilities -
                            Deferred revenues due to
                              decrease in percentage holding in
                                development stage companies           30,391        (30,391)              -
                            Long-term liabilities -
                              Deferred taxes                          65,055         66,986         132,041
                            Liability for the acquisition
                               of shares in subsidiaries              21,935        (21,935)              -
                            Currency transaction on long
                               term agreements                             -        147,167        147,167
                            Minority interest                        506,810    (2) (18,281)    (2) 488,529
                            Receipts on account of options                 -          4,623           4,623
                            Capital reserve                          475,058         50,333         525,391
                            Foreign currency translation
                              adjustments                             32,315    (2) (15,325)     (2) 16,990
                            Retained earnings                        449,525   (2) (136,719)    (2) 312,806
                            Total shareholders' equity               934,378   (2) (101,711)    (2) 832,667

</TABLE>
                            (1)    Reclassified.- see note 23A.

                            (2)    Restated - see A8 above.

                            (3)    The portion of the value of foreign  currency
                                   forward    embedded   in   lease    contracts
                                   denominated in foreign currency,  which is an
                                   inherent  part of the  fair  value  of  fixed
                                   assets that relates to these lease  contracts
                                   and were purchased in a business combination,
                                   was presented,  at the initial implementation
                                   (in 2001) of the provisions set forth in SFAS
                                   133, erroneously,  separately as goodwill. In
                                   these  financial  statements such portion was
                                   included   as  part  of  the   value  of  the
                                   aforesaid fixed assets.  Comparative data for
                                   2001 were, accordingly, reclassified.

                                    - 122 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE          26 - MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              B.     THE EFFECT OF THE MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP
                     AND U.S. GAAP ON THE FINANCIAL STATEMENTS (CONT.)

                     2.     THE RECONCILIATION OF THE BALANCE SHEETS PREPARED IN
                            ACCORDANCE  WITH  ISRAELI GAAP TO U.S.  GAAP,  IS AS
                            FOLLOWS (CONT.):

                            RECONCILIATION AS OF DECEMBER 31, 2002
                            --------------------------------------
<TABLE>
<CAPTION>
        ITEM \ SUBSECTION      A4A       A4B       A5        A7       A8        A9       A10       A11       A12      A14      A15
                            -------------------------------------------------------------------------------------------------------
                                                          I N     T H O U S A N D S     N I S
                            -------------------------------------------------------------------------------------------------------
<S>                           <C>      <C>    <C>      <C>      <C>       <C>       <C>       <C>      <C>          <C>     <C>

       Investments in
       investees
         and other
       companies                                                (27,984)
       Hotels, commercial
       centers
         and other Property   35,570   35,199                                          183             (16,786)    67,134
       Other assets and
         deferred expenses    10,880   24,071                                       (7,766)
       Assets related  to
         discontinuing
       operation

       Total assets           46,450   59,270 -        -        (27,984)  -         (7,583)  -         (16,786)    67,134
       Payables and other
         current
       liabilities -
        Deferred revenues
         due  to decrease
       in percentage holding
         in development
         stage companies                               (11,045)
       Long-term
       liabilities -

        Deferred taxes        81,430   59,854                                                             (141)     8,323
        Liability for the
         acquisition of
       shares
         in subsidiaries
        Currency transaction
         on long term
         Agreements
       Liabilities related
       to discontinuing
       operations

       Minority interest      (7,012)  (225)               462   (3,815)            (2,069)             (4,584)     9,981
       Receipts on account
         of options
       Capital reserve                        9,567     31,168                                (1,692)
       Deferred stock
         based compensation                   (2,420)
       Foreign currency
         translation
         adjustments          (4,229)  (40)              6,867    2,461    10,679   (1,139)                929     39,970    31,351

       Retained earnings      (23,739) (319)  (7,147)  (27,452) (26,630)  (10,679)  (4,375)   1,692    (12,990)     8,860   (31,351)
       Total shareholders'
         Equity               (27,968) (359)  -         10,583  (24,169)  -         (5,514)  -         (12,061)    48,830         -



        ITEM \ SUBSECTION        A16       A17       A18      A19       A20     TOTAL
                            --------------------------------------------------------------
                                        I N     T H O U S A N D S     N I S
                            --------------------------------------------------------------

       Investments in
       investees and other
       companies                                                                 (27,984)
       Hotels, commercial
       centers and other
       Property                 5,595     (6,285)   117,004            (1,900)   235,714
       Other assets and
         deferred expenses                                                        27,185
       Assets related  to
         discontinuing
       operation                                             42,226               42,226

       Total assets             5,595     (6,285)   117,004  42,226    (1,900)   277,141

       Payables and other
         current
       liabilities -
        Deferred revenues
         due  to decrease
       in percentage holding
         in development
         stage companies       (1,124)                                           (12,169)
       Long-term
       liabilities -

        Deferred taxes                              (29,936)                     119,530
        Liability for the
         acquisition of
       shares
         in subsidiaries                 (22,283)                                (22,283)
        Currency transaction
         on long term                               228,816                      228,816
         Agreements
       Liabilities related
       to discontinuing
       operations                                           80,089                80,089

       Minority interest       (2,590)                      (14,566)     (730)   (25,148)
       Receipts on account
         of options             4,623                                              4,623
       Capital reserve                    17,471                                  56,514
       Deferred stock
         based compensation                                                       (2,420)
       Foreign currency
         translation
         adjustments            2,821     (3,451)   (24,470)           (6,166)    55,583

       Retained earnings        1,865      1,978    (57,406) (23,297)   4,996   (205,994)
       Total shareholders'
         Equity                4,686      15,998    (81,876) (23,297)  (1,170)   (96,317)


</TABLE>
                                    - 123 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE          26 - MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              B.     THE EFFECT OF THE MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP
                     AND U.S. GAAP ON THE FINANCIAL STATEMENTS (CONT.)

                     2.     THE RECONCILIATION OF THE BALANCE SHEETS PREPARED IN
                            ACCORDANCE  WITH  ISRAELI GAAP TO U.S.  GAAP,  IS AS
                            FOLLOWS (CONT.):

                            RECONCILIATION AS OF DECEMBER 31, 2001
                            --------------------------------------

<TABLE>
<CAPTION>
 ITEM \ SUBSECTION               A4A       A4B       A5       A7      (1) A8      A9       A10      A11       A12       A14
                            -------------------------------------------------------------------------------------------------------
                                                          I N     T H O U S A N D S     N I S
                            -------------------------------------------------------------------------------------------------------

<S>                            <C>         <C>      <C>     <C>       <C>       <C>       <C>       <C>     <C>         <C>
Venture capital investment                                            (62,805)
Investment in investees and
other  companies                                                       34,827
Hotels, commercial centers
and Other property              3,901    28,060                                              162            (16,724)   4,170
Other assets and deferred
  expenses                      9,567    21,372                                           (9,959)
Total assets                   13,468    49,432                       (27,978)            (9,797)           (16,724)   4,170
Payables and other current
  liabilities -
 Deferred revenues due to
  decrease in percentage
holding in
  development stage companies                               (29,477)
Long-term liabilities
 Defferred taxes               37,320    49,952                                                                (224)    1,569
 Liability for the
acquisition of
  shares in subsidiaries
 Currency transaction on long
  term agreement
Minority interest              (6,257)     (201)                      (1,695)             (3,090)            (4,408)    1,080     (
Receipts on account of
options
Capital reserve                                      370     31,629                                  863
Foreign currency transaltion
  adjustments                  (1,029)                                   488    3,044          62              (665)
Retained earnings              (16,566)    (319)    (370)   (2,152)   (26,771)  (3,044)   (6,769)   (863)   (11,427)    1,521
Total shareholders' equity     (17,595)    (319)       -    29,477    (26,283)      -     (6,707)      -    (12,092)    1,521



 ITEM \ SUBSECTION             A16        A17        A18        A19         TOTAL
                            ----------------------------------------------------------
                                        I N     T H O U S A N D S     N I S
                            ----------------------------------------------------------

Venture capital investment                                              (1) (62,805)
Investment in investees and
other  companies                                                        (1)  34,827
Hotels, commercial centers
and  Other property            3,762     (2,834)  (2)32,959             (2)  53,456
Other assets and deferred
  expenses                                                               (2) 20,980
Total assets                   3,762     (2,834)     32,959              (1) 46,458
Payables and other current
  liabilities -
 Deferred revenues due to
  decrease in percentage
holding in
  development stage companies   (914)                                       (30,391)
Long-term liabilities
 Defferred taxes                                    (21,631)                 66,986
 Liability for the
acquisition of
  shares in subsidiaries                (21,935)                            (21,935)
 Currency transaction on long
  term agreement                                    147,167                  147,167
Minority interest              3,710)                                    (1)(18,281)
Receipts on account of
options                        4,623                                          4,623
Capital reserve                          17,471                              50,333
Foreign currency transaltion
  adjustments                    618                (11,677)   (6,166)   (1)(15,325)
Retained earnings              3,145      1,630     (80,900)    6,166      (136,719)
Total shareholders' equity     3,763     19,101     (92,577)        -   (1)(101,711)

</TABLE>

(1) Restated see A8 above.

(2) Reclassified.- see footnote 3 above.

                                    - 124 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE  26 -    MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              B.     THE EFFECT OF THE MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP
                     AND U.S. GAAP ON THE FINANCIAL STATEMENTS

                     2.     THE  RECONCILIATION  OF THE BALANCE SHEETS PREPARED
                            IN ACCORDANCE WITH ISRAELI GAAP TO U.S. GAAP, IS AS
                            FOLLOWS (CONT.):

                            SUBSECTION:

                            A4A.   Deferred   taxes  in  respect  of   inflation
                                   adjustments.

                            A4B.   Deferred   taxes  in  respect   of   business
                                   combination.

                            A5.    Compensation  component  of option  plans and
                                   shares incentive plan.

                            A6.    Venture capital investments.

                            A7.    Issuance  of  shares  by an  investee  in the
                                   development stage to a third party.

                            A8.    Initial implementation of the equity method.

                            A9.    Translation of profit and loss items.

                            A10.   Pre-opening costs.

                            A11.   Marketable securities.

                            A12.   Capitalization of finance expenses.

                            A14.   Investment in investee companies - fair value
                                   measurment.

                            A15.   Realization    of   capital    reserve    for
                                   translation adjustments

                            A16.   Convertible securities of investees.

                            A17.   Contingent consideration  based  on  security
                                   price.

                            A18.   Derivative financial instruments.

                            A19.   Discontinuing operations - gain recognition.

                            A20.   Others.

                                    - 125 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE  26 -    MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              B.     THE EFFECT OF THE MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP
                     AND U.S. GAAP ON THE FINANCIAL STATEMENTS

                     3.     PROPORTIONATE CONSOLIDATION:

                            Summarized  data regarding the  differences  between
                            the  proportionate   consolidation  method  and  the
                            equity method:

<TABLE>
<CAPTION>
                                                                                        DECEMBER 31, 2002
                                                                      -----------------------------------------------------
                                                                        AS REPORTED IN
                                                                            THESE            EFFECT OF
                                                                          FINANCIAL        PROPORTIONATE        EQUITY
                                                                          STATEMENTS       CONSOLIDATION        METHOD
                                                                      ----------------     -------------    ---------------
                                                                                        IN THOUSANDS NIS
                                                                      -----------------------------------------------------
<S>                                                                        <C>                  <C>                <C>
                           BALANCE SHEET:
                           Current assets                                  1,030,964            (32,116)           998,848
                           Non-current assets                              4,815,256           (481,392)         4,333,864
                           Current liabilities                             1,938,038           (136,752)         1,801,286
                           Non-current liabilities                         2,330,232           (376,756)         1,953,476

                           STATEMENT OF OPERATIONS:
                           Income from sales and services                    497,339           (153,423)           343,916
                           Gross profit                                      145,626            (56,591)            89,035
                           Operating loss                                    (18,626)           (14,045)           (32,671)

                           STATEMENT OF CASH FLOWS:
                           Net cash used in operating activities              (4,042)            (6,484)           (10,526)
                           Net cash used in investing activities            (507,298)            44,945           (462,353)
                           Net cash provided by financing
                             activities                                      356,825            (37,477)           319,348



                                                                                        DECEMBER 31, 2001
                                                                      -----------------------------------------------------
                                                                        AS REPORTED IN
                                                                            THESE            EFFECT OF
                                                                          FINANCIAL        PROPORTIONATE        EQUITY
                                                                          STATEMENTS       CONSOLIDATION        METHOD
                                                                      ----------------     -------------    ---------------
                                                                                        IN THOUSANDS NIS
                                                                      -----------------------------------------------------

                           BALANCE SHEET:
                           Current assets                                  1,153,946            (27,951)         1,125,995
                           Non-current assets                              3,664,208           (410,645)         3,253,563
                           Curent liabilities                              1,643,513            (85,256)         1,558,257
                           Non-current liabilities                         1,733,453           (353,340)         1,380,113

                           STATEMENT OF OPERATIONS:
                           Income from sales and services                    286,876            (94,829)           192,047
                           Gross profit                                       82,845            (31,362)            51,483
                           Operating loss                                    (19,712)           (12,128)           (31,840)

                           STATEMENT OF CASH FLOWS:
                           Net cash provided by operating
                             activities                                       23,668            (17,058)             6,610
                           Net cash used in investing activities            (972,285)            30,940           (941,345)
                           Net cash provided by financing
                             activities                                      838,479             (8,780)           829,699

                            (1) Reclassified - see Note 23A.

</TABLE>

                                    - 126 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE  26 -    MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              B.     THE EFFECT OF THE MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP
                     AND U.S. GAAP ON THE FINANCIAL STATEMENTS

                     3.     PROPORTIONATE CONSOLIDATION (CONT.):

                            Summarized  data regarding the  differences  between
                            the  proportionate   consolidation  method  and  the
                            equity method:

<TABLE>
<CAPTION>
                                                                                        DECEMBER 31, 2000
                                                                      -----------------------------------------------------
                                                                        AS REPORTED IN
                                                                            THESE            EFFECT OF
                                                                          FINANCIAL        PROPORTIONATE        EQUITY
                                                                          STATEMENTS       CONSOLIDATION        METHOD
                                                                      ----------------     -------------    ---------------
                                                                                        IN THOUSANDS NIS
                                                                      -----------------------------------------------------
<S>                                                                         <C>              <C>               <C>
                           STATEMENT OF OPERATIONS:
                           Income from sales and services                   156,573          (80,045)          76,528
                           Gross profit                                      32,361          (31,434)             927
                           Operating loss                                   (54,307)         (16,479)         (70,786)

                           STATEMENT OF CASH FLOWS:
                           Net cash used in operating
                             activities                                     (97,720)           3,142          (94,578)
                           Net cash used in investing
                             activities                                    (420,876)          77,845         (343,031)
                           Net cash provided by financing
                             activities                                     328,522          (80,862)         247,660

                           (1) Reclassified - see Note 23A.

</TABLE>
                     4.     COMPREHENSIVE INCOME (LOSS)

                            "Comprehensive   income"  consists  of  the  change,
                            during  the  current   period,   in  the   Company's
                            shareholders'  equity not derived from shareholders'
                            investments or from the  distribution of earnings to
                            shareholders   (including   capital   reserve   from
                            transaction with controlling shareholders).

<TABLE>
<CAPTION>
                                                                                     YEAR ENDED DECEMBER 31
                                                                      -----------------------------------------------------
                                                                             2002            2001             2000
                                                                      ----------------     -------------    ---------------
                                                                                        IN THOUSANDS NIS
                                                                      -----------------------------------------------------

<S>                                                                         <C>                   <C>              <C>
                           Net loss in accordance with
                             U.S. GAAP                                      (28,279)     (1) (21,518)     (1) (25,307)
                           Other comprehensive income (loss), after tax:
                           Foreign currency translation
                             Adjustments                                    176,949       (1) 36,561       (1) 12,269
                           Unrealized gains (losses) from securities         (2,555)           1,646              911
                                                                      ----------------     -------------    ---------------
                           Total comprehensive income (loss)                146,115           16,689          (12,127)
                                                                      ================     =============    ===============
</TABLE>
                            (1) Restated see A8 above.

                                    - 127 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE  26 -    MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              B.     THE EFFECT OF THE MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP
                     AND U.S. GAAP ON THE FINANCIAL STATEMENTS

                     5.     ADDITIONAL INFORMATION AS REQUIRED BY U.S. GAAP

                            A.     The  effect  on  pro  forma  data  calculated
                                   according to FAS No. 123 is as follows:

                                   1)     Under the  provision  of FAS No.  123,
                                          all option  plans and share  incentive
                                          plan in the Company and in Elscint are
                                          recorded   in   the    statement    of
                                          operations, based on the fair value of
                                          the shares or options granted,  at the
                                          grant date.

                                   2)     The Black & Scholes  model is used for
                                          estimating    fair   value   of   such
                                          securities    (at   each    applicable
                                          measurement   date),   utilizing   the
                                          following assumptions:

<TABLE>
<CAPTION>
                                                                                 ELBIT            INSIGHTEC     ELSCINT
                                                                         --------------------    -----------  ------------
                                                                            OPTION            SHARE INCENTIVE PLAN
                                                                           PLAN (1)
                                                                         -----------    -----------------------------------
<S>                                                                           <C>          <C>         <C>          <C>
                                         a.  Dividend yield (%)                -            -           -            -
                                                                         ==========     ==========  ==========   ===========
                                         b.  Risk free interest rate (%)       9            6           4            6
                                                                         ==========     ==========  ==========   ===========
                                         c. Expected lives from the
                                               date of grant (years)           2            5           4            5
                                                                         ==========     ==========  ==========   ===========

                                         d.  Expected volatility (%)           40           24          -            24
                                                                         ==========     ==========  ==========   ===========

</TABLE>
                                          For   pro   forma   disclosure,    the
                                          compensation  within,  the  shares and
                                          the   share   options,   granted,   as
                                          estimated,   is  amortized   over  the
                                          period   of  the   benefit   ("vesting
                                          period").

                                          (1) See Note 19D.

                                   3)     Information  relating  to  shares  (in
                                          consideration for non-recourse  loans)
                                          and options  granted to employees  and
                                          directors:

<TABLE>
<CAPTION>
                                                                          ELBIT                INSIGHTEC      ELSCINT
                                                                  --------------------        -----------   ------------
                                                                     OPTION            SHARE INCENTIVE PLAN
                                                                    PLAN (1)
                                                                  -----------    ---------------------------------------

<S>                                                                 <C>           <C>           <C>             <C>
                                         Authorized                 350,000       550,000       2,650,000       850,000
                                                                  ==========    =========      ==========    ===========

                                         Granted                    350,000       527,000       2,206,000       734,000
                                                                  ==========    =========      ==========    ===========

                                         Vested                           -         5,000       1,389,063       296,583
                                                                  ==========    =========      ==========    ===========

</TABLE>

                                    - 128 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE  26 -    MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              B.     THE EFFECT OF THE MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP
                     AND U.S. GAAP ON THE FINANCIAL STATEMENTS

                     5.     ADDITIONAL INFORMATION AS REQUIRED BY U.S. GAAP

                            A.     The  effect  on  pro  forma  data  calculated
                                   according to FAS No. 123 is as follows
                                   (cont.):

                                   4)     If the cost of the  benefit in respect
                                          of shares or share  options  issued to
                                          employees  under  this  plan  had been
                                          computed  on the  basis of their  fair
                                          value, in accordance with FAS No. 123,
                                          the effect on net income and  earnings
                                          per share in accordance with U.S. GAAP
                                          would have been as follows:

<TABLE>
<CAPTION>
                                                                                                      YEAR ENDED
                                                                                            ------------------------------
                                                                                                     DECEMBER 31,
                                                                                            ------------------------------
                                                                                                 2002          (1) 2001
                                                                                            -------------    -------------
                                                                                                   IN THOUSANDS NIS
                                                                                            ------------------------------


<S>                                                                                            <C>             <C>
                                          Pro forma net loss (in thousands NIS)                (29,591)        (24,968)
                                                                                              ==========      ==========

                                          Pro forma basic earnings per share (in NIS)            (1.32)          (1.11)
                                                                                              ==========      ==========

                                          Pro forma diluted earnings per share (in NIS)          (1.44)          (1.13)
                                                                                              ==========      ==========

</TABLE>

                                     (1) Restated see A8 above.

                            B.     VALUATION  ALLOWANCE  OF DEFERRED  TAX ASSETS
                                   ACCORDING TO FAS NO. 109:

<TABLE>
<CAPTION>
                                                                                     DECEMBER 31, 2002
                                                               ------------------------------------------------------------
                                                                AS REPORTED
                                                                  IN THESE
                                                                 FINANCIAL       RECONCI-         AS PER        CONVENIENCE
                                                                 STATEMENTS      LIATIONS       U.S. GAAP       TRANSLATION
                                                                ------------  -------------    ------------     ------------
                                                                              IN THOUSANDS NIS                    US$'000
                                                                -------------------------------------------     ------------
<S>                                                                  <C>            <C>           <C>               <C>
                                  In respect of fixed
                                    assets (accelerated
                                    depreciation, value
                                    adjustments and other
                                    timing differences)              66,466         87,383        153,849           32,478
                                  Difference between fair
                                    value of land at
                                    acquisition and related
                                    cost for income tax
                                    purposes                         37,841         64,424        102,265           21,589
                                  Temporary differences -
                                    income and expenses             (19,188)       (32,478)       (51,666)         (10,907)
                                  Carry forward tax
                                    losses and deductions          (200,783)        24,796       (175,987)         (37,151)
                                                                  ----------      ---------    ----------       -----------
                                                                   (115,664)       144,125         28,461            6,009
                                  Valuation allowance for
                                    deferred tax assets             212,085        (24,595)       187,490           39,579
                                                                  ----------      ---------    ----------       -----------
                                                                     96,421        119,530        215,951           45,588
                                                                  ==========      =========    ==========       ===========
</TABLE>

                                    - 129 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE  26 -    MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              B.     THE EFFECT OF THE MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP
                     AND U.S. GAAP ON THE FINANCIAL STATEMENTS

                     5.     ADDITIONAL INFORMATION AS REQUIRED BY U.S. GAAP
                            (CONT.)

                            B.     VALUATION  ALLOWANCE  OF DEFERRED  TAX ASSETS
                                   ACCORDING TO FAS NO. 109 (CONT.):

<TABLE>
<CAPTION>
                                                                            DECEMBER 31, 2001
                                                                 --------------------------------------------
                                                                 AS REPORTED
                                                                  IN THESE
                                                                  FINANCIAL       RECONCI-        AS PER
                                                                 STATEMENTS       LIATIONS       U.S. GAAP
                                                                 -------------  ------------   -------------
                                                                              IN THOUSANDS NIS
                                                                 --------------------------------------------
<S>                                                                   <C>            <C>            <C>
                                  In respect of fixed
                                    assets (accelerated
                                    depreciation, value
                                    adjustments and other
                                    timing differences)               25,948         42,812         68,760
                                  Difference between fair
                                    value of land at
                                    acquisition and related
                                    cost for income tax
                                    purposes                          42,707         47,768         90,475
                                  Temporary differences -
                                    income and expenses             (35,498)       (23,791)       (59,289)
                                  Carry forward tax

                                    losses and deductions          (169,415)          4,486      (164,929)
                                                                 -------------  ------------   -------------
                                                                   (136,258)         71,275       (64,983)
                                  Valuation allowance for

                                    deferred tax assets              192,682        (4,289)        188,393
                                                                 -------------  ------------   -------------
                                                                      56,424         66,986        123,410
                                                                 =============  ============   =============
</TABLE>


                            C.     PROFORMA INFORMATION

                                   I.     The   following   unaudited   proforma
                                          information   for   the   year   2000,
                                          presents  a  summary  of  consolidated
                                          results of operations of the Group for
                                          this    year    assuming    that   the
                                          acquisition  of the second half of the
                                          rights in the commercial centers, from
                                          the Red Sea  Hotel  Group - which  was
                                          accounted  according  to the  purchase
                                          method - had occurred at the beginning
                                          of  the  year  2000.   Such  unaudited
                                          information  is  based  on  historical
                                          financial  statements  of the acquired
                                          companies.  The  proforma  information
                                          does not purport to be  indicative  of
                                          the results that  actually  would have
                                          occurred  had  such  acquisition  been
                                          effected on that date.

                                          COMPRISED AS FOLLOWS:

<TABLE>
<CAPTION>
                                                                                        YEAR ENDED
                                                                                        DECEMBER 31
                                                                                           2000
                                                                                     ----------------
                                                                                     IN THOUSANDS NIS
                                                                                     ----------------

<S>                                               <C>                                      <C>
                                         Revenues (1)                                      216,130
                                                                                         ===========

                                         Net loss (2)                                      (33,502)
                                                                                         ===========

                                         Loss per share (basic and diluted) (2)              (1.52)
                                                                                         ===========
</TABLE>

                        (1) Reclassified - see Note 23A.

                        (2) Restated see A8 above.

                                    - 130 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE  26 -    MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              B.     THE EFFECT OF THE MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP
                     AND U.S. GAAP ON THE FINANCIAL STATEMENTS

                     5.     ADDITIONAL INFORMATION AS REQUIRED BY U.S. GAAP
                            (CONT.)

                            C.     PROFORMA INFORMATION (CONT.)

                                   II.    The   following   unaudited   proforma
                                          information for 2001 and 2000 presents
                                          a summary of  consolidated  results of
                                          operations  of  the  Group  for  these
                                          years,  assuming that the  transaction
                                          to acquire  ownership  and  control in
                                          Bucuresti,   as   mentioned   in  Note
                                          10B.(1)b(7)I  above,  had  occurred at
                                          the  beginning of each year  presented
                                          herein. Such unaudited  information is
                                          based    on    historical    financial
                                          statements  of the  acquired  company.
                                          The  proforma   information  does  not
                                          purport  to  be   indicative   of  the
                                          results  that   actually   would  have
                                          occurred  had  such  acquisition  been
                                          effected on that dates.

                                          COMPRISED AS FOLLOWS:

<TABLE>
<CAPTION>
                                                                                      YEAR ENDED DECEMBER 31
                                                                                      ----------------------
                                                                                        2001           2000
                                                                                      ---------    ---------
                                                                                         IN THOUSANDS NIS

<S>                                                <C>                                  <C>          <C>
                                          Revenues (1)                                  284,032      226,336
                                                                                      =========    =========

                                          Net loss (2)                                  (20,657)     (31,923)
                                                                                      =========    =========

                                          Loss per share (basic and diluted) (2)          (0.92)       (1.45)
                                                                                      =========    =========

</TABLE>
                        (1) Reclassified - see Note 23A.
                        (2) Restated see A8 above.

                                   III.   The   following   unaudited   proforma
                                          information for 2002 and 2001 presents
                                          a summary of  consolidated  results of
                                          operations  of  the  Group  for  these
                                          years,  assuming that the  transaction
                                          to acquire  ownership  and  control of
                                          three  commercial  and   entertainment
                                          centers in Hungary,  as  mentioned  in
                                          Note  10B.(3)b(6)  above, had occurred
                                          at  the   beginning   of   each   year
                                          presented   herein.   Such   unaudited
                                          information  is  based  on  historical
                                          financial  statements  of the acquired
                                          company. The proforma information does
                                          not  purport to be  indicative  of the
                                          results  that   actually   would  have
                                          occurred  had  such  acquisition  been
                                          effected on that dates.

                                          COMPRISED AS FOLLOWS:

<TABLE>
<CAPTION>
                                                                                         YEAR ENDED DECEMBER 31
                                                                               ------------------------------------------
                                                                                   2002           2002           2001
                                                                               ------------    -----------    -----------
                                                                               CONVENIENCE
                                                                               TRANSLATION
                                                                               -----------
                                                                                 US$'000            IN THOUSANDS NIS
                                                                               ------------    --------------------------

<S>                                                                                <C>           <C>             <C>
                                          Revenues                                 98,670        467,402         344,381
                                                                               ============    ===========    ===========

                                          Income (loss) from
                                           continuing operations                  (14,224)       (67,379)         11,143
                                                                               ============    ===========    ===========

                                          Net profit (loss)                        (7,362)       (34,872)         21,678
                                                                               ============    ===========    ===========

                                          Basic earning (loss) per share            (0.33)         (1.56)           0.98
                                                                               ============    ===========    ===========

                                          Diluted earning (loss) per share          (0.35)         (1.68)           0.92
                                                                               ============    ===========    ===========
</TABLE>

                                    - 131 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------



NOTE  26 -    MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              B.     THE EFFECT OF THE MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP
                     AND U.S. GAAP ON THE FINANCIAL STATEMENTS

                     5.     ADDITIONAL INFORMATION AS REQUIRED BY U.S. GAAP
                            (CONT.)

                            D.     BUSINESS  SEGMENTS  (BASED  ON  ISRAELI  GAAP
                                   FINANCIAL STATEMENTS)

<TABLE>
<CAPTION>
                                                        COMMERCIAL                        R&D
                                                            AND                       AND VENTURE
                                                       ENTERTAINMENT                    CAPITAL
                                                          CENTER         HOTELS       INVESTMENTS     GENERAL        TOTAL
                                                       -------------   -----------   --------------  ----------    ----------
                                                                                  IN THOUSAND NIS
                                                       ----------------------------------------------------------------------
<S>                                        <C>             <C>            <C>                          <C>           <C>
                        YEAR ENDED
                          DECEMBER 31, 2002:

                          Financial income
                           (expenses), net (1)             (29,609)       (4,626)              -       28,690        (5,545)

                          Other income
                           (expenses), net                  (2,277)      (17,768)          9,830       19,902         9,687

                          Income taxes                     (14,027)        4,955               -      (13,056)      (22,128)


                        YEAR ENDED
                          DECEMBER 31, 2001 (2):

                          Financial income
                           (expenses), net (1)              46,566        (6,391)              -       63,335       103,510

                          Other income
                           (expenses), net                    (215)         (766)        (17,707)      53,419        34,731

                          Income taxes                     (12,295)       (3,055)              -        1,493       (13,857)



                        YEAR ENDED
                          DECEMBER 31, 2000 (2):

                          Financial income
                           (expenses), net (1)                (151)       (7,319)              -       40,659        33,189

                          Other income
                           (expenses), net                    (396)            -               -                    (15,899)
                                                                                                      (15,503)

                          Income taxes                      (3,131)       (1,020)              -                    (18,907)
                                                                                                      (14,756)
</TABLE>

                     (1) Excluding financial results in respect of inter-company
                         balances and transactions.

                     (2) Reclassified - see note 23A.


                                    - 132 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE  26 -    MATERIAL  DIFFERENCES  BETWEEN ISRAELI GAAP AND U.S. GAAP AND
              THEIR EFFECT ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

              B.     THE EFFECT OF THE MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP
                     AND U.S. GAAP ON THE FINANCIAL STATEMENTS

                     5.     ADDITIONAL INFORMATION AS REQUIRED BY U.S. GAAP
                            (CONT.)

                            E.     STATEMENT OF CASH FLOWS

                                   A)    SUPPLEMENTAL    INFORMATION   REQUIRED
                                         ACCORDING TO U.S. GAAP:

<TABLE>
<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31,
                                                               ------------------------------------------------------
                                                                  2002            2002         2001           2000
                                                               -------------  ----------    -----------    ----------
                                                               CONVENIENCE
                                                               TRANSLATION
                                                                 US$'000         (I N   T H O U S A N D   N I S)
                                                               -------------  ---------------------------------------

<S>                                                                 <C>          <C>         <C>          <C>
                                         Interest paid              28,466       134,846     85,775          38,632
                                                               =============  ==========    ==========    ===========
                                         Income tax paid
                                           (refund)                  6,110        28,945    (6,364)          52,600
                                                               =============  ==========    ==========    ===========

</TABLE>


                                   B)     EFFECT OF  EXCHANGE  RATE  CHANGES  ON
                                          CASH AND CASH EQUIVALENTS:

                                          ACCORDING TO ISRAELI GAAP:

                                          The statement  shall report the effect
                                          of  exchange   rate  changes  on  cash
                                          balances  held in foreign  currencies,
                                          only in "autonomous foreign entities",
                                          in   a    separate    part    of   the
                                          reconciliation  of the  change in cash
                                          and  cash   equivalents   during   the
                                          period.

                                          ACCORDING TO U.S. GAAP:

                                          The statement  shall report the effect
                                          of exchange  rate  changes on all cash
                                          balances held in foreign currencies in
                                          all  foreign  entities  as a  separate
                                          part  of  the  reconciliation  of  the
                                          change  in cash and  cash  equivalents
                                          during the period.

<TABLE>
<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31,
                                                               ------------------------------------------------------
                                                                  2002            2002         2001           2000
                                                               -------------  ----------    -----------    ----------
                                                               CONVENIENCE
                                                               TRANSLATION
                                                                 US$'000         (I N   T H O U S A N D   N I S)
                                                               -------------  ---------------------------------------
<S>                                                                  <C>           <C>         <C>           <C>
                                         As reported,
                                           according to
                                           Israeli GAAP              1,342         6,355       15,075        4,145

                                         Reconciliation as
                                           per U.S. GAAP             1,129         5,349       23,191       (9,338)
                                                               -------------  ----------    -----------    ----------
                                                                     2,471        11,704       38,266       (5,193)
                                                               =============  ==========    ==========    ===========

</TABLE>

                                    - 133 -


<PAGE>
                           ELBIT MEDICAL IMAGING LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

       AUDITORS' REPORT TO THE SHAREHOLDERS OF PLAZA CENTERS (EUROPE) B.V.

We have audited the  accompanying  consolidated  balance  sheet of Plaza Centers
(Europe) B.V. ("the  Company") and its  subsidiaries as at December 31, 2002 and
2001 and the related consolidated statements of income, changes in shareholders'
equity  and cash  flows for each of the two years then  ended.  These  financial
statements are the responsibility of the Company's Board of Directors and of its
Management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our  opinion,  based on our audits,  the  consolidated  financial  statements
referred to above present fairly,  in all material  respects,  the  consolidated
financial  position of the Company and its  subsidiaries as at December 31, 2002
and 2001 and the  consolidated  results  of their  operations,  the  changes  in
shareholders'  equity and their cash flows for each of the two years then ended,
in conformity  with  generally  accepted  accounting  principles in Israel.  The
effect of the material  differences between GAAP in Israel and in the U.S on the
abovementioned  financial  statements  is shown  in Note 18 to the  consolidated
financial statements.

In  addition,  in  our  opinion  the  above-mentioned   consolidated   financial
statements  comply with the requirements of the Israeli  Securities  Regulations
(Preparation of Annual Financial Statements) - 1993.

As explained in note 2, the above-mentioned  consolidated  financial  statements
are stated in values adjusted for the changes in the general purchasing power of
the  different  currencies  in the countries of operation of the Company and its
subsidiaries,  in  accordance  with the  opinions of the  Institute of Certified
Public Accountants in Israel.

Budapest, Hungary

March 28, 2003



KPMG Hungaria Kft.

<PAGE>




ITEM 19. EXHIBITS

         a.       Index to Financial Statements

Financial Statements of EMI                                               Page

Independent Auditors' Report..........................................    2
Consolidated Balance Sheets...........................................    3-4
Consolidated Statements of Operations.................................    5
Consolidated Statements of Shareholders' Equity.......................    6
Consolidated Statements of Cash Flows.................................    7-9
Notes to Consolidated Financial Statements............................    10-99
Appendix.                                                                 100
Reports of Auditor of Subsidiary


         b.       Exhibits.

1.1(1)        Memorandum  of  Association  of the  Company.
1.2(1)        Articles of Association of the Company.
1.3(2)^       Notice dated March 4, 2001,  sent by the Registrant to the Israeli
              Companies  Registrar  with respect to an amendment to the Articles
              of Association.
4.1(3)        First Addendum to the  Memorandum of Agreement  dated December 31,
              2001 relating to the  acquisition of Duna Plaza,  Sopron Plaza and
              Nyir Plaza.
4.2(3)        Loan facility  agreement  dated January 22, 2002 between OVAG, MKB
              and OPT banks, Amanati Ltd., Duna Plaza Kft. Sopron Plaza Kft. and
              Plaza Centers  Europe BV with respect to a credit  facility in the
              amount of Euro 82.9 million.
4.3(2)^       Loan facility  agreement  dated  September  27, 2000,  between the
              Registrant  and Bank  Hapoalim BM with  respect to a $150  million
              line of credit.
4.4(2)        Loan Agreement dated March 1, 2001, between Krakow Plaza Sp.z.o.o.
              and OVAG with  respect to a credit  facility  in the amount of $35
              million.
4.5(4)        Loan agreement  among,  inter alia,  Depfa Bank AG, Victoria Hotel
              C.V. and Utrecht Victoria Hotel B.V. dated March 24, 1999.
4.6(4)        Hotel  management  agreement  between Euston Road Hotel  Operators
              Ltd. and Park Plaza Europe Ltd. dated December 1997.
4.7(4)        Management  agreement  between  Victoria Hotel C.V. and Park Plaza
              Hotel Europe, Ltd. (previously Prestige Hotels International Ltd.)
              dated October 4, 1993.
4.8(4)        Management  support and sub-license  agreement between Astrid Park
              Plaza N.V. and Park Plaza Hotels Europe Ltd. dated April 15, 1997.
4.9(5)        Loan  agreement  dated  December 21, 2000 with Bank  Hapoalim B.M.
              with respect to the financing of the Victoria Park Plaza Hotel.
4.10(5)^      Loan facility agreement dated October 23, 2000 between Elscint and
              Bank Hapoalim BM with respect to a $110 million line of credit.
4.11(5)^      Development  agreement dated December 17, 2000 between Elscint and
              the  Israeli  Land  Administration  with  respect  to the  Monfort
              Project.
4.12(6)^      Agreement dated April 14, 2002 between SLS Sails Ltd. and C.D.P.M.
              Kft. for the  completion  of the  construction  works of Elscint's
              commercial and entertainment center in Herzlia.
8.1           List of subsidiaries.


                                     -117-
<PAGE>

10.1(7)       Certification of the President and Chief Financial  Officer of the
              Registrant  pursuant to Section 906 of the  Sarbanes-Oxley  Act of
              2002.
--------------

(1)      Previously  filed as an  Exhibit to EMI's  Annual  Report on Form 20-F,
         File No. 0-28996,  filed with the Securities and Exchange Commission on
         November 22, 1996 and incorporated by reference herein.

(2)      Previously  filed as an exhibit to EMI's Annual Report on Form 20-F for
         the year ended  December 31,  2000,  File No.  0-28996,  filed with the
         Securities and Exchange Commission on July 16, 2001 and incorporated by
         reference herein.

(3)      Previously  filed as an exhibit to EMI's Annual Report on Form 20-F for
         the year ended  December 31,  2001,  File No.  0-28996,  filed with the
         Securities and Exchange  Commission on July 1, 2002 and incorporated by
         reference herein.

(4)      Previously  filed as an Exhibit to Elscint's Annual Report on Form 20-F
         for the year ended December 31, 1999, File No. 2-44872,  filed with the
         Securities and Exchange Commission on June 2, 2000, and incorporated by
         reference herein.

(5)      Previously  filed as an Exhibit to Elscint's Annual Report on Form 20-F
         for the year ended December 31, 2000, File No. 2-44872,  filed with the
         Securities and Exchange Commission on July 10, 2001 and incorporated by
         reference herein.

(6)      Previously  filed as an exhibit to Elscint's Annual Report on Form 20-F
         for the year ended December 31, 2001, File No. 2-44872,  filed with the
         Securities and Exchange Commission on June 28, 2002 and incorporated by
         reference herein.

(7)      This document is being  furnished in accordance  with SEC Releases Nos.
         33-8212 and 34-47551.

^        Translation from Hebrew.




                                     -118-
<PAGE>


                                   SIGNATURES

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

                                   By: /s/ Shimon Yitzhaki
                                      ---------------------------------
                                        Name:     Shimon Yitzhaki
                                        Title:    President

Date: June 30, 2003








                                     -119-
<PAGE>



                                  CERTIFICATION

         I, Shimon Yitzhaki, certify that:

         1. I have  reviewed  this annual  report on Form 20-F of Elbit  Medical
Imaging Ltd.;

         2. Based on my  knowledge,  this  annual  report  does not  contain any
untrue  statement of a material fact or omit to state a material fact  necessary
to make the  statements  made,  in light of the  circumstances  under which such
statements  were made, not misleading with respect to the period covered by this
annual report;

         3. Based on my knowledge, the financial statements, and other financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

         a.  designed  such  disclosure  controls and  procedures to ensure that
material  information  relating to the  registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this annual report is being prepared;

         b. evaluated the effectiveness of the registrant's  disclosure controls
and  procedures  as of a date  within 90 days prior to the  filing  date of this
annual report (the "Evaluation Date"); and

         c.  presented  in  this  annual  report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

         5. The  registrant's  other  certifying  officers and I have disclosed,
based on our most recent evaluation,  to the registrant's auditors and the audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent function):

         a. all significant  deficiencies in the design or operation of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

         b. any fraud,  whether or not  material,  that  involves  management or
other  employees  who  have a  significant  role  in the  registrant's  internal
controls; and

         6. The registrant's  other certifying  officers and I have indicated in
this annual  report  whether or not there were  significant  changes in internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: June 30, 2003

                                       /s/ Shimon Yitzhaki
                                       ------------------------------------
                                       Shimon Yitzhaki
                                       President, Chief Financial Officer and
                                       Director



                                     -120-
<PAGE>


                                  EXHIBIT INDEX

1.1(1)        Memorandum  of  Association  of the  Company.
1.2(1)        Articles of Association of the Company.
1.3(2)^       Notice dated March 4, 2001,  sent by the Registrant to the Israeli
              Companies  Registrar  with respect to an amendment to the Articles
              of Association.
4.1(3)        First Addendum to the  Memorandum of Agreement  dated December 31,
              2001 relating to the  acquisition of Duna Plaza,  Sopron Plaza and
              Nyir Plaza.
4.2(3)        Loan facility  agreement  dated January 22, 2002 between OVAG, MKB
              and OPT banks, Amanati Ltd., Duna Plaza Kft. Sopron Plaza Kft. and
              Plaza Centers  Europe BV with respect to a credit  facility in the
              amount of Euro 82.9 million.
4.3(2)^       Loan facility  agreement  dated  September  27, 2000,  between the
              Registrant  and Bank  Hapoalim BM with  respect to a $150  million
              line of credit.
4.4(2)        Loan Agreement dated March 1, 2001, between Krakow Plaza Sp.z.o.o.
              and OVAG with  respect to a credit  facility  in the amount of $35
              million.
4.5(4)        Loan agreement  among,  inter alia,  Depfa Bank AG, Victoria Hotel
              C.V. and Utrecht Victoria Hotel B.V. dated March 24, 1999.
4.6(4)        Hotel  management  agreement  between Euston Road Hotel  Operators
              Ltd. and Park Plaza Europe Ltd. dated December 1997.
4.7(4)        Management  agreement  between  Victoria Hotel C.V. and Park Plaza
              Hotel Europe, Ltd. (previously Prestige Hotels International Ltd.)
              dated October 4, 1993.
4.8(4)        Management  support and sub-license  agreement between Astrid Park
              Plaza N.V. and Park Plaza Hotels Europe Ltd. dated April 15, 1997.
4.9(5)        Loan  agreement  dated  December 21, 2000 with Bank  Hapoalim B.M.
              with respect to the financing of the Victoria Park Plaza Hotel.
4.10(5)^      Loan facility agreement dated October 23, 2000 between Elscint and
              Bank Hapoalim BM with respect to a $110 million line of credit.
4.11(5)^      Development  agreement dated December 17, 2000 between Elscint and
              the  Israeli  Land  Administration  with  respect  to the  Monfort
              Project.
4.12(6)^      Agreement dated April 14, 2002 between SLS Sails Ltd. and C.D.P.M.
              Kft. for the  completion  of the  construction  works of Elscint's
              commercial and entertainment center in Herzlia.
8.1           List of subsidiaries.
10.1(7)       Certification of the President and Chief Financial  Officer of the
              Registrant  pursuant to Section 906 of the  Sarbanes-Oxley  Act of
              2002.
--------------
(1)      Previously  filed as an  Exhibit to EMI's  Annual  Report on Form 20-F,
         File No. 0-28996,  filed with the Securities and Exchange Commission on
         November 22, 1996 and incorporated by reference herein.

(2)      Previously  filed as an exhibit to EMI's Annual Report on Form 20-F for
         the year ended  December 31,  2000,  File No.  0-28996,  filed with the
         Securities and Exchange Commission on July 16, 2001 and incorporated by
         reference herein.

(3)      Previously  filed as an exhibit to EMI's Annual Report on Form 20-F for
         the year ended  December 31,  2001,  File No.  0-28996,  filed with the
         Securities and Exchange  Commission on July 1, 2002 and incorporated by
         reference herein.

(4)      Previously  filed as an Exhibit to Elscint's Annual Report on Form 20-F
         for the year ended December 31, 1999, File No. 2-44872,  filed with the
         Securities and Exchange Commission on June 2, 2000, and incorporated by
         reference herein.


                                     -121-
<PAGE>

(5)      Previously  filed as an Exhibit to Elscint's Annual Report on Form 20-F
         for the year ended December 31, 2000, File No. 2-44872,  filed with the
         Securities and Exchange Commission on July 10, 2001 and incorporated by
         reference herein.

(6)      Previously  filed as an exhibit to Elscint's Annual Report on Form 20-F
         for the year ended December 31, 2001, File No. 2-44872,  filed with the
         Securities and Exchange Commission on June 28, 2002 and incorporated by
         reference herein.

(7)      This document is being  furnished in accordance  with SEC Releases Nos.
         33-8212 and 34-47551.

^        Translation from Hebrew.




                                     -122-