---

---

|                                                                        
|------------------------------------------------------------------------
|As Filed with the U.S. Securities Exchange Commission on June 30,
  2008
|                                                                        

|                                  
|----------------------------------
|UNITED STATES                     
|SECURITIES AND EXCHANGE COMMISSION
|                                  
|WASHINGTON, D.C. 20549            
|                                  
|FORM 20-F                         

|           |                                                                                                 
|---------- | ------------------------------------------------------------------------------------------------
|(Mark One)
|o          | REGISTRATION STATEMENT
  PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
|           | OR                                                                                              
|x          | ANNUAL REPORT PURSUANT TO
  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934          
|           | For the fiscal year endedDecember 31,
2007                                                      
|           | OR                                                                                              
|o          | TRANSITION REPORT PURSUANT
  TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934      
|           | For the transition period
  from __________ to __________                                       
|           | OR                                                                                              
|o          | SHELL COMPANY REPORT
  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   
|           | Date of event requiring
  this shell company report _____________                               

Commission
file number 0-28996


|                                                                                         
|-----------------------------------------------------------------------------------------
|                                                                                         
|ELBIT IMAGING
  LTD.                                                                     
|(Exact Name of registrant as specified in its charter)                                   
|                                                                                         
|ISRAEL                                                                                   
|(Jurisdiction of incorporation or organization)                                          
|                                                                                         
|2 Weitzman St., TEL-AVIV 64239, ISRAEL                                                   
|(Address of principal executive offices)                                                 
|                                                                                         
|Shimon Yitzhaki                                                                          
|Tel: 972-3-6086000                                                                       
|Fax: 972-3-6086050                                                                       
|2 Weitzman St. Tel
  Aviv, Israel                                                        
|(Name, Telephone, E-Mail and/or Facsimile Number
  and Address of Company Contact Person)
|                                                                                         
|Securities registered or to be registered pursuant to Section 12(b)
  of the Act:        

|                                                |  |                                           
|----------------------------------------------- |  | ------------------------------------------
|Title of each class:                            |  | Name of each exchange on which registered:
|ORDINARY SHARES, NIS 1.0 PAR 
  VALUE PER SHARE |  | NASDAQ GLOBAL SELECT MARKET               

|                                                                                              
|----------------------------------------------------------------------------------------------
|                                                                                              
|Securities registered or to be registered
  pursuant to Section 12(g) of the Act:             
|NONE                                                                                          
|                                                                                              
|                                                                                              
|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: 25,454,524 ordinary
shares, NIS 1.0 par value per share excluding 2,800,000 ordinary shares held by
Elbit Imaging Ltd. which do not have any voting and equity rights.

Indicate by check mark if the
registrant is a well known seasoned issuer, as defined in Rule 405 of the Securities
Act.YES o  NO x

If this report is an annual
or transition report, indicate by check mark if the registrant is not required
to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934. YES o   NO x

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 o

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

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

---

---



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

|  |                                                                                                        
|- | -------------------------------------------------------------------------------------------------------
|o | U.S. GAAP                                                                                              
|  |                                                                                                        
|x | International Financial
  Reporting Standards as issued by the International Accounting Standards Board
|  |                                                                                                        
|o | Other                                                                                                  

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


|          |          
|--------- | ---------
|o Item 17 | o Item 18

If this is an annual report
indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act: YES
o NO x

2

---

---



TABLE OF CONTENTS

|               |                                                                                |  |     
|-------------- | ------------------------------------------------------------------------------ |  | ----
|ITEM           | DESCRIPTION                                                                    |  | Page
|               |                                                                                |  |     
|              
|1.             | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                          |  | 5   
|2.             | OFFER STATISTICS AND EXPECTED TIMETABLE                                        |  | 5   
|3.             | KEY INFORMATION                                                                |  | 5   
|4.             | INFORMATION ON THE COMPANY                                                     |  | 25  
|4A.            | UNRESOLVED STAFF COMMENTS                                                      |  | 62  
|5.             | OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                   |  | 62  
|6.             | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                     |  | 87  
|7.             | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                              |  | 97  
|8.             | FINANCIAL INFORMATION                                                          |  | 105 
|9.             | THE OFFER AND LISTING                                                          |  | 106 
|10.            | ADDITIONAL INFORMATION                                                         |  | 107 
|11.            | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                      |  | 119 
|12.            | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                         |  | 124 
|13.            | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                                |  | 124 
|14.            | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
  PROCEEDS |  | 124 
|15.            | CONTROLS AND PROCEDURES                                                        |  | 125 
|16.            | RESERVED                                                                       |  | 125 
|16A.           | AUDIT COMMITTEE FINANCIAL EXPERT                                               |  | 125 
|16B.           | CODE OF ETHICS                                                                 |  | 125 
|16C.           | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                         |  | 125 
|16D.           | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                     |  | 126 
|16E.           | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
  PURCHASERS       |  | 127 
|17.            | FINANCIAL STATEMENTS                                                           |  | 127 
|18.            | FINANCIAL STATEMENTS                                                           |  | 127 
|19.            | EXHIBITS                                                                       |  | 128 
|CERTIFICATIONS |                                                                                | 

3

---

---



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
(THE SECURITIES ACT), AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED (THE EXCHANGE ACT). FORWARD-LOOKING STATEMENTS INCLUDE STATEMENTS
REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY AND ITS
MANAGEMENT ABOUT THE COMPANYS BUSINESS, ITS RELATIONSHIP WITH ITS EMPLOYEES
AND THE CONDITION OF ITS PROPERTIES. WORDS SUCH AS BELIEVE, EXPECT,
INTEND, ESTIMATE AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS BUT ARE NOT THE EXCLUSIVE MEANS OF IDENTIFYING SUCH
STATEMENTS. 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 EXISTING AND PROSPECTIVE INVESTORS NOT TO PLACE
UNDUE RELIANCE ON SUCH STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS DO NOT
PURPORT TO BE PREDICTIONS OF FUTURE EVENTS OR CIRCUMSTANCES, AND THEREFORE,
THERE CAN BE NO ASSURANCE THAT ANY FORWARD-LOOKING STATEMENT CONTAINED HEREIN
WILL PROVE TO BE ACCURATE. 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.

CURRENCY TRANSLATION

For the readers convenience, financial information for 2007 has been
translated from various foreign currencies to the U.S. dollar ($ or U.S.
dollar), as of December 31, 2007 in accordance with the following exchange
rates:

|                           |  |                       |  |         |  | 
|-------------------------- |  | --------------------- |  | ------- |  | 
|Currency                   |  | December
  31, 2007 $ | 
|                           |  |                       | 
|                          
|1 NIS                      |  |                       |  | 0.26    |  | 
|1 Euro                     |  |                       |  | 1.473   |  | 
|1 GBP                      |  |                       |  | 1.997   |  | 
|1 HUF                      |  |                       |  | 0.0058  |  | 
|1 CZK                      |  |                       |  | 0.055   |  | 
|1 LEI (RON)                |  |                       |  | 0.0004  |  | 
|1 PLN                      |  |                       |  | 0.409   |  | 
|1 INR                      |  |                       |  | 0.0253  |  | 
|1 Crore (10
  million INR) |  |                       |  | 253,000 |  | 

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.

4

---

---



EXCHANGE RATES

The
exchange rate between the NIS and U.S. dollar published by the Bank of Israel
was NIS 3.233 to the dollar on May 31, 2008. The exchange rate has fluctuated
during the six months period beginning December 2007 through May 2008 from a
high of NIS 4.008 to the dollar to a low of NIS 3.233 to the dollar. The
monthly high and low exchange rates between the NIS and the U.S. dollar during
the six months period beginning December 2007 through May 2008, as published by
the Bank of Israel, were as follows:

|              |  |  |                   |  |  |                   |       |  | 
|------------- |  |  | ----------------- |  |  | ----------------- | ----- |  | 
|              |  |  | HIGH              |  |  | LOW               |      
|              |  |  | 1 U.S.
  dollar = |  |  | 1 U.S.
  dollar = |      
|              |  |  |                   |  |  |                   |      
|MONTH         |  |  | NIS               |  |  | NIS               |      
|              |  |  |                   |  |  |                   |      
|             
|December
2007 |  |  | 4.008             |  |  |                   | 3.830 |  | 
|January 2008  |  |  | 3.861             |  |  |                   | 3.625 |  | 
|February
2008 |  |  | 3.655             |  |  |                   | 3.578 |  | 
|March 2008    |  |  | 3.656             |  |  |                   | 3.377 |  | 
|April 2008    |  |  | 3.640             |  |  |                   | 3.425 |  | 
|May 2008      |  |  | 3.461             |  |  |                   | 3.233 |  | 

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,
  2003 - December 31, 2003 |  |  | 4.544 NIS/$1    | 
|January 1,
  2004 - December 31, 2004 |  |  | 4.483 NIS/$1    | 
|January 1,
  2005 - December 31, 2005 |  |  | 4.488 NIS/$1    | 
|January 1,
  2006 - December 31, 2006 |  |  | 4.442 NIS/$1    | 
|January 1,
  2007 - December 31, 2007 |  |  | 4.0847
  NIS/$1 | 

PART I

|        |                                                        
|------- | -------------------------------------------------------
|ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT
  AND ADVISORS

Not
Applicable.

|        |                                        
|------- | ---------------------------------------
|ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE

Not
Applicable.

|        |                
|------- | ---------------
|ITEM 3. | KEY INFORMATION

| |    |                        
| | -- | -----------------------
| | A. | SELECTED FINANCIAL DATA

The
following selected consolidated financial data of Elbit Imaging Ltd. and its subsidiaries
(together, EI, Elbit, the Company, our
Company, we or us) are derived from our 2007 consolidated
financial statements and are set forth below in table format. Our 2007 consolidated
financial statements and notes included elsewhere in this report were prepared in
accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board (IFRSs) as issued by the International Accounting
Standards Board (IASB). These are the Companys first consolidated
financial statements prepared in accordance with IFRSs. Our previous financial statements
were prepared in accordance with generally accepted accounting principles in Israel
(Israeli GAAP). As for explanation to the transition from Israeli GAAP to
IFRSs in respect of the Companys consolidated financial statements as of January 1,
2006 (the transition date to the IFRSs) and December 31, 2006, see note 29 to the
consolidated financial statements included in item 18. In accordance with the provision of
IFRS1 (First-time Adoption of International Financial Reporting) the Company
presented balance sheets as of December 31, 2007 and 2006, and profit and loss for the
years then ended in its first consolidated financial statements prepared in accordance
with IFRSs.

The
consolidated financial statements were audited by Brightman Almagor & Co.,
a firm of certified public accountants in Israel and a member of Deloitte
Touche Tohmatsu, except for certain subsidiaries and an associate which were
audited by other auditors. Our selected consolidated financial data are
presented in NIS. A convenience translation to U.S. dollars is presented for
2007 only.

5

---

---



The
selected financial data for the years ended December 31, 2007 and 2006 which are presented
in the table below derived from our consolidated financial statements prepared in
accordance with IFRSs and do not include consolidated financial data in accordance with
U.S. GAAP. The selected financial data for the years ended December 31, 2005, 2004 and
2003 which are presented in Table II below are derived from our consolidated financial
statements prepared in accordance with Israeli GAAP and include consolidated financial
data in accordance with U.S. GAAP.

CONSOLIDATED STATEMENTS OF
OPERATIONS IN ACCORDANCE WITH IFRSs

(in thousands, except
share and per share amounts)

|                                                 |  |                                  |         |          |  |           |   |  |           |  
|------------------------------------------------ |  | -------------------------------- | ------- | -------- |  | --------- | - |  | --------- | -
|                                                 |  | FOR THE
  YEAR ENDED DECEMBER 31 |        
|                                                 |  |                                  |        
|                                                 |  | 2007                             |         | 2007     |  | 2006      |  
|                                                 |  |                                  |         |          |  |           |  
|                                                 |  | Convenience Translation          |         |          |  |           |   |  |          
|                                                 |  |                                  |         |          |  |           |   |  |          
|                                                 |  | $000                            |         | NIS 000 | 
|                                                 |  |                                  |         |          | 
|                                                 |  |                                  |         |          | 
|Revenues and gains                               |  |                                  |         |          |  |           |   |  |           |  
|Commercial centers                               |  |                                  | 758,610 |          |  | 2,917,616 |   |  | 397,202   |  
|Hotels operations and
  management               |  |                                  | 102,763 |          |  | 395,227   |   |  | 351,610   |  
|Gains from sale of real
  estate assets          |  |                                  | 16,282  |          |  | 62,621    |   |  | 81,794    |  
|Sale of medical systems                          |  |                                  | 12,909  |          |  | 49,648    |   |  | 85,824    |  
|Decrease in shareholding of
  subsidiaries       |  |                                  | 1,381   |          |  | 5,310     |   |  | 667,014   |  
|Sale of fashion retail                           |  |                                  | 17,717  |          |  | 68,139    |   |  | 58,035    |  
|                                                 |  |                                  |         |          |  |           |   |  |           |  
|                                                 |  |                                  | 909,662 |          |  | 3,498,561 |   |  | 1,641,479 |  
|                                                 |  |                                  |         |          |  |           |   |  |           |  
|                                                 |  |                                  |         |          |  |           |   |  |           |  
|Expenses and losses                              |  |                                  |         |          |  |           |   |  |           |  
|                                                 |  |                                  |         |          |  |           |   |  |           |  
|Commercial centers                               |  |                                  | 445,724 |          |  | 1,714,253 |   |  | 395,814   |  
|Hotels operations and
  management               |  |                                  | 85,820  |          |  | 330,063   |   |  | 308,623   |  
|Cost and expenses of
  medical systems operation |  |                                  | 18,188  |          |  | 69,953    |   |  | 71,746    |  
|Cost of fashion retail                           |  |                                  | 20,881  |          |  | 80,308    |   |  | 67,834    |  
|Research and development
  expenses, net         |  |                                  | 18,086  |          |  | 69,559    |   |  | 73,538    |  
|General and administrative
  expenses            |  |                                  | 30,419  |          |  | 116,992   |   |  | 66,983    |  
|Share in losses (profits)
  of associates        |  |                                  | 3,294   |          |  | 12,667    |   |  | (736      | )
|Financial expenses                               |  |                                  | 60,338  |          |  | 232,062   |   |  | 144,166   |  
|Financial income                                 |  |                                  | (23,696 | )        |  | (91,136   | ) |  | (25,580   | )
|Other expenses, net                              |  |                                  | 9,941   |          |  | 38,233    |   |  | 77,048    |  
|                                                 |  |                                  |         |          |  |           |   |  |           |  
|                                                 |  |                                  | 668,995 |          |  | 2,572,954 |   |  | 1,179,436 |  
|                                                 |  |                                  |         |          |  |           |   |  |           |  
|                                                 |  |                                  |         |          |  |           |   |  |           |  
|PROFIT BEFORE INCOME TAXES                       |  |                                  | 240,667 |          |  | 925,607   |   |  | 462,043   |  
|Income taxes (tax benefits)                      |  |                                  | 4,235   |          |  | 16,288    |   |  | (1,787    | )
|                                                 |  |                                  |         |          |  |           |   |  |           |  
|PROFIT FROM CONTINUING
  OPERATIONS              |  |                                  | 236,432 |          |  | 909,319   |   |  | 463,830   |  
|Profit from discontinued
  operation, net        |  |                                  | 2,675   |          |  | 10,289    |   |  | 35,665    |  
|                                                 |  |                                  |         |          |  |           |   |  |           |  
|PROFIT FOR THE YEAR                              |  |                                  | 239,107 |          |  | 919,608   |   |  | 499,495   |  
|                                                 |  |                                  |         |          |  |           |   |  |           |  
|                                                 |  |                                  |         |          |  |           |   |  |           |  
|Attributable to:                                 |  |                                  |         |          |  |           |   |  |           |  
|Equity holders of the
  Company                  |  |                                  | 140,340 |          |  | 539,749   |   |  | 510,803   |  
|Minority interest                                |  |                                  | 98,767  |          |  | 379,859   |   |  | (11,308   | )
|                                                 |  |                                  |         |          |  |           |   |  |           |  
|                                                 |  |                                  | 239,107 |          |  | 919,608   |   |  | 499,495   |  
|                                                 |  |                                  |         |          |  |           |   |  |           |  
|                                                 |  |                                  |         |          |  |           |   |  |           |  
|Earnings per share - (in NIS)                    |  |                                  |         |          |  |           |   |  |           |  
|Basic earnings per share:                        |  |                                  |         |          |  |           |   |  |           |  
|From continuing operations                       |  |                                  | 5.46    |          |  | 20.99     |   |  | 18.83     |  
|From discontinued operations                     |  |                                  | 0.11    |          |  | 0.40      |   |  | 1.41      |  
|                                                 |  |                                  |         |          |  |           |   |  |           |  
|                                                 |  |                                  | 5.57    |          |  | 21.39     |   |  | 20.24     |  
|                                                 |  |                                  |         |          |  |           |   |  |           |  
|Diluted earning per share:                       |  |                                  |         |          |  |           |   |  |           |  
|From continuing operations                       |  |                                  | 5.25    |          |  | 20.18     |   |  | 18.83     |  
|From discontinued operations                     |  |                                  | 0.11    |          |  | 0.40      |   |  | 1.41      |  
|                                                 |  |                                  |         |          |  |           |   |  |           |  
|                                                 |  |                                  | 5.36    |          |  | 20.58     |   |  | 20.24     |  
|                                                 |  |                                  |         |          |  |           |   |  |           |  
|                                                 |  |                                  |         |          |  |           |   |  |           |  
|Dividend declared per share                      |  |                                  | 1.50    |          |  | 6.30      |   |  | 0         |  

6

---

---



SELECTED BALANCE SHEET DATA IN
ACCORDANCE WITH IFRSs

|                                        |  |                              |           |                     |  |           |  |  |           | 
|--------------------------------------- |  | ---------------------------- | --------- | ------------------- |  | --------- |  |  | --------- | 
|                                        |  | DECEMBER
  31                |          
|                                        |  |                              |          
|                                        |  | 2007                         |           | 2007                |  | 2006      | 
|                                        |  |                              |           |                     |  |           | 
|                                        |  | Convenience
  
  Translation |           | (In
  Thousand NIS) | 
|                                        |  |                              |           |                     | 
|                                        |  | $000                        |           |                     |  |           |  |  |          
|                                        |  |                              |           |                     |  |           |  |  |          
|                                        |  |                              |           |                     |  |           |  |  |           | 
|Current Assets                          |  |                              | 1,524,841 |                     |  | 5,864,542 |  |  | 3,671,977 | 
|Non Current Assets                      |  |                              | 671,636   |                     |  | 2,583,106 |  |  | 2,613,648 | 
|                                        |  |                              |           |                     |  |           |  |  |           | 
|Total                                   |  |                              | 2,196,477 |                     |  | 8,447,648 |  |  | 6,285,625 | 
|                                        |  |                              |           |                     |  |           |  |  |           | 
|Current Liabilities                     |  |                              | 243,191   |                     |  | 935,311   |  |  | 1,101,684 | 
|Non Current Liabilities                 |  |                              | 1,113,712 |                     |  | 4,283,335 |  |  | 2,889,710 | 
|Shareholders equity
  Attributable to: |  |                              |           |                     |  |           |  |  |           | 
|Equity holders of the
  company         |  |                              | 529,235   |                     |  | 2,035,438 |  |  | 1,644,716 | 
|Minority interest                       |  |                              | 310,339   |                     |  | 1,193,564 |  |  | 649,515   | 
|                                        |  |                              |           |                     |  |           |  |  |           | 
|Total                                   |  |                              | 2,196,477 |                     |  | 8,447,648 |  |  | 6,285,625 | 

7

---

---



TABLE II

CONSOLIDATED STATEMENTS OF
OPERATIONS IN ACCORDANCE WITH ISRAELI GAAP

(in thousands, except
share and per share amounts)

|                                                                      |  |                                  |           |      |  |         |  |  |          |  
|--------------------------------------------------------------------- |  | -------------------------------- | --------- | ---- |  | ------- |  |  | -------- | -
|                                                                      |  | FOR THE YEAR
  ENDED DECEMBER 31 |          
|                                                                      |  |                                  |          
|                                                                      |  | 2005                             |           | 2004 |  | 2003    | 
|                                                                      |  |                                  |           |      |  |         | 
|                                                                      |  | (In
  thousand NIS)              |          
|                                                                      |  |                                  |          
|                                                                      |  |                                  |          
|REVENUES                                                              |  |                                  |           |      |  |         |  |  |          |  
|                                                                      |  |                                  |           |      |  |         |  |  |          |  
|Sale of real estate assets
  and investments, net                     |  |                                  | 281,661   |      |  | 131,921 |  |  |         |  
|Commercial centers
  operations                                       |  |                                  | 142,957   |      |  | 311,893 |  |  | 347,056  |  
|Hotels operations and
  management                                    |  |                                  | 270,057   |      |  | 218,365 |  |  | 189,205  |  
|Sale of medical systems                                               |  |                                  | 75,713    |      |  | 44,049  |  |  |         |  
|Realization of investments                                            |  |                                  | 1,958     |      |  | 28,793  |  |  | 45,129   |  
|Other operational income                                              |  |                                  | 44,409    |      |  | 13,238  |  |  | 13,495   |  
|                                                                      |  |                                  | 816,755   |      |  | 748,259 |  |  | 594,885  |  
|                                                                      |  |                                  |           |      |  |         |  |  |          |  
|COSTS OF
  EXPENSES                                                   |  |                                  |           |      |  |         |  |  |          |  
|                                                                      |  |                                  |           |      |  |         |  |  |          |  
|Commercial centers
  operations                                       |  |                                  | 157,640   |      |  | 271,392 |  |  | 257,913  |  
|Hotels operations and
  management                                    |  |                                  | 259,293   |      |  | 207,152 |  |  | 188,672  |  
|Cost and expenses of
  medical systems operation                      |  |                                  | (*)50,374 |      |  | 26,039  |  |  | 8,720    |  
|Other operational expenses                                            |  |                                  | 46,793    |      |  | 3,655   |  |  | 3,510    |  
|Research and development
  expenses, net                              |  |                                  | (*)59,796 |      |  | 38,158  |  |  | 43,719   |  
|General and administrative
  expenses                                 |  |                                  | 36,939    |      |  | 43,627  |  |  | 42,144   |  
|Share in losses of
  associated companies, net                        |  |                                  | 12,028    |      |  | 15,968  |  |  | 20,951   |  
|Financial expenses , net                                              |  |                                  | 122,321   |      |  | 53,569  |  |  | 211,821  |  
|Other expenses, net                                                   |  |                                  | 57,106    |      |  | 63,806  |  |  | 10,477   |  
|                                                                      |  |                                  | 802,290   |      |  | 723,366 |  |  | 787,927  |  
|                                                                      |  |                                  |           |      |  |         |  |  |          |  
|PROFIT (LOSS) BEFORE INCOME
  TAXES                                   |  |                                  | 14,465    |      |  | 24,893  |  |  | (193,042 | )
|Income taxes (tax benefits)                                           |  |                                  | 7,798     |      |  | 15,804  |  |  | (20,217  | )
|PROFIT (LOSS) AFTER INCOME
  TAXES                                    |  |                                  | 6,667     |      |  | 9,089   |  |  | (172,825 | )
|Minority-interest in
  results of subsidiaries, net                   |  |                                  | (*)73,795 |      |  | 27,448  |  |  | 48,671   |  
|PROFIT (LOSS) FROM
  CONTINUING OPERATIONS                            |  |                                  | 80,462    |      |  | 36,537  |  |  | (124,154 | )
|Profit from discontinued
  operations, net                            |  |                                  | 5,917     |      |  | 6,810   |  |  | 12,073   |  
|Cumulative effect of
  accounting change at the beginning of the year |  |                                  | (622      | )    |  |        |  |  |         |  
|NET INCOME (LOSS)                                                     |  |                                  | 85,757    |      |  | 43,347  |  |  | (112,081 | )
|                                                                      |  |                                  |           |      |  |         |  |  |          |  
|EARNINGS
  (LOSS) PER SHARE                                           |  |                                  |           |      |  |         |  |  |          |  
|                                                                      |  |                                  |           |      |  |         |  |  |          |  
|From continuing operations                                            |  |                                  | 3.70      |      |  | 1.56    |  |  | (5.56    | )
|From discontinued
  operations                                        |  |                                  | 0.27      |      |  | 0.29    |  |  | 0.54     |  
|Cumulative effect of
  accounting change at the beginning of the year |  |                                  | (0.03     | )    |  |        |  |  |         |  
|Basic earnings (loss) per
  share                                     |  |                                  | 3.94      |      |  | 1.85    |  |  | (5.02    | )
|                                                                      |  |                                  |           |      |  |         |  |  |          |  
|Dividend declared per share                                           |  |                                  | 12.39     |      |  |        |  |  |         |  

|    |                                                           
|--- | ----------------------------------------------------------
|(*) | We declared distribution of
  dividends twice during 2005.

8

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---



INCOME STATEMENT DATA
IN ACCORDANCE WITH U.S. GAAP:

|                                                                                         |                                               |  |                           |  |      |          |      |  |         |   | 
|---------------------------------------------------------------------------------------- | --------------------------------------------- |  | ------------------------- |  | ---- | -------- | ---- |  | ------- | - | 
|                                                                                         |                                               |  | YEAR ENDED
  DECEMBER 31, | 
|                                                                                         |                                               |  |                           | 
|                                                                                         |                                               |  | 2005                      |  | 2004 |          | 2003 | 
|                                                                                         |                                               |  |                           |  |      |          |      | 
|                                                                                         |                                               |  | (In
  thousand NIS)       | 
|                                                                                         |                                               |  |                           | 
|                                                                                        
|A)                                                                                       | NET INCOME (LOSS) AND
  COMPREHENSIVE INCOME: |  |                           |  |      |          |      |  |         |   | 
|                                                                                         |                                               |  |                           |  |      |          |      |  |         |   | 
|Net income (loss) according
  to U.S. GAAP                                               |                                               |  | 100,344                   |  |      | (92,447  | )    |  | (19,251 | )
|Total comprehensive income
  (loss) according to U.S. GAAP                               |                                               |  | 123,429                   |  |      | (149,916 | )    |  | 35,545  |  
|Basic earning (loss) per
  ordinary share as per U.S. GAAP (NIS)                         |                                               |  | 3.98                      |  |      | (3.67    | )    |  | (0.86   | )
|Diluted earning (loss) per
  ordinary share as per U.S. GAAP (NIS)                       |                                               |  | 4.53                      |  |      | (4.02    | )    |  | (0.86   | )
|Weighted average of number
  of shares and share equivalents under U.S. GAAP (thousands) |                                               |  | 21,743                    |  |      | 23,463   |      |  | 22,337  |  

SELECTED BALANCE
SHEET DATA IN ACCORDANCE ISRAELI GAAP AND U.S. GAAP

|                                                  |  |                     |           |      |  |           |  |  |           | 
|------------------------------------------------- |  | ------------------- | --------- | ---- |  | --------- |  |  | --------- | 
|                                                  |  | DECEMBER
  31       |          
|                                                  |  |                     |          
|                                                  |  | 2005                |           | 2004 |  | 2003      | 
|                                                  |  |                     |           |      |  |           | 
|                                                  |  | (In
  Thousand NIS) |          
|                                                  |  |                     |          
|                                                  |  |                     |          
|Current Assets                                    |  |                     | 1,448,733 |      |  | 736,339   |  |  | 577,687   | 
|Long-term investments and
receivables             |  |                     | 118,937   |      |  | 185,393   |  |  | 218,407   | 
|Hotels, commercial centers and other
fixed assets |  |                     | 2,175,364 |      |  | 3,527,988 |  |  | 4,629,675 | 
|Other assets and deferred
expenses                |  |                     | 30,476    |      |  | 55,859    |  |  | 85,798    | 
|Assets related to discontinued
operations         |  |                     | 12,607    |      |  | 14,700    |  |  | 16,228    | 
|Total                                             |  |                     | 3,786,117 |      |  | 4,520,279 |  |  | 5,527,795 | 
|Current Liabilities                               |  |                     | 887,415   |      |  | 794,741   |  |  | 1,178,415 | 
|Long-term liabilities                             |  |                     | 1,707,254 |      |  | 2,418,897 |  |  | 2,841,326 | 
|Liabilities related to discontinued
operations    |  |                     | 62,430    |      |  | 71,986    |  |  | 82,802    | 
|Convertible debentures                            |  |                     | 62,159    |      |  |          |  |  |          | 
|Minority interest                                 |  |                     | 11,449    |      |  | 430,687   |  |  | 471,606   | 
|Options Issued by Subsidiaries                    |  |                     | 1,186     |      |  |           |  |  |           | 
|Shareholders equity                              |  |                     | 1,054,224 |      |  | 803,968   |  |  | 953,646   | 
|Total                                             |  |                     | 3,786,117 |      |  | 4,520,279 |  |  | 5,527,795 | 
|                                                  |  |                     |           |      |  |           |  |  |           | 
|Total assets according to U.S.
GAAP               |  |                     | 3,846,427 |      |  | 4,676,008 |  |  | 5,917,917 | 
|Total liabilities according to U.S.
GAAP          |  |                     | 2,801,532 |      |  | 3,905,673 |  |  | 4,891,985 | 
|Total shareholders equity according to
U.S. GAAP  |  |                     | 1,044,894 |      |  | 770,335   |  |  | 1,025,932 | 

|   |                                
|-- | -------------------------------
|B. | CAPITALIZATION AND INDEBTEDNESS

Not
Applicable.

|   |                                          
|-- | -----------------------------------------
|C. | REASONS FOR THE OFFER AND USE OF PROCEEDS

Not
Applicable.

|   |             
|-- | ------------
|D. | 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 this document is filed with the SEC. We take no responsibility to
publicly update or revise such statements.

9

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| |                                                                               |                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company
  engages, directly or indirectly, mainly in the following areas:
| |                                                                               |                                                                                                                                                                                                                                                                                                                                                                                               
| | ·                                                                             | Shopping and
  Entertainment Centers - Initiation, construction,
  operation, management and sale of shopping and entertainment centers and
  other mixed-use projects in Central and Eastern Europe and in India.                                                                                                                                                                            
| |                                                                               |                                                                                                                                                                                                                                                                                                                                                                                               
| | ·                                                                             | Hotels
  - Hotel ownership, operation, management and sale, primarily in major
  European cities.                                                                                                                                                                                                                                                                                             
| |                                                                               |                                                                                                                                                                                                                                                                                                                                                                                               
| | ·                                                                             | Image Guided
  Treatment - Investments in the research and
  development, production and marketing of magnetic resonance imaging guided
  focused ultrasound treatment equipment.                                                                                                                                                                                                             
| |                                                                               |                                                                                                                                                                                                                                                                                                                                                                                               
| | ·                                                                             | Other
  Activities - Other activities consisting of (i)
  investments in real estate assets in India designated for residential
  projects and other mixed-use projects; (ii) the distribution and sale of
  fashion retail in Israel; and (iii) venture-capital investments. Other
  activities also include investments in hospitals and farm dairy plant which
  are in preliminary stages.

The
following is a list of the material risk factors that affect our business and
our results of operations. We cannot predict nor can we asses the impact, if
any, of such risk factors on our business or the extent which any factor, or a
combination of factors, may cause actual results to differ materially from
those projected in any forward-looking statement. In addition, we do not
undertake any obligation to update any forward-looking statements, whether as a
result of new information, further events, or otherwise.

RISKS RELATING TO THE SHOPPING AND
ENTERTAINMENT CENTERS BUSINESS

Suitable locations are critical to the
success of a shopping and entertainment center

The choice
of suitable locations for the development of shopping and entertainment center
projects is an important factor in the success of the individual projects.
Ideally, these sites should be located: (i) within the city center, with
well-developed transportation infrastructure (road and rail) located in close
proximity to facilitate customer access; and (ii) within local areas with
sufficient population to support the centers. If we are not able to find sites
in the target cities which meet these criteria, either at all or at viable
prices, this may materially adversely affect our business and results of
operation.

Zoning restriction and local opposition can
delay or preclude construction of a center.

Sites which
meet our criteria must be zoned for commercial activities of the type contained
in shopping and entertainment centers. In instances where the existing zoning
is not suitable or in which the zoning has yet to be determined, we will apply
for the required zoning classifications. This procedure may be protracted,
particularly in countries where the bureaucracy is cumbersome and inefficient,
and we cannot be certain that the process of obtaining proper zoning will be
completed with sufficient speed to enable the centers to open ahead of the
competition or at all. We have faced zoning problems with regard to certain
projects, including the following:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | With respect to Helios Plaza, Athens,
  Greece, the zoning permission under which Plaza Centers N.V. (PC), our
  subsidiary, was to redevelop the property as a shopping and entertainment
  center was reversed. At present, PC does not have the benefit of a current
  zoning permission permitting its development as a shopping and entertainment
  center and is examining alternative development opportunities
  for this site, including the construction of offices and the sale of the
  land.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | · | With respect to PCs property at Lodz, Poland, the zoning permission under which PC
was to develop the property as a shopping and entertainment center has expired. PC is
currently pursuing development of this site as a residential area.                                                                                                                                                                                                                                                               

Opposition
by local residents to zoning and/or building permit applications may also cause
considerable delays. Certain of our site acquisitions are conditioned upon the
grant of a building permit. In addition, arbitrary changes to applicable zoning
may jeopardize projects that have already commenced. Therefore, if we cannot
receive zoning approvals or if the procedures for the receipt of such zoning
approvals are delayed, our cost will increase which will have an adverse effect
on our business.

10

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We depend on contractors and subcontractors
to construct our centers, which may lead to increased development and
construction costs and the loss of our competitive advantage.

We
rely on subcontractors for all of our construction and development activities.
If we cannot enter into subcontracting arrangements on terms acceptable to us
or at all, we will incur additional costs which will have an adverse effect on
our business. The competition for the services of quality contractors and
subcontractors may cause delays in construction, thus exposing us to a loss of
our competitive advantage. 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, varied 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, as a result, on our
ability to conclude construction phases 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 for a monetary payment to us. The
guarantees do not, however, obligate the subcontractors to complete the project
and may not adequately cover our costs of completing the project or our lost
profits during the period while alternative means of completing the project are
sought.

Delays in the completion of construction
projects could affect our success.

An
important element in the success of the construction process of our shopping
and entertainment center projects is the short construction time (generally 12
to 18 months from the receipt of building permits, depending on the size of the
project), and our ability to open the centers ahead of our competitors,
particularly in cities which do not have shopping and entertainment centers 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; and                                                           
| |   |                                                                                                             
| | · | ordinary risks of construction that may hinder or delay the
  successful completion of a particular project.

In
addition, under our development contracts with local municipalities, 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 to the vendor (usually local
municipalities) based on the extent of the delay and in isolated cases to
forfeit rights in the land. The failure to complete a particular project on
schedule or on budget may have a material adverse effect on our business,
prospects, and results of operations or financial condition.

We are dependent on attracting third parties
to enter into lease agreements, and in particular on anchor tenants. If we fail
to enter into these agreements, we risk receiving a lower price for the sale of
such centers, which adversely affect our financial condition and results of
operations.

We
are dependent on our ability to enter into new leases on favorable terms with
third parties, including anchor tenants (such as the operators of cinemas,
supermarkets, department stores and electrical appliances stores) in order to
receive a profitable price for each shopping and entertainment center. Anchor
stores in entertainment and shopping and entertainment centers play an
important part in generating customer traffic and making a center a desirable
location for other tenants. We may find it more difficult to engage tenants to
enter into leases during periods when market rents are increasing, or when
general consumer activity is decreasing. Economic recession, pressures that
affect consumer confidence, job growth, energy costs and income gains can
affect retail sales growth, and a continuing soft economic cycle may impact our
ability to find tenants for our shopping and entertainment centers. Failure to
attract tenants, the termination of a tenants lease, or the bankruptcy or
economic decline of a tenant may adversely affect the price obtainable for the
shopping and entertainment center and adversely affect our financial condition
and results of operations.

We may lease developed shopping and entertainment
centers or other developments at below expected rental rates or sell at a price
which is below what was expected.

Our current strategy is to
dispose of a shopping and entertainment center upon completion. If rental
leases decrease below our expectations or if circumstances arise beyond our
control, including market prices, markets demand, negative trends and the
likes, we may have to sell a shopping and entertainment center at a price below
our projections.

11

---

---



Competition is becoming more aggressive in
certain Central and Eastern European countries which may adversely affect our
results of operations.

The
shopping and entertainment centers business in Central and Eastern Europe is
rapidly becoming more competitive with a number of developers becoming active
in our target areas. The shopping and entertainment centers 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 (the process
through which we often acquire new properties) 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
projects that we bid for or which are awarded pursuant to fixed price tenders
or that we will otherwise continue to be successful in competing in Central and
Eastern Europe.

Environmental discoveries may have a
significant impact on the budget, viability and marketability of a shopping and
entertainment center.

We may
encounter unforeseen constructions delays due to factors beyond our control
such as delays caused by previously unknown soil contamination or the discovery
of archeological findings which may have a significant impact on development
budget and schedules and which may, in turn, have a detrimental effect on the
viability or marketability of the development.

Mixed used projects combine versatile factors
affecting individual components, failure of any of which may affect other
components and thereby be detrimental to the mixed used project.

Our
shopping and entertainment centers business include the construction of mixed
used projects, which integrate large-scale business and leisure projects.
Materialization of a risk specific to an individual component may affect other
components of the mixed use projects and thereby the overall mixed used
projects.

We may be required to make payments to
occupational tenants who enjoy enhanced occupational rights in order to vacate
the premises which may result in budget overruns.

Occupational
tenants may enjoy enhanced occupational rights which may require us to make
additional ex gratia payments to
them in order to obtain vacant possession before the contractual expiry of such
occupational tenants lease terms. Such payments may result in budget overruns
for the project.

There is no assurance that we will
successfully implement our construct and dispose strategy on the shopping and
entertainment business and in such event our results will be materially
adversely affected.

Our
strategy in the shopping and entertainment centers business is to dispose of
centers upon completion. Our decision to sell properties is based on various
factors, including market conditions, and we cannot predict when such sales
will actually occur. There can be no assurance that we will be able to complete
dispositions of commercially reasonable terms or at all. Accordingly, our
results of operation can be materially adversely affected.

RISKS RELATING TO THE HOTEL BUSINESS

The hotel industry may be affected by
economic conditions, oversupply, travel patterns, weather and other conditions
beyond our control which may adversely affect our business and results of
operations.

The hotel
industry may be adversely affected by changes in national or local economic
conditions and other local market conditions. Our hotels generally, and in
particular, in London and Amsterdam, may be subject to the risk of oversupply
of hotel rooms. Other general risks that may affect our hotel business are
changes in travel patterns, extreme weather conditions, changes in governmental
regulations which influence or determine wages, workers union activities,
increases in land acquisition prices or construction costs, changes in interest
rates, the availability of financing for operating or capital needs, and
changes in real estate tax rates and other current operating expenses.
Unforeseen events, such as terrorist attacks, outbreaks of epidemics and
economic recessions have had and may continue to have an adverse effect on
local and international travel patterns and, as a result, on occupancy rates
and prices in our hotels. Downturns or prolonged adverse conditions in the real
estate or capital markets or in national or local economies and difficulties in
securing financing for the development of hotels could have a material adverse
effect on our business, results of operations, ability to develop new projects
and the attainment of our strategic goals.

Competition in the hotels industry could have
an adverse effect on our business and results of operations.

The hotel
business is highly competitive. This is particularly the case in those areas
where there is an oversupply of rooms, such as in London and Amsterdam.
Competitive factors within the industry include:

| |   |                                                                 
| | - | ----------------------------------------------------------------
| | · | convenience of location and accessibility
  to business centers;
| |   |                                                                 
| | · | room rates;                                                     

12

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| |   |                                                               
| | - | --------------------------------------------------------------
| | · | quality of accommodations;                                    
| |   |                                                               
| | · | name recognition;                                             
| |   |                                                               
| | · | quality and nature of service and guest
  facilities provided;
| |   |                                                               
| | · | reputation;                                                   
| |   |                                                               
| | · | convenience and ease of reservation
  systems; and            
| |   |                                                               
| | · | the supply and availability of alternative
  lodging.         

We operate,
and intend to develop or acquire, most of our hotels in geographic locations
where other hotels are or may be located. We expect to compete for guests and
development sites with national chains, large franchisees and independent
operators. Many of these competitors have greater financial resources and
better brand name recognition than we do, and may have more established
relationships with prospective franchisers, representatives in the construction
industry and other parties engaged in the lodging industry. The number of
competitive lodging facilities in a particular area could have a material
adverse effect on our hotel occupancy and rates and, therefore, revenues of our
hotels. We believe that competition within the lodging market may increase in
the foreseeable future especially for our hotels located in Eastern Europe. New
or existing competitors may significantly reduce their rates or offer greater
convenience, services or amenities or significantly expand or improve hotels in
the markets in which we currently or may subsequently compete, thereby
materially adversely affecting our business and results of operations.

Acquiring, developing and renovating hotels
involve substantial risks, and we cannot be certain of the success of any
future projects.

Part of our
strategy is to develop new hotels and to acquire and redevelop old or
under-performing hotels. Acquiring, developing and renovating hotels involve
substantial risks, including:

| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| | · | costs exceeding budget or amounts agreed to
  with contractors, because of several factors, including delays in completion
  of construction;
| |   |                                                                                                                                              
| | · | competition for acquisition of suitable
  development sites from competitors, who may have greater financial resources;                      
| |   |                                                                                                                                              
| | · | the failure to obtain zoning and
  construction permits;                                                                                     
| |   |                                                                                                                                              
| | · | unavailability of financing on favorable
  terms, if at all;                                                                                 
| |   |                                                                                                                                              
| | · | the failure of hotels to earn profits
  sufficient to service debt incurred in construction or renovation, or at all;                        
| |   |                                                                                                                                              
| | · | the failure to comply with labor and
  workers union legal requirements;                                                                    
| |   |                                                                                                                                              
| | · | relationships with and quality and timely
  performance by contractors; and                                                                  
| |   |                                                                                                                                              
| | · | compliance with changes in governmental
  rules, regulations, planning and interpretations.                                                  

We cannot
be certain that present or future development or renovation will be successful.
If we are not successful in future projects, it will have a material adverse
effect on our business. For successful growth, we must be able to develop or
acquire hotels on attractive terms and integrate such hotels into our existing
operations. For acquired hotels, we 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 our business, financial condition or results of operations.
We cannot be certain that newly acquired (or constructed or refurbished) hotels
will perform as we expect or that we will be able to realize projected cost
savings for acquired hotels.

We depend on partners in our joint ventures
and collaborative arrangements.

The
majority of operational hotels in which we own interests are held by us in
partnership with other entities, including in particular, Park Plaza Hotels
Limited (Park Plaza), a public company whose shares are listed for trade on
AIM. Park Plaza is engaged in the ownership, co-ownership, leasing, franchising
and management of full service four star deluxe hotels and trendy boutique
hotels in major gateway cities and regional centers in Europe and the
Middle-East and North Africa (For additional information regarding our
partnership with Park Plaza, see Item 4.B. Business Overview - Hotels below).
We may in the future enter into joint ventures or other collaborative
arrangements with Park Plaza or with other third parties. Our investments in
these joint ventures, including in particular our numerous partnerships with
Park Plaza, may, under certain circumstances, be subject to (i) the risk that
one of our partners may become bankrupt or insolvent, which may cause us to be
unable to fulfill our financial obligations, may trigger a default under our
bank financing agreements or, in the event of a liquidation, may prevent us from
managing or administering our business or entail a compulsory sale of the hotel
at less favorable terms; (ii) the risk that one of our partners may have
economic or other interests or goals that are inconsistent with our interests
and goals, and that such partner may be in a position to veto actions which may
be in our best interests; and (iii) the possibility that disputes may arise
regarding the continued operational requirements of our hotels that are jointly
owned.

13

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We rely on management agreements with Park
Plaza which may not provide the intended benefits, and may be terminated.
Significant decline in the reputation of Park Plaza or in the performance of
our hotels could adversely affect our results of operation.

Six of the
hotels in which we have an interest are
either directly or indirectly operated under long-term management agreements
with Park Plaza. Park Plaza is the franchisee for certain territories under
territorial license and franchise agreements with Golden Wall Investment Ltd.,
which entitles Park Plaza to use the Park Plaza trademark. Any significant
decline in the reputation of Park Plaza or in its ability to ensure the
performance of our hotels at anticipated levels could adversely affect our
results of operations. If for any reason Park Plaza loses its principal
franchise, we will automatically lose our ability to use the Park Plaza
trademark and other benefits, and suffer in the areas of brand name
recognition, marketing, and centralized reservations systems provided by Park
Plaza, which, in turn, could materially affect our operations. If our agreement
with Park Plaza is terminated, we cannot be certain that we would be able to
obtain alternative management services of the same standard on similar or
better terms.

Our agreements with Park Plaza and the Rezidor Hotel Group impose obligations
on us that may force us to incur significant costs.

Our
agreements with Park Plaza and the Rezidor Hotel Group, the management
companies of the majority of our operating hotels, contain specific standards
for, and restrictions and limitations on, hotel operation and maintenance.
These standards, restrictions and limitations may conflict with our priorities,
and impose capital demands upon us. In addition, Park Plaza and the Rezidor
Hotel Group may alter their standards or hinder our ability to improve or
modify our hotels. We may be forced to incur significant costs or make capital
improvements in order to comply with requirements of Park Plaza or the Rezidor
Hotel Group and, if our relationship with either of these parties is
terminated, to change the franchise affiliation of our affected hotels, as a
result.

The value of our investment in our hotel
properties is subject to various risks related to ownership and operation of
real property.

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

| |   |                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------
| | · | changes in global and national economic
  conditions, including global or national recession;                    
| |   |                                                                                                                  
| | · | a general or local slowdown in the real
  property market which may make it difficult to sell a property;        
| |   |                                                                                                                  
| | · | political events that may have a material
  adverse effect on the hotel industry;                                
| |   |                                                                                                                  
| | · | competition from other lodging facilities,
  and oversupply of hotel rooms in a specific location;               
| |   |                                                                                                                  
| | · | material changes in operating expenses,
  including as a result of changes in real property tax systems or rates;
| |   |                                                                                                                  
| | · | changes in the availability, cost and terms
  of financing;                                                      
| |   |                                                                                                                  
| | · | the effect of present or future
  environmental laws;                                                            
| |   |                                                                                                                  
| | · | our ongoing need for capital improvements
  and refurbishments; and                                              
| |   |                                                                                                                  
| | · | material changes in governmental rules and
  policies.                                                           

Our ownership rights in the Bucharesti hotel
complex have been challenged. If such challenges succeed, our results of
operations and financial position will be materially adversely affected.

Since we
acquired a controlling interest in the Bucuresti hotel complex in Bucharest,
Romania (which includes the Radisson SAS Bucurest Hotel and the Centerville
Apartment hotel in 2000, we have encountered a number of attempts to challenge
both the validity of the acquisition of the complex and our control over the
company owning the rights to the hotel. If any such challenge succeeds, our
results of operation and financial position will be materially adversely
affected.

14

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RISKS RELATING TO BOTH THE SHOPPING AND
ENTERTAINMENT CENTERS BUSINESS AND TO THE HOTEL BUSINESS

The failure to comply with government
regulation may adversely affect our business and results of operations.

Both the
shopping and entertainment centers business and the hotel industry are subject
to numerous national and local government regulations, including those relating
to acquisition of real-estate properties, building and zoning requirements and
fire safety control. In addition, we are subject to laws governing our
relationships with employees, including minimum wage requirements, overtime,
working conditions, and work permit requirements, and in some localities to
collective labor agreements. A determination that we are not in compliance with
these regulations could result in the imposition of fines, an award of damages
to private litigants and significant expenses in bringing our shopping and
entertainment centers and hotels into compliance with the regulations. In
addition, our ability to dismiss unneeded staff may be hampered by local labor
laws and courts which traditionally favor employees in disputes with former
employers, particularly in countries with strong socialist histories such as
those in Eastern Europe.

We may be held liable for design or
construction defects of third-party contractors.

We rely on
the quality and timely performance of construction activities by third-party
contractors. Claims may be asserted against us by local government and zoning
authorities or by third parties for personal injury and design or construction
defects. These claims may not be covered by the professional liability
insurance of the contractors or of the architects and consultants. These claims
may give rise to significant liabilities.

Shortages in raw materials and employees may
have a material adverse effect on our results of operations.

The
building industry may from time to time experience fluctuating prices and
shortages in the supply of raw materials as well as shortages of labor and
other materials. The inability to obtain sufficient amounts of raw materials
and to retain efficient employees on terms acceptable to us may delay
construction and increase the budget of our projects and, as a result, have a
material adverse effect on the results of our operations.

The fair value of our real-estate assets may
be harmed by certain factors, which may entail impairment losses not previously
recorded which, in turn, will affect our financial results.

Certain
circumstances may affect the fair value of our real estate assets (operating or
under construction), including, among other things, (i) the absence of or
modifications to permits or approvals required for the construction and/or
operation of any real-estate asset; (ii) in shopping and entertainment centers
- where a significant part of the rental areas is subject to long-term leases
with a small group of retailers which is distinguished (from other lessees), we
may be exposed to a risk of rental fees rates being significantly lower than
originally anticipated. A material decline in the long run in the business
operations of such retailers may therefore, have an adverse effect on the real
estate assets recoverable amount and their final sale prices. (iii) delays in
completion of works, beyond the anticipated target, may cause harm and damages
to the results of operations of the real estate; (iv) lawsuits that are
pending, whether or not we are a party thereto, may have a significant impact
on our real estate assets and/or on certain of our shareholding rights in the
companies owning such assets. In addition, certain laws and regulations,
applicable to our business in certain countries where the legislation process
undergoes constant changes, may be subject to frequent and substantially
different interpretations; agreements which may be interpreted by governmental
authorities so as to shorten term of use of real estate, and which may be
accompanied with a demand to demolish the construction thereon erected, be that
with or without compensation, may significantly affect the value of such real
estate asset. The fair value of our real estate assets may be significantly
changed, thereby resulting in impairment losses not previously recorded in our
financial results.

Since
market conditions and other parameters (such as macroeconomic environment
trends, and others), which affect the fair value of our real-estate and
investment, vary from time to time, the fair value may not be adequate on a
date other than the date the measurement was executed (immediately prior to the
balance sheet date). In the event the projected forecasts regarding the future
cash flows generated by those assets are not met, we may have to record an
additional impairment loss not previously recorded.

RISKS RELATING TO THE IMAGE GUIDED TREATMENT
BUSINESS

InSightec Ltd., our subsidiary, is currently
dependent on sales of the ExAblate 2000 for the treatment of uterine fibroids
and the sale of research systems for its clinical research. Inability to sell
the ExAblate 2000 at appropriate prices will results in a adverse effect on our
results of operations.

The
ExAblate 2000 is in an early stage of commercialization. InSightec Ltd.
(InSightec), our subsidiary in which hold 70.71% of its voting rights,
received FDA approval in October 2004 to market the ExAblate 2000 in the United
States only for the treatment of uterine fibroids. InSightec expects sales of
the ExAblate 2000 to come from this application and from sales of research
systems for the foreseeable future, depending upon the timing of regulatory approval
of additional applications for the ExAblate 2000. As a result, factors
adversely affecting InSightecs ability to sell, or pricing of or demand for,
InSightecs product would have a material adverse effect on InSightecs
financial condition and results of operations, which would, in turn, adversely
affect our results of operations.

15

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If the ExAblate 2000 does not achieve broad
market acceptance for the treatment of uterine fibroids, InSightec will not be
able to generate sufficient sales to support its business.

InSightec
must achieve broad market acceptance of the ExAblate 2000 for the treatment of
uterine fibroids among physicians, patients and third-party payors in order to
generate a sufficient amount of sales to support its business. Physicians will
not recommend the use of the ExAblate 2000 unless InSightec can demonstrate
that it produces results comparable or superior to existing treatments for
uterine fibroids. If long-term patient studies do not support InSightecs
existing clinical results, or if they indicate that the use of the ExAblate
2000 has negative side effects on patients, physicians may not adopt or
continue to use the ExAblate 2000. Even if InSightec demonstrates the
effectiveness of the ExAblate 2000, physicians may still not use the system for
a number of other reasons. Physicians may continue to recommend traditional
uterine fibroid treatment options simply because those methods are already
widely accepted and are based on established technologies. Patients may also be
reluctant to undergo new, less established treatments for uterine fibroids. If,
due to any of these factors, the ExAblate 2000 does not receive broad market
acceptance among physicians or patients, InSightec will not generate
significant sales. In this event, InSightecs business, financial condition and
results of operations would be seriously harmed, and InSightecs ability to
develop additional treatment applications for the ExAblate 2000 would be
adversely affected.

If physicians, hospitals and other healthcare
providers are unable to obtain coverage and sufficient reimbursement from
third-party healthcare payors for treatment procedures using the ExAblate 2000,
InSightec may be unable to generate sufficient sales to support its business.

Demand for
the ExAblate 2000, for commercial use, is likely to depend substantially on the
extent to which sufficient reimbursement for treatment procedures using
InSightecs system will be available from third-party payors, such as private
health insurance plans and health maintenance organizations and, to a lesser
degree, government payor programs, such as Medicare and Medicaid. Reimbursement
practices vary significantly from country to country and within some countries,
by region. InSightec believes that third-party payors will not provide
reimbursement on a national basis for treatments using the ExAblate 2000,
unless InSightec can generate a sufficient amount of data through long-term
patient studies to demonstrate that such treatments produce favorable results
in a cost-effective manner relative to other treatments. Furthermore, InSightec
could be adversely affected by changes in reimbursement policies of private
healthcare or governmental payors to the extent any such changes affect
reimbursement for treatment procedures using the ExAblate 2000. If physicians,
hospitals and other healthcare providers are unable to obtain sufficient
coverage and reimbursement from third-party payors for treatment procedures
using the ExAblate 2000, InSightec may be unable to generate sufficient sales
to support its business.

InSightecs future growth substantially
depends on its ability to develop and obtain regulatory clearance for
additional treatment applications for the ExAblate 2000.

InSightec
has received regulatory approvals to market the ExAblate 2000 in the United
States, Israel, Canada, Russia, Brazil, Mexico, Korea, Taiwan, Australia, New
Zealand, Singapore and the European Union Economic Area (EEA), which is
comprised of the member nations of the European Union and certain additional
European nations, solely for the treatment of uterine fibroids. Certain
countries have also approved the use of ExAblate 2000 for the treatment of
breast cancer. In addition, InSightec has received in May 2007 the CE-marking
(approval to market in the EEA) and in January 2008 the Israeli approval for
pain palliation of bone metastases. However, clinical experience for the bone
metastases application is still in early stages and therefore commercial
acceptance is expected to take some time. InSightecs objective is to expand
the use of the ExAblate 2000 by developing and introducing new treatment
applications. InSightec is currently in various stages of product development
and clinical studies for a number of new treatment applications for the
ExAblate 2000. It will be required to obtain FDA approval in the United States
and other regulatory approvals outside of the United States before marketing
the ExAblate 2000 for these additional treatment applications. InSightec cannot
guarantee that InSightecs product development activities for these other
applications will be successful and in such event, InSightecs future growth
will be harmed. In particular, InSightecs future curative oncology treatment
applications are subject to significant risks since these applications must be
able to demonstrate complete ablation of malignant tumors, or meet or exceed
the current medical standard related to the oncology application in question.
If InSightec is unable to demonstrate this degree of efficacy, its future
curative oncology treatment applications may not prove to be successful. In
addition, assuming product development is successful, the regulatory processes
can be lengthy, lasting many years in some cases, and expensive. We cannot assure
that FDA approval or other regulatory approvals will be granted.

In order to
obtain FDA clearance and other regulatory approvals, and to obtain
reimbursement coverage for use of the ExAblate 2000 treatment for additional
applications, InSightec is required to conduct extensive clinical studies which
may take several years to demonstrate the therapeutic benefits and
cost-effectiveness of these new treatment applications and products. Clinical
trials are expensive and may take several years to complete. If future clinical
trials indicate that the ExAblate 2000 is not as beneficial or cost-effective
as existing treatment methods, or that such products cause unexpected
complications or other unforeseen adverse events, InSightec may not obtain regulatory
clearance to market and sell the ExAblate 2000 for these additional treatment
applications or obtain reimbursement coverage, and InSightecs long-term growth
would be seriously harmed.

16

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InSightec is dependent on General Electric.

The ExAblate
2000 is compatible only with certain of GE Healthcare, a division of the
General Electric Company (GE) Healthcares Magnetic Resonance Imaging (MRI)
systems, which may limit InSightecs potential market. A significant portion of
the MRI systems in use in the United States and elsewhere are not GE MRI
systems. InSightec has no current plans to develop a system that would be
compatible with MRI systems manufactured by companies other than GE and is,
therefore, limited in its target market to potential customers who already own
or otherwise have access to a compatible GE MRI system, or are willing to
purchase such a system in order to use the ExAblate 2000. In addition, in the
event that GE is unable to effectively market its MRI systems, InSightecs ability
to generate additional sales of the ExAblate 2000 may be adversely affected.

InSightec
depends on its collaboration with GE to ensure the compatibility of the
ExAblate 2000 with new models of GE MRI systems and upgrades to existing GE MRI
systems. GE regularly develops new models of its MRI systems, as well as new
capabilities for its existing MRI systems, which could affect their
compatibility with the ExAblate 2000. If InSightec is unable to receive
information regarding new models of the GE MRI systems or upgrades to existing
GE MRI systems, and coordinate corresponding upgrades to the ExAblate 2000 to
ensure continued compatibility with new and existing GE MRI systems, its
ability to generate sales of its system will be adversely affected. In
addition, If InSightec is unable to coordinate new applications or upgrades
with GEs research and development team, it may be unable to develop such
applications or upgrades in a timely manner and its future revenue growth may
be seriously harmed.

In
addition, GE is not prohibited from marketing or manufacturing other focused
ultrasound-based products that may compete with the ExAblate 2000. GE also
retained the right to use certain focused ultrasound-related patents which it
assigned to InSightec at the time of its formation and InSightec has granted to
GE a non-exclusive license to certain of InSightecs patents derived from
technology and patent rights licensed to InSightec by GE. GE may use such
patents to develop its own focused ultrasound based products without
InSightecs consent. In the event that GE chooses to distribute or manufacture
medical devices that may compete with the ExAblate 2000 or other products based
on the MRgFUS technology, InSightecs sales may be adversely affected.

If InSightec is unable to protect its
intellectual property rights, its competitive position could be harmed.
Third-party claims of infringement could require InSightec to redesign its
products, seek licenses, or engage in future costly intellectual property
litigation, which could impact InSightecs future business and financial
performance.

InSightecs
success and ability to compete depends in large part upon its ability to
protect its proprietary technology. InSightec relies on a combination of
patent, copyright, trademark and trade secret laws, and on confidentiality and
invention assignment agreements, in order to protect its intellectual property
rights. A few of InSightecs patents were transferred to InSightec from GE at
the time of its formation, and GE retains a non-exclusive license to make, use
and sell products covered under these patents in the imaging field only without
InSightecs permission. Prior to the transfer, GE had entered into
cross-license agreements with respect to these patents with a number of
companies, including some that may be potential competitors of InSightec. As a
result of these cross license agreements, InSightec may not be able to enforce
these patents against one or more of these companies.

The process
of seeking patent protection can be long and expensive, and there can be no
assurance that InSightecs existing or future patent applications will result
in patents being issued, or that InSightecs existing patents, or any patents,
which may be issued as a result of existing or future applications, will
provide meaningful protection or commercial advantage to InSightec.

Claims by
competitors and other third parties that InSightec products allegedly infringe
the patent rights of others could have a material adverse effect on InSightecs
business. Any future litigation, regardless of outcome, could result in
substantial expense and significant diversion of the efforts of InSightecs
technical and management personnel. An adverse determination in any such
proceeding could subject InSightec to significant liabilities or require
InSightec to seek licenses from third parties or pay royalties that may be
substantial.

17

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RISKS RELATING TO OUR OTHER ACTIVITIES

Our real-estate projects in India are subject
to numerous risks relating to the purchase of land, development and
construction and the sale of such projects which could harm our business and
results of operation.

Our
real-estate operations in India are subject to the following risks:

| |  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | · | If we are
  not able to find sites in the target cities which meet our criteria, either
  at all or at viable prices, this may materially adversely affect our business
  and results of operation. For additional information see - Risks Relating to
  the Shopping and Entertainment Business above.                                                                                                                                                                                                                                                                                                                                                                                            
| |  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | · | If we cannot
  receive zoning approvals or if the procedures for the receipt of such zoning
  approvals are delayed, our cost will increase which will have an adverse
  effect on our business. For additional information see - Risks Relating to
  the Shopping and Entertainment Business above.                                                                                                                                                                                                                                                                                                                                                                                               
| |  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | · | If we cannot
  enter into subcontracting arrangements on terms acceptable to us or at all,
  we will incur additional costs which will have an adverse effect on our business.
  A shortage of workers would have a detrimental effect on us and our
  subcontractors and, as a result, on our ability to conclude construction
  phases on time and within budget. For additional information see - Risks
  Relating to the Shopping and Entertainment Business above.                                                                                                                                                                                                                            
| |  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | · | The failure
  to complete a particular project on schedule or on budget may have a material
  adverse effect on our business, prospects, and results of operations or
  financial condition. For additional information see - Risks Relating to the
  Shopping and Entertainment Business above.                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | · | There can be
  no assurance that we will be successful in winning projects that we bid for
  or which are awarded pursuant to fixed price tenders or that we will
  otherwise continue to be successful in competing in Central and Eastern
  Europe. For additional information see - Risks Relating to the Shopping and
  Entertainment Business above.                                                                                                                                                                                                                                                                                                                                          
| |  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | · | We may
  encounter unforeseen constructions delays due to factors beyond our control
  such as delays caused by previously unknown soil contamination or the
  discovery of archeological findings which may have a significant impact on
  development budget and schedules and which may, in turn, have a detrimental
  effect on the viability or marketability of the development. For additional
  information see - Risks Relating to the Shopping and Entertainment Business
  above.                                                                                                                                                                                                       
| |  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | · | Mixed used
  projects combine versatile factors affecting individual components, failure
  of any of which may affect other components and thereby be detrimental to the
  mixed used project. For additional information see - Risks Relating to the
  Shopping and Entertainment Business above.                                                                                                                                                                                                                                                                                                                                                                                                 
| |  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | · | We may be
  required to make payments to occupational tenants who enjoy enhanced occupational
  rights in order to vacate the premises which may result in budget overruns.
  For additional information see - Risks Relating to the Shopping and
  Entertainment Business above.                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | · | We operate
  in India through joint ventures and collaborative arrangements. We may, under
  certain circumstances, be subject to (i) the risk that one of our partners
  may become bankrupt or insolvent, which may cause us to be unable to fulfill
  our financial obligations, may trigger a default under our bank financing agreements
  or, in the event of a liquidation, may entail a compulsory sale of a project
  at less favorable terms; (ii) the risk that one of our partners may have
  economic or other interests or goals that are inconsistent with our interests
  and goals, and that such partner may be in a position to veto actions which
  may be in our best interests.
| |  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | · | A
  determination that we are not in compliance with government regulations could
  result in the imposition of fines, an award of damages to private litigants
  and significant expenses in bringing our shopping and entertainment centers
  and hotels into compliance with the regulations. For additional information
  see - Risks Relating to Both the Shopping and Entertainment Centers Business
  and to the Hotel Business above.                                                                                                                                                                                                                                                      
| |  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | · | We may be
  held liable for design or construction defects of third-party contractors.
  These claims may give rise to significant liabilities. For additional
  information see - Risks Relating to Both the Shopping and Entertainment
  Centers Business and to the Hotel Business above.                                                                                                                                                                                                                                                                                                                                                                                                       
| |  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | · | Shortages in
  raw materials and employees may have a material adverse effect on our results
  of operations. For additional information see - Risks Relating to Both the
  Shopping and Entertainment Centers Business and to the Hotel Business above.                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | · | The fair
  value of our real-estate assets may be harmed by certain factors, which may
  entail impairment losses not previously recorded which, in turn, will affect
  our financial results. For additional information see - Risks Relating to
  Both the Shopping and Entertainment Centers Business and to the Hotel
  Business above.                                                                                                                                                                                                                                                                                                                                                        

18

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Our fashion retail business is dependent on
one single franchise and supplier which could cause delays or disruptions in
the delivery of our products, which could harm our business and results of
operations.

Elbit Trade
and Retail Ltd. (Elbit Trade), our wholly owned subsidiary, depends on two
single franchises with and the supply of products from Punto Fa, S.L., a
contemporary womens apparel company, and its international brand name
MANGO-MNG (which supplier we refer to collectively herein as Mango
International). If Mango International ends its relationship with Elbit Trade
or enters into liquidation, Elbit Trades business in Israel with respect to
the products supplied by such supplier will be terminated. In addition, Elbit
Trade relies on the supply of its products from such supplier and may face a
shortage of inventory if there is a worldwide excess demand for Mango Internationals
products. If either of these events occurs, our results of operations may be
adversely affected.

A rise in wage levels in Israel could
adversely affect Elbit Trades financial results.

Elbit Trade
relies mainly on minimum wage employees. The Israeli government increased the
applicable minimum wage effective as of April 2007. If wage levels generally,
and particularly the minimum wage in Israel, increase, Elbit Trades results of
operations could be harmed.

The apparel industry is subject to changes in
fashion preferences. If the manufacturer of products marketed by Elbit Trade
misjudges fashion trends, or if Elbit Trade fails to choose from the Mango
International inventory design products that appeal to our customers, our sales
could decline and our results of operations could be adversely affected.

Neither
Mango International nor Elbit Trade may be successful in anticipating and
responding to fashion trends in the future. Customer tastes and fashion trends
change rapidly. Our success depends in part on the ability of Mango
International to effectively anticipate and respond to changing fashion tastes
and consumer demands and to translate market trends into appropriate, saleable
product offerings far in advance. If Mango International is unable to
successfully anticipate, identify or react to changing styles or trends and
misjudges the market for its products or any new product lines, or if we fail
to choose from the Mango Internationals inventory design products that appeal to
our customers changing fashion preferences, Elbit Trades sales will be lower
and we may be faced with a significant amount of unsold finished goods
inventory. As a result, we may be forced to increase our marketing promotions
or price markdowns, which could have an adverse effect on our business. Our
Mango brand image may also suffer if customers believe merchandise misjudgments
indicate that Mango no longer offers the latest fashions.

A change in customs rates and custom and
harbor strikes could adversely affect Elbit Trades financial results.

Mango is
subject to Israeli customs since all of its products are imported. An increase
in customs rates on Elbit Trades products could adversely affect Elbit Trades
ability to compete against local manufacturers or with products from countries
which enjoy more favorable customs rates in Israel. On the other hand, a
reduction in customs rates may encourage entrance penetration of new
competitors to the market. In addition, since most of Elbit Trades products
are imported, custom and harbor strikes and delays could adversely affect Elbit
Trades ability to meet customer demands and adversely affect Elbit Trades
financial results.

Elbit Trade may be unable to compete
favorably in the highly competitive fashion retail industry, and Elbit Trades
competitors may have greater financial, geographic and other resources.

The sale of
fashion retail is highly competitive. Elbit Trade competes directly with a
number of Israeli and international brands (such as Zara, Castro, Honigman,
Renuar and Dan Casidi, some of which have longer operating histories and enjoy
greater financial and marketing resources than Elbit Trade. For example, as a
result of their greater financial and marketing resources, Elbit Trades
competitors may have the ability to obtain better geographic locations for
their stores in shopping and entertainment centers, with better traffic flow
and access to customers, which would have a positive impact on their sales.

Increased
competition could result in pricing pressure, increased marketing expenditures
or loss of market share to Elbit Trade and adversely affect Elbit Trades
revenues and profitability. There can be no assurance that Elbit Trade will be
able to compete successfully against existing or new competitors.

Elbit Trade has no control over fluctuations
in the cost of the raw materials it uses and a rise in costs could harm Elbit
Trade profitability.

Elbit Trade
buys its entire inventory from Mango International, which is responsible for
the design and manufacturing of all of Elbit Trades products. The prices of
the inventory that Elbit Trade purchases from Mango International are dependent
on the manufacturing costs of Mango International. Mango Internationals manufacturing
costs are substantially dependent on the prices of raw materials and level of
wages in the countries where its products are manufactured. Therefore, an
increase in the manufacturing costs of Mango International will cause an
increase in Elbit Trades cost of goods sold and Elbit Trade may not be able to
pass on the increased costs to its customers. Such increased costs would likely
adversely affect Elbit Trades profitability, operational results and its
financial condition.

19

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A devaluation of the NIS against the Euro
could harm Elbit Trades profitability.

Elbit Trade
buys its entire inventory for each of the brands it is marketing and selling
from a sole supplier. The price of this inventory is denominated in Euros.
Therefore, a devaluation of the NIS against the Euro will cause an increase in
Elbit Trades cost of goods sold expressed in NIS, and Elbit Trade may not be
able to pass the increased costs to its customers. This would likely adversely
affect Elbit Trades profitability, operational results and its financial
conditions.

Our venture capital investments are made in
development stage companies and involve high risks.

Investments
in biotechnology development stage companies involve high risks. These
companies are subject to various risks generally encountered by new
enterprises, including costly, delayed or protracted research and development
programs, the need for acceptance of their products in the market place, and
the need for additional financing which might not be available. We cannot be
certain that the assessments we made at the time of investment in our venture
capital investments, as to the quality of the concept or the prototype, will
prove correct, or that there will be an adequate return on investment, if at
all. If our assessment of the venture capital investments are incorrect, our
results of operations may be adversely affected.

Our venture capital investments are
speculative in nature and we may never realize any revenues or profits from
these investments.

We cannot
be certain that our venture capital investments will result in revenues or
profits. Economic, governmental, regulatory and industry factors outside our
control affect our venture capital investments. If our venture capital investments
will not successfully implement its business plan we will not be able to
realize any profits from it. Our ability to realize profits from these
investments will be dependent upon the management of these companies, the
success of its research and development activities, the timing of the marketing
of its products and numerous other factors beyond our control.

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.
In addition our operations in our other lines of business, such as Mango and
other venture capital investments operate 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. These developments 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.

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 45 are, unless exempt, are obligated to
perform annual military reserve duty for up to 36 days per annum 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, a sharp increase in the army reserve
obligations of our directors, officers and employees who are subject to such
reserve duty obligations. 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.

Israeli courts might not enforce judgments
rendered outside of Israel, which may make it difficult to collect on judgments
rendered against us.

We are
incorporated in Israel. None of our directors and officers are residents of the
United States and some of their assets and our assets are located outside the
United States. Service of process upon our non-U.S. resident directors and
officers and enforcement of judgments obtained in the United States against us,
and our directors and executive officers may be difficult to obtain within the
United States.

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Subject to
certain time limitations, an Israeli court may declare a foreign civil judgment
enforceable if it finds that all of the following terms are met: (i) the
judgment was rendered by a court which was, according to the laws of the state
of the court, competent to render the judgment; (ii) the judgment can no longer
be appealed; (iii) the obligation imposed by the judgment is enforceable
according to the rules relating to the enforceability of judgments in Israel
and the substance of the judgment is not contrary to public policy; and (iv)
the judgment can be executed in the state in which it was rendered or issued.

Even if the
above conditions are satisfied, an Israeli court will not enforce a foreign
judgment if it was given in a state whose laws do not provide for the
enforcement of judgments of Israeli courts (subject to exceptional cases) or if
its enforcement is likely to prejudice the sovereignty or security of the State
of Israel. An Israeli court will also not declare a foreign judgment
enforceable in the occurrence of any of the following: (i) the judgment was
obtained by fraud; (ii) there was no due process; (iii) the judgment was
rendered by a court not competent to render it according to the laws of private
international law in Israel; (iv) the judgment is at variance with another
judgment that was given in the same matter between the same parties and which
is still valid; or (v) at the time the action was brought in the foreign court
a suit in the same matter and between the same parties was pending before a
court or tribunal in Israel.

Anti-takeover provisions could negatively
impact our shareholders.

The Israeli
Companies Law of 1999 (the 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 such acquisition the purchaser becomes 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 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 becomes a holder of more than 45% of the voting
rights in the company. This rule does not apply if another party already holds
more than 45% of the voting rights in the company.

Furthermore,
under the Companies Law, a person is not permitted to acquire shares of a
public company or a class of shares of a public company, if following such
acquisition such person holds 90% or more of the companys shares or class of
shares, unless such person conducts a tender offer for all of the companys
shares or class of shares (a Full Tender Offer). In the event that holders of
less than 5% of the companys issued share capital or of the issued class of
shares did not respond to the tender offer, then such offer will be accepted
and all of the companys shares or class of shares with respect to which the
offer was made will be transferred to the offeror, including all of the
companys shares or class of shares held by such non-responsive shareholders
that will be transferred to the offeror by way of a compulsory sale of shares.
In the event that holders of 5% or more of the issued shares did not respond to
the tender offer, the offeror may not purchase more than 90% of the shares or class
of shares of such company.

At the
request of an offeree of a Full Tender Offer which was accepted, the court may
determine that the consideration for the shares purchased 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. Such application to the court may be
filed as a class action.

The
Companies Law provides that for so long as a shareholder in a publicly held
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.

RISKS RELATING TO OPERATIONS IN EASTERN
EUROPE AND ASIA

We are subject to various risks related to
our operations in Eastern Europe, including economic and political instability,
political and criminal corruption.

Many of the
Eastern European countries in which we operate are countries which were allied
with the former Soviet Union under a communist economic system, and they are
still subject to various risks. Certain Eastern European countries, in
particular those countries that are not expected to join the European Union in
the near future, are still economically and politically unstable and suffer
from political and criminal corruption, lack of commercial experience, and
unpredictability of the civil justice system. Certain Eastern European
countries also continue to suffer from high unemployment, low wages and low
literacy rates. These risks could be harmful to us and are very difficult to
quantify or predict. Although many governments of the Eastern European
countries have liberalized policies on international trade, foreign ownership
and development, investment, and currency repatriation to increase
international trade and investment, such policies might change unexpectedly. We
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 property or assets. Domestic and international laws and
regulations, whether existing today or in the future, could adversely affect
our ability to market and sell our products and could impair our profitability.

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Certain
Eastern European countries 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 deterioration in a
countrys balance of payments or for other reasons, a country may impose
temporary restrictions on foreign capital remittances abroad. Any such
restrictions may adversely affect our 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 at
our hotels have been imposed at times in certain countries, which may affect
our ability to increase our room rates.

Environmental issues are becoming of
increasing significance in Eastern Europe which may result in delays in
construction and increased costs.

There is
increasing awareness of environmental issues in Eastern Europe. This may be of
critical importance in areas previously occupied by the Soviet Army, where soil
pollution may be prevalent. We cannot be certain that all sites acquired will
be free of environmental pollution. If a property that we acquire turns out to
be polluted, such a finding will adversely affect our ability to construct,
develop and operate a shopping and entertainment center on such property, and
may cause us to suffer expenses incurred in cleaning up the polluted site which
may be significant.

Hostilities in India and other countries in
Asia could have a material adverse effect on our financial conditions and
results of operations.

India has
from time to time experienced instances of hostilities with neighboring
countries, including Pakistan and China. Military activity or terrorist attacks
in the future could influence the Indian economy by disrupting communications
and making travel more difficult and such political tensions could create a
greater perception that companies operating in India are usually involved in
higher degrees of risk. Events of this nature in the future, as well as social
and civil unrest within other countries in Asia or within India, could
influence the Indian economy and could have a material adverse effect on our
financial condition and results of operations. In addition, India has from time
to time experienced social and civil unrest due to religious strife.

Changes in the economic policies of the
Government of India or political instability could have a material adverse
effect on our business.

Since
1991, successive Indian governments have pursued policies of economic liberalization,
including significantly relaxing restrictions on the private sector and significantly
reducing the roles of the state governments in the Indian economy as producers, consumers
and regulators. The current Government of India, formed in May 2004, has announced
policies and taken initiatives that support the continued economic liberalization pursued
by previous governments. However, this trend of liberalization may not continue in the
future. The rate of economic liberalization could change, and specific laws and policies
generally affecting the foreign investment, currency exchange, repatriation of profits and
other matters affecting our investments, as well as specifically affecting the sectors of
commercial activity in which we operate, could also change. A significant shift in
Indias economic liberalization and deregulation policies could materially adversely
affect business and economic conditions in India generally, as well as our business
operations in particular. In addition to potential economical instability, the Indian
economy and business practices are relatively unsophisticated and lacking in experience,
and there have been some instances of political and criminal corruption. Furthermore,
India continues to suffer from high unemployment, low wages and low literacy rates. These
risks could be harmful to us and are very difficult to quantify or predict.

Indian
governments are democratically elected, but are invariably comprised of a
coalition of several political parties. The withdrawal of one or more of these
parties from the coalition could cause the government to fall, resulting in
political instability or stagnation pending new elections. Such events could
delay or even halt the progress and development of the Indian economy and its
receptiveness to foreign investment, and could thus have a material adverse
effect on our business.

Operations in India are a relatively new
venue to us and there is no assurance that our skills and experience can be
applied successfully in these regions.

While we
believe that the skills and experiences that we have acquired through sourcing
sites, and developing and selling shopping and entertainment centers, in the
emerging markets in Central and Eastern Europe (CEE) can be applied
successfully to projects in India, this cannot be guaranteed. The differences
between emerging markets in CEE and emerging markets in India, such as
differing mentalities, social and business cultures, legal structures and
systems, integrity of the courts, and restrictions on foreign ownership of real
estate, may mean that our success in developing and selling shopping and
entertainment centers in CEE may not be replicated in India.

Limitations by the Indian government to invest
in India may adversely affect our business and results of operations.

Under the
Indian governments policy on Foreign Direct Investment (FDI Policy), an
acquisition or investment by us, in an Indian sector or activity in particular
in the shopping and entertainment centers business, which does not comply with
certain limitations, is subject to a governmental approval. With respect to the
real-estate sector, these limitations include, among other things, a minimum
investment and minimum size of build-up land. In addition, under the FDI Policy
it is not permitted for foreign investors to acquire agricultural land for
real-estate development purposes. There is no assurance that we will comply
with the limitations prescribed in the FDI Policy in order to not be required
to receive governmental approvals. Failure to comply with the requirements of
the FDI Policy will require us to receive governmental approvals which we may
not be able to obtain or which may include limitations or conditions that will
make the investment unviable or impossible, and non-compliance with investment
restrictions may result in the imposition of penalties. This would have an
adverse effect on our business and results of operations.

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Uncertainty regarding the ownership of land
in India may expose us to third party claims in connection with the purchase of
land by us which may have a material adverse effect on our financial
performance and results of operations.

Under the
laws of India, the registration of ownership in land with the land registration
offices does not automatically guarantee lack of third party rights to such
land, particularly with respect of rights which devolve by inheritance. While
we go to considerable lengths to ensure integrity of title in the real estate
properties acquired by us, the system of recording ownership and rights in and
to immovable property is not conclusive, which may expose us to third party
claims in connection with such land.

Restrictions on the repatriation of capital
in India may adversely affect our cash flows and results of operations.

Pursuant to
regulations promulgated under the FDI Policy and by the central bank, the
repatriation of capital with regard to investments made in the real-estate
sector is such to strict regulatory procedures, and is restricted during three
years commencing on the date of such investment. If we are unable to repatriate
capital from our investments in India, in whole or in part, this may have an
adverse effect on our cash flows and our results of operations.

GENERAL

If we are characterized as a passive foreign
investment company for U.S. federal income tax purpose, holders of ordinary
shares may suffer adverse tax consequences.

Generally,
if for any taxable year 75% or more of our gross income is passive income, or at least 50%
of the value of our assets, averaged quarterly, are held for the production of, or
produce, passive income, we will be characterized as a passive foreign investment company
(PFIC), for U.S. federal income tax purposes. A determination that we are a
PFIC could cause our U.S. shareholders to suffer adverse tax consequences, including
having gains realized on the sale of our shares taxed at ordinary income rates, rather
than capital gains rates, and being subject to an interest charge on gain from the sale or
other disposition of our ordinary shares, and on certain excess distributions
with respect to our ordinary shares and could have an adverse effect on the price and
marketability of our shares. If we are a PFIC for U.S. federal income tax purposes, highly
complex rules would apply to U.S. holders owning our ordinary shares. Accordingly, you are
urged to consult your tax advisors regarding the application of such rules. See Item
10.E. Taxation  Tax consequences if we are a Passive Foreign Investment
Company below.

We are subject to various legal proceedings
that may have a material adverse effect on our results of operations.

Certain
legal proceedings have been initiated against us, including litigation in
connection with the change of control of us and our subsidiary Elscint in May
1999 and the acquisition of the hotel businesses by Elscint in September 1999,
as well as motions to certify such claims as class actions and litigation by an
individual who claims to have rights to a percentage in us and certain of our
subsidiaries. For details refer to Note 21.B in our annual financial statements
included in Item 18. A determination against us in some or all of these
proceedings may materially adversely affect our results of operations.

We have significant capital needs and
additional financing may not be available.

The sectors
in which we compete are capital intensive. We require substantial up-front
expenditures for land acquisition, development and construction costs, certain
investments in research and development as well as for the ongoing maintenance
of our hotels. Accordingly, we require substantial amounts of cash and
financing for our operations. We cannot be certain that such external financing
would be available on favorable terms or on a timely basis or at all. During
2007 and 2008, the world markets have undergone a financial crisis commonly known
as the sub-prime mortgage crisis, which resulted in lower liquidity in the
capital markets. Lower liquidity may result in difficulties to raise additional
debt or in the raise of such debt in less favorable interests. 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. Our inability to obtain
financing may affect our ability to construct or acquire additional centers and
hotels, and we may experience delays in planned renovation or maintenance of
our hotels that could have a material adverse effect on our results of
operations.

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Our high leverage could adversely affect our
ability to operate our business.

We are
highly leveraged and have significant debt service obligations. In addition, we
and our subsidiaries may incur additional debt from time to time to finance
acquisitions or capital expenditures or for other purposes. We will have
substantial debt service obligations, consisting of required cash payments of
principal and interest, for the foreseeable future.

Our lenders
require us to maintain and comply with certain financial and operational
covenants. Our ability to comply with these covenants may be affected by events
beyond our control. A breach of any of the covenants in our debt instruments or
our inability to comply with the required covenants could result in an event of
default, which, if not cured or waived, could have a material adverse effect on
us. In the event of any default under the loan agreements, the lenders
thereunder could elect to declare all outstanding borrowings immediately due
together with accrued and unpaid interest and other fees. Furthermore, in the
event of any default under the loan agreements, such loans could be
reclassified as short-term debt. Such classification in our financial
statements may improperly reflect our working capital ratio as well as other
financial indicators since the assets which were financed by these loans are
classified as non-current assets. As a result of our substantial indebtedness:

| |   |                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | we could be
  more vulnerable to general adverse economic and industry conditions;                                                                                                                         
| |   |                                                                                                                                                                                                            
| | · | we may find
  it more difficult to obtain additional financing to fund future working
  capital, capital expenditures and other general corporate requirements;                                            
| |   |                                                                                                                                                                                                            
| | · | we will be
  required to dedicate a substantial portion of our cash flow from operations
  to the payment of principal and interest on our debt, reducing the available
  cash flow to fund other projects;
| |   |                                                                                                                                                                                                            
| | · | we may have
  limited flexibility in planning for, or reacting to, changes in our business
  and in the industry; and                                                                                      
| |   |                                                                                                                                                                                                            
| | · | we may have
  a competitive disadvantage relative to other companies in our business
  segments with less debt.                                                                                            

We cannot
guarantee that we will be able to generate enough cash flow from operations or
that we will be able to obtain enough capital to service our debt or fund our
planned capital expenditures. In addition, we may need to refinance some or all
of our indebtedness on or before maturity. We cannot guarantee that we will be
able to refinance our indebtedness on commercially reasonable terms or at all.
We have the ability under our debt instruments to incur substantial additional
indebtedness and any additional indebtedness we incur could exacerbate the
risks described above.

Our results of operations fluctuate due to
the seasonality of our various businesses.

Our
annual revenues and earnings are substantially dependent upon general business activity,
vacation and holiday seasons and the influence of weather conditions. As a result, changes
in any of the above have a disproportionate effect on the annual results of operations of
our shopping and entertainment centers, hotels and fashion retail businesses.

One of our shareholders beneficially owns a substantial amount of our
ordinary shares and, therefore, effectively controls our affairs.

As of May
31, 2008, Mordechay Zisser, the Executive Chairman of our Board of Directors,
held, directly or indirectly, approximately 50.10% of our
issued share capital. For additional information, see Item 7.A. Major
Shareholders. As a result of such holdings, Mr. Zisser has the ability, in
effect, to elect the members of our Board of Directors and to effectively
control our business.

A loss of the services of members of our
senior management of EI, including in particular that of Mr. Mordechay Zisser,
could materially adversely affect our business and results of operations

We depend
on the continued services of the members of our senior management team, including
in particular that of Mr. Mordechay Zisser, our Executive Chairman of the Board
of Directors. Any loss of the services of Mr. Mordechay Zisser or any other
member of our senior management team could result in the loss of expertise
necessary for us to succeed, which could cause our revenues to decline and
impair our ability to meet our objectives.

Our annual and quarterly results may
fluctuate which may cause the market price of our ordinary shares to decline.

We have
experienced at times in the past, and may in the future experience, significant
fluctuations in our quarterly and annual operating results which may cause the
market price of our ordinary shares to decline. These fluctuations may be
caused by various factors, particularly due to significant sales of our
properties and the frequency of such transactions. We periodically review our
business to identify opportunities for the acquisition, development or sale of
new centers and/or hotels. As a result of our disposition and acquisition or
development of centers, we may experience significant fluctuations in our
annual and quarterly results. As a result, we believe that period-to-period
comparisons of our historical results of operations may not necessarily be
meaningful and that investors should not rely on them as an indication for
future performance. It is likely that in some future periods, our operating
results may be below expectations of public market analysts or investors. If
this occurs, our share price may drop.

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

|   |                                       
|-- | --------------------------------------
|A. | HISTORY AND
DEVELOPMENT OF THE COMPANY

Elbit
Imaging Ltd. was incorporated in 1996 under the name Elbit Medical Imaging Ltd.
On November 11, 2007, Elbit Medical Imaging Ltd. changed its name to its
current name. Elbit Imaging Ltd. is a company incorporated under the laws of
the State of Israel and is subject to the Israeli Companies Law of 1999 and the
Israeli Securities Law of 1968 and regulations promulgated under these laws.
Our shares are listed on the NASDAQ Global Select Market (ticker symbol: EMITF)
and on the Tel Aviv Stock Exchange (TASE). Our executive offices are located
at 2 Weitzman Street, Tel-Aviv 64239, Israel. You may reach us by telephone at
(972-3) 608-6000 or by fax at (972-3) 6086054. Our U.S. agent is Elscint, Inc.,
c/o CSC Corporation Service Company, 2711 Centerville Road, Suite 400
Wilmington, DE 19808.

The
following is a summary of the principal fields of our businesses:

| |   |                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | Shopping and
  Entertainment Centers - Initiation, construction,
  operation, management and sale of shopping and entertainment centers and
  other mixed-use projects in Central and Eastern Europe and in India.                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                               
| | · | Hotels
  - Hotel ownership, operation, management and sale, primarily in major
  European cities.                                                                                                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                               
| | · | Image Guided
  Treatment - Investments in the research and
  development, production and marketing of magnetic resonance imaging guided
  focused ultrasound treatment equipment.                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                               
| | · | Other
  Activities - Other activities consisting of (i)
  investments in real estate assets in India designated for residential
  projects and other mixed-use projects; (ii) the distribution and sale of
  fashion retail in Israel; and (iii) venture-capital investments. Other activities
  also include investments in hospitals and farm dairy plant which are in
  preliminary stages.

The
following are the highlights of our main business activities and investments
during 2007 and through the date of this filing arranged by business fields in
a chronological order:

General

|  |                                            
|- | -------------------------------------------
|· | Issuance of unsecured non-convertible Notes

Between
April and June 2007, we issued unsecured non-convertible Series D Notes to
investors in Israel in an aggregate principal amount of approximately NIS 620
million (approximately $161 million). The Series D Notes were listed for trade
on the TASE in August 2007. The Series D Notes were rated by Midroog Ltd. (a
credit-rating agency affiliated with Moodys Investors Services) (Midroog)
and Standard & Poors Maalot Ltd. (Maalot) at a local rating of A1 and
A+, respectively.

In
September 2007, we completed a public offering in Israel of Series E Notes in
an aggregate principal amount of approximately NIS 66.3 million (approximately
$17 million) and Series F Notes in the aggregate principal amount of NIS 336
million (approximately $87 million) pursuant to our offering prospectus
published during September 2007. Both the Series E and Series F Notes were
listed for trade on the TASE. The Series E Notes and the Series F Notes were
rated by Midroog and Maalot at a local rating of A1 and A+/Stable,
respectively.

During June
2008, we issued in a private placement, an additional approximately NIS 30
million in principal amount of Series F Notes to Israeli investors for an
aggregate consideration of approximately NIS 31 million (approximately $8
million).

For
additional information on the issuances of Series D, Series E and Series F
Notes, see Item 5.B. Liquidity and Capital Resources - Other loans below.

|  |                                                    
|- | ---------------------------------------------------
|· | Issuance of unsecured non-convertible Notes
  by PC

In July
2007, our subsidiary Plaza Centers N.V. (together with its subsidiaries, PC)
has issued unsecured non-convertible series A Notes to investors in Israel for
an aggregate principal amount of approximately NIS 305 million (approximately
$79 million).

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In
addition, in February 2008, following the publication of a prospectus by PC in Israel, PC
completed an offering to the public in Israel of unsecured non-convertible Series B Notes
for an aggregate principal amount of approximately NIS 713.5 million (approximately $185.5
million) and listed for trade both Series A Notes and Series B Notes on the TASE. The
Series A Notes were rated Aa3 by Midroog and A+/Positive by Maalot, on a local scale, and
the Series B Notes were rated Aa3 by Midroog, on a local scale.

During May
2008, PC issued in a private placement, an additional approximately NIS 84.4
million in principal amount of PCs Series B Notes to Israeli investors for an
aggregate consideration of approximately NIS 84.4 million (approximately $22
million). For additional information on the issuances by PC of Series A and
Series B Notes, see Item 5.B. Liquidity and Capital Resources - Other Loans
below.

Shopping and Entertainment Centers

|  |                                                
|- | -----------------------------------------------
|· | Purchase of the Casa Radio Project in
  Romania

In February
2007, PC completed an acquisition of a 75% interest in a Romanian limited
liability company which executed a Public Private Partnership Agreement with
the Government of Romania for the construction of the Casa-Radio Complex
(Dambovita) in central Bucharest. The total cost of acquisition was
approximately $40 million (approximately NIS 153.8 million).

|  |                                                       
|- | ------------------------------------------------------
|· | Sale of shopping and entertainment centers
  in Europe

In May
2007, PC completed the handover to Klepierre SA (Klépierre), in accordance
with the terms of Stage B agreement (see also Item 10.C. Material Contracts -
Shopping and Entertainment Centers below), of two shopping and entertainment
centers in Poland, the Rybnik Plaza and the Sosnowiec Plaza, reflecting a total
asset value of 89.3 million ($131.4 million; NIS 505.3 million). The net cash
consideration received by PC was 48.2 million ($71 million; NIS 273 million).
In addition, during July 2007, the Lublin Plaza shopping and entertainment center
in Lublin, Poland, in which PC holds a 50% stake, was sold to Klépierre, a
leading French property group.

The asset
value of the Lublin Plaza shopping and entertainment center totaled
approximately 78 million (approximately $114.8 million; NIS 442 million). The
net cash consideration received by PC in respect of its 50% holding was 27.3
million ($40 million; NIS 154.5 million).

|  |                                                                       
|- | ----------------------------------------------------------------------
|· | Sale of Arena shopping and entertainment
  center in Hertzliya, Israel

In July
2007, our wholly owned subsidiary, Elscint Ltd. (Elscint) has consummated a
transaction with Israel Financial Levers Ltd. (Israel Financial Levers) for
the sale of the Arena Shopping and Entertainment Center, located at the
Hertzliya Marina in Israel (Arena Center), pursuant to which Israel Financial
Levers acquired all rights in and to the Arena Center reflecting an asset value
of NIS 538 million (approximately $139.9 million) The net consideration
received by us was NIS 331 million (approximately $86 million). Following
purchase price adjustments, to be calculated based on Arena Centers adjusted
rent revenues (as this term is defined in the agreement) as of June 30, 2009,
an additional amount of up to NIS 10.5 million (approximately $2.7
million) may be paid to us.

|  |                                                                              
|- | -----------------------------------------------------------------------------
|· | Sale of Arena Plaza shopping and
  entertainment centers in Budapest, Hungary

In August
2007, PC executed a binding agreement for the sale of its Arena Plaza shopping
and entertainment center in Budapest, Hungary to UK-based active Asset Investment
Management (aAIM), one of the UKs fastest growing commercial property
investment groups. The transaction which was finalized on 18 December 2007 with
effect from 30 November 2007 has a asset value totaling approximately 381
million (approximately $561 million; NIS 2,156 million). The net cash
consideration received by us in January 2008 was 254.8 million ($375 million;
NIS 1,442 million).

|  |                                                                                                          
|- | ---------------------------------------------------------------------------------------------------------
|· | Award of Major Casino License to the
  Consortium Developing the Dream Island Resort in Budapest, Hungary

In May
2008, the consortium formed by the shareholders of the Dream Island project (in
which PC holds a 30% stake) (see Item 4.B. Business Overview  Shopping and
Entertainment Centers), has won, via a competitive tender, the first ever
major casino license to be awarded in Hungary for its planned entertainment and
mixed use Dream Island intended to be developed in central Budapest. The
exclusive casino license has been granted for 20 years from the date of opening
of the casino, with a ten-year extension option, during which time no further
major casino licenses will be granted by the Hungarian government in the area
of Budapest. The granting of this license will enable the Consortium to
commence construction of this major mixed use project.

26

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|  |                            
|- | ---------------------------
|· | Investments in New Projects

During 2007
and 2008, PC has acquired a number of sites and invested in several projects of
which 10 sites are located in markets in which PC currently operates (including
Romania, Hungary and the Czech Republic) and six sites are located in new
markets (including India, Serbia and Bulgaria). Among these sites are the
projects in Kielce (Poland), Torun (Poland), Leszno (Poland), Timisoara
(Romania), Miercurea Ciuc (Romania), Iasi (Romania), Slatina (Romania), Honedoara
(Romania), Targu Mures (Romania), Shumen (Bulgaria), Kragujevac (Serbia), two
sites in Belgrade (Serbia), Roztoky (Czech Republic), Kharadi, Pune (India),
Tiriavandrum (India) and Uj Udvar (Hungary).

In
addition, on January 31, 2008, PC entered into a joint venture partnership with
BAS Development (BAS) to develop residential and office projects in Romania
through a newly established company, Plaza-Bas B.V., which acquired the shares
currently held by BAS in seven residential and office development projects in
Romania. PC is not involved in the operation of any of these projects.

Hotels

|  |                                                   
|- | --------------------------------------------------
|· | Sale of the Ballet Building in Budapest,
  Hungary

In June
2007, we entered into an agreement for the sale of our 50% interest in Andrassy
25 Kft. that owns the building known as the Ballet Institute Building to an
unrelated third party. The transaction reflects an asset value (100%) of 30
million (approximately $44 million; NIS 170 million) in which our share is 15
million (approximately $22 million; NIS 85 million). The net consideration
received by us was approximately 15 million ($22 million; NIS 85 million).

Image Guided Treatment

|  |                                                       
|- | ------------------------------------------------------
|· | Governmental Approvals of InSightecs
  ExAblate® 2000

In March
2007, the U.S. Food and Drug Administration (the FDA) approved InSightecs
new version of the ExAblate® 2000 which significantly expedite the treatment
time, while ensuring the systems high level of safety and efficacy. The FDA
also approved use of the ExAblate 2000 with a 3.0 Tesla MRI scanner, in
addition to the 1.5 Tesla.

In May
2007, InSightecs ExAblate® 2000 system received the CE Mark certification for
pain palliation of bone metastases.

In May
2007, InSightec received the CE approval for use of its ExAblate 2000 product
for the thermal ablation of bone metastases to reduce pain.

|  |                             
|- | ----------------------------
|· | Investment in InSightec Ltd.

In November
2007, InSightec consummated an agreement for an internal round of financing in
the aggregate amount of $30 million from its existing investors and certain
directors and officers of InSightec, in the form of allotment and purchase of
Series A Preferred convertible shares of InSightec, which are convertible into
InSightecs ordinary shares subject to the fulfillment of certain conditions
stipulated in the agreement. Our share in this round of investment totaled
$19.8 million. In addition, in December 2007, we exercised warrants and
purchased 977,552 ordinary shares of InSightec in consideration for $7.15 (NIS­
27.3 million) of which, an amount of 2.15 million was deducted against the
offset of the same amount that was due to us from InSightec pursuant to a
convertible loan granted to InSightec on May 1999.

Other Activities

|  |                                    
|- | -----------------------------------
|· | Investments in Real Estate in India

In December
2007, we entered into an agreement for the acquisition of an 80% stake in a
joint venture company which will purchaser up to 135 acres (approximately
546,000 square meters (m2)) of land in Chennai (formerly Madras), India.
Our investment in this project, assuming that the 135 acre tract of land is
acquired) is anticipated to be approximately $108 million. The consummation of
the transaction will be accomplished in stages, and is subject to the
fulfillment of certain regulatory requirements and to our satisfactory due
diligence requirements. The closing of the acquisition of the first portion of
the land (measuring approximately 42 acres or 167,000 m2)has been completed concurrently with the execution of the
agreement, and we have paid approximately $35.5 million in respect of the
acquisition of our share (80%) of such portion of land. Subsequently, an
additional area measuring 9.7 acres (approximately 39,250 m2) has been acquired by the
joint venture company, in respect of which we have invested an additional
amount of INR 307 million ($7.8 million; NIS 30 million).

For
detailed and elaborated information about this project, see Item 4.B -
Business Overview - Other Activities - Investments in India below.

27

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---



In March
2008, we entered into definitive agreements with one of the leading developers
in Bangalore, India for the joint development of a large scale mixed-use
project located in Bangalore, Karnataka, India. Under the agreements we and our
local partner will acquire through a joint venture company (which will be held,
subject to certain conditions, in equal parts by us and such local partner -
the Joint Venture Company), up to 440 acres of land in Bangalore, India
(Project Land).

For
detailed and elaborated information about this project, see Item 4.B. Business
Overview - Other Activities - Investments in India below.

|  |                                                       
|- | ------------------------------------------------------
|· | Establishment of a Modern Dairy Farm and
  Dairy Plant

In February
2008, we executed a Memorandum of Agreement with the Government of the State
Gujarat, India pursuant to which a modern dairy farm with approximately 10,000
cows and an ultra modern dairy plant that will produce basic and premium dairy
products will be established on land measuring approximately 500 acres, subject
to the fulfillment of certain conditions specified therein. The total
investment in the project is anticipated to be approximately $100 million
(approximately NIS 384.6 million).

|  |                                                       
|- | ------------------------------------------------------
|· | Entering into the
insurance business in Eastern Europe

On
June 30, 2008, we entered into a strategic joint venture agreement with Clal Insurance
Enterprises Holdings Ltd. (Clal) pursuant to which we and Clal intend to
engage, through a joint venture, in the insurance business in certain Eastern European
countries, primarily in Romania. The aggregate investment required by us in the joint
venture is approximately $17.755 million in consideration for the allotment of 50% of the
share capital of the joint venture on a fully diluted basis.

PRINCIPAL CAPITAL EXPENDITURES AND
DIVESTITURES

The
following is a description of our capital expenditures and divestitures during
the years 2006 and 2007 and capital expenditures and divestitures that are in
progress (unless otherwise indicated (i) our share in each expenditure and
divestment is 100% and (ii) our capital expenditure and divestitures were
financed by equity means or by loans):

Fiscal Year 2006

The
Hotel Business

|  |                                                                                                                                                                                                                                                                                                                                                                                                     
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|· | Construction and renovation of the Bucharesti Hotel Complex
  - The total amount invested in this project during 2006 was 14.7 million. We
  financed this project through a bank facility and cash resulted from
  operational activities.                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                                     
|· | Acquisition of a building in Amsterdam - In
  December 2006, we invested 7 million out of a total of 14 million, for the
  acquisition of 50% of a company which holds a historical office building
  located next to the Park Plaza Victoria Amsterdam Hotel in Amsterdam for the
  proposed extension of such hotel. Our share of the purchase price was
  financed in full through a bank loan.
|  |                                                                                                                                                                                                                                                                                                                                                                                                     
|  | The Image Guided Treatment Business                                                                                                                                                                                                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                     
|· | Investment in InSightec - In August 2006, we
  invested $9.8 million in convertible debentures of InSightec. In November
  2007, we invested $19.8 million in Series A Preferred shares of InSightec.                                                                                                                                                                                               
|  |                                                                                                                                                                                                                                                                                                                                                                                                     
|  | Other Activities                                                                                                                                                                                                                                                                                                                                                                                    
|  |                                                                                                                                                                                                                                                                                                                                                                                                     
|· | Gamida Cell
  - In September 2006, we participated in a round of investment in Gamida, in
  the amount of approximately $2.5 million, following which we received
  approximately 3.3% of Gamida Cells share capital calculated on a fully
  diluted basis.                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                                     
|· | Varcode - In September 2006, we incorporated
  Varcode Ltd., together with an unrelated third party. During 2006 we have
  invested in Varcode an amount of $1.6 million, following which we received
  approximately 24.5% of Varcodes share capital.                                                                                                                                             

Fiscal
Year 2007

|  |                                                                                                                                                                                                                                                                                
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  | The Hotel Business                                                                                                                                                                                                                                                             
|  |                                                                                                                                                                                                                                                                                
|· | Bucharesti Hotel Complex, Romania - During
  2007, we invested an amount of 21.7 million (approximately $31.9 million;
  NIS 122.8 million) in the construction of the hotel. Most of the investment
  was financed through a bank loan.                                      
|  |                                                                                                                                                                                                                                                                                
|  | The Image Guided Treatment Business                                                                                                                                                                                                                                            
|  |                                                                                                                                                                                                                                                                                
|· | Investment in InSightec - In November 2007,
  InSightec raised an amount of $30 million (NIS 115.4 million) in Series A
  Preferred Shares of InSightec at a price of $12 per Preferred A Share. Our
  share in this investment round totaled $19.8 million (NIS 76.2 million).

28

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|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  | Other Activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|· | Acquisition of the Bangalore Project, India
  - In 2007, we have paid an amount of $50 million (NIS 192.3 million) as a
  refundable advance payment in respect of this project. During 2008, an
  additional amount of $21 million (NIS 80.8 million) was paid by us in
  consideration of 50% share of the first 54 Acres, and an amount of $46
  million (NIS 176.9 million) as an interest bearing advance payment on account
  of future acquisition of 50% of the next 35.6 acres.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|· | Gamida - During 2007, we purchased from a
  third party certain Gamida shares for approximately $1.9 million (NIS 7.3
  million) representing approximately 2.8% of Gamidas share capital (on a
  fully diluted basis).                                                                                                                                                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|· | Varcode - During 2007, we invested in Varcode
  an additional amount of $0.6 million (NIS 2.3 million) following which we
  received an additional approximately 9.3% of Varcodes share capital.                                                                                                                                                                                                                                                                                       

PRINCIPAL CAPITAL EXPENDITURES AND
DIVESTITURES CURRENTLY IN PROGRESS

Currently,
we are either in the process of making or are planning to make the following
additional capital expenditures:

|   |                                                                                                                                                                                                                                                  | 
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
|   | Hotel Business                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                  | 
|·  | Bucharesti Hotel Complex, Romania - We are
  expected to invest in this project during 2008 additional amount of 19.4
  million (approximately $28.5 million; NIS 109.8 million) to be financed both
  through bank financing and equity means.
|   |                                                                                                                                                                                                                                                  | 
|B. | BUSINESS OVERVIEW                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                  | 
|   | Below is a
  description of our principal fields of activity:                                                                                                                                                                                   

Shopping and Entertainment Centers

General

The
shopping and entertainment centers business includes mainly those shopping and
entertainment centers which are currently under construction and/or development
in capital cities and important regional areas in various countries of Central
and Eastern Europe and recently also in and India which we believe to have a
number of attractive characteristics. In addition to the shopping and
entertainment centers business, our real estate portfolio includes certain other
real estate projects of various types including residential projects, offices
and mixed-use projects which combine several elements of operations, such as
shopping and entertainment centers, offices, residential units, congress
centers and leisure facilities. In this annual report, we refer to all projects
mentioned above, as shopping and entertainment centers. All of the projects
described in the shopping and entertainment business are held by our 68.4%
subsidiary, PC.

As of the
date of this annual report, we have developed, leased and sold/forward sold (i.e. agreement to sell, conditional to the
completion of the development and other conditions) 26 shopping and
entertainment centers and one office project and we currently have 31 development
projects in various stages including 17 shopping and entertainment centers, 14
mixed-use projects and other projects (residential and offices). We have
pursued development projects in Hungary, Poland, Czech Republic, Greece,
Latvia, Romania and, most recently, Serbia, Bulgaria and India.

PC
is currently negotiating to acquire a pipeline of additional sites for shopping and
entertainment development projects in Poland, the Czech Republic, Slovakia, Romania,
Moldova, Ukraine, Russia, Serbia and India and is also actively assessing other cities
within those countries where there is a realistic prospect of developing shopping and
entertainment centers. Furthermore, PC will examine other countries in CEE and Asia that
meet PCs development criteria with a view to identifying further opportunities in
this sector. Construction or development of each of such projects are generally conducted,
through a special purpose project corporation. In certain cases, such special purpose
corporation is held as a joint venture with different partners.

Relationship
between PC and the Company

Sourcing
Agreement

On October
13, 2006, we entered into an agreement with PC, under which we undertook to
offer to PC potential real estate development sites sourced by us in India on
behalf of PC. These sites will be suitable for shopping and entertainment
center development projects as well as mixed-use projects. The projects may
also involve the acquisition and renovation of existing shopping and entertainment
centers.

29

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Under the
agreement, we are obliged to offer PC the exclusive right to develop all of the
shopping center projects which we acquire during the 15-year term of the
agreement. PC must, within 30 days of receiving our offer, indicate to us
whether it wishes to accept or decline the offer. PC can demand a 21-day
extension to this period, and extensions thereafter would be by agreement of
both parties. A failure to respond by PC will be deemed to be a rejection of
the offer. If PC accepts the offer, both parties are under an obligation to do
all that is necessary to facilitate the execution of the project by PC. In the
case of integrated shopping center projects, the parties must cooperate in
order to achieve a contractual structure which most effectively promotes PCs
rights.

The project
management must be undertaken by one, but not both, of the parties. This must
be decided between the parties on the basis of which party can most effectively
provide comprehensive project management services. We have agreed to use the
same standard of care in sourcing projects for PC that we use in respect of the
projects being developed by us.

In respect
of sites acquired by PC, PC has agreed to pay us the cost of the site paid by
us and our direct costs, subject to a cap of 5% of the cost of the site. PC has
given a number of warranties under the agreement, in terms of its corporate
standing and authorization. It has also given warranties in respect of
conflicts, consents, expertise and financial resources. We have given the same
warranties to PC.

Both
parties have rights of termination in the event of a change of control by the
defaulting party, material breach by the defaulting party and the occurrence of
insolvency. The defaulting party has a 30-day rectification period within which
to remedy its breach. The agreement contains a dispute resolution mechanism,
under which any arbitration must be conducted before a sole arbitrator in
London, in accordance with the Rules of Arbitration then in force of the London
Court of International Arbitration.

Relationship
Agreement

On October
27, 2006, we entered into an agreement with PC pursuant to which we undertook
that for so long as we hold at least 30% of the issued share capital of PC,
neither we nor any person connected with us will compete with the business of
PC in so far as that comprises the development of shopping and entertainment
centers in Central and Eastern Europe or India or the development of the Dream
Island or Casa Radio projects.The Relationship Agreement terminates in the event that PCs
issued share capital ceases to be admitted to the main market of the London
Stock Exchange.

Guarantee Agreement

On October
27, 2006, PC agreed, with effect from January 1, 2006, to pay a commission to
us in respect of all and any outstanding corporate and first demand guarantees
which have been issued by us in favor of PC and which remain valid and
outstanding (EI Guarantees). The amount of the commissions to be paid will be
agreed upon between us and PC at the beginning of each financial year, and will
apply to all EI Guarantees which remain outstanding during the course of that
relevant financial year, subject to a cap of 0.5% of the amount or value of the
relevant EI Guarantee, per annum. During 2007, no guarantees were provided by
us to PC.

Transitional
services Agreement

In October
2006, we and PC have entered into a Transitional Services Agreement relating to
the provision of legal and accountancy services by us to PC. The services are
to be provided at a cost to be agreed between the parties from time to time,
for a period of 24 months unless terminated earlier by PC on 60 days notice.

Project
Consultancy and Supervision

During the
planning and construction of our real estate projects, we receive consultancy
and supervision services from Control Centers Ltd. (Control Centers), our
indirect parent company. For further details see Item 7.B. Related Party
Transactions - Agreements for the Purchase of Coordination Planning and
Supervision Services over Construction Projects below.

Business
Concept and Strategy

Our main
focus in this field of operations is construction of new shopping and
entertainment centers projects and where there is significant redevelopment
potential, to redevelop existing centers in both capital cities and important
regional centers.

In general,
approximately 70% of the total constructed area of each shopping and
entertainment center is set aside to be leased. The focus of our centers is on
two principal elements: shopping and entertainment. The anchor tenants form the
core of these elements, around which the smaller businesses and activities are
introduced, and provide a wide range and choice of activities to patrons. The
entertainment facilities generally include a cinema complex of between 8-12
screens, a video and gaming arcade, bowling alleys, billiard halls, fitness
centers, bars, discotheques, childrens playgrounds and, in some projects, and
an IMAX three-dimensional cinema screen. Each food court generally includes a
range of restaurants, offering a variety of culinary opportunities from fast
food to gourmet foods. The commercial activities focus on supermarket and
department store anchor tenants, 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.

30

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Our business
concept and strategy for our shopping and entertainment centers business
includes the following elements:

Development:
develop four to five modern western-style shopping and entertainment centers per year in
the capital and regional cities of selected countries, primarily in CEE (focusing in the
medium term on Poland, the Czech Republic, Slovakia, Serbia, Bulgaria and Romania) and
Russia, Ukraine and India (focusing on large cities within Southern India) in the medium
and long term.

Acquisitions:
Acquire operating shopping centers that show significant redevelopment
potential (either as individual assets or as portfolios) for refurbishment and
subsequent re-sale.

Pre-sale:
Where prevailing market and economic conditions are favorable, pre-sell the
centers prior to, or shortly after, commencement of construction or
redevelopment.

Where the
opportunity exists in CEE and India, extend developments beyond shopping and
entertainment centers by leveraging our strengths and drawing upon our
experience and skills to participate in residential, hotel, office and other
development schemes where such developments form part of integrated large scale
business and leisure developments, such as the Dream Island project and the
Casa Radio project.

We will
also assess and consider specific development opportunities that satisfy our
development parameters and investment criteria in countries not previously
targeted by us.

While our
current strategy is to dispose of a shopping and entertainment center upon
completion, if economic conditions, including property yields, change in such a
way that retaining and operating a shopping and entertainment center on
completion is likely to be more profitable to us than disposing of it, we will
consider retaining and operating the completed shopping and entertainment
center until economic conditions warrant a profitable sale. Currently, under
the existing market conditions in India, our strategy in relation to our investment
in this region is initially to hold and operate, rather than dispose upon
completion. We estimate the holding and operating period of its investments in
India should be between three to five years.

Particulars

Our
projects in the shopping and entertainment centers business are divided into
three principal project categories: (i) shopping and entertainment centers;
(ii) mixed-use projects; and (iii) other projects (residential and offices).
Set forth below is information with respect to the projects in each project
category as well as information with respect to projects completed and sold
during 2007.

31

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Shopping and Entertainment Centers

|                     |  |                         |  |                                                     |  |                           |  |                              |  |                                          |        |                        |  |           |  |                             
|-------------------- |  | ----------------------- |  | --------------------------------------------------- |  | ------------------------- |  | ---------------------------- |  | ---------------------------------------- | ------ | ---------------------- |  | --------- |  | ----------------------------
|Name of Project      |  | Location                |  | Title                                               |  | PC
  Share %1             |  | Approximate
  Land Area (m2) |  | Approximate
  Gross Lettable
  Area (m2) |        | Estimated
  Completion |  | Status   
|                     |  |                         |  |                                                     |  |                           |  |                              |  |                                          |        |                        |  |          
|                     |  |                         |  |                                                     |  |                           |  |                              |  |                                          |        |                        |  |           |  |                             
|Uj Udvar             |  | Budapest, Hungary       |  | Ownership                                           |  | 35                        |  |                             |  |                                          | 16,000 |                        |  | 2010-2011 |  | Planning stage              
|Duna Plaza Extension |  | Budapest, Hungary       |  | Building Rights                                     |  | Development
  rights only |  |                             |  |                                          | 15,000 |                        |  | 2010-2011 |  | Planning stage              
|Suwałki Plaza        |  | Suwałki, Poland         |  | Ownership                                           |  | 100                       |  | 19,000                       |  |                                          | 20,000 |                        |  | 2009-2010 |  | Planning stage              
|Toruń Plaza          |  | Toruń, Poland           |  | Perpetual leasehold 2                               |  | 100                       |  | 63,000                       |  |                                          | 45,000 |                        |  | 2011      |  | Planning and
  permits stage
|Zgorzelec Plaza      |  | Zgorzelec, Poland       |  | Leasing for 25 years                                |  | 100                       |  | 37,500                       |  |                                          | 15,000 |                        |  | 2010      |  | Planning stage              
|Kielce Plaza         |  | Kielce, Poland          |  | Ownership                                           |  | 100                       |  | 30,000                       |  |                                          | 40,000 |                        |  | 2011-2012 |  | Planning and
  permits stage
|Leszno               |  | Leszno, Poland          |  | Ownership                                           |  | 100                       |  | 17,000                       |  |                                          | 16,000 |                        |  | 2010      |  | Planning stage              
|Liberec Plaza        |  | Liberec, Czech Republic |  | Construction lease period with subsequent ownership |  | 100                       |  | 7,500                        |  |                                          | 17,000 |                        |  | Q4 2008   |  | Under
  construction        
|Opava Plaza          |  | Opava, Czech Republic   |  | Construction lease period with subsequent ownership |  | 100                       |  | 8,700                        |  |                                          | 14,000 |                        |  | 2010      |  | Planning stage              
|Kragujevac Plaza     |  | Kragujevac, Serbia      |  | Leasing for 99 years                                |  | 100                       |  | 24,000                       |  |                                          | 24,500 |                        |  | 2010      |  | Planning stage              
|Sport Star Plaza     |  | Belgrade, Serbia        |  | Leasing for 99 years                                |  | 100                       |  | 28,000                       |  |                                          | 40,000 |                        |  | 2010-2011 |  | Planning stage              
|Shumen Plaza         |  | Shumen, Bulgaria        |  | Ownership                                           |  | 100                       |  | 17,000                       |  |                                          | 18,000 |                        |  | 2009      |  | Planning stage              
|Riga Plaza           |  | Riga, Latvia            |  | Ownership                                           |  | 50                        |  | 80,000                       |  |                                          | 49,000 |                        |  | Q3 2009   |  | Under
  construction        
|Miercurea Ciuc       |  | Miercurea Ciuc, Romania |  | Ownership                                           |  | 100                       |  | 33,000                       |  |                                          | 14,000 |                        |  | Q1 2009   |  | Under
  construction        
|Slatina              |  | Slatina, Romania        |  | Ownership                                           |  | 100                       |  | 20,000                       |  |                                          | 21,000 |                        |  | 2009      |  | Planning stage              
|Honedoara            |  | Honedoara, Romania      |  | Ownership                                           |  | 100                       |  | 41,000                       |  |                                          | 20,000 |                        |  | 2010      |  | Planning stage              
|Targu Mures          |  | Targu Mures, Romania    |  | Ownership                                           |  | 100                       |  | 31,500                       |  |                                          | 30,000 |                        |  | 2010      |  | Planning stage              

1           Directly
or indirectly.2          The site
is currently held by an unrelated third party with whom PC has preliminary
purchase or pre-agreements in place.

32

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Set
forth below is additional information with respect to each of the projects
above arranged by geographical breakdown:

Hungary

Uj
Udvar, Budapest, Hungary

In
September 2007, PC, through its 70% held joint venture company in Hungary,
Plasi Invest 2007 Kft (Plasi), signed a joint venture agreement with Solel
Boneh Israel, according to which Plasi acquired 50% of a company called SBI
Hungary Kft that owns the Uj Udvar shopping center project in the third
district of Budapest, Hungary. The shopping center is currently active and has
approximately 12,000 m2 of Gross lettable Area (GLA) and approximately
14,000 m2 of
parking areas. The aim is to refurbish and improve the existing shopping center
in order to appreciate its value and to expand it to 16,000 m2 of GLA. The total asset
value according to which the purchase was made was EUR 11 million (100% of the
asset).

Duna
Plaza Extension, Hungary

PC
has agreed with Klepierre to construct an extension to the Duna Plaza shopping
and entertainment center located on the Pest side of the Danube River in
Budapest XIIIth District Angyalföldi, Hungary, subject to building permits and
the execution of a turn-key agreement. PC will be responsible for obtaining
building permits for plans and designs to be approved by Klepierre and will be
responsible for the construction of the extension. The Duna Plaza Extension
will be constructed either on an adjacent area of land under a proposed land
swap, or on an area currently owned by Klépierre.

33

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---



Poland

Suwałki
Plaza, Poland

PC
owns a site in a prime location in Suwa3ki, north-east Poland, which is currently in
the preliminary planning and development stage for the construction of a two-floor (ground
and first floor) shopping and entertainment center with a planned GLA of approximately
20,000 m2 (anchored by a supermarket, a department store, a multi-screen
cinema, and a bowling and entertainment area operated by Mulan B.V., trading as Fantasy
Park). Construction is due to commence in 2008 and the center is scheduled to open in
2009-2010.

Toruń
Plaza, Poland

PC
is due to receive perpetual leasehold rights for a site in Toruń, central
Poland, which is currently in the preliminary planning and development stage
for the construction of a two-floor (ground and first floor) shopping and
entertainment center with a GLA of approximately 45,000m2 (anchored by a
supermarket, a department store, Do-It-Yourself store, cinema complex, and a
bowling and entertainment area). The site is currently held by an unrelated
third party with whom PC has preliminary purchase or pre-agreements in place.
The center is scheduled to open in 2011.

Zgorzelec
Plaza, Poland

PC
leases a site in Zgorzelec, Poland, which is currently in the preliminary planning and
development stage the construction of two-floor (ground and first floor) shopping and
entertainment center with a GLA of approximately 15,000m2 (anchored by a
supermarket, a department store, and a bowling and entertainment area). Construction is due to commence in 2008 and the center is
scheduled to open in 2010.

Kielce
Plaza, Poland

PC
has won a competitive tender and acquired a site from PKS Kielce S.A. (the
local branch of the Polish National Bus Company) for the development of a major
new shopping and entertainment center in Kielce, Poland. The new center, which
is currently under preliminary planning and development, will be located on a 30,000m2 plot
alongside a major road and two kilometres from the heart of Kielce. On
completion, the scheme will have a gross built area (GBA) of 57,000m2 with
40,000m2 of GLA, and approximately 1,200 car-parking spaces. The center is
scheduled to open in 2011-2012.

Leszno,
Poland

PC
has acquired a 17,000 m2site in Leszno, Poland on which it intends to develop a shopping and
entertainment center. On completion, the shopping and entertainment center will
have a GBA of 23,000 m2
as well as a 450 space car park. It will provide space for over 70 shops, with
a total GLA of 16,000 m2.
Construction is expected to commence in the middle of 2009, with completion
targeted for the end of 2010.

34

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---



Czech Republic

Liberec
Plaza, Czech Republic

PC
leases a
site in Liberec, Czech Republic on which it intends to develop a shopping and
entertainment center. The planned mixed-use center will comprise approximately
17,000m2 GLA, and will include an anchor supermarket, a cinema
complex, fashion retailers, a food court and restaurants. The center will also
include a residential area of 850 m2 and 800 m2 of office
space. The project is currently under construction. The center is scheduled to
open in the fourth quarter of 2008.

Opava
Plaza, Czech Republic

PC
leases a site with an area of an area of 8,700m2 in Opava, Czech Republic, which
is currently in the
preliminary planning and development stage for the construction of a shopping
and entertainment center which will comprise of approximately 14,000m2
GLA and which will include an anchor supermarket, a cinema complex, fashion
retailers, a food court and restaurants. The center will also include leisure
and gaming area of approximately 950m2. The center is scheduled to
open in 2010.

Serbia

Kragujevac
Plaza, Serbia

PC
leases a site in Kragujevac, Serbia, which is currently in the preliminary planning and development stage for
the construction of a shopping and entertainment center comprising of
approximately 24,500m2 GLA including a cinema complex, fashion
retailers, a food court, restaurants and parking places for approximately 900
cars. The center is scheduled to open in 2010.

Sport Star Plaza, Belgrade, Serbia

In
December 2007, PC won a competitive public auction announced by the Government
of Serbia for the development of a new shopping and entertainment center with a
total GLA of approximately 40,000 m2 in Belgrade, Serbia on a site under
a lease from the Government of Serbia for 99 years. The project is currently in
the preliminary planning and development stage. The center is scheduled to open
in 2010-2011.

Bulgaria

Shumen
Plaza, Bulgaria

PC
owns a site, occupying a plot of 17,000 m2, in Shumen, Bulgaria, which is currently in
the preliminary planning and
development stage for the construction of a shopping and entertainment center
with a 18,000 m2 of lettable retail space. PC anticipates that the
center will be completed by late 2009.

Latvia

Riga
Plaza, Latvia

PC
owns a 50% interest in a project located in Riga, Latvia, comprising of a
two-floor shopping and entertainment center with a GLA of approximately 49,000m2,
anchored by a hypermarket on the ground floor, an eight-screen multiplex cinema
and 2,500m2 bowling and entertainment area. Construction commenced
in the first quarter of 2007 and the center is scheduled to open in the third
quarter of 2009.

This
project is held by PC and Development Capital Corporation (Latvia) (DCC)
through a joint subsidiary (each holding a 50% stake), SIA Diksna (SIA). The
agreement between PC and DCC provides for a buy-out mechanism in the event of
certain deadlocks and for certain limitations on the sale of each partys
holdings in SIA, including a right of first offer and a tag along right to all
of each partys shares. Future financing of the project will be provided by the
parties as shareholder loans. In the event of failure by any party to provide
such shareholder loans, the other party may elect to provide SIA with such
shareholder loans at an increased interest rate or to invest the required
amounts, while diluting the defaulting partys holdings in SIA. The management
of the development and construction of Riga Plaza is controlled solely by the
Company.

35

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Romania

Miercurea
Ciuc, Romania

In
July 2007, PC acquired a 33,000 m2 retail development site
in the city of Miercurea Ciuc, in Central Romania. PC intends to build a
shopping center totaling approximately 14,000 m2 GLA and is currently in
the preliminary planning and development stage. Construction commenced in 2008
and the center is scheduled to open in 2009.

Slatina,
Romania

PC
owns a site in Slatina, southern Romania that totals approximately 20,000 m2. PC plans to
develop a shopping and entertainment center with approximately 21,000 m2 of GLA, plus
450 parking places. The center
is scheduled to open in 2009.

Honedoara,
Romania

PC
owns a 41,000m2 site in Honedoara, Romania. PC intends to develop a
shopping and entertainment centre with a 20,000 m2of GLA.The center is scheduled to open in 2010-2011.

Targu
Mures, Romania

PC
owns a 31,500 m2 site in Targu Mures, Romania. PC intends to build a
shopping and entertainment center with a GLA of 30,000 m2 comprising of more than
120 units. The center is
scheduled to open in 2010-2011.

36

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Mixed-use
Projects

|                      |  |                                 |  |                      |  |              |   |                              |         |                                          |  |                        |   |        |           |               |                                           |  |                                                                                                                                                                                                                                                                         | 
|--------------------- |  | ------------------------------- |  | -------------------- |  | ------------ | - | ---------------------------- | ------- | ---------------------------------------- |  | ---------------------- | - | ------ | --------- | ------------- | ----------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|Name of
  Project     |  | Location                        |  | Title                |  | PC
  Share % |   | Approximate
  Land Area (m2) |         | Approximate
  Gross Lettable
  Area (m2) |  | Estimated
  Completion |   | Status |           | Miscellaneous
|                      |  |                                 |  |                      |  |              |   |                              |         |                                          |  |                        |   |        |           |              
|                      |  |                                 |  |                      |  |              |   |                              |         |                                          |  |                        |   |        |           |              
|Arena Plaza Extension |  | Budapest, Hungary               |  | Land use rights      |  | 100          |   |                              | 20,000  |                                          |  | 40,000                 |   |        | 2010      |               | Planning stage                            |  |                                                                                                                                                                                                                                                                        
|                      |  |                                 |  |                      |  |              |   |                              |         |                                          |  |                        |   |        |           |               |                                           |  |                                                                                                                                                                                                                                                                         | 
|The Dream Island      |  | Budapest, Hungary               |  | Ownership            |  | 30           | 1 |                              | 320,000 |                                          |  | 347,000                | 2 |        | 2012      |               | Initial excavation works                  |  |                                                                                                                                                                                                                                                                        
|                      |  |                                 |  |                      |  |              |   |                              |         |                                          |  |                        |   |        |           |               |                                           |  |                                                                                                                                                                                                                                                                         | 
|Helios Plaza          |  | Athens, Greece                  |  | Ownership            |  | 100          |   |                              | 15,000  |                                          |  | 35,000                 |   |        |          |               | Building permit expired                   |  | The permitted land uses applicable to this site do no
  longer permit the construction of a shopping and entertainment center. PC is
  examining alternative development opportunities for this site, including the
  construction of offices and the sale of the land.
|                      |  |                                 |  |                      |  |              |   |                              |         |                                          |  |                        |   |        |           |               |                                           |  |                                                                                                                                                                                                                                                                         | 
|Casa Radio            |  | Bucharest, Romania              |  | Leasing for 49 years |  | 75           |   |                              | 102,000 |                                          |  | 360,000                | 2 |        | 2011-2012 |               | Demolition works and initial construction |  |                                                                                                                                                                                                                                                                        
|                      |  |                                 |  |                      |  |              |   |                              |         |                                          |  |                        |   |        |           |               |                                           |  |                                                                                                                                                                                                                                                                         | 
|Timisoara Plaza       |  | Timisoara, Romania              |  | Ownership            |  | 100          |   |                              | 32,000  |                                          |  | 71,000                 | 2 |        | 2010      |               | planning and permits stage                |  |                                                                                                                                                                                                                                                                        
|                      |  |                                 |  |                      |  |              |   |                              |         |                                          |  |                        |   |        |           |               |                                           |  |                                                                                                                                                                                                                                                                         | 
|Iasi Plaza            |  | Iasi, Romania                   |  | Ownership            |  | 100          |   |                              | 46,500  |                                          |  | 71,000                 |   |        | 2010-2011 |               | planning stage                            |  |                                                                                                                                                                                                                                                                        
|                      |  |                                 |  |                      |  |              |   |                              |         |                                          |  |                        |   |        |           |               |                                           |  |                                                                                                                                                                                                                                                                         | 
|Belgrade Plaza        |  | Belgrade, Serbia                |  | Leasing for 99 years |  | 100          |   |                              | 9,000   |                                          |  | 90,000                 | 2 |        | 2011-2012 |               | Planning and permits stage                |  |                                                                                                                                                                                                                                                                        
|                      |  |                                 |  |                      |  |              |   |                              |         |                                          |  |                        |   |        |           |               |                                           |  |                                                                                                                                                                                                                                                                         | 
|Koregaon Park         |  | Pune, Maharashtra State, India  |  | Ownership            |  | 50           | 3 |                              | 24,000  |                                          |  | 107,000                | 2 |        | 2010      |               | Under construction                        |  |                                                                                                                                                                                                                                                                        
|                      |  |                                 |  |                      |  |              |   |                              |         |                                          |  |                        |   |        |           |               |                                           |  |                                                                                                                                                                                                                                                                         | 
|Kharadi               |  | Kharadi, Pune, India            |  | Ownership            |  | 50           | 3 |                              | 56,000  |                                          |  | 225,000                | 2 |        | 2010-2011 |               | Planning stage                            |  | Option to acquire additional 22,000 m2all in the Kharadi area,
Pune.                                                                                                                                                                                                   
|                      |  |                                 |  |                      |  |              |   |                              |         |                                          |  |                        |   |        |           |               |                                           |  |                                                                                                                                                                                                                                                                         | 
|Trivandrum            |  | Trivandrum, Kerala State, India |  | Ownership            |  | 50           | 3 |                              | 43,600  |                                          |  | 195,000                | 2 |        | 2010-2011 |               | Planning stage                            |  |                                                                                                                                                                                                                                                                        

1 Indirectly (PC has a 50% shareholding in a company which has a 60%
interest in the consortium which owns the project).

2GBA

3 Mr. Abraham (Rami) Goren, the
Executive Vice-Chairman of the Company, received options to purchase up to 5%
in the project or the holding company, of PCs projects in India. For more
information see Item 7.B. Related Party Transactions.

37

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Set
forth below is additional information with respect to each of the projects
above arranged by geographical breakdown:

Arena
Plaza Extension, Budapest, Hungary

The
Arena Plaza extension is a planned office addition to the Arena Plaza
(Kerepesi) in Budapest, Hungary (a shopping and entertainment center of 66,000
m2 sold to aAIM. For further information regarding this transactions
see Item 10.C. Material Contracts - Shopping and Entertainment Centers
below). The Arena Plaza Extension is expected to comprise of approximately
40,000 m2 rentable office area.The
project is in the preliminary phase and is scheduled to open in 2010.

The
Dream Island Project, Budapest, Hungary

PC
owns a 50% shareholding in a special purpose company, Ercorner Gazdagsági
Szolgáltató Kft. (Ercorner), which has a 60% interest in a development
consortium known as Dream Island. The remaining 50% is held by MKB Bank
Zártkören Mköd Részvénytársaság (MKB) - a leading commercial bank in
Hungary. The other parties (except Ercorner) to the Dream Island consortium
include CP Holdings Ltd., a member of the group of companies controlled by Sir
Bernard Schreier (approximately 30% direct interest) and ESI Associate Holdings
Ltd., the management company of Dream Island which is controlled by the
managing director of the consortium (approximately 10% direct interest). In
September, 2006, the consortium has been granted final planning approvals to
develop an area of land of approximately 320,000 m2 (excluding
parking) which is located on Obuda Island in the Danube River in central
Budapest, as a business and leisure resort. The current plan envisages a resort
comprising over 350,000 m2 of GBA, which is expected to include
approximately 3,000 hotel rooms in several hotels of different categories as
well as approximately 1,000 leisure apartments, a convention center
accommodating 3,500 delegates, a 1,500 seat opera house, a 3,500 seat
multi-purpose theatre, a marina with an anchorage for 300 vessels, a shopping
and entertainment center including a prestigious Designer avenue, a Roman
cultural museum, and parking facilities for approximately 5,500 vehicles, as
well as the casino of 40,000 m2. As part of the final approval,
Dream Island has undertaken to ensure the traffic connections to, from and
within the island and to develop detailed landscape works.

In
May 2008, the consortium was awarded the first ever major casino licence awarded in
Hungary for the Dream Island Project. The exclusive casino licence has been granted to the
Consortium partners for 20 years from the date of opening of the casino, with a ten-year
extension option, during which time no further major casino licences will be granted by
the Hungarian government in the area of Budapest. The casino is expected to have over 200
gaming tables and over 4,000 slot machines, and is expected to be the largest and most
prestigious destination of its kind in Europe, where currently no other resort and leisure
facility of this magnitude exists.

The
Dream Island consortium intends to commence the construction on the southern
side of the site in the second half of 2008and
to complete the project in five to six years with an estimated total investment
of approximately 1.2 billion ($1.74 billion; NIS 6.7 billion). PC has also
committed to repay 30% of outstanding loans in aggregate amount of 23.0
million (NIS 130.2 million; $33.8 million) provided by MKB to Dream Island
consortium.

Debt
funding for the project is expected to be arranged by MKB. PC intends to
provide project management services and involve leading international operators
for the hotels, casino, convention hall and cultural center.

Helios
Plaza, Athens, Greece

PC
owns a plot of land measuring approximately 15,000m2 located
adjacent to the Piraeus Avenue in Athens, Greece. Following the issue of a
ministerial decision which changed the land use along the Piraeus Avenue, the
permitted land uses applicable to this site do not permit the construction of a
shopping and entertainment center.

PC,
together with its legal counsel and professional advisers, are examining
alternative development opportunities for this site, including the construction
of offices and the sale of the land.

Casa
Radio, Bucharest, Romania

In
February 2007, PC consummated a transaction for the acquisition of a 75%
interest in a company (the Project Company), which under a public-private
partnership agreement with the Government of Romania is expected to develop the
Casa Radio (Dambovita) site in central Bucharest, Romania. The property
comprises a site covering an approximate area of 102,000 m2.

The
proposed scheme will comprise the refurbishment of the existing building as
well as the development of additional space annexed to the building and on
adjoining land. The scheme is expected to comprise a shopping and entertainment
centre, offices, a hotel and an apartment hotel. The existing building
framework is expected to be refurbished and extended in order to include a
hypermarket of approximately 6,500 m2 on the underground level and a
shopping and entertainment centre of approximately 160,000 m2 over
the ground floor, first floor, partially second floor and mezzanine.

38

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The
project is expected to also include hotel and apartment hotel and a large
Conference Centre of approximately 14,000 m2. Offices of
approximately 22,300 m2 are expected to be constructed in the
existing building and in an additional extension above the existing building.
In addition two office towers of 34 and 28 floors and an office complex of
lower level buildings are expected to be constructed.

Car
parking facilities of approximately 254,000 m2 (4,609 spaces) are expected to
be built on up to 6 underground floors in and around the main existing building and below
the new build elements of the project.

The
entire project is expected to be completed with landscaping and a number of
specialist elements such as bridges, fountains and a giant Ferris wheel.

In
accordance with the terms of the public-private partnership agreement, the
purchasers (including PC) have undertaken to cause the Project Company to
construct an office building measuring approximately 13,000 m2 for
the Government of Romania at the Project Companys own costs. The Project
Company intends to finance the construction of the project through bank loan.
Additional financing for the project (if needed) will be borne by PC and the
other owner of the Project Company pro-rata based upon their shareholdings in
the Project Company.

Other
investors in the project include the Government of Romania, which will procure
that the Project Company is granted the necessary development and exploitation
rights in relation to the site for a 49-year period in consideration for a 15%
interest in the project and additional developer which holds 10%.

Timisoara
Plaza, Romania

PC
owns a plot of land with an area of 32,000m2 in Timisoara, Romania currently
in the preliminary planning and development stage for its development into a shopping and
entertainment center of approximately 41,000m2 GLA (which is intended to
include a supermarket, a cinema complex, fashion retailers, a fantasy land, a food court
and restaurants) and 30,000m2 GLA of office space. Construction is due to commence in
2008 and the center is scheduled to open in 2010.

Iasi
Plaza, Romania

PC
owns a 46,500 m2 plot of land in Iasi, a city in the northeast of
Romania. The land, currently in the preliminary planning and development stage,
is expected to be developed into a shopping and entertainment center and office
space. The shopping and entertainment center is intended to comprise
approximately 41,000 m2 GLA, and include an anchor supermarket,
fashion retailers, a fantasy land, a food court and restaurants. In addition,
the project is intended to include office spaces of 30,000 m2 GLA.
Construction is due to commence in 2008 and the center is scheduled to open in
2010- 2011.

Belgrade
Plaza, Serbia

In
August 2007, PC won a competitive tender announced by the Government of Serbia
for the development of a new shopping, entertainment and business center on a
total built up area of approximately 90,000 m2 GBA (with over 2,000
parking spaces) in Belgrade, Serbia. The new complex, currently in the
preliminary planning and development stage, will be located on the prominent
site of the former Federal Ministry of Internal Affairs, situated on the main
street which runs through the center of Belgrade. PC expects to partner with a
local Serbian developer for the project.

Koregaon
Park, Pune, Maharashtra State, India

PC
acquired from us a 50% interest (indirectly) in an Indian private limited
liability company (JV). The remaining 50% interest in the JV is controlled by
an unrelated third party (Third-Party Shareholder) which is one of Punes
leading developers. The JV owns a plot of land and development rights for
approximately 24,000 m2 in Koregaon Park, an up-market area of Pune,
Maharashtra State, India. The JV is developing, subject to the necessary
planning and building permits being obtained, a mixed-use scheme with a GBA of
approximately 107,000 m2 that is expected to be comprised of a
shopping and entertainment center with an estimated area of approximately
75,000 m2 GBA and an office building of approximately 32,000 m2
GBA. The project is currently under construction and is planned to be opened in
2010.

The
freehold site and the development rights are held by the JV (either by itself
or by its wholly owned subsidiaries). PC has subscribed for shares and
convertible securities representing 50% of the JV. The cash consideration
payable by the JV for the freehold and development rights is INR 440 million
($11 million; NIS42.3 million), payable in installments of which INR 310
million ($7 million; NIS 29.8 million) were paid and INR 130 million ($3.2
million; NIS12.5 million) are due and payable subject to fulfillment of certain
conditions stipulated in the agreement.

39

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Kharadi,
Pune, Maharashtra State, India

PC
has acquired 50% of the rights in and to an Indian company which holds a 56,000
m2of land (JV1), and
received an option to acquire additional 22,000 m2, all in the
Kharadi area in Pune, India. PC intends to develop its plot of land through the
construction of a project totaling approximately 225,000 m2 GBA
which is intended to include a shopping and entertainment center with
approximately 120,000 m2 GBA, an office complex measuring
approximately 81,000 m2, and a serviced apartment facility of
approximately 24,000 m2. The completion of the project is
anticipated in 2010 - 2011.

Trivandrum,
Kerala State, India

In
June 2007, JV1, (in which PC holds a 50% shareholding - see above in the
Kharadi project), acquired a plot of land with an area of approximately 43,500
m2, situated in Trivandrum, the capital city of the State of Kerala,
India. The total cost of the land (including acquisition costs) was
approximately INR 1,060 million (approximately $26.5 million; NIS 102 million).

JV1
intends to develop a project on the acquired land which will total
approximately 195,000 m2 GBA, and which is currently planned to include:
a shopping and entertainment center with a total area of approximately 67,000 m2,
an office complex with a total area approximately 90,500 m2, a hotel
and apartment hotel with a total area of approximately 37,500 m2.

40

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Other Real Estate Projects

|                            |  |                             |  |                                    |  |                      |  |                            |        |                                        |  |                                                 |        |        |           |                |                            |  |                                                                                                                                                     |  |                          |  | 
|--------------------------- |  | --------------------------- |  | ---------------------------------- |  | -------------------- |  | -------------------------- | ------ | -------------------------------------- |  | ----------------------------------------------- | ------ | ------ | --------- | -------------- | -------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ |  | 
|Name of Project             |  | Location                    |  | Title                              |  | PC Share %           |  | Approximate Land Area (m2) |        | Approximate Gross Leasable
  Area (m2) |  | Estimated
  Completion                          |        | Status |           | Miscellaneous 
|                            |  |                             |  |                                    |  |                      |  |                            |        |                                        |  |                                                 |        |        |           |               
|                           
|Prague III Logistics Center |  | Prague,
  Czech 
  Republic |  | Ownership                          |  | 100                  |  |                            | 46,500 |                                        |  | 44,300 + potential 61,600 for future apartments |        |       |           | Planning stage |                            | 
|Roztoky                     |  | Prague,
  Czech
  Republic  |  | Ownership                          |  | 100                  |  |                            | 39,000 |                                        |  | 14,000                                          |        |        | 2010-2011 |                | Planning and permits stage |  |                                                                                                                                                    
|Łódź                        |  | Łódź,
  Poland              |  | Ownership /
  perpetual
  usufruct |  | 100                  |  |                            | 33,500 |                                        |  | 130,000                                         |        |        |          |                | Planning
  stage           |  | Necessary zoning permit for shopping
and entertainment center has expired. PC is currently pursuing development of this site as
a residential area.
|                            |  | Fountain Park               |  | Residential                        |  | Bucharest,
  Romania |  | Ownership                  |        | 12.5                                   |  |                                                 | 14,000 |        |           | 18,000         |                            |  | 2010                                                                                                                                                |  | Planning stage           |  | 
|                            |  | Acacia Park                 |  | Residential                        |  | Ploiest,
  Romania   |  | Ownership                  |        | 25                                     |  |                                                 | 12,500 |        |           | 31,000         |                            |  | 2011                                                                                                                                                |  | Under construction       |  | 
|                            |  | Primavera Tower Ploiest     |  | Offices                            |  | Ploiest,
  Romania   |  | Ownership                  |        | 25                                     |  |                                                 | 1,200  |        |           | 9,600          |                            |  | 2010                                                                                                                                                |  | Planning stage           |  | 
|Plaza BAS Joint Venture     |  | Green Land                  |  | Residential                        |  | Ploiest,
  Romania   |  | Ownership                  |        | 25                                     |  |                                                 | 18,400 |        |           | 24,000         |                            |  | 2011                                                                                                                                                |  | Planning stage           |  | 
|                            |  | Valley View                 |  | Residential                        |  | Brasov,
  Romania    |  | Ownership                  |        | 25                                     |  |                                                 | 73,000 |        |           | 150,000        |                            |  | 2013                                                                                                                                                |  | Initial excavation works |  | 
|                            |  | Primavera Tower Brasov      |  | Offices                            |  | Brasov,
  Romania    |  | Ownership                  |        | 25                                     |  |                                                 | 1,800  |        |           | 10,000         |                            |  | 2010                                                                                                                                                |  | Planning stage           |  | 
|                            |  | Pinetree Glade              |  | Residential                        |  | Brasov,
  Romania    |  | Ownership                  |        | 25                                     |  |                                                 | 28,300 |        |           | 50,000         |                            |  | 2012                                                                                                                                                |  | Planning stage           |  | 

41

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Set
forth below is additional information with respect to each of the projects
above:

Prague
III Logistics Center, Prague, Czech Republic

PC,
through a wholly owned subsidiary, owns a commercial complex comprising a
number of buildings located in the third district of Prague, the Czech
Republic, which currently operates as a logistics and commercial center and an
office building used by PC (Prague III).

The
buildings are located on a site totalling approximately 46,500 m2
with a current total GLA of approximately 44,300 m2 (current
warehouse buildings). Due to planning difficulties, it is not possible to
develop a shopping and entertainment center on this site. Accordingly, PC is
currently examining the possibilities of developing this site as a residential
complex with a three-phase construction program incorporating 880 apartments of
potentially 61,600 m2 and 900 underground car parking spaces.  Re-zoning for residential is in progress.

Roztoky,
Prague, Czech Republic

In May 2007, PC has purchased 39,000 m2
of private land in Roztoky, a town attached to Prague, Czech Republic. PC
intends to develop there a residential compound. The plot includes a valid
planning permit for 81 units of family houses. The development is expected to
include 15 row houses and 64 semi-detached units. Units sizes are expected to
be 150-200 m2 each and include also a covered parking on the plot.
The project is currently in the beginning of building permit process.
Construction is expected to start in 2008 and is anticipated to be completed in
2010-2011.

Łódź,
Poland

PC owns part of a development site
and has a usufruct over the remaining part of the site, located in the center of
£ód, Poland, which may be suitable for use as a residential and offices
area. PC had planned to develop this site as a shopping and entertainment center until
recently when the necessary zoning permit has expired. PC is currently pursuing
development of this site as a residential area.

Plaza-BAS.
B.V, Romania.

On
January 31, 2008 PC has entered into a joint venture partnership with BAS
Development (BAS), to develop residential and office projects in Romania. BAS
is a private company which is active in the Romanian property market, and which
operates primarily in partnership with Aura Investments Limited, an Israeli
investment and management company listed on the TASE. A newly established
company, Plaza-Bas B.V. was established (Plaza Bas), which acquired the
shares currently held by BAS in seven residential and office development
projects Plaza Bas is 50.1% owned by PC and the remaining 49.9% owned by BAS.
We have the power to appoint 60% of the board members in Plaza Bas.

The
seven existing residential and office development projects are as follows:

| |   |                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | Bucharest -
  PC owns a 12.5% share in a residential project in Bucharest known as Fountain
  Park, with a planned total GBA of approximately 18,200 m2. It is anticipated
  that the project will be completed in 2010.             
|
| | · | Brasov - PC
  owns a 25% share in a residential project in Brashov, north of Bucharest
  known as Valley View, with a planned GBA of approximately 150,000 m2. It is
  anticipated that the project will be completed in 2013.       
|
| | · | Brashov - PC
  owns a 25% share in an office development project in Brasov known as the
  Primavera Tower Brasov with a planned GBA of approximately 10,000 m2. It is
  anticipated that the project will be completed in 2010.      
|
| | · | Brasov - PC
  owns a 25% share in a project in a residential project in Brashov known as
  Pine Tree with a planned GBA of approximately 50,000 m2. It is anticipated
  that the project will be completed in 2012.                  
|
| | · | Ploiesti -
  PC owns a 25% share in an office development project in Ploiesti known as the
  Primavera Tower Ploiest, with an expected GBA of approximately 9,600 m2. It
  is anticipated that the project will be completed in 2010.
|
| | · | Ploiesti -
  PC owns a 25% share in a residential project in Ploiesti known as Acacia Park
  with a total GBA of approximately 29,800 m2. It is anticipated that the
  project will be completed in 2011.                            
|
| | · | Ploiesti -
  PC owns a 25% share in a residential project known as Green Land, with a
  planned GBA of approximately 24,000 m2. It is anticipated that the project
  will be completed in 2011.                                      

42

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Completed
Projects

The
following table lists the projects sold, or with respect to which sale
agreements were in place upon completion of the project (and the sale
transaction was not consummated to date), by us and PC in the shopping and
entertainment business in 2007:

|                   |  |                          |  |                                                                         |  |                        |  |          |  |  |                         |                            |                          |  |                            |  |                         | 
|------------------ |  | ------------------------ |  | ----------------------------------------------------------------------- |  | ---------------------- |  | -------- |  |  | ----------------------- | -------------------------- | ------------------------ |  | -------------------------- |  | ----------------------- | 
|Name               |  | Location                 |  | Description of project                                                  |  | Companys 
  share (%) |  | GLA (m2) |  |  | Acquirer                |                            | Asset Value              |  | Cash Consideration         |  | Gain Generated in 2007 
|                   |  |                          |  |                                                                         |  |                        |  |          |  |  |                         |                            |                          |  |                            |  |                        
|                   |  |                          |  |                                                                         |  |                        |  |          |  |  |                         | Companys share in million
|                   |  |                          |  |                                                                         |  |                        |  |          |  |  |                         |                           
|                   |  |                          |  |                                                                         |  |                        |  |          |  |  |                         |                           
|Rybnik
  Plaza     |  | Rybnik,
  Poland         |  | Shopping
  and entertainment center                                     |  | 100                    |  | 18,127   |  |  | Klépierre               |                            | 48.4 ($72.4; NIS 278.5) |  | 22.2 ($32.7; NIS_125.6)   |  | NIS
  61.2 ($15.9)     
|Sosnowiec
  Plaza  |  | Sosnowiec,
  Poland      |  | Shopping
  and entertainment center                                     |  | 100                    |  | 12,860   |  |  | Klépierre               |                            | 40.9 ($58.9; NIS 226.5) |  | 26.0 ($38.3; NIS_147.1)   |  | NIS
  54.8 ($14.2)     
|Lublin
  Plaza     |  | Lublin,
  Poland         |  | Shopping
  and entertainment center                                     |  | 50                     |  | 25,738   |  |  | Klépierre               |                            | 39 ($57.4; NIS 220.7)   |  | 27.3 ($40.17; NIS_154.5)  |  | NIS
  56.8 ($14.8)     
|Pilzeň
  Plaza     |  | Pilzeň.
  Czech Republic |  | Shopping
  and entertainment center                                     |  | 100                    |  | 20,000   |  |  | Klépierre               |                            | *                        |  | *                          |  | *                      
|Arena Plaza        |  | Budapest, Hungary        |  | Shopping
  and entertainment center                                     |  | 100                    |  | 66,000   |  |  | aAIM                    |                            | 390 ($574; NIS 2,207)   |  | 254.8 ($368.9; NIS_1,419) |  | NIS
  1,145.3 ($297.7) 
|Duna Plaza Offices |  | Budapest, Hungary        |  | Offices extension to the
  Duna Plaza shopping and entertainment center |  | 100                    |  | 11,000   |  |  | Klépierre               |                            | 14.2 ($20.9; NIS 80.4)  |  | 14.2 ($20.9; NIS_80.4)    |  | NIS
  22.2 ($5.8)      
|Arena Herzliya     |  | Hertzliya, Israel        |  | Shopping
  and entertainment center                                     |  | 100                    |  | 26,500   |  |  | Israel Financial Levers |                            | NIS 538 ($139.8)         |  | NIS 333.2 ($86.6)          |  | Loss
  of NIS 19.6 ($5)

*
The project has been pre-sold in accordance with the Stage B agreement with
Klepierre dated July 2005 (see Item 10.C Material Contracts  Shopping and
Entertainment Business, below), but has not yet been delivered to Klepierre as
of the date of this annual report, and therefore, information regarding the
asset value, cash consideration and gain are not available.

For
information regarding the sale agreements of all of the aforementioned
projects, other than the sale agreement of Duna Plaza Offices, see Item 10.C.
Material Contracts - Shopping and Entertainment Centers.

43

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Hotels

The
goal of our hotel business is to acquire and manage, via management companies,
four-star hotel properties which provide, at four to five star hotel prices,
the business and vacation traveler with five star quality accommodations that
are conveniently located near major transportation stations.

Our
interests in the hotels are held by our wholly owned subsidiary Elscint Ltd.
(Elscint). Our ownership percentage in our hotels varies, and the remaining
interests in those hotels that are not wholly-owned by us are owned by various
unrelated third parties, including Park Plaza Hotels Limited (Park Plaza), a
public company whose shares are listed for trade on AIM. Park Plaza Hotels is
engaged in the ownership, co-ownership, leasing, franchising and management of
full service four star deluxe hotels and trendy boutique hotels in major
gateway cities and regional centers in Europe and the Middle-East and North
Africa. Prior to its listing, Park Plaza combined its interests with those of
the Red Sea Group, our partner in five of our hotels.

Park
Plaza also serves indirectly, as the management company of six out of eight of
our operating hotels. For information regarding the management of our hotels by
both Park Plaza and otherwise, see  - Management of hotels below.

For
information on other hotels developed by us, within mixed-use projects - see
Other Real Estate Projects above.

In
addition to our operational hotels, we also hold interests in certain plots and
properties intended to be developed or refurbished into hotels, see Hotels
under development or renovation below.

In
June 2007, we completed the sale of the Ballet Building located in Budapest in
which we held 50%, see - Agreements with Respect to the Purchase or Sale of
Hotels below.

44

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The
following table provides information with regard to our operating hotels and
our hotels under construction:

Operating Hotels



|                                                                                    |                                                                     |           |                           |                                  |        |                                            |                                 |                                                                                                                 |     |                                         |   |                                                                                                                                                         |                                                 | 
|----------------------------------------------------------------------------------- | ------------------------------------------------------------------- | --------- | ------------------------- | -------------------------------- | ------ | ------------------------------------------ | ------------------------------- | --------------------------------------------------------------------------------------------------------------- | --- | --------------------------------------- | - | ------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | 
|Name and Rate of Hotel                                                              |                                                                     | Title     |                           | EI Share As of December 31, 2007 |        | Approximate Constructed Area (square feet) |                                 | Total Rooms                                                                                                     |     | Average Occupancy Rates During 2007 (%) |   |                                                                                                                                                         | Other Information                               | 
|                                                                                    |                                                                     |           |                           |                                  |        |                                            |                                 |                                                                                                                 |     |                                         |   |                                                                                                                                                         |                                                 | 
|                                                                                    |                                                                     |           |                           |                                  |        |                                            |                                 |                                                                                                                 |     |                                         |   |                                                                                                                                                         |                                                 | 
|Park Plaza
  Victoria Amsterdam1Amsterdam, the
  Netherlands
  Four Star Deluxe     |                                                                     | Freehold  |                           | 50%                              |        | 220,000                                    |                                 | 306 including Executive
  rooms and Business and deluxe Suites                                                  |     | 96%                                     |   | ·                                                                                                                                                       | business center                                 | 
|·                                                                                   | health center                                                       |          
|                                                                                    |                                                                     |          
|                                                                                    |                                                                     |           |                           |                                  |        |                                            |                                 |                                                                                                                 |     |                                         |   |                                                                                                                                                         |                                                 | 
|Park PlazaUtrecht 
  Utrecht, the NetherlandsFour Star                              |                                                                     | Leasehold |                           | 50%                              |        | 56,000                                     |                                 | 120 superior
  and executive rooms                                                                              |     | 83%                                     |   | ·                                                                                                                                                       | 11 conference rooms                             | 
|                                                                                    |                                                                     |          
|                                                                                    |                                                                     |          
|                                                                                    |                                                                     |           |                           |                                  |        |                                            |                                 |                                                                                                                 |     |                                         |   |                                                                                                                                                         |                                                 | 
|Park PlazaAstrid Antwerp
  Antwerp, BelgiumFour Star                                |                                                                     | Freehold  |                           | 100%                             |        | 223,000                                    |                                 | 228 including executive rooms and
Suites and 19 new luxury apartment suites 3.                                  |     | 72%                                     |   | ·                                                                                                                                                       | includes an oceanarium
  attraction (Aquatopia) | 
|·                                                                                   | 12 boardrooms                                                       |          
|·                                                                                   | 18 conference rooms                                                 |          
|                                                                                    |                                                                     |           |                           |                                  |        |                                            |                                 |                                                                                                                 |     |                                         |   |                                                                                                                                                         |                                                 | 
|Radisson SAS BucharestBucharest, Romania Five
  Star                                |                                                                     | Freehold  |                           | 73%                              |        | 38,000                                     |                                 | 417 including superior
  rooms, business class rooms, suites, executive suites and one exclusive royal
  suite. |     | N.A (soft opening in May
  2008)        |   | Radisson SAS Bucharest
  hotel and Centreville hotel apartments (mainly for long-term occupation) are
  adjacent complexes and share certain facilities |                                                
|                                                                                    |                                                                     |           |                           |                                  |        |                                            |                                 |                                                                                                                 |     |                                         |   | ·                                                                                                                                                       | Bistro, Spa                                     | 
|Centerville Hotel Apartments Bucharest, Romania                                     |                                                                     | Freehold  |                           | 73%                              |        | 42,000                                     |                                 | 293 apartments                                                                                                  |     | 94%                                     |   | ·                                                                                                                                                       | World class health academy                      | 
|                                                                                    |                                                                     |           |                           |                                  |        |                                            |                                 |                                                                                                                 |     |                                         |   |                                                                                                                                                         |                                                 | 
|Park Plaza
  Sherlock Holmes London
  London, the United Kingdom
  Four Star Deluxe |                                                                     | Leasehold | 45% equity and 50% voting |                                  | 67,500 |                                            | 119 including executive
  rooms |                                                                                                                 | 89% |                                         | · | boutique-style
  hotel                                                                                                                                  |                                                
|·                                                                                   | fitness & wellness
  center                                         |          
|·                                                                                   | Executive lounge                                                    |          
|·                                                                                   | main meeting room for 600
  people                                  |          
|·                                                                                   | 6 board rooms                                                       |          
|                                                                                    |                                                                     |           |                           |                                  |        |                                            |                                 |                                                                                                                 |     |                                         |   |                                                                                                                                                         |                                                 | 
|Park Plaza
  Victoria London
  London, the United Kingdom
  Four Star Deluxe        |                                                                     | Freehold  |                           | 50%                              |        | 242,000                                    |                                 | 299 including
  guestrooms and suites plus 12 one & two bedroom apartments                                      |     | 88%                                     |   |                                                                                                                                                         |                                                 | 
|                                                                                    |                                                                     |          
|·                                                                                   | Executive lounge                                                    |          
|·                                                                                   | health center                                                       |          
|·                                                                                   | main conference room for up
  to 750 people                         |          
|·                                                                                   | 13 additional conference
  rooms                                    |          
|·                                                                                   | underground parking
  facilities                                    |          
|                                                                                    |                                                                     |           |                           |                                  |        |                                            |                                 |                                                                                                                 |     |                                         |   |                                                                                                                                                         |                                                 | 
|Park Plaza
  Riverbank London2London, the United
  Kingdom 
  Four Star Deluxe      |                                                                     |           |                           |                                  |        |                                            |                                 | 394 including superior
  and executive rooms and suites                                                         | 72% |                                         | · | full leisure center                                                                                                                                     |                                                
|·                                                                                   | two main conference rooms,
  each with capacity of up to 650 people |          
|Plaza on
  the River London2London, the United
  Kingdom 
  Four Star Deluxe        |                                                                     | Leasehold |                           | 45% equity and 50% voting        |        | 337,000                                    |                                 | 66 luxury residential
  suites                                                                                  |     | 79%                                     |   | ·                                                                                                                                                       | 20 additional conference
  rooms                | 
|·                                                                                   | Restaurant, Brasserie, Bar
  and Lounge                             |          

|  |                                                                                                                                                                                                                                                
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1 | See also - Hotels under
  Development or Renovation - below.                                                                                                                                                                                 
|2 | Park Plaza Riverbank London
  hotel and Plaza on the River London hotel form part of the same Riverbank
  complex.                                                                                                                             
|3 | During May 2008, Park Plaza
  Astrid Antwerp renovated its third floor so that it now includes 19 brand-new
  luxury apartment suites. Prior to the renovation, the third floor was used as
  office spaces which were rented to a third party.

45

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Hotels
under Development or Renovation

Victoria
Monument, London, United kingdom

We
own together with Park Plaza, in equal parts, a joint venture company which
purchased a historical office building with appurtenances and land, in
Amsterdam, the Netherlands. The 75 year old office building, which is
considered a historical building for preservation under local laws, is located
in the heart of Amsterdams business and entertainment centers and resides next
to our four-star Park Plaza Victoria Amsterdam Hotel. The joint venture company
intends to convert this property into an approximately 100 room hotel as an
extension to the Park Plaza Victoria Amsterdam Hotel, following a restoration
and an investment of approximately 10 million (approximately $15 million; NIS
56.5 million), and subject to receipt of all consents and permits. The purchase
price of 14 million (approximately $21 million) was fully financed through a
bank loan.

Atlanta
Hotel, Antwerp, Belgium

On January 4,
2008, we acquired a property located in Antwerp, Belgium (also known as the
Atlanta Hotel). The total purchase price (including certain acquisition
expenses) was 4.65 million ($6.84 million; NIS 26.3 million). We intend to
refurbish the property into a hotel of approximately 60 rooms with a rating of
four stars.

Plot
in Tiberius, Israel

In
July 2007 we entered into an agreement with the Israel Land Administration
(ILA), according to which we leased a plot of approximately 44,600m2
in Tiberius, Israel for a term of 49 years (through 2056) with an option to
extend the lease term with an additional 49 years. The total consideration paid
amounted to NIS 30.6 million ($7.95 million). We intend to construct on the
site a hotel. In accordance with the term of the agreement, we have undertaken
to finalize the construction work of the hotel within a period not exceeding 36
months (July 2010).

Agreements for the Sale of the
Ballet Building, Budapest

On
June 12, 2007, we, together with the Red Sea Group, then the other owner of the
National Ballet Institute building located in Budapest, Hungary, completed the
sale of such building. The transaction reflects an asset value of 30 million
($40 million; NIS 169.8 million), of which our share was 50%. The net cash
consideration was 29.8 million ($40 million; NIS 169.8 million) of which our
share was 14.9 million ($21.9 million; NIS 84.3 million).

Agreements with Respect to Ownership
of the Hotels

We
are a party to a shareholder agreement with Park Plaza, indirectly, dated
February 15, 1993 (originally signed by our controlling shareholders who was at
that time the owner of such hotel and subsequently transferred same to us
within the framework of a transaction for the sale of all hotels in September
1999), as amended, with respect to our indirect ownership of the Park Plaza
Victoria Amsterdam Hotel in Amsterdam. Under the agreement, in the event we or
Park Plaza no longer control the entities owning the Park Plaza Victoria
Amsterdam Hotel, then the party who ceased to control such entity must offer
its holdings in the entities owning the Park Plaza Victoria Amsterdam Hotel to
the other party at value to be agreed upon by the parties.

We
are a party to certain other shareholder agreements with Park Plaza in respect
of the Park Plaza Riverbank Hotel, the Park Plaza Victoria London and the Park
Plaza Sherlock Holmes in London, the United Kingdom. We and Park Plaza shall
enjoy equal representation in the board of directors of each hotel company. The
parties have agreed upon rights of first refusal, tag along and drag along
rights, under terms and conditions as stipulated in the respective agreements.
The agreements provide for certain share (5%-10%) held by Park Plaza to confer
no voting rights until such time as it shall have provided and completed its
full equity contribution (as defined in the agreements).

Management
of Hotels

Other
than the Centreville Hotel Apartments, which is managed by us, all of our
hotels are managed by Park Plaza and one hotel (Radisson SAS Bucharest) by the
Rezidor Hotel Group.

Management
agreement with Park Plaza

Most
of our operating hotels have appointed Park Plaza, an unrelated third party
management company, as their management company. Park Plaza owns the franchise
to the Park Plaza brand name in the Benelux countries, the 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 supervision of the local management and staff. Local management
is employed by the respective company owning the hotel and not by Park Plaza,
although Park Plaza does render hiring services.

46

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Each
of our subsidiaries holding interests in the Park Plaza Victoria Amsterdam,
Park Plaza Utrecht, Park Plaza Astrid Antwerp, Park Plaza Sherlock Holmes, Park
Plaza Victoria London and Park Plaza Riverbank hotels has entered into
management agreements with Park Plaza, the principal provisions of which
include:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | · | Payment to
  Park Plaza of an annual incentive fee of 7% of the gross operating profit (as
  defined in the applicable agreement) of the hotel (Incentive Fee).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | · | Payment to
  Park Plaza of an annual base fee of 2% of the gross hotel room revenues
  (Annual Base Fee).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | · | Reimbursement
  of reasonable out-of-pocket expenses, including advertising expenses, office
  expenses (at a fixed amount) and other expenses incurred by Park Plaza in
  carrying out its duties of up to 3% of the aforementioned gross operating
  profit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | · | In
  consideration for monthly royalties (Franchise Fee), our hotels may use the
  brand name Park Plaza, certain Park Plaza trademarks, Park Plazas
  international marketing network and international booking center, Park
  Plazas marketing and advertising material, Park Plazas international hotel
  conferences, Park Plazas assistance in planning, developing and applying its
  methods with respect to the hotels, training of staff and senior management
  of the hotels, and inclusion in the list of Park Plaza hotels worldwide. We
  design and refurbish our hotels in order to comply with Park Plazas
  operational standards.                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | · | Each
  management agreement is valid for an initial fifteen-year period and
  renewable automatically for an additional period of ten years, subject to the
  right of either party to terminate the agreement by giving six months advance
  written notice. If any of the hotel-owning companies should decide on early
  termination of the management agreement, then it would be required to pay to
  Park Plaza an amount equal to the Incentive Fee, the Annual Base Fee and the
  Franchise Fee for the year immediately preceding the date of the termination.
  In the event the company holding the Park Plaza Victoria Amsterdam Hotel
  sells the hotel or should the control of the hotel be transferred to third
  party, we are also required to pay 2.5% of any gain derived from the sale of
  the hotel.

Management
Agreement with the Rezidor Hotel Group

On
June 9, 2004, our indirect subsidiary, S.C. Bucuresti Turism S.A., the owner of
the Radisson SAS Bucharest Hotel (the Owner), which was opened a soft-opening
in May 2008, entered into an agreement with The Rezidor Hotel Group (the
Management Company) regarding the future management of the Radisson SAS
Bucharest Hotel to be operated under the Radisson SAS trade name.

Under
the agreement the Owner undertook to pay the Management Company an annual base
fee of 3.5% of the total revenue and an annual management fee of 10% of the
gross operating profit. Both fees payable to the Management Company shall be no
less than certain agreed minimum amounts depending on the relevant year. In
addition, the Owner will pay the Management Company 2.5% of gross room revenue
for marketing and advertising services as well as an agreed fee per room for
reservations of rooms.

Pursuant
to the agreement, the Management Company had guaranteed to the Owner that the adjusted
gross operating profit (the total revenue less expense, permitted deductions, management
fee and property insurance) for the hotel operation, as and from the second year of
operation, shall not be less than fixed annual amounts. In addition, the Management
Company has agreed that the total aggregate amount paid by it, will not, exceed
cumulatively throughout the term of the agreement, those amounts which are stipulated in
the agreement.

Business
Concept and Strategy

Our
business concept and strategy for our hotels include the following elements:

Location.
Our hotels are generally situated in close proximity to major railway links
into cities, such as the central railway station in Amsterdam (situated across
from our Park Plaza Victoria Amsterdam Hotel), the central railway station in
Antwerp (situated close to our Park Plaza Astrid Antwerp Hotel) and the
Victoria railway station in London (situated close to our Park Plaza Victoria
London Hotel). The London and Antwerp stations accommodate the services of the
Train de Grand Vitesse (the TGV).

Service.
Our hotels make considerable efforts to offer personal services at a five-star
level but at four-star level prices.

Customer
base. Our hotels principal target customer base is the business traveler
and the tourist industry, both individuals and groups.

47

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Management.
Our 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 provides the
advantage of a unified management system that promotes the efficiency of the
operation and control of hotels in diverse locations.

Strategy.
Our strategy for our hotels business is to increase the number of hotel rooms
in both Western and Eastern Europe, with emphasis on prime location while
contemplating expansion of our hotel operation into the Indian market
including, among other venues, by incorporating the hotel business into
mixed-use projects. The duration of our holding and managing of our hotel
portfolio varies and is dependant upon business cycles, economic conditions,
property yields, and trends affecting the hotel industry or capital market
opportunities.

The Image Guided Treatment Business

All
of our activities in the image guided treatment field are performed through
InSightec.

As
of December 31, 2007, the principal shareholders of InSightec were us (holding
70.71% of InSightecs voting rights and 52.95% on a fully diluted basis), GE
(holding 23.58% of InSightecs voting rights and 20.95% on a fully diluted
basis) and MediTech Advisers L.P. (MTA), an investment firm, (holding 3.78%
of InSightecs voting rights and 6.55% on a fully diluted basis). Employees,
directors, officers and other investors hold the remaining holdings of
InSightec. The holdings in InSightec on a fully diluted basis is calculated
excluding warrants granted by InSightec contingent upon certain rates of return
on convertible notes issued by InSightec in August 2006 as well as 1,000,000
options exercisable into InSightecs ordinary shares whose vesting is triggered
upon the initial public offering of InSightec (see Item 6.E. Share
Ownership).

The
following is a short summary of the investments in InSightec during 2007 and
existing shareholders agreements:

In November
2007, InSightec entered into a Series A Preferred Share Purchase Agreement with
its three main existing shareholders (including us) and with new private
investors for the consideration of $30 million (NIS 115.3 million) at a price
of $12 per Preferred A Share. Our share in this investment round totaled $20
million (NIS 76.9 million). Preferred A Shares have the same rights as
InSightecs ordinary shares, except that (i) the Preferred A Shares are senior
to all other shares and subordinated to all creditors and no dividend or other
payment will be made with regard to other shares at any time when dividends or
other payments with regard to the Preferred A Shares are in arrears; (ii) the
Preferred A Shares accrue semi-annually dividend at the rate of Libor plus 3%
per annum, as and when declared by the InSightec; (iii) a majority of 75% of
the Preferred A Shares is required with respect to certain decision (such as
issuance of new securities, mergers, dividends); (iv) the Preferred A Shares
may be converted into InSightecs ordinary shares upon the occurrence of
certain events, including liquidation and winding up of InSightec.

In
December 2007, we exercised warrants and purchased 977,552 ordinary shares of
InSightec in consideration for the payment of $7.15 million (out of which $2.15
million were deducted against the offset of the same amount that was due to us
from InSightec pursuant to a loan granted to InSightec in May 1999).

We
are a party to an agreement with GE and MTA pursuant to which for so long as we
continue to beneficially hold 50.01% or more of the outstanding share capital
of InSightec on a fully diluted basis, we are allowed to appoint three
directors to serve on InSightecs Board of Directors and for so long as we
continue to beneficially hold 50.01% or more of the outstanding share capital
of InSightec no action shall be taken without the affirmative vote of a
majority of our designated directors present. GE was granted veto rights over
the execution of certain significant transactions or activities not in the ordinary
course of business of InSightec. The parties have a right to participate in any
new financing pro rata to their holdings.

The
articles of association of InSightec provide certain limitations on the
transfer of each partys holdings in InSightec, including, transfer to a
competing entity and a right of first refusal granted to us and GE in the event
of sale by either of us of its holdings. In the event we sell our holdings, GE
and MTA have a right of co-sale. A change of control by us to a competing
entity of GE in the focused ultrasound therapy or medical imaging business,
grants GE and MTA a right to sell their holdings in InSightec to us at fair
value (in accordance with a mechanism provided in the agreement) or acquire our
holdings in InSightec at fair value. This right shall not apply to any Change
of Control occurring after a qualified IPO of InSightec if we at the time of
such Change of Control no longer owns or controls, directly or indirectly, 30%
or more of the outstanding capital stock of InSightec on a fully diluted basis.
Termination of the Securityholders Agreement by either us or GE following a
material breach of the other party grants the other party a right to purchase
the defaulting partys securities at 90% of their fair value. If GE terminates
the Securityholders Agreement as aforementioned, GE has a right to sell its
holding to us at 110% of their fair value. If the rights to purchase or sell
the other partys holdings in the event of termination, as described above, is exercised,
the terminating party who purchases the other partys holdings has an option to
include all of MTAs holdings in the transaction. Upon the occurrence of a buy
out by either GE or by us, as aforementioned, MTA has a right to include all of
its holdings in such buy out, under the same terms and conditions.

48

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Business
description

InSightec
has developed and markets the ExAblate 2000 - the first FDA-approved system for
Magnetic Resonance guided Focused Ultrasound Surgery (MRgFUS). InSightecs
objective is to transform the surgical environment for the treatment of a
limited number of forms of benign and malignant tumors by replacing invasive
and minimally invasive surgical procedures with an incision less surgical
treatment solution. The system is designed to deliver safe and effective
non-invasive treatments while reducing the risk of morbidity and potential
complications, as well as the direct and indirect costs associated with
conventional surgery. In October 2004, InSightec received FDA approval to
market the ExAblate 2000 in the United States for the treatment of uterine
fibroids, a type of benign tumor of the uterus. Prior to that, in October 2002,
InSightec received authorization to affix the CE mark to the ExAblate 2000, enabling
it to market the system in the European Economic Area, and certain Asian
countries, for the treatment of uterine fibroids. InSightec also has regulatory
approval for the ExAblate 2000 for uterine fibroids in Canada, Russia, Brazil,
Mexico, Korea, Taiwan, Australia, New Zealand and Singapore as well as for the
treatment of breast cancer in Korea. In May 2007, InSightec also received
CE-marking (marketing approval in the EEA) and in January 2008 the Israeli
approval for the pain palliation of bone metastases. InSightec is also in
various stages of development and clinical research for the application of its
MRgFUS technology to the treatment of other types of benign and malignant
tumors. These additional applications are being developed to take advantage of
the modular design of the ExAblate 2000, which enables it to function as a
common platform for multiple MRgFUS-based surgical applications. Currently,
InSightec has an installed base of 62 units around the world in academic
hospitals, community hospitals, MRI clinics and physician-formed joint
ventures. The ExAblate 2000 is operable only with certain MRI systems
manufactured by GE.

InSightecs MRgFUS technology integrates the therapeutic effects of focused ultrasound
energy with the precision guidance and treatment outcome monitoring provided by
MRI systems. Ultrasound is a form of energy that can pass harmlessly through
skin, muscle, fat and other soft tissue, and is widely used in diagnostic
applications. The ExAblate 2000 uses a phased-array transducer that generates a
high intensity, focused beam of ultrasound energy, or a Sonication, aimed at a
small volume of targeted tissue. The focused ultrasound energy provides an
incision-less therapeutic effect by raising the temperature of the targeted
tissue mass high enough to ablate, or destroy it, while minimizing the risk of
damage to overlaying and surrounding tissue.

InSightec
believes that by combining the non-invasive therapeutic effects of focused
ultrasound energy and the precise real-time data provided by the MRI system,
it has developed an effective, non-invasive treatment solution for uterine
fibroids.

InSightec
also believes that its MRgFUS technology can be applied to the treatment of
other medical conditions, providing similar advantages by presenting both
physicians and patients with a safe and effective incision-less surgical
treatment option for several medical conditions, including a number of
indications for which there are currently few effective treatment options.

Distribution and Marketing

InSightec
distributes and markets its products directly and through the entering into
distribution agreements with third parties.

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | In June 2005, InSightec entered into a five-year exclusive worldwide (excluding Japan and
Russia) sales and marketing agreement with GE with respect to the ExAblate 2000. In May
2008, GE and InSightec have agreed to insert certain changes in the said sales and
marketing agreement, including the cancellation of the exclusivity that was granted to GE.
A revised formal agreement was not executed yet although the mutual understanding was
already implemented by both parties. In accordance with the agreement between the parties,
InSightec shall pay GE a commission on the net sales invoiced and actual payments received
by InSightec for each order for the sale of products from an end-user resulting from GE
Healthcares activities. In case GE desires to market or sell any competing MRgFUS
product in a territory, which InSightec holds all authorizations required to market its
product in, then GE will notify InSightec of such intention. The agreement is for a
five-year term ending in June 2010, unless earlier terminated in accordance with the terms
of the agreement. Thereafter, the agreement will automatically renew, each time, for an
additional year, unless either party provides a written notice of its intent to terminate
the agreement.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | · | InSightec
  retains an exclusive distributor in Russia and a non-exclusive distributor in
  Japan. Each of these distributors undertook not to distribute any other
  systems, which compete or may compete with InSightecs FUS system for
  specific periods determined in the agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

Business Concept and Strategy

InSightecs
strategic objective in this area is to continue its follow-up studies for
uterine fibroids, as well as its product development efforts and clinical
studies for additional applications. If the results of its clinical studies are
positive, InSightec intends to pursue regulatory approval in the United States
and other targeted jurisdictions to market the ExAblate 2000 for these
additional treatment applications.

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In
addition, InSightec aims to become the market leader in MRgFUS systems, and to
achieve a significant improvement in the quality and efficacy of the treatment
while demonstrating cost effectiveness. To that effect, InSightec completed the
development of ExAblate®4000, a unique system targeted at non-invasive
treatment of brain tumors and central nervous system targets. As of May 2008,
three such systems were installed, one in Europe and two in the US. In
addition, research and development activities have been initiated towards
implementing new product derivatives for treating bone and prostate cancer
tumors. These new systems exploit InSightec new and proprietary dense acoustic
array technology for better tumor control and treatment flexibility.

Other Activities

Our
Other activities consisting of investments in India designated mainly for residential
projects and other mixed-use projects and other investments in India in hospitals and farm
and dairy plant, the distribution and sale of fashion retail in Israel and venture-capital
investments. In addition, on June 30, 2008, we have also entered into a joint venture
agreement with an unrelated third party to engage in the insurance business in Romania.

50

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| |                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------
| | Investments in India                                                                                                    
| |                                                                                                                         
| | Real Estate Projects                                                                                                    
| |                                                                                                                         
| | Set forth
  below is information with respect to our investments in investments in
  residential and mixed-use projects.

|                  |  |                                   |  |                                   |  |              |  |                              |  |                                      |                        |                        |                                          |        |               
|----------------- |  | --------------------------------- |  | --------------------------------- |  | ------------ |  | ---------------------------- |  | ------------------------------------ | ---------------------- | ---------------------- | ---------------------------------------- | ------ | --------------
|Name of Project   |  | Location                          |  | Title                             |  | EI
  Share % |  | Approximate
  Land Area (m2) |  | Approximate
  GrossBuilt
  Area (m2) |                        | Estimated
  Completion |                                          | Status
|                  |  |                                   |  |                                   |  |              |  |                              |  |                                      |                        |                        |                                          |       
|                  |  |                                   |  |                                   |  |              |  |                              |  |                                      |                        |                        |                                          |        |               
|Cochin            |  | Cochin, Kerala State, India       |  | Freehold andDevelopment Rights    |  | 501          |  | 165,886                      |  |                                      | 575,004                |                        | Preliminary stage - cannot be estimated. |        | Planning stage
|                 
|Chennai           |  | Chennai, Tamil Nadu State, India  |  | Freehold                          |  | 801          |  | 546,210                      |  |                                      | Exceeding 1 million m2 |                        | Preliminary stage - cannot be estimated. |        | Planning stage
|                 
|Bangalore Project |  | Bangalore, Karnataka State, India |  | Freehold and Development
  Rights |  | 501          |  | 1,780,230                    |  |                                      | Exceeding 2 million m2 |                        | Preliminary stage - cannot be estimated. |        | Planning stage

1For information regarding the rights of Mr.
Abraham (Rami) Goren, our Executive Vice Chairman of the Board of Directors, in
the projects, see Item 7.B - Related Party Transactions - Compensation to
Directors and Officers.

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Cochin,
Kerala State, India

We
have invested in a real estate project located in Cochin, in the Kerala State
of India, for the construction and development on an area of land measuring 41
acres (approximately 166,000 m2) of a project comprised of
residential apartment buildings, an hotel, office space and a marina, with
approximately 575,004m2
GBA (exclusive of underground parking facilities). As part of this project, in
September 2006, we, together with an Indian corporation (Project SPV) which
is wholly owned by an unrelated third party (the Third-Party Shareholder),
entered into an agreement (as subsequently amended in January 2007) for the
purchase by us and the Project SPV of an area of land measuring 13 acres
(approximately 52,600 m2)(Property A) for a total consideration
of INR 1,495 million (approximately $37.9 million; NIS 145.9 million), payable
subject to fulfillment of certain obligations and conditions by the seller in
respect of Property A, principally the obtaining all permissions required for
construction thereon and making good and marketable title with regard to
Property A. Additionally, an area of 28 acres (approximately 113,300 m2)(Property B)
will be transferred by the seller to the Project SPV without any consideration,
and the seller will be entitled to receive 40% of the constructed area which
will be built by the Project SPV on Property B. It was further agreed that all
fees, costs and expenses for construction on Property B will be borne by the
Project SPV, and that the Project SPV will have the sole control over the
construction as well as the marketing of the entire project. The agreement also
provides that if the seller fails to comply with the aforementioned conditions
precedent by an agreed date, then the Project SPV and ourselves will have the
right to terminate the agreement, and in that event the seller will be obliged
to refund all amounts paid to him under the agreement, plus interest accruing
at the rate of Libor +1% per year.

On
September 29, 2006, we, the Third-Party Shareholder and the Project SPV entered
into a share subscription agreement according to which we undertook to transfer
to the Project SPV all of our right in Property A in consideration for the
allotment to us of 50% of the equity and voting rights in the Project SPV. The
allotment of shares is subject to the fulfillment of certain conditions,
principally the re-classification of the land, and the obtaining of the
approval (sanctioning) of the building plans for the project and the award of
building permits.

Chennai
(previously known as Madras), Tamil Nadu State, India

On
December 6, 2007 we, through our subsidiary, executed a various agreements for
the establishment of a joint venture company (Chennai JV Company) together
with one of the leading real estate developers in Chennai, an unrelated third
party (Local Partner). Subject to the fulfillment of certain conditions, the
Chennai JV Company will acquire the ownership and development rights in and to
approximately of 135 acres (546,210 m2) of land situated in the
Sipcot Hi-Tech Park in the Siruseri District of Chennai, India. Under these
agreements, we are to hold 80% of the equity and voting rights in the Chennai
JV Company, while the Local Partner will retain the remaining 20%. We intend to
develop on this land a mixed-use project, which will consist of exclusive
residential projects comprised of villas (bungalows) and high-rise buildings
and related amenities, commercial and office areas, and retail areas, with a
total GBA exceeding 1 million m2, subject to the
sanctioning of the building permits by the competent authorities. It is
anticipated that this project, which will be executed in stages, will be
completed over the course of the next 3 to5 years.

The
total investment which we anticipate will be made by us by virtue of our 80%
interest in this project is in the aggregate amount of INR 4,276.8 million
(approximately $160.7 million), assuming that the entire area of 135 acres is
acquired by the Chennai JV Company. Such amount is calculated on the basis that
we will be required to invest INR 31.7 million (approximately $790,000) for
each acre of the target land which is purchased by the Chennai JV Company. The
consummation of the agreements will be accomplished in stages, and is subject
to the fulfillment of certain regulatory requirements, as well as to our
satisfactory due diligence investigations, in respect of each stage. The
acquisition of the first portion of the land measuring approximately 42 acres
(approximately 167,000 m2)was
completed concurrently with the execution of the agreements, and our subsidiary
paid approximately INR 1,397.7 million ($35.5 million; NIS 136.4 million) in
respect of its proportionate share of the acquisition price paid by the Chennai
JV Company for such portion of land. Subsequently, an additional area of land
measuring approximately 9.7 acres (approximately 39,250 m2) has been acquired by the
Chennai JV Company, and in respect of which we have invested an additional INR
307 million (approximately $7.8 million; NIS 30 million).

A
shareholders agreement in respect of the management of the Chennai JV Company
provides for a five member board of directors, the majority of whom are
appointed by us. The shareholders agreement also includes certain pre-emptive
rights and restrictions on transferring securities in the Chennai JV Company.
Profit Distributions declared by the Chennai JV Company will be distributed in
accordance with the shareholders proportionate shareholdings in that company,
subject to our entitlement to receive certain preferential payments out of the
Chennai JV Companys cash flow on the terms specified in the agreements.

Bangalore,
Karnataka State, India

In
March 2008, we entered into definitive agreements with one of the leading
developers in Bangalore, India for the joint development of a large scale
mixed-use project located in Bangalore, Karnataka, India. Under the agreements
we and our local partner will acquire through a joint venture company (which
will be held, subject to certain conditions, in equal parts by us and such
local partner the Joint Venture Company), up to 440 acres of land in
Bangalore, India (Project Land).

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Under
the agreement, the Joint Venture Company is to acquire, subject to certain conditions,
ownership and development rights in respect of up to approximately 230 acres of the total
Project Land. The total consideration anticipated to be paid by us with respect to the
purchase of such land is INR 10,500 million ($266.5 million; NIS 1024.8 million). As of
March 2008, the Joint Venture Company (which at this stage is our wholly owned subsidiary)
has secured rights over approximately 54 acres of such 230 acres and EI paid approximately
INR 2,840 million ($72 million; NIS 277 million). In addition, we paid to the local
partner an interest bearing refundable advance of INR 1,861.5 million ($47.2 million NIS
181.7 million) on account of the future acquisition by the Joint Venture Company of a
further 35.6 acres of such 230 acres, which land is currently owned by the local partner.

In
respect of the remaining approximate 210 acres of land (approximately 850,000 m2) (out of the
Project Land), it is intended that the Joint Venture Company will enter into
joint development agreements, under which the Joint Venture Company will be
entitled to develop the entire area of such lands. In consideration, the Joint Venture
Company will pay between 38% and 53% (depending on the specific plot) of the
built up area of such lands and in some instances, refundable deposits on
account of such future consideration will also be paid. Our 50% share (through
the Joint Venture Company) in rights under such development agreements, will
require us to pay up to INR 750 million ($18.7 million; NIS 73.2 million) of
such deposits.

The
agreement provides for additional portions of the Project Land to be acquired
in stages, through local third parties, on behalf of the Joint Venture Company
and, subject to certain conditions, we will make advances on account of such
acquisitions. As of the date if this annual report, no such advances have been
made.

The
closing of the final stage of the transaction is to be held no later than March
13, 2009. At such stage, subject to certain conditions, the ownership and/or
development rights in respect of all additional portions of the Project Land,
that have been acquired by our partner and/or its business partners and that
comply with certain regulatory requirements and our due diligence requirements,
will be transferred to the Joint Venture Company. Concurrently, our partner
will be issued, subject to certain conditions, up to 50% holdings in the Joint
Venture Company, which prior to such date shall be wholly owned by us.

We
and the local partner have also entered into a shareholders agreement in
respect of the future management of the Joint Venture Company following the closing
of the final stage. The shareholders agreement also includes certain
restrictions and pre-emptive rights pertaining to transferring of securities in
the Joint Venture Company. Profits from the Joint Venture Company will be
distributed in accordance with the parties proportionate shareholdings,
subject to our entitlement to receive preferential payment of profit
distribution in the amounts and on the terms specified in the agreement.

We
intend to develop on this land a mixed-use project, which will consist of
exclusive residential projects to be comprised of villas (bungalows) and
high-rise buildings, hotels, service apartments and a hospital along with
services and amenities. The total built up area of the entire planned project
will exceed 2 million m2, subject to obtaining the requisite permits and
approvals under applicable law.

Construction
of the first stages of the project is anticipated to commence within the next
twelve months, and will be executed in stages to be completed over the course
of the following 3 to 5 years. The project is the largest development project
undertaken in the Bangalore area to date.

Elbit
India Healthcare

Since
early 2007 we are working with different local partners in developing and
operating a chain of multi-specialty tertiary hospitals in India in order to
address the emerging and current needs for a specialized medical care centers
in India. It is anticipated that the chain will include hospitals in several
major metropolitan areas in India. In Kolkata, the capital city of West Bengal,
a hospital, with 500 beds at its first phase, is in advanced planning stage
through Neotia Elbit Hospital Venture Ltd. (NEHVL), a joint venture between
us and a local partner. Our share in this project is 50%.

Through
NEHVL, we are also in advanced stages of exploring the development of a 200 bed
secondary hospital in Siliguri, a town that has become a commercial hub for the
whole North-East India, as well as for communication with Nepal, Bhutan and
Bangladesh.

We
further intend to develop a similar 500 bed (extendable to 1,000 beds)
multi-specialty hospital as part of a real estate project we are currently
developing in Bangalore, India (see Item 4.B  Business Overview  Other
Activities). We are also in discussions with several other local Indian
partners for the development of similar hospitals in other metropolitan areas
across India.

The
headquarters for all the healthcare activities is located in Bangalore and
comprised of a professional team, headed by a medical doctor who specializes in
healthcare management. Additionally, through our various activities in the
field of medical devices and biotechnology, we have ongoing relationships with
numerous medical centers in Israel and abroad which enable us to build an
advisory and support team to assist us in this venture. We anticipate that the
new hospital chain in India will closely collaborate with both InSightec and
Gamida-Cell in the field of clinical trials and research and will have close
ties with several medical centers in Israel and abroad for telemedicine,
specialty treatments, exchange programs and training of personnel.

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Dairy Farm and Dairy Plant, Gujurat State, India

In
February, 2008, we executed a Memorandum of Agreement with the Government of
the State Gujarat, India pursuant to which we, through a local subsidiary, will
establish a modern dairy farm with approximately 10,000 dairy cows and an
ultra-modern dairy plant that will produce basic and premium dairy products.
The farm and plant will be established on land measuring approximately 500
acres (approximately 2,000,000 m2) which has been allotted
to us by the Government of Gujarat for this purpose on long term lease.

This
project is expected to be executed in several phases and is planned to become
operational within 24 months after commencement of work, which it is
anticipated will occur in mid-2009 subject to obtaining the necessary building
permits and regulatory approvals.

The
total investment in the project is anticipated to be approximately $100
million. As of May 31, 2008, no material investments have yet been made in this
project.

It
is intended that the planned dairy farm will make use of the advanced
technology and expertise developed in Israel, and will also include modernized
contract-farming activities for the production of the food materials required
for the dairy farm.

Fashion Retail

In
May 2005, Elscint purchased from Punto FA S.L. the entire equity and voting
rights in Elbit Trade and Retail Ltd. (Elbit Trade), formerly, Mango Israel
Clothing and Footwear Ltd., the Israeli distributor and retailer of the
internationally renowned retail brand name MANGO-MNG for 2.85 million. Concurrently with the purchase
agreement, Elbit Trade executed an exclusive distribution agreement for Mango
products in Israel for a ten-year period. Under the agreement, Elbit Trade has
agreed to guarantee annual minimum purchases at rates and subject to terms and
conditions specified in the agreement. Elbit Trade has undertaken to pay Punto
FA seasonal marketing, public relations, and store-support fees as specified in
the agreement. Elbit Trade currently operates 20 Mango stores in Israel.

In
September 2007, Elbit Trade entered into a franchise agreement with G-STAR
International B.V. Pursuant to the agreement, Elbit Trade received exclusive
rights to distribute in Israel products of G-STAR International B.V., an
apparel and accessories company, subject to certain conditions. The franchise
is valid for a period of 10 years.

The
principal regulatory requirements for the operation of Elbit Trade in Israel include: (i)
compliance with the Israeli consumer protection law, (ii) maintaining various licenses and
permits issued by governmental authorities (including receiving applicable standards from
the Israeli consumer standard institute for certain imported accessories), and (iii)
compliance with employment regulations.

The
key elements of Elbit Trades strategy are:

| |  |   |                                                                                                                                                                                                                                                               
| |  | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | · | Increase
  sales to existing and new customers by adjusting our pricing strategy and
  market behavior. Elbit Trade believes its customer service and reliability as
  a franchisee of leading international brands provide it with a competitive
  advantage.
| |  |   |                                                                                                                                                                                                                                                               
| |  | · | Localization
  and enhancing the Mango and G-STAR brand names in Israel by improving its
  marketing and branding strategy.                                                                                                                                   
| |  |   |                                                                                                                                                                                                                                                               
| |  | · | Open new
  stores in strategic locations across Israel with emphasis on opening smaller
  shops of 250-300m2 rather than stores of larger size.                                                                                                               

Venture
Capital Investments

In
addition to our core operations, we hold interests in the following companies.
Our investments in these companies are not significant to our results of
operations.

Gamida
Cell Ltd.

Gamida
is engaged in the expansion of hematopoietic (blood) stem cells therapeutics in
clinical development for cancer and autoimmune diseases, as well as future
regenerative cell-based medicines including cardiac and pancreatic repair. As
of May 31, 2008, we hold 29.1% of Gamidas share capital (24.8% on a fully
diluted basis).

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Gamida
and Teva Pharmaceuticals formed a joint venture (JV) in February 2005 in
order to develop and commercialize certain products based on StemEx®, Gamidas
developing technology. Pursuant to the founders agreement of the JV dated
February 12, 2006, the sole purpose of the JV is commercialization of StemEx®
and obtaining all required registrations and marketing approvals. Teva shall
make an equity investment in the JV of up to $25 million in consideration for
up to 50% of the JV shares. Teva has, as of the date of this annual report,
carried out part of its investment. Pursuant to the agreement Gamida and the JV
signed a license agreement according to which Gamida granted the JV a royalty
free, worldwide license to exploit StemEx® and Gamidas intellectual property
in connection with developing, manufacturing, selling and distributing of
StemEx® and a royalty free, unlimited, worldwide exclusive license to
manufacture, develop, market, offer for sale, distribute and sell StemEx® and
the right to sublicense.

As
to a recently resolved dispute between Elscint Bio Medical, our subsidiary, and
its former CEO in connection with the holdings in Elscint Bio Medical and its
venture capital investments (including Gamida), see Note 21.C.5 to the
consolidated financial statements included in Item 18 below.

Olive
Software Inc.

Olive
Software Inc. (Olive), a Delaware corporation, is engaged in the development
and marketing of products that enable 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, Olive develops and
markets digital archive services for newspapers and libraries. Our holdings in
Olive as of May 31, 2008, represent 22.3% of its equity and voting rights
(18.3% on a fully diluted basis).

Easyrun
Ltd.

Easyrun
Ltd. (Easyrun), an Israeli corporation, is engaged in the development and
marketing of call centers solutions, which support under one platform,
diversified infrastructure from traditional telephony up to futuristic telecom
equipment (IP switchboards) and modern e-commerce applications (Web). As of May
31, 2008, we hold a total of 49.4% of the outstanding shares of Easyrun (47.8%
on a fully diluted basis).

Varcode
Ltd.

In
September 2006, we entered into an agreement, with an unrelated third party,
for the establishment of an Israeli company (Varcode) in which we invested an
amount of $3.0 million (subject to fulfillment of certain milestones in
accordance with the terms of the agreement) in consideration for approximately
46% of Varcodes equity. Varcode is engaged in developing labels for improving shelf
life of perishables.

As
of May 31, 2008, we have invested approximately $2.2 million in consideration
of approximately 38.6% interest in Varcode and the remainder of the 46% equity
share is held by a trustee and will be transferred to us upon completion of the
additional investments in Varcode. Pursuant to the agreement, we are entitled
to 50% of the voting rights at shareholder meetings and the right to appoint
50% of Varcode directors subject to certain time limitation and provisions as stipulated
in the agreement. One of Varcode founders and shareholder has a casting vote in
case of dead lock of Varcodes board members.

Pursuant
to the agreement, we were granted an option to purchase additional 4% in
Varcodes equity in consideration for $0.5 million. This option is exercisable
for a period of 18 months following the date of the agreement.

Entering
into the insurance business in Eastern Europe

On
June 30, 2008, we entered today into a joint venture agreement with Clal Insurance
Enterprises Holdings Ltd. (Clal) in order to expand our business activities
into the field of insurance. Under the agreement, we, through our wholly-owned Dutch
subsidiary, shall subscribe for 50% of the issued and outstanding share capital of
Clals wholly owned Dutch subsidiary, C.I.E. Holdings B.V. (CIE), in
consideration for an investment in CIEs capital of $17.755 million, which equals
Clals investments in CIE.

CIE
currently holds a Romanian insurance company named S.C. Clal Romania Asigurari-Resigurari
S.A. (Clal Romania). CIE is to engage in the insurance business in Romania
through Clal Romania, and subsequently expand these activities into other Eastern European
countries as specified in the joint venture agreement.

The
transaction shall be implemented in two stages. In the first stage of the closing, we
shall advance to CIE a loan in the amount of approximately $6 million against the issuance
of a convertible promissory note and in the second stage of the closing the said
promissory note shall be converted into ordinary shares of CIE, and we shall pay CIE an
additional amount of approximately $11.7 million in consideration for the allotment to us
of the remainder of the shares so as to attain shareholders parity. The consummation
of the transaction is subject, among others, to obtaining certain mandatory regulatory
approvals.

Revenues classified by business segments and by geographical
markets

The
following table sets forth our breakdown of revenues by each geographic market in which we
operate, for each of the last two years (in thousands of NIS):

|                             |  |           |  |      |           |                                                  |  |         | 
|---------------------------- |  | --------- |  | ---- | --------- | ------------------------------------------------ |  | ------- | 
|                             |  |           |  |      |           |                                                 
|                             |  |           |  |      |           |                                                 
|                             |  | 2007      |  | 2006 |           | Convenience
Translation in U.S. Dollars For 2007
|                             |  |           |  |      |           |                                                 
|                             |  |           |  |      |           |                                                  |  |         | 
|Israel                       |  | 96,875    |  |      | 118,558   |                                                  |  | 25,188  | 
|Western
  Europe             |  | 353,245   |  |      | 342,492   |                                                  |  | 91,847  | 
|Eastern and
  Central Europe |  | 3,006,192 |  |      | 1,118,975 |                                                  |  | 781,641 | 
|Others                       |  | 42,249    |  |      | 61,455    |                                                  |  | 10,985  | 
|                             |  |           |  |      |           |                                                  |  |         | 
|Total
  Revenues             |  | 3,498,562 |  |      | 1,641,480 |                                                  |  | 909,661 | 

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The
breakdown of revenue by business segments for each of the last two years is presented in
the following table (in NIS thousands):

|                                     |  |           |  |           |  |                                                  | 
|------------------------------------ |  | --------- |  | --------- |  | ------------------------------------------------ | 
|                                     |  |           |  |           |  |                                                 
|                                     |  |           |  |           |  |                                                 
|                                     |  | 2007      |  | 2006      |  | Convenience
Translation in U.S. Dollars For 2007 | 
|                                     |  |           |  |           |  |                                                  | 
|                                     |  |           |  |           |  |                                                  | 
|                                     |  |           |  |           |  |                                                  | 
|Shopping and
  Entertainment centers |  | 2,935,417 |  | 1,138,995 |  | 763,238                                          | 
|Hotels                               |  | 440,048   |  | 358,626   |  | 114,417                                          | 
|Image Guided
  Treatment             |  | 54,958    |  | 85,824    |  | 14,289                                           | 
|Other
  Activities                   |  | 68,139    |  | 58,035    |  | 17,717                                           | 
|                                     |  |           |  |           |  |                                                  | 
|Total
  Revenues                     |  | 3,498,561 |  | 1,641,479 |  | 909,661                                          | 

Seasonality

Hotels

The
business activities of the various hotels, especially in Western Europe, are
influenced by several factors that affect the revenues and gross operating
profit. These factors include (i) fluctuations in business activity in certain
seasons (which affects the volume of traffic in the business community), (ii)
holiday seasons (such as Christmas and Easter), and (iii) weather conditions.
In Western Europe, 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 gross operating profit 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. This is offset somewhat by increase in international
tourism but the impact of this increase is, in turn, offset by lower room
rates, particularly for groups.

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

Other
activities

Elbit
Trades business is influenced by seasonal shifts in the apparel market. During
the winter season (December - January) and summer season (June- July), the
apparel market, including us, commences discount sales to the public which
consequently increases Elbit Trades revenues and causes a decrease in the
gross profit margin for such periods. In addition, Elbit Trades revenues may fluctuate
due to seasonal purchasing by consumers especially in peak holiday seasons such
as Passover generally in the second quarter, the Jewish New Year and other
Jewish and national holidays generally in the third and fourth quarter.

Patents and Proprietary Rights; Licenses

PC
is the registered owner of a European Community Trademark Plaza Centers +
figures number 002477602.

Pursuant
to our agreements with Park Plaza and the Rezidor Group, our hotels are managed
under the names: Park Plaza and Radisson SAS. See Item 4.B. Business
Overview - Hotels - Management of the Hotels above.

In
December 1998, InSightecs subsidiary acquired focused ultrasound technology
from GE Medical Systems, and all relevant intellectual property including 14
United States patents, as well as 3 applications pending in other countries of
which two have subsequently been approved, at an aggregate purchase price of $5
million and the minority interest in TxSonics Ltd. As of May 31, 2008, InSightec
has submitted 83 additional patent applications, out of which 36 have already
been approved (22 in the United States, 19 in various European countries, 5 in
China and 3 in Japan), with another 46 that remain pending and in process.

In
addition, we use the MANGO-MNG and G-STAR brand names in accordance with our
distribution agreement with Punto FA and G-STAR International B.V. See Item
4.B  Business Overview - Other Activities - Fashion Retail above.

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Competition

Shopping
and entertainment centers

There
are a number of competitors in the Eastern and Central European countries in
which we operate or intend to operate in the shopping and entertainment centers
business, particularly in the larger capital cities. The following factors, however,
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 centers,
are at a disadvantage because they do not offer the entertainment facilities
that are offered at our shopping and entertainment centers, and which we
consider to be a significant element in the attraction of our patrons; and (c)
in the regional cities of our targeted countries, competitive activity is more
limited. In these cities, we compete with traditional shopping outlets. These outlets
lack the added benefit of the entertainment activities which our centers offer
and, accordingly, we believe that they have difficulty competing with us.

In
addition to several ad hoc entrepreneurial projects, there are two significant
groups operating a number of shopping and entertainment centers in the Eastern
and Central Europe with whom we compete directly, namely the Tri-Granit Holding
Limited based in Hungary and the ECE Projektmanagement GmbH based in Germany.
We compete with these chains, and with other developers, in the pre-development
stage (for acquisition of suitable sites), in the cost of acquisition of such
sites, in the development stage (in obtaining suitably qualified architects,
consultants and contractors) and in the operational stage, if the centers
compete for the patronage of the same population. We also compete for quality
brand name tenants to occupy rental units. In locations where competing
centers are being constructed simultaneously, the first center to open generally
enjoys an advantage over its competitor, which is the reason behind our
emphasis on the expeditious completion of construction operations.

Hotels

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
our hotels (except for the Centerville Hotel Apartments and the Radisson SAS in
Bucharest) enjoy a four-star grading, or qualify as four-star establishments,
while some are designated as Four Star Deluxe establishments.

Each
of our 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 us. We compete 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. Our
hotels depend upon both business and tourist travelers for revenues.

Many
of these other companies are larger than us. However we believe that our hotels
nevertheless offer quality and value for competitive prices.

The Image Guided Treatment Business

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

With
respect to MIS methods, in general, there are already tissue ablation methods in various
MIS versions (e.g., radio frequency electromagnetic energy inserted into the body
by a special needle, laser and cryogenic, and embolization), which are potential
competitors with InSightecs application market. InSightec is not presently aware of
any approved non-invasive 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 may be less accurate and less effective.

InSightec
faces competition from both traditional and minimally invasive solutions for
the treatment of uterine fibroids and the other medical conditions that
InSightec has targeted for its future applications. Traditional treatment
methods for uterine fibroids and other medical conditions that InSightec has
targeted for product development are more established and widely accepted among
physicians. In addition, there are potential competitors developing alternative
treatment options for various medical indications, some of which may be
relevant for the treatment of uterine fibroids. However, we are not aware of
any MRI-guided treatments for uterine fibroids or other medical conditions that
are approved for commercial use or are in advanced stages of clinical trials.
These potentially competitive technologies include laser therapies, radio frequency
therapies, microwave therapies, cryogenic surgery, external beam radiation
therapy, brachytherapy and radiation surgery.

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Recently
GEs main competitors, namely Philips and Siemens have started activity in the
field of MRgFS. Philips has installed a system for animal trials at a clinical
research site in Bordeaux and claims to plan to install several clinical sites
before the end of 2007, which have not materialized yet. Siemens has issued a
press release in 2006 jointly with HAIFU (one of the Chinese companies
mentioned below) according to which the two companies plan to jointly develop
an MRgFS. At a conference in May 2007 first technical results of the joint work
were shown. Philips has installed the first system in the US National Institute
of Health in March 2008.

We
are currently aware of two Chinese companies; one a French company (EDAP) and
one a U.S. company, which offer ultrasound-guided focused ultrasound solutions,
or ULSgFUS, for treating Prostate Cancer. We believe that InSightecs magnetic
resonance guidance solution is superior to the products offered by these
competitors. In a non-MRI guided treatment, the operating physician cannot see
the effects of the treatment in real time and must complete the treatment,
follow up with diagnostic testing and then plan future treatment sessions. The
ExAblate 2000 allows the operating physician to complete all of these steps
within a single treatment session while also enabling the operating physician
to alter treatment parameters to optimize the treatment outcome. None of these
potential competitors have received FDA pre-market approval for the marketing
of their products in the United States.

At
present, to our knowledge, the Chinese ULSgFUS companies have focused their marketing
efforts in Asia, and have not received any regulatory approvals outside of Asia. One of
the companies, China Medical (NASDAQ: CMED), has placed a system in the United States and
received a conditional approval from the FDA for a Phase I study for pain palliation of
Pancreatic Cancer. The other company, HAIFU, has placed a system in the United Kingdom and
obtained a CE mark approval for treating liver and kidney cancer. In addition, it has
signed an agreement with Siemens AG to develop a MR-guided version of its product. The
French (EDAP, NASDAQ: EDAP) and U.S. (Focus Surgery, NASDAQ: MSON) FUS companies focus on
ultrasound-guided treatment of prostate cancer disease. To the extent InSightec enters the
U.S. or European markets for the treatment of prostate cancer or other applications, it
may face competition from both of these companies. These competitors may have access to
greater resources allowing them to offer their products at lower prices and they may have
other advantages. Both EDAP and Focus Surgery are running phase III trials in the United
States, both for low risk, localized prostate cancer.

Other Activities

Fashion
Retail

Elbit
Trade operates in a competitive market characterized by a large and increasing
number of international and local brand stores and independent stores in
Israel. Elbit Trades direct competitors include brand stores such as Zara,
Castro, Honigman, Renuar and Golf which are located in the vast majority of the
shopping centers in Israel. Increased competition could result in pricing
pressure or loss of market share and adversely affect Elbit Trades revenues
and profitability. Elbit Trades competition strategy includes: attempting to
be a fashion trend leader, investing in branding, maintaining a compatible
pricing strategy and maintaining leadership in fashion trends.

Governmental
Regulation

Shopping
and entertainment centers

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 addition, some countries require that a developer carry out an
environmental report on the land before building permit applications are
considered while in other countries we usually have direct contact with the
local authorities to receive basic information on environmental issues. In
certain European countries, a permit from the Anti-Monopoly Office must be
obtained before a foreign investor is allowed to acquire shares of a local
entity. In most Eastern European countries, construction works may only begin
after the lapse of the objection period provided for third parties whose
interests may be affected by such permits, at which time the contestation
permit becomes final. Generally, construction must commence within a specified
period following issuance of the permit, otherwise, the construction permit may
become invalid.

In
Poland, a prerequisite for applying for a construction permit is receipt of a decision
stating the conditions for construction and development of a site (a site permit). The
site permit is issued for specific real property and specifies the designated purpose of
the real property, i.e., what kind of buildings and business activity may be
carried out on the real property. However, in the case of areas for which local zoning
plans have been established, an investor will be entitled to apply for a decision granting
a construction permit based directly on the purpose of the real estate as determined in
the local zoning plan. The following must be attached to the application for a
construction permit: (i) a final and legally valid site permit  if there is no local
zoning plan; (ii) proof of the investors right to use the land for construction
purposes; and (iii) the technical design along with opinions, consents and permits
required by detailed provisions of law. According to recent laws (2007) regarding the
establishing and operation of a large retail facilities (LRF), an investor who
intends to establish an object of a retail area over 2000m2 is obliged to obtain a
specific municipal permit therefor There are several factors to be considered before such
a permit is issued, however, due to the absence of a specific regulation of the Minister
of Commerce, that is to establish the criteria of analysis and opinions about the planned
LRF as a basis for the permit, the LRF law is practically not yet executable and its
effect on our business is yet to be examined.

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In
the Czech Republic a planning decision and a construction permit must be
obtained prior to beginning of construction.

In
Hungary the construction is to be finished and the relevant occupancy permit is
to be applied for by the builder within five years of the commencement of the
construction.

In
Latvia, approval of a construction plan is ordinarily, though not always
divided into two stages, such stages generally being the approval of a sketch
design stage and approval of a technical design stage. However, for larger
projects an interim approval from the local construction authority must be
obtained before finalization of the sketch design (preliminary sketch design).
In order to initiate the approval procedure of a construction plan in Latvia,
initially a construction application must be submitted to the local
construction authority, which reviews it and issues an architectural planning
authorization. Public discussion on the basis of the preliminary sketch design
is always required for large scale and public projects prior to the issuance of
such authorization. The resulting construction permit is issued after the
construction authority has approved the technical design of the building.
Sometimes it is possible to get a fast track construction permit for
underground parts of the building only.

In
some instances where the applicable local plan scheme does not permit
commercial activities of the type characterized by our centers, it is necessary
to apply for an amendment to the zoning scheme, which may be a protracted
process and may not necessarily be successful.

In
Serbia, starting a development generally involves three stages: (i) the
issuance of a certificate on the detailed urban plan of the area or site urban
planning conditions; (ii) the issuance of a construction permit following
clarification of the developers title or land use right with the concept
design being approved by local planning authorities and developers compliance
with specific conditions for utility access or other specific sectors (e.g.
heritage, environment); and (iii) the obtaining of a commencement permit for
the works, which further assumes that a final and valid construction permit has
been obtained, as well as the main detailed design being approved by relevant
authorities and the land development fee (specific one-time tax) contracted to
be paid with the local agency for construction land.

In
Romania, in the event that the project fits the urban zoning plan the first
stage for construction is a formal request of the required permit (CU) which
includes a general description and plan of the project and permit. In the event
that the project does not fit the urban zoning plan, the process is
considerably longer and more complex as a new zoning plan (PUZ) must be
submitted and approved. It must be noted that in most large projects a PUZ must
be obtained. In some instances where the applicable local plan scheme does not
permit commercial activities of the type characterized by our centers, it is
necessary to apply for an amendment to the zoning scheme, which may be a
protracted process and may not necessarily be successful.

Apart
from the building permits which are required for the construction of the
shopping and entertainment centers as mentioned above, the developers are
required to obtain operating permits from the municipal authorities before the
center 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 business within the centers. The developers are also required to
comply with local regulations governing the employment of its employees.

In
India, the term real estate has not been formally defined. A reference to
this term is found in the National Industrial Classification Code, 1987 (NIC
Code) under Group 820, which deals with purchase, sale, letting and operating
of real estate such as residential and non-residential buildings, developing
and sub-dividing real estate into lots, lessor of real property, real estate
agents, brokers and managers engaged in renting, buying and selling, managing
and appraising real estates on a contract or fee basis.

Under
the automatic route in the Indian governments policy on Foreign Direct
Investment (FDI Policy) we can invest up to 100% in Indian townships,
housing, built-up infrastructure and construction-development projects (which
includes, but is not restricted to, housing, commercial premises, hotels,
resorts, hospitals, educational institutions, recreational facilities, city and
regional level infrastructure). The aforesaid investment is subject to
compliance with certain requirements, including, minimum investment,
non-immediate repatriation of original investment, project completion schedule,
compliance with local laws and applicable standards, obtaining necessary
approvals, and supervision by the local municipality. An investment, which
intends not to comply with those requirements, requires a prior governmental
approval. In addition, under the Tamil Nadu Land Reform Act, without previous
consent of the government, we can only hold land within the prescribed ceiling
limit of acres. In addition, under the FDI Policy, we cannot acquire an
agricultural land without a prior governmental approval. The process of grant
of government approvals are time consuming in India and as a consequence may
delay the implementation of the projects.

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Hotels

The
development, construction and operation of hotels and leisure facilities,
including advertising tariffs and hotels, health safety issues, activities
conducted within the premises of the hotels (such as restaurants, bars, shops,
health clubs, and in particular the sale of alcohol, food and beverage to the
public), installations and systems operating within the hotel (elevators,
sprinkler systems, sanitation, fire department etc.), terms of employing
personnel, as well as methods of rating the hotels, are all subject to various
regulatory controls, which vary according to the country of activity.

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.
The rating of hotels is established based on, among other things, the following
criteria: 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. The rating of our hotels is conducted by
various organizations which are either established by law, operate under the
authorities and regulations of the tourism ministries in different countries,
or conducted by the ministry of tourism. In some countries hotels that are not
graded are prohibited from operating as a hotel. All of our hotels have
received a four-star rating.

In
all the countries in which we operate, the operation of hotels requires
licenses for the operation of the building as a hotel and the obtaining of
local municipal and police approvals for the means of access to and egress from
the hotel for motor vehicles. In addition, in most countries we are required to
obtain licenses for the sale of alcohol on the premises and the operation of a
restaurant and tourism services. Our hotels are also required to comply with
regulations regarding food, hygiene, the operation and maintenance of the
swimming pool, casino, elevators, health, sanitation, electricity and fire
hazards prevention.

In
most of the countries in which we operate hotels we are required to comply with
various regulations in connection with employees, in particular working hours
regulations. For example: the hotel and restaurant industry in The Netherlands
has a 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.
Also, the total obligations of companies that might arise from the termination
of employees cannot be predicted.

In
India, under the automatic route of the FDI Policy, foreign direct investments
up to 100% of the investment are permitted in the Indian Hotels and Tourism
Sector. The term Hotels and Tourism Sector includes (i) travel agencies, tour
operating agencies and tourist transport operating agencies; (ii) units
providing facilities for cultural, adventure and wild life experience to
tourists; (iii) surface, air and water transport facilities to tourists; (iv)
leisure, entertainment, amusement, sports, and health units for tourists; and
(v) convention/seminar units and organizations. The Government of India granted
automatic approval for foreign technical collaborations in the Hotels and
Tourism Sector, provided: (i) up to 3% of the capital cost of the project is
proposed to be paid for technical and consultancy services including fees for
architects, design, supervision, etc. (ii) up to 3% of the net turnover will be
paid for franchising and marketing publicity support fee, and (iii) up to 10%
of gross operating profit will be paid for management fee, including, incentive
fee.

The Image Guided Treatment Business

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 and
effectiveness.

In
June 1993, directive 93/42/EEC for medical devices was adopted by the EEC. In
June 1998, this directive replaced the local regulation 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: (1)
general certification of a company and (2) certification for a specific
product. Instead of choosing to comply with directive 93/42/EEC, InSightec
decided to comply with international Standard ISO 9001 (European standard EN
290001) ENTITLED Model for Quality Assurance in Design, Development,
Production, Installation and Servicing, and its extension to medical products
EN 46001 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. ISO 9001 and EN 46001 have been
replaced by international standard ISO 13485 entitled Medical Devices -
Quality management systems - requirements for regulatory purposes. InSightec
obtained a certification of compliance with the new standard in March 2004, and
is subject to annual audits by the European Notified Body to renew the
certification in accordance with all applicable updates of the standard.

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Other Activities

Real
Estate Projects

For
information regarding governmental regulation applicable to our real estate
projects in India, see Item 4.B  Business Overview  Other Activities 
Investments in India above.

Hospitals
in India

For
information regarding governmental regulation applicable to our real estate
projects in India, see Item 4.B  Business Overview  Other Activities 
Investments in India above.

There
are currently no pre-conditions or requirements to be fulfilled by an investor
while investing in the Hospital Sector in India, and that 100% FDI under the
automatic route is permitted in it. Accordingly, Foreign Direct Investment in
built up hospitals is permitted so as to give a boost to the health care
industry in India.

Dairy
Farming

As
per the extant legal regime governing foreign direct investment in India, non-
residents, non resident Indians (NRIs) and overseas corporate bodies are
prohibited from investing in the Agriculture sector including plantation.
However, foreign direct investment to the extent of 100% under the automatic
route is permitted in floriculture, horticulture, development of seeds, animal
husbandry, pisciculture, aqua-culture, cultivation of vegetables and mushrooms
under controlled conditions and services related to allied activities.

The
exact definition or scope of activities that are covered under animal husbandry
are not provided for in the FDI guidelines. The National Industrial
Classification Code, 1987 provides under the broad head of Raising of
Livestock to include sub heads such as cattle breeding, raising of livestock
and production of milk and other livestock products etc. Thus, activities
related to dairy farming fall under the category of raising of livestock.

It
may also be pertinent to note that the Department of Industrial Policy and
Promotion (DIPP) has clarified that a foreign company which proposes to set
up a subsidiary in India to engage in Animal Husbandry can acquire and hold
such agricultural land, to be used for such activity.

Fashion
Retail

The
principal regulatory requirements for our Fashion Retail operations in Israel
include: (i) compliance with the Israeli consumer protection law, (ii)
maintaining various licenses and permits issued by governmental authorities
(including receiving applicable standards from the Israeli consumer standard
institute for certain imported accessories), and (iii) compliance with
employment regulations.

|   |                         
|-- | ------------------------
|C. | ORGANIZATIONAL STRUCTURE

We
are a subsidiary of Europe-Israel (M.M.S.) Ltd. (approximately 47.47% shareholder,
see Item 7.A. - Major Shareholders below) (Europe-Israel). Europe Israel is
wholly owned by Control Centers Ltd., a privately held Israeli company, which
is controlled by Mr. Mordechay Zisser, who serves as our Executive Chairman of
the Board of Directors. Our significant subsidiaries and companies in which we
have a significant interest as of December 31, 2007 are as follows:

|                                                                                             |  |                  |  |                         |  |                                                          
|-------------------------------------------------------------------------------------------- |  | ---------------- |  | ----------------------- |  | ---------------------------------------------------------
|NAME OF COMPANY                                                                              |  | ABBREVIATED NAME |  | COUNTRY OF ORGANIZATION |  | THE COMPANYS DIRECT/INDIRECT OWNERSHIP PERCENTAGE EQUITY
|                                                                                             |  |                  |  |                         |  |                                                          
|                                                                                             |  |                  |  |                         |  |                                                          
|Elscint Ltd.                                                                                 |  | Elscint          |  | Israel                  |  | 100%                                                     
|BEA Hotels NV                                                                                |  | BEA              |  | The Netherlands         |  | 100%                                                     
|Elbit Ultrasound
  (Netherlands) BV                                                          |  | EUBV             |  | The Netherlands         |  | 100%                                                     
|Elbit India Real Estate
  Holdings Limited                                                   |  | Elbit India      |  | The Republic of Cyprus  |  | 100% (*)                                                 
|InSightec Ltd.                                                                               |  | InSightec        |  | Israel                  |  | 70.71% (**)                                              
|Plaza Centers N.V.                                                                           |  | PC               |  | The Netherlands         |  | 68.4%                                                    
|Elbit Trade and Retail
  (formerly: Mango Israel Clothing and Footwear Ltd.) (Elbit Trade) |  | Mango            |  | Israel                  |  | 100%                                                     

|     |                                                                                                                                                                                                                                                                                               
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(*)  | On January 17, 2008, our shareholders approved the
  grant of 5% of the issued and outstanding share capital of Elbit India Real
  Estate Holdings Limited to Mr. Abraham (Rami) Goren, our Executive Vice
  Chairman of the Board of Directors. See Item 7.B. Related Party
  Transactions.
|(**) | Our 70.71% holdings in InSightec represent our
  holdings in voting right only. We hold 52.95% on a fully diluted basis                                                                                                                                                                       

61

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|   |                               
|-- | ------------------------------
|D. | PROPERTY, PLANTS AND EQUIPMENT

We
lease approximately 2,220 m2 (not including additional
warehouse area and parking places of 50 m2) for management and administration purposes in an
office building in Tel-Aviv, Israel until September 2016 with an option to
extend the lease for a 10-year period. Aggregate rental fees (excluding VAT)
paid by us in 2007, with respect to such lease were approximately NIS 1,989,000
(approximately $517,158).

The
headquarters of PC are based in an office building known as David House on
Andrassy Boulevard, Budapest, Hungary. The building is located on an 800 m2
plot and consists of four floors with a total constructed area of approximately 2,400
m2. The David House is owned by PC while certain areas in it are leased out.

The
headquarters of PC in Romania are based in a prestigious French style villa
converted into an office building which is owned by PC. The building is located
in the center of Bucharest, Romania and was completely renovated in 2005. The total
constructed area is approximately 700 m2 built on a plot of around
600 m2 and consists of three floors.

Elbit
Trade leases approximately 255 m2 of office space in Tel
Aviv, Israel, for its management and administration activities until April 2010
with an option to extend the lease for a 5-year period. Elbit Trades offices
are located in the above mentioned office building. The aggregate rental fees
(excluding VAT) paid by Elbit Trade in 2007 with respect to such lease were
approximately NIS 324,508 (approximately $84,375).

We
believe that the leased properties are adequate for our and Elbit Trades needs
in the foreseeable future.

InSightec
leases its main office and research and development facilities, located in
Tirat Carmel, Israel, pursuant to a lease that expires in August 2013, with an
option to renew the lease for up to five years. Pursuant to such agreement,
InSightec occupies approximately 64,711square feet (6,011 m2) in Tirat
Carmel and Or-Yehuda. Total annual rental expenses under these leases are $1
million (NIS 3.8 million). InSightec also leases spaces in Dallas, Texas for an
annual rent fee of $150,000 (NIS 576,900). The leased property is adequate for
InSightecs needs in the foreseeable future.

For
additional information about all and any properties owned, leased or otherwise
held by us see - Business Overview above.

For
additional information about any mortgages and other encumbrances relating to
our properties, see Item 5.B. Liquidity and Capital Resources - Other Loans.

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

Not
applicable.

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

Overview

| |                                                                         |                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
  following is a summary of the principal fields of our businesses:
| |                                                                         |                                                                                                                                                                                                                                                                                                                                                                                               
| | ·                                                                       | Shopping and
  Entertainment Centers - Initiation, construction,
  operation, management and sale of shopping and entertainment centers and
  other mixed-use projects in Central and Eastern Europe and in India.                                                                                                                                                                            
| |                                                                         |                                                                                                                                                                                                                                                                                                                                                                                               
| | ·                                                                       | Hotels
  - Hotel ownership, operation, management and sale, primarily in major
  European cities.                                                                                                                                                                                                                                                                                             
| |                                                                         |                                                                                                                                                                                                                                                                                                                                                                                               
| | ·                                                                       | Image Guided
  Treatment - Investments in the research and
  development, production and marketing of magnetic resonance imaging guided
  focused ultrasound treatment equipment.                                                                                                                                                                                                             
| |                                                                         |                                                                                                                                                                                                                                                                                                                                                                                               
| | ·                                                                       | Other
  Activities - Other activities consisting of (i)
  investments in real estate assets in India designated for residential
  projects and other mixed-use projects; (ii) the distribution and sale of
  fashion retail in Israel; and (iii) venture-capital investments. Other activities
  also include investments in hospitals and farm dairy plant which are in
  preliminary stages.

The
Companys financial statements as of December 31, 2007 and 2006 and for the
years then ended were prepared in accordance with International Financial
Reporting Standards (IFRS). The Companys previous financial statements were
prepared in accordance with generally accepted accounting principles in Israel
(Israeli GAAP). In accordance with the provision of IFRS 1, the transition
date of the Company to IFRSs has been determined at January 1, 2006
(Transition Date) and the Company is obligated in the first year it has
implement IFRSs to include statement of income for two years only. In addition,
the Company has prepared opening balance as of the Transition Date in
accordance with IFRS while adopting certain relieves allowed for under IFRS 1
(First-time Adoption of International Financial Reporting).

62

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IFRS
principles differ in certain significant aspects, from those of the Israeli
GAAP. As a result the Companys financial statements prepared in accordance
with IFRSs as of the Transition Date and for December 31, 2006 differ from
those previously issued by the Company for those dates and which were prepared
in accordance with Israeli GAAP. As a result of the transition to IFRS, the
Companys shareholders equity attributed to the equity holders of the Company
as of the Transition Date has increased from NIS 1,054 million reported in
accordance with Israeli GAAP to NIS 1,098 million reported in accordance with
IFRS. In addition net income in 2006 attributed to the equity holder of the
Company decreased from NIS 561.1 million reported in accordance with Israeli
GAAP to NIS 510.8 million reported in accordance with IFRS. As for additional
information in respect of the material differences between IFRSs and Israeli
GAAP and their effect on the consolidated financial statements as of the
Transition Date and December 31, 2006.- see note 29 to our consolidate
financial statements included in Item 18 below.

Our
revenues from the sale of real estate and trading property are subject to the execution of
sale agreement with potential purchasers and to the consummation of the transaction
thereunder. Generally, in period when we consummate a transaction for the sale of our real
estate assets we record revenues in substantial amounts and as a result, we may experience
significant fluctuations in our annual and quarterly results. We believe that
period-to-period comparisons of our historical results of operations may not necessarily
be meaningful and that investors should not rely on them as an indication for future
performance.

Our
functional currency as well as our reporting currency is the NIS. Because our
revenues and expenses are recorded in various currencies, our results of
operations are affected by several inter-related factors, including the ratio
between the value of the reporting and functional currencies of the Company
(the NIS) and the timing and amount of the devaluation of the NIS compared to
other functional currencies.

Financial
data included in this discussion was derived from our consolidated financial
statements and analysis based on our general accounting records and published
statistical data. Such financial data have been rounded to the nearest
thousand.

The
following are the recent business activities during 2007 and through the date
of filing some of which affected our operational result in 2007 and the others
will affect our operational result in the coming years:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | In 2007 and
  up to June 2008, we issued unsecured non-convertible notes to investors and
  the public in Israel in an aggregate principal amount of approximately NIS
  1,053 million (approximately $273.8 million).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | · | In July
  2007, our subsidiary PC has issued unsecured non-convertible series A notes
  to investors in Israel for an aggregate principal amount of approximately NIS
  305 million (approximately $79.3 million). In addition, in February and May
  2008, PC issued unsecured non-convertible notes with an aggregate principal
  amount of approximately NIS 797.9 million (approximately $207.4 million).                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | · | In May 2008,
  the consortium formed by the shareholders of the Dream Island project (in
  which PC holds a 30% stake), has won, via a competitive tender, the first
  ever major casino license to be awarded in Hungary for its planned
  entertainment and mixed use Dream Island intended to be developed in central
  Budapest. The exclusive casino license has been granted for 20 years from the
  date of opening of the casino, with a ten-year extension option, during which
  time no further major casino licenses will be granted by the Hungarian
  government in the area of Budapest. The granting of this license will enable
  the consortium to commence construction of this project.                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | · | In July
  2007, our wholly owned subsidiary, Elscint Ltd. (Elscint) consummated a
  transaction with Israel Financial Levers Ltd. (Israel Financial Levers) for
  the sale of the Arena shopping and entertainment center, located at the
  Herzliya Marina in Israel (Arena Center), pursuant to which Israel
  Financial Levers has acquired all rights in and to the Arena Center for an
  asset value of NIS 538 million (approximately $139.9 million). As result of
  the transaction, we recorded a loss of NIS 19.6 million ($5 million).                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | · | In August
  2007, PC executed a binding agreement for the sale of its Arena Plaza
  shopping and entertainment center in Budapest, Hungary to UK-based active
  Asset Investment Management (aAIM). The transaction which was finalized on
  18 December 2007 with effect from 30 November 2007 has an assets value
  totaling approximately 381 million (approximately $561 million; NIS 2,156
  million). As result of this transaction we recorded a gain of NIS 1,145
  million ($297.7 million).                                                                                                                                                                                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | · | In May 2007,
  PC completed the handover to Klepierre SA (Klépierre), in accordance with
  the terms of Stage B agreement of two shopping and entertainment centers in
  Poland, the Rybnik Plaza and the Sosnowiec Plaza, reflecting a total asset
  value of 89.3 million (approximately $131.4 million; NIS 505.3 million). As
  result of these transactions, we recorded a gain of NIS 116 million ($30.2
  million). In addition, during July 2007, the Lublin Plaza shopping and
  entertainment center in Lublin, Poland, in which PC holds a 50% stake, was
  sold to Klépierre. The asset value of the Lublin Plaza shopping and
  entertainment center totaled approximately 78 million (approximately $114.8
  million; NIS 442 million). As result of this transaction, we recorded a gain
  of NIS 56.7 million ($14.7 million).

63

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | In February
  2007, PC completed an acquisition of a 75% interest in a Romanian limited
  liability company which executed a Public Private Partnership Agreement with
  the Government of Romania for the construction of the Casa-Radio Complex
  (Dambovita) in central Bucharest. The total cost of acquisition was approximately
  $40 million (approximately NIS 153.8 million)                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | · | During 2007
  and 2008, PC has acquired a number of sites and invested in several projects
  of which 10 sites are located in markets in which PC currently operates
  (including Romania, Hungary and the Czech Republic) and six sites are located
  in markets in which PC is currently operates (including India, Serbia and
  Bulgaria). In addition, on January 31, 2008, PC entered into a joint venture
  partnership with BAS Development (BAS) (50%) to develop residential and
  office projects in Romania through a newly established company, Plaza-Bas
  B.V., which acquired the shares currently, held by BAS in seven residential
  and office development projects in Romania.                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | · | On June 12,
  2007, we consummated a transaction for the sale of our 50% interest in the
  Ballet Institute Building located at Budapest, Hungary. The transaction
  reflects an asset value of 30 million (approximately $40 million; NIS 169.8
  million) in which our share is 15 million ($22 million; NIS 85 million). As
  a result of this transaction we recorded a gain of NIS 44.9 million ($11.7
  million).                                                                                                                                                                                                                                                                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | · | In November
  2007, InSightec consummated an agreement for an internal round of financing
  in the aggregate amount of $30 million from its existing investors and
  certain directors and officers of InSightec, in the form of allotment and
  purchase of Series A Preferred convertible shares of InSightec, which are
  convertible into InSightecs ordinary shares subject to the fulfillment of
  certain conditions stipulated in the agreement. Our share in this round of
  investment totaled $19.8 million. In addition, in December 2007, we exercised
  Warrant, and purchased 977,552 ordinary shares of InSightec in consideration
  for $7.1 million (approximately NIS 27.3 million)                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | · | In May 2007,
  InSightecs ExAblate® 2000 system received the CE Mark certification for pain
  palliation of bone metastases.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | · | In March
  2008, we entered into definitive agreements with one of the leading
  developers in Bangalore, India for the joint development of a large scale
  mixed-use project located in Bangalore, Karnataka, India. Under the
  agreements we and our local partner will acquire through a joint venture
  company (which will be held, subject to certain conditions, in equal parts by
  us and such local partner - the Joint Venture Company), up to 440 acres of
  land in Bangalore, India (Project Land). For detailed and elaborated
  information about this project, see Item 4.B. Business Overview - Other
  Activities - Investments in India, below.                                                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   | Under the
  agreement, the joint venture company is to acquire, subject to certain
  conditions, ownership and development rights in respect of up to an
  approximate 230 acres of the entire land. The total consideration anticipated
  to be paid by us with respect to the purchase of such land is INR 10,500
  million ($266 million; NIS 1,023 million). In March 2008, the joint venture
  company has secured rights over approximately 54 acres of such 230 acres and
  we paid approximately INR 2,840 million ($70.8 million; NIS 277.2 million). In
  addition we paid to the local partner an interest bearing advance of INR
  1,861.5 million ($46.4 million) on account of the future acquisition by the
  joint venture company of a further 35.6 acres of such 230 acres, which land
  is currently owned by the local partner.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   | In respect
  of up to the other approximate 210 acres of land, the joint venture company
  intends to enter into joint development agreements, under which the joint
  venture company will be entitled to develop the entire area of such lands. In
  consideration, the Joint Venture Company will pay 38% or 53% (depending on
  the specific plot) of the built up area of such lands and in some cases,
  deposits on account of such future consideration will also be paid. Our 50%
  share (through the joint venture company) in rights under the development
  agreements, will require us to pay INR 750 million ($18.7 million) of such
  deposits                                                                                                                                                                                     

64

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | In December
  2007, we entered into an agreement for the acquisition of an 80% stake in a
  joint venture company which will purchaser up to 135 acres (approximately
  546,000 square meters (m2)) of land in Chennai (formerly Madras), India.
  Our investment in this project, assuming that the 135 acre tract of land is
  acquired) is anticipated to be approximately $108 million. The consummation
  of the transaction will be accomplished in stages, and is subject to the
  fulfillment of certain regulatory requirements and to our satisfactory due
  diligence requirements. The closing of the acquisition of the first portion
  of the land (measuring approximately 42 acres or 167,000 m2)has been completed concurrently with the
  execution of the agreement, and we have paid approximately $35.5 million in
  respect of the acquisition of our share (80%) of such portion of land.
  Subsequently, an additional area measuring 9.7 acres (approximately 39,250 m2) has been
  acquired by the joint venture company, in respect of which we have invested
  an additional amount of INR 307 million ($7.8 million; NIS 30 million).For detailed and elaborated information
  about this project, see Item 4.B - Business Overview - Other Activities -
  Investments in India, below.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | · | In February
  2008, we executed a Memorandum of Agreement with the Government of the State
  Gujarat, India pursuant to which a modern dairy farm with approximately
  10,000 cows and an ultra modern dairy plant that will produce basic and
  premium dairy products will be established on land measuring approximately
  500 acres, subject to the fulfillment of certain conditions specified
  therein. The total investment in the project is anticipated to be
  approximately $100 million (NIS 384.6 million).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

Critical Accounting Policies and Estimates

General

A
critical accounting policy is one that (i) is important to the portrayal of an
entitys financial condition and results of operations 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.

In
the application of our accounting policies, management is required to make
judgments, estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The estimates and
associated assumptions are based on historical experience and other factors
that are considered to be relevant. Actual results may differ from these
estimates. The estimates and underlying assumptions are reviewed on an ongoing
basis.

The
followings are the critical judgments and key sources of estimation uncertainty
that management has made in the process of applying our accounting policies and
that have the most significant effect on the amounts recognized in financial
statements.

Litigation
and other contingent liabilities

We
and our subsidiaries (collectively in this Item 5, the Group) are involved in
litigation and other contingent liabilities in substantial amounts including
certification request for class action (see note 21B to our consolidated
financial statements included in item 18). The Group recognizes a provision for
such litigation when it is probable that the Group will be required to settle
the obligation, and a reliable estimate can be made of the amount of the
obligation. The Group evaluates the probability and outcome of these
litigations based on, among other factors, legal opinion and consultation and
past experience. The outcome of such contingent liabilities may differ
materially from managements assessment. The Group periodically evaluates these
assessments and makes appropriate adjustments to our consolidated financial
statements. In addition, as facts concerning contingencies become known, we
will reassess our position and make appropriate adjustments to our consolidated
financial statements.

Share
based payment arrangements

The
Group has adopted several stock based compensation arrangements to employees,
directors and service providers. Stock based compensation arrangements are
measured at fair value. Fair value is usually determined using an option
pricing model which requires management to make judgment and assumptions
regarding a number of variables. In determining the appropriate option model
for each option plan adopted by the Group, the Group uses the advice of
professional advisers. These variables include, but not limited to:

| |       |                                                                                                                                                                                                                                                                                                                                                                                                                
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | Share price
  in respect of options plans adopted by the Groups private investees which
  has no quoted market price. The Group generally uses the price per share
  determined at the last investment round prior to the measurement date.
  Nevertheless, there is no assurance that such price reflects the accurate
  share price.                                                                        
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                
| | (ii)  | Expected
  stock price volatility over the term of the plan. The expected volatility for
  share based transactions adopted by the Company and its public traded
  investee are determined base on the market price of the share in the past
  years. Non- traded companies used excepted volatility of public traded
  companies with similar operations since they have no historical data.                  
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                
| | (iii) | Actual and
projected employee stock option exercise behaviors - the assumption in
respect of (i) determining the forfeitures rate of options; (ii) the exercise
coefficient (i.e.: the price per share in which it is expected that an
employee will exercise the options); and (iii) the expected estimated term
the options would be held by the employees are determined generally based on
past experience.

65

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Although
the fair value of stock based compensation arrangements determined using an
option-pricing model, it may not be indicative of the fair value observed in a
willing buyer/willing seller market transaction. In addition, under different
assumptions or conditions the fair value of these options plans may yield a
different result.

Accounting
for income taxes

The
Calculation of the Groups tax liabilities involves dealing with uncertainties
in the application and/or interpretation of complex tax laws, tax regulations
and tax treaties, in respect of various jurisdictions in which the Group
operates and which frequently vary. In addition, tax authorities may interpret
certain tax issues in a manner other than that which the Group has adopted.
Should such contrary interpretive principles be adopted upon adjudication of
such cases, the tax burden of the Group may be significantly increased. In
calculating its deferred taxes, the Group required to evaluate (i) the
probability of the realization of its deferred income tax assets against future
taxable income and (ii) the anticipated tax rates in which its deferred taxes
would be utilized.

Embedded
derivatives financial instruments

The
Group is committed to pay to a financing bank an additional exit fee in the
event of cash distributions deriving from the sale, disposal, refinancing of
the hotels which were financed by the bank loan funds or in the event of other
repayment of the loan (Transaction). The exit fee will be calculated as the
amount equivalent to 15% of the difference between the market value of the
hotels as determined in such Transaction and the current agreed value of the
hotels. The exit fee is considered as an embedded derivative in accordance with
IAS 39 and it should bifurcated form the loan contract and measured at fair
value at each balance sheet date. The Group determined the fair value of the
exit fee using an economic model which requires management to make judgment and
assumptions regarding a number of variables. In determining the appropriate
model the Group uses the advice of professional advisers. These variables
include, mainly the following:

| |       |                                                                                                                                                                                                                                                                                                                                         
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | Since the underlying assets (i.e.: the hotels) do not have a quoted
market price, their fair value was determined based on valuation techniques
which also contain significant estimates and judgment.                                                                                                                                  
| |       |                                                                                                                                                                                                                                                                                                                                         
| | (ii)  | Expected hotel fair value volatility was computed according to
  comparable hotel holdings firms in the real estate industry. Such
  determination involves a significant degree of judgment since the Group has
  to choose public companies which have similar operations and risks as the
  hotels that are subject to the agreement.
| |       |                                                                                                                                                                                                                                                                                                                                         
| | (iii) | In accordance with the agreement, the exit fee is payable in several
  cases through the duration of the loan agreement. Management has to use
  critical assumption regarding the probability and the term for a Transaction
  to occur in order to determine the expected useful life of the embedded
  derivative.                   

Potential
penalties, guarantees issued and expired building permits

Penalties
and guaranties are part of the on-going construction activities, and result
from obligations the Group have towards third parties, such as banks and
municipalities. The Groups management is required to provide estimations about
risks evolving from such potential guarantees or penalties that the Group might
have to pay. In addition, the Group is subject to authorizations from local
authorities in respect of building permits. It may occur (such as in the case
of Helios Plaza Project) that building permits will expire and might cause
additional costs and expenses to the Group, delays or abandoned of construction
works.

Valuation
of debentures issued by PC and the derivative associated to it.

Series
A debentures issued by PC are measured at fair value. As of the balance sheet
date PCs debentures are not traded in the stock exchange and therefore have no
quoted prices. Accordingly the valuation is done by relying on third party
professional services. The calculation of the fair value is sensitive to
changes in market conditions and is based on assumptions that are reasonable
but can not be virtually guaranteed. The debentures were listed for trade in
the TASE subsequent to the balance sheet date and therefore the fair value in
the following periods will be determined based on the debentures price in the
TASE.

In
addition PC has executed a swap transaction with an Israeli bank in order to
swap the interest rate of the debentures from CPI linked NIS to Euro. The
derivative is measured at fair value at each balance sheet date. The valuation
of the derivative is done by relying on third party professional services. The
calculation is sensitive to changes in market conditions and is based on
assumptions that are reasonable but can not be virtually guaranteed. PC is
using the same valuator as the one mentioned above, and by that improving the
link between the derivative and the financial instrument to which the
derivative was created.

66

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Revenue
recognition from sale of trading property

Revenues
on sales of real estate assets and trading properties are recognized when all
the following conditions are satisfied: (i) the enterprise has transferred to
the buyer the significant risks and rewards of ownership of the goods;(ii) the enterprise retains neither continuing managerial
involvement to the degree usually associated with ownership nor effective
control over the goods sold; (iii) the amount of revenue can be measured reliably(iv)
it is probable that the economic benefits associated with the transaction will
flow to the enterprise (including the fact that the buyers initial and
continuing investment is adequate to demonstrate commitment to pay); (v) the
costs incurred or to be incurred in respect of the transaction can be measured
reliably; and (vi) there are no significant acts that the Group is obliged to
complete according to the sale agreement.

Determination whether these criteria have been met for each sale transaction,
requires a significant judgment by the Group management.

Significant
judgment is made in determination weather, as of the balance sheet date, the
Group has transferred to the buyer the significant risks and rewards associated
to the real estate assets sold. Such determination is based on an analysis of
the terms included in the sale agreement executed with the buyer as well as an
analysis of other commercial understandings with the buyer in respect of the
real estate sold. Generally, the sale agreement with the buyer is signed during
the construction period and the consummation of the transaction is subject to
certain conditions precedents which have to be fulfilled prior to delivery.
Revenues are, therefore, recognized when all the significant conditions
precedent included in the agreement have been fulfilled by the Group and/or
waived by the buyer prior to the balance sheet date.

The
delivery of the commercial center to the buyer is generally executed close to the end of
construction and to the opening of the commercial center to the public. As a result, the
Group has to use estimates in order to determined the costs and expenses required to
complete the construction works which, as of the delivery date, has not been completed
and/or been paid in full.

Generally,
the Group is provided with a bank guaranty from the buyer for the total
estimated proceeds in order to secure the payment by the buyer at delivery.
Therefore, the Group does not inherent any significant risks in respect of
payment of the proceeds by the buyer.

Recently issued accounting standards

For
information on recently issued accounting standards under IFRS, see Note 2 AJ
to our consolidated financial statements.

|   |                  
|-- | -----------------
|A. | Operating Results

Presentation method of financial statements

Based on
the Groups business model, the Group is involved in investment in a wide range
of different activities. Accordingly, management believes that its income
statements should be presented in the Single - step form. According to this
form, all costs and expenses (including general and administrative and
financial expenses) should be considered as continuously contributing to the
generation of the overall income and gains. Management also believes that its
operating expenses should be classified by function to: (i) those directly
related to each revenues (including general and administrative expenses and
selling and marketing expenses relating directly to each operation); and (ii)
overhead expenses which serve the business as a whole and are to be determined
as general and administrative expenses.

The
Groups strategy in respect of PCs shopping and entertainment centers is to
dispose of shopping and entertainment centers upon completion, subject to
certain exceptions, see Item 4.B. Business Overview - Shopping and
entertainment centers - Business Concept Strategy above. Therefore, PCs
shopping and entertainment centers are presented within current assets as
trading property and our revenues from these shopping and entertainment centers
are derived from their disposal to third parties.

The
Groups policy in respect of the Hotels segment is to designate the hotels to
be managed and operated by a management company. Consequently, our hotels
assets are presented as part of our property, plant and equipment in the
financial reports.

67

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---



Translation of foreign operations statement
of income

Most
of our businesses, which operate in various countries, report their operational
results in their functional currency, being other than NIS (our reporting and
functional currency). We translate our subsidiaries result of operations into
NIS based on the average exchange rate of the functional currency against the
NIS. Therefore, a devaluation of the NIS against each functional currency would
cause an increase in our reported revenues and the costs related to such
revenues in NIS while an increase in the valuation of the NIS against each
functional currency would cause a decrease in our revenues and costs related to
such revenues in NIS.

The
following table presents our statements of income for the two years ended
December 31, 2006 and December 31, 2007:

|                                                         |  |                   |                        |             |  |           |   |  |         |  
|-------------------------------------------------------- |  | ----------------- | ---------------------- | ----------- |  | --------- | - |  | ------- | -
|                                                         |  |                   | Year
ended December 31 |            
|                                                         |  |                   |                        |            
|                                                         |  |                   | 2007                   |             |  | 2006      |   |  | 2007    |  
|                                                         |  |                   |                        |             | 
|                                                         |  |                   |                        | Convenience | 
|                                                         |  |                   |                        | translation | 
|                                                         |  | (in
thousand NIS) |                        |             | 
|                                                         |  |                   |                        |             |  | US$000   |  
|                                                         |  |                   |                        |             |  |           |   |  |         |  
|Revenues and gains                                       |  |                   |                        |             |  |           |   |  |         |  
|Shopping and entertainment centers                       |  |                   | 2,917,616              |             |  | 397,202   |   |  | 758,610 |  
|Hotels operations and management                         |  |                   | 395,227                |             |  | 351,610   |   |  | 102,763 |  
|Sale of real estate assets and investments,
  net        |  |                   | 62,621                 |             |  | 81,794    |   |  | 16,282  |  
|Sale of medical systems                                  |  |                   | 49,648                 |             |  | 85,824    |   |  | 12,909  |  
|Decrease in shareholding of subsidiaries                 |  |                   | 5,310                  |             |  | 667,014   |   |  | 1,381   |  
|Sale of fashion retail                                   |  |                   | 68,139                 |             |  | 58,035    |   |  | 17,717  |  
|                                                         |  |                   |                        |             |  |           |   |  |         |  
|                                                        
|                                                         |  |                   | 3,498,561              |             |  | 1,641,479 |   |  | 909,662 |  
|                                                         |  |                   |                        |             |  |           |   |  |         |  
|Costs and expenses                                       |  |                   |                        |             |  |           |   |  |         |  
|                                                        
|Shopping and entertainment centers                       |  |                   | 1,714,253              |             |  | 395,814   |   |  | 445,724 |  
|Hotels operations and management                         |  |                   | 330,063                |             |  | 308,623   |   |  | 85,820  |  
|Cost and expenses of medical systems
  operation         |  |                   | 69,953                 |             |  | 71,746    |   |  | 18,188  |  
|Cost of fashion retail                                   |  |                   | 80,308                 |             |  | 67,834    |   |  | 20,881  |  
|Research and development expenses, net                   |  |                   | 69,559                 |             |  | 73,538    |   |  | 18,086  |  
|General and administrative expenses                      |  |                   | 116,992                |             |  | 66,983    |   |  | 30,419  |  
|Share in losses (profits) of associated
  companies, net |  |                   | 12,667                 |             |  | (736      | ) |  | 3,294   |  
|Financial expenses                                       |  |                   | 232,062                |             |  | 144,166   |   |  | 60,338  |  
|Financial income                                         |  |                   | (91,136                | )           |  | (25,580   | ) |  | (23,696 | )
|Other expenses, net                                      |  |                   | 38,233                 |             |  | 77,048    |   |  | 9,941   |  
|                                                         |  |                   |                        |             |  |           |   |  |         |  
|                                                         |  |                   | 2,572,954              |             |  | 1,179,436 |   |  | 668,995 |  
|                                                         |  |                   |                        |             |  |           |   |  |         |  
|                                                         |  |                   |                        |             |  |           |   |  |         |  
|Profit before income taxes                               |  |                   | 925,607                |             |  | 462,043   |   |  | 240,667 |  
|Income taxes                                             |  |                   | 16,288                 |             |  | (1,787    | ) |  | 4,235   |  
|                                                         |  |                   |                        |             |  |           |   |  |         |  
|                                                         |  |                   |                        |             |  |           |   |  |         |  
|Profit from continuing operations                        |  |                   | 909,319                |             |  | 463,830   |   |  | 236,432 |  
|Profit from discontinued operation, net                  |  |                   | 10,289                 |             |  | 35,665    |   |  | 2,675   |  
|                                                         |  |                   |                        |             |  |           |   |  |         |  
|                                                         |  |                   |                        |             |  |           |   |  |         |  
|Profit for the year                                      |  |                   | 919,608                |             |  | 499,495   |   |  | 239,107 |  
|                                                         |  |                   |                        |             |  |           |   |  |         |  
|                                                         |  |                   |                        |             |  |           |   |  |         |  
|Attributable to:                                         |  |                   |                        |             |  |           |   |  |         |  
|Equity holders of the Company                            |  |                   | 534,749                |             |  | 510,803   |   |  | 140,340 |  
|Minority interest                                        |  |                   | 379,859                |             |  | (11,308   | ) |  | 98,767  |  
|                                                         |  |                   |                        |             |  |           |   |  |         |  
|                                                         |  |                   | 919,608                |             |  | 499,495   |   |  | 239,107 |  
|                                                         |  |                   |                        |             |  |           |   |  |         |  

68

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---



Revenues
and Gains

Revenues
from shopping and entertainment centers increased to NIS 2,918 million ($758.6
million) in 2007 compared to NIS 397.2 million in 2006. This revenue is
compound from:

(i)
Revenues from the sale of trading property in the amount of NIS 2,820 million
($733.2 million) in 2007 as compared to NIS 286.6 million in 2006. This
increase is attributable to the sale of four shopping and entertainment centers
in 2007 (Arena Plaza in Hungary, and Rybnik Plaza, Sosnowiec Plaza and Lublin
Plaza in Poland) -as compared to the sale of one shopping and entertainment
center in 2006 (Novo Plaza in the Czech Republic).

(ii)
Revenues from the operations of shopping and entertainment centers amounted to
NIS 97.8 million ($25.4 million) in 2007 compared to NIS 110.6 million in 2006.
This decrease is mainly attributable to the sale of the Arena Herzliya shopping
and entertainment center in Israel in July 2007, and the sale of the Duna Plaza
Offices at the end of June 2007 offset in part by an increase in attractions
operations within the shopping and entertainment centers, and two weeks of
operation of the Arena Plaza, Hungary shopping and entertainment center prior
to its sale in mid-December, 2007.

Revenues
from hotels operations and management increased to NIS 395.2 million ($102.8
million) as compared to NIS 351.6 million in 2006. This increase is attributable to a
consistent increase in revenues and high occupancy of all our hotels in 2007 in the United
Kingdom, Belgium, the Netherlands and Romania.

Gain from
the sale of real estate assets and investments, net amounted to NIS 62.6
million ($16.3 million) in 2007, resulting from the sale of the Ballet
Institute Building and the Duna Plaza Offices, both in Budapest, Hungary as
compared to NIS 81.7 in 2006 attributable mainly to price adjustments related
to sale of shopping and entertainment centers to the Klepierre Group under the
July 2005 transactions, and to the sale of the Sandton Hotel in Johannesburg,
South Africa.

Revenues
from the sale of medical systems decreased to NIS 49.6 million ($12.9 million)
compared to NIS 85.8 million reported last year. This decrease is attributable
to the decrease in the sales of the ExAblate 2000 Systems from 19 systems
during 2006 to 12 during 2007.

Gain from
decrease in shareholding of subsidiaries was NIS 5.3 million ($1.3 million) as
compared to NIS 667.0 million in 2006. The gain in 2007 is attributable to a
gain consequent upon a decrease in the Companys shareholding in InSightec as a
result of the issuance of Preferred A Shares by InSightec in November 2007. The
gain in 2006 is attributable to a gain resulting from a decrease in
shareholding of the Company in PC following the Initial Public Offering of PCs
ordinary shares on the Official List of the London Stock Exchange in late
October 2006.

Revenues
from sale of fashion retail is attributed to the operations of Elbit Trade
& Retail Ltd. (previously Mango) which increased to NIS 68.1 million
($17.7 million) compared to NIS 58 million in 2006. This increase is attributed
mainly to the opening of seven new stores by Elbit Trade & Retail Ltd.
during 2007 from 11 stores on December 31, 2006 to 18 stores on December 31,
2007.

Profits
before Income Taxes

Our
profits before income taxes were NIS 925.6 million ($240.6 million) in 2007
compared to NIS 462 million in 2006 representing an increase of 100.3% from the
2006 results. Set forth is an analysis of our profits before income taxes:

Revenues
from shopping and entertainment centers less cost of shopping and entertainment centers in
2007 were NIS 1,203.4 million ($312.8 million) compared to NIS 1.4 million in 2006. This
increase is attributable to an increase in revenues from sale of trading property less
direct cost of trading property sold in 2007 which amounted to NIS 1,327.8 million ($345.2
million) compared to NIS 32.7 million in 2006. The gains generated by the Company in 2007
are attributable to: (i) the sale of Arena Plaza in Hungary amounted to NIS 1,145.3
million; (ii) the sale of three shopping and entertainment centers in Poland during 2007
amounted to NIS 172.8 million ($44.9 million); and purchase price adjustments in respect
of the Novo Plaza shopping and entertainment center which was sold to Klepierre in 2006 in
the amount of NIS 9.6 million ($2.5 million).

The gain in
2006 is attributable to the sale of one shopping and entertainment center to
Kleipierre (Novo Plaza in Czech Republic) within the framework of Stage B
transaction; offset in part by an increase of other operating expenses in 2007
to NIS 146.1 million ($38 million) compared to NIS 61.7 million in 2006. This increase is mainly
attributable to:

(i) An
increase in advertising expenses which are attributable to the operations and
sale of shopping and entertainment center to NIS 23.8 million ($6.2 million) compared to NIS 12 million in
2006. The increase of NIS 11.7 million ($3.0 million) is attributable to advertising and marketing expenses related
to the opening of four shopping and entertainment centers prior to the sale as
mentioned above offset by decrease in sales and marketing expenses related to
the operations of Arena Herzliya shopping and entertainment center in Israel,
which was sold in July 2007; and

69

---

---



(ii)
Increase in other operating expenses mainly attributable to: (i) increase of
NIS 37.7 million ($9.8
million) in share-based payment expenses in respect of PCs options plan
adopted at the end of October 2006 and accordingly share based payment expenses
in 2006 were recorded for two month in 2006 as compared to full year in 2007;
(ii) increase in professional services in the amount of NIS 14.1 million ($3.6 million) required for PC operating as a
public company since the end of 2006; (iii) an increase in corporate headcount
and additional management positions required as result of PC becoming a public
company; and (iv) an increase in employees and management bonuses.

Revenues
from hotel operations and management less costs and expenses from hotel
operations and management increased to NIS 65.2 million ($16.9 million) compared to NIS 43 million in
2006. This increase is attributable mainly to constant increase in revenues as
mentioned in the above paragraph with no corresponding increase in the hotels
variable costs and with no change in the hotels fixed costs (i.e., rent,
insurance, property taxes and depreciation).

Loss
from sale of medical systems was NIS 20.3 million ($5.27 million) in 2007
compared to gain of NIS 14.1 million in 2006. This decrease is mainly
attributable to a decrease in sales of ExAblate 2000 systems in 2007 and
represents sales of 12 systems as compared to 19 systems in 2006 with no
significant decrease in InSightecs direct costs relating to the sale of the
systems, general and administrative expenses and sale and marketing expenses.

Loss
from sale of fashion retail increased to NIS 12.2 million ($3.2 million) in
2007 compared to NIS 9.8 million in 2006. The operations of Elbit Trade were
mainly characterized in initiation and opening of new stores which caused a
significant increase in Elbit Trades operating expenses. In addition, Elbit
Trade expanded its marketing efforts during 2007 in order to support the
opening of the new stores.

Research
and development expenses decreased to NIS 69.5 million ($18.1 million) compared
to NIS 73.5 million in 2006. The decrease is mainly attributed to the
devaluation of the NIS (the Companys reporting currency) against the US Dollar
(InSightecs functional currency).

General and
administrative expenses increased to NIS 117.0 million ($30.4 million) compared
to NIS 67 million in 2006. This increase is attributable to increase in share-based
payments expenses and bonuses in respect of directors and employees which
amounted to NIS 70 million ($18.2 million) in 2007 as compared to NIS 26.1
million in 2006. The increase in bonus payments to directors and to the
Companys Executive Chairman of the Board is mainly attributable to (i)
increase in the Companys profit (as the term defined in the bonus arrangement
of the Companys directors and the Companys Executive Chairman) in 2007 as
compared to the Companys Profit in 2006 according to which the bonuses to the
directors and the Executive Chairman are calculated; and (ii) the bonus payment
in the amount of NIS 14.6 million ($3.8 million) to the Companys Executive
Chairman of the Board in respect of the Profit generated by the Company in 2006
approved by our shareholders in November 2007 and accordingly was recorded in
general and administrative expenses of 2007. Share based payment expenses in
2007 amounted to NIS 18.7 million ($4.86 million) as compared to NIS 16.6
million in 2006.

Financial
costs incurred in 2007 from bank loans and notes increased to NIS 336.8 million
($87.6 million) from NIS 185.8 million in 2006. Out of which we have
capitalized to real estate under construction an amount of NIS 140.8 million
($48.3 million) and NIS 41.8 million in 2007 and 2006 respectively.
Accordingly, the net financial expenses which were charged to our statement of
income amounted to NIS 232 million ($60.3 million) in 2007 and NIS 144.2 in
2006. Such net financial expenses are attributable to the following:

| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | Interest
  expenses attributable to loans and notes raised by us increased to NIS 112.8
  million ($29.3 million) in 2007 compared to NIS 54.5 million in 2006. Such
  increase is attributable to: (i) additional issuance of three new series of
  notes (Series D, E and F) in April through September 2007 in addition to the
  existing three series of notes (Series A,B and C) (ii) An increase of 2.79%
  in 2007 in the Israeli Consumer Price Index (CPI) to which our debentures
  are linked compared to no significant CPI effect in 2006 results.
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (ii)  | Our hotels
  segment recorded interest expenses of NIS 99.0 million ($25.8 million) in
  2007 compared to NIS 84.0 million in 2006 which is mainly attributable to
  increase in the scope of loans in connection with our hotel segment.                                                                                                                                                                                                                                                                                                                        
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (iii) | Our shopping
  and entertainment centers segment recorded interest expenses of NIS 19.7
  million ($5.1 million) in 2007, compared to NIS 27.8 million in 2006, a
  decrease of NIS 8.1 million mainly due to repayment of loan related to Arena
  Herzliya, Israel shopping and entertainment center which was sold in the end
  of June 2007 offset by an increase in interest expenses related to PCs
  Series A Notes issued in July 2007.                                                                                                                  

Financial
income in 2007, increased to NIS 91.1 million ($23.7 million) from NIS 25.6
million in 2006, which was attributable to the following:

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) | We incurred
  interest income from bank deposits and gains from marketable securities of
  NIS 119.7 million ($31.1 million) in 2007 as compared to NIS 53.3 million in
  2006, an increase of NIS 66.4 million. Such increase is attributable mainly
  to an increase in the Group cash balances as result of the Initial Public
  Offering of PCs shares in October 2006, issuance of notes by the Company and
  PC during 2007 and proceeds received by PC and other companies in the Group
  as a result of disposal of real estates assets during 2007; offset in part by
  a decrease in the interest rate received on our deposits in 2007 compared to
  2006.

70

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| |      |                                                                                                                                                                                                                                                                                                                                                  
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii) | In 2007, we
  had an exchange rate differences loss of NIS 28.5 million ($7.4 million) as
  compared to NIS 32.2 million in 2006. The exchange rate differences losses in
  2007 and 2006 are attributable mainly to decrease in our cash and deposits
  linked to the US dollar as a result of a revaluation of the NIS against the
  US Dollar.

Other
expenses, net, in 2007 totaled NIS 38.2 million ($9.9 million) compared to NIS
77.0 million in 2006. Our other expenses in 2007 include mainly the following:

| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | Impairment
  loss in the amount of NIS 30.2 million ($7.85 million) which resulted from:
  (1) an amount of NIS 14.1 million in respect of the Aquatopia (an attraction
  within the Park Plaza Astrid Antwerp Hotel in Antwerp, Belgium) due to a
  significant decrease in the number of visitors in the Aquatopia as compared
  to the Companys forecasts and (2) an amount of NIS 13.4 in respect of Arena
  Herzliya, Israel shopping and entertainment center sold in July 2007;
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (ii)  | Capital loss
  in the amount of NIS 6.3 million ($1.6 million) from the sale of Arena
  Herzliya, Israel shopping and entertainment center;                                                                                                                                                                                                                                                                                                                                            
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (iii) | Initiation
  expenses related to our activity in India in the amount of NIS 7.6 million;
  offset by collection of bad debt in the amount of NIS 10.6 million.                                                                                                                                                                                                                                                                                                                         

As
a result of the foregoing factors, profit before income tax totaled NIS 925.6
million ($240.7 million) in 2007 compared to NIS 462 million in 2006.

Income
taxes in 2007 totaled to NIS 16.2 million ($4.2 million) compared to tax
benefits of NIS 1.8 million in 2006.

The
above resulted in profit from continuing operations totaling NIS 909.3 million
($236.4 million) in 2007, compared to NIS 463.8 million in 2006.

Profit
from discontinued operation, net, totaled NIS 10.3 million ($2.7 million) in
2007, compared to NIS 35.7 million in 2006. Our discontinued operation is
attributable mainly to the medical imaging area and the sub-assemblies and
component segment which were sold in previous years. This profit resulted
mainly from the collection of receivables previously written off, income from
royalties on patents rights and to exchange rate differences results
attributable to monetary assets and liabilities pertaining to discontinued
operations.

The
above resulted in net profit of NIS 919.6 million ($239.1 million) in 2007,
compared to NIS 499.4 million for in 2006. The net profit in 2007 includes NIS
539.7 million ($140.3 million) attributable to the equity holders of the
Company and NIS 379.9 million ($98.8 million) attributable to minority
interest. Net profit in 2006 amounted to NIS 499.5 million of which NIS 510.8
million is attributable to the equity holders of the Company and loss of NIS
11.3 million is attributable to minority interest.

|   |                                
|-- | -------------------------------
|B. | Liquidity and Capital Resources

General

Our
capital resources include the following: (a) public issuances of unsecured
non-convertible notes by both we and PC and an issuance of preferred shares by
InSightec; (b) lines of credit obtained from banks and financial institutions;
(c) proceeds from sales of trading property and real estate assets; and (d)
available cash and cash equivalents. Such resources are used for one or more of
the following purposes:

| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)  | equity
  investments in our shopping and entertainment centers, our hotels and other
  real estate project sourced by us in India constructed by our wholly owned
  and jointly controlled subsidiaries (special purpose entities that are formed
  for the construction of our real estate projects (Projects Companies)). We
  generally finance approximately 25%-30% of such projects through equity
  investments in the Project Companies, while the remaining 70%-75% is financed
  through a credit facility secured by a mortgage of the project constructed by
  the respective Project Company, registered in favor of the financial
  institution that provides such financing. The equity investments in the
  Project Companies are typically provided by us through shareholder loans that
  are subordinated to the credit facilities as therein provided; our current
  investments in acquisitions of real estate assets as well as other operations
  in India are financed by our equity means and debentures raised by the us on
  the TASE.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (ii) | additional
  investments in InSightec if necessary. InSightecs capital resources are
  obtained primarily from additional investments in equity or in convertible
  notes by its shareholders and from its revenues from sales of medical
  systems. Such amounts are used for research and development activities aimed
  at obtaining FDA approvals for further treatments and other general corporate
  expenses such as cost of revenues, marketing and selling and general and
  administrative expenses;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

71

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| |       |                                                                                                  
| | ----- | -------------------------------------------------------------------------------------------------
| | (iii) | additional
  investment in our associates (mainly venture capital investments); and              
| |       |                                                                                                  
| | (iv)  | additional
  investments in order to expand Mangos operations by opening new stores in
  Israel.

Investment Policy

In
accordance with an investment policy adopted by the Companys Investment
Committee, the Company may invest up to NIS 500 million ($130 million) through
several Israeli investment houses. The portfolio investment will be divided as
follow: up to 15% in shares and 85% in government bonds and corporate bonds
with a rating of at least A on a local scale. The portfolio may not include
investment in derivative instruments and trust funds.

The
Groups investments in marketable securities are classified as trading
securities and therefore are exposed to market-price fluctuations which will be
recorded as gains or losses in the statements of income. Capital markets are
subject to fluctuations in respect of events over which the Group has no
control. Such changes may have an impact on the value of these investments upon
realization.

Liquidity

The
sectors in which we compete are capital intensive. We require substantial up-front
expenditures for land acquisition, development and construction costs, certain investments
in research and development as well as for the ongoing maintenance of our hotels.
Accordingly, we require substantial amounts of cash and financing for our operations. We
cannot be certain that such external financing will be available on favorable terms or on
a timely basis or at all. During 2007 and 2008, the world markets are undergone a
financial crisis commonly known as the sub-prime mortgage crisis, which resulted in lower
liquidity in the capital markets. Lower liquidity may result in difficulties in raising
additional debt or in raising such debt in less favorable interests. 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. Our inability to obtain
financing may affect our ability to construct or acquire additional centers and hotels,
and we may experience delays in planned renovation or maintenance of our hotels that could
have a material adverse effect on our results of operations.

The
followings items elaborate on the major transactions and events carried out by
us in 2007 and onwards, which resulted in material changes in our liquidity:

Sources
of Cash from Major Transactions and Events - 2007 and 2008 to Date:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | Between
  April and October 2007, we raised NIS 631.6 million ($164.2 million)
  aggregate principal amount of unsecured non-convertible Series D notes, from
  institutional investors in Israel and NIS 66.3 million ($17.2 million) and
  NIS 336.3 million ($87.4 million) aggregate principal amounts of unsecured
  non-convertible Series E and F notes, respectively, issued to the public in
  Israel. Series D, E and F were rated By Midroog at an A1 rating and by Maalot
  at an A+ rating, on a local scale.
  The debentures bear an annual interest rate of 5% - 6.3%, both principal and
  interest are linked to the increase in the CPI.                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | · | In May 2007,
  PC executed a transaction for the sale of the Duna Plaza offices (DPO) in
  Budapest, Hungary, to Klepierre for a cash consideration of 14.2 million
  (NIS 80.4 million; $20.9 million).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | · | In May 2007,
  PC has formally completed the hand over of the Rybnik Plaza and the Sosnowiec
  Plaza shopping and entertainment centers to Klepierre in accordance with the
  terms of the Stage B agreement (For further elaboration of these transactions
  see Item 10. Additional Information - Material Contracts - Shopping and
  Entertainment Centers below). The net cash consideration paid to PC amounted
  to 48.2 million (NIS 272.8 million; $70.9 million). In addition, in July
  2007, PC had sold its 50% stake in Lublin Plaza project to Klepierre in
  accordance with the terms of the Stage B agreement (see Item 10.C. Material
  Contracts  Shopping and Entertainment Centers), for net cash consideration
  of 27.3 million (NIS 154.5 million; $40.2 million).
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | · | In June
  2007, Elscint consummated a sale of its 50% interest in a company
  (Andrassy) which owns the building known as the Ballet Institute Building
  located in Budapest, Hungary. The net cash consideration was 29.8 million
  (NIS 168.6 million; $43.8 million) of which Elscints share was 14.9 million
  (NIS 84.3 million; $21.9 million).                                                                                                                                                                                                                                                                                                                                                                                                                                    

72

---

---



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | In July 2007, Elscint received net cash consideration of NIS 335.2 million ($87.2 million)
for the sale of its entire interest in its wholly owned Israeli subsidiary, which owned
and operated the Arena shopping and entertainment center (Arena), located at
the Hertzliya Marina in Israel.                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | · | In July
  2007, PC raised NIS 305 million ($79.3 million) of unsecured non-convertible
  Series A notes from investors in Israel. The notes are rated by Maalot at an
  A+/Positive rating and by Midroog at Aa3, on a local scale. The notes bear an
  annual interest rate of 4.5%, both principal and interest are linked to the
  increase in the Israeli CPI.                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | · | In November
  2007, InSightec completed an internal round of financing of $30 million from
  its existing investors. The investment is in the form of Series A Preferred
  convertible shares, which are convertible to InSightecs ordinary shares
  subject to the fulfillment of certain conditions stipulated in the agreement.
  We invested $19.8 million in the Series A Preferred convertible shares.                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | · | In December
  2007 PC consummated a transaction of the Arena Plaza shopping and
  entertainment center in Budapest. In January 2008, PC received net cash of
  254.8 million (NIS 1441.9 million; $374.9 million) for the sale of its
  entire interest (100%) in a company which holds the rights in and to the
  Arena Plaza shopping and entertainment center in Budapest (Arena) to a
  UK-based company, Active Asset Investment Management (aAIM).                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | · | In February
  2008, PC raised NIS 713.5 million ($185.5 million) of unsecured
  non-convertible Series B notes in a public offering in Israel. The notes are
  rated by Midroog at Aa3, on a local scale. The debentures bear an annual
  interest rate of 5.4%, both principal and interest are linked to the increase
  in the CPI. During May, 2008, PC raised an additional NIS 84.42 million
  ($21.9 million) of the Series B notes from institutional investors in Israel.

Use of Cash for Major
Transactions and Events from 2007 to Date:

| |   |                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | In April
  2007, we distributed to our shareholders dividend of NIS 160.4 million ($41.7
  million).                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                         
| | · | In May 2008,
  PC distributed to its shareholders a dividend of 57 million (NIS 322.6
  million; $83.8 million) out of which approximately 38.7 (NIS 219 million;
  $56.9 million) was distributed to us and 18.2 (NIS 103.6 million; $26.9
  million) was distributed to PCs minority shareholders.
| |   |                                                                                                                                                                                                                                                                                                         
| | · | In June
  2008, we distributed to our shareholders a dividend of NIS 168.0 million
  ($43.7 million).                                                                                                                                                                                                   

The
following table sets forth the components of our cash flows statements for the
periods indicated:

|                                          |  |                             |          |                 |  |                 |          |   |  |  |            |   | 
|----------------------------------------- |  | --------------------------- | -------- | --------------- |  | --------------- | -------- | - |  |  | ---------- | - | 
|                                          |  | Year ended December 31,     |         
|                                          |  |                             |         
|                                          |  | 2007                        |          | 2007            |  | 2006            |         
|                                          |  |                             |          |                 |  |                 |         
|                                          |  | Convenience
  Translation $ |          | NIS
  Thousands |  | NIS
  Thousands |         
|                                          |  |                             |          |                 |  |                 |         
|                                          |  |                             |          |                 |  |                 |          |   |  |  |            |   | 
|Net cash used in operating activities     |  |                             | (221,910 | )               |  |                 | (853,463 | ) |  |  | (321,761   | ) | 
|Net cash used in investing activities     |  |                             | (139,085 | )               |  |                 | (534,923 | ) |  |  | (1,086,464 | ) | 
|Net cash provided by financing activities |  |                             | 181,888  |                 |  |                 | 699,542  |   |  |  | 878,978    |   | 
|Decrease in cash and cash equivalents     |  |                             | (179,107 | )               |  |                 | (688,844 | ) |  |  | (1,643,711 | ) | 

Cash
flow used for operating activities

Net
cash used in operating activities in 2007 was NIS 853.5 million ($221.9
million), as compared to NIS 321.8 million in 2006.

Our
cash flow from operating activities is affected by the Groups policy in
respect of PCs shopping and entertainment centers which are classified as
trading property since, as described below, it is PCs management goal to sell
these shopping and entertainment centers following their development.
Accordingly, our cash flow from operating activities includes all the costs of
acquisition and construction of a trading property and also the proceeds from
sale of trading properties once they have been disposed of. Therefore, in
periods in which our investments in construction and/or acquisition of trading
properties are higher than the proceeds from the sale of same we will have a
negative cash flow from operating activities.

73

---

---



Our
cash flow from operating activities in 2007 was influenced by the following
factors:

| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)  | Cash flow
  from operating activities in 2007 included negative cash flow resulted from
  the cost of purchase of trading properties net of trading properties disposed
  of in the amount of NIS 693.1 million ($180.1 million) and payments on the
  account of purchase of trading properties of NIS 233.3 million in 2007. Most
  of the acquisitions and investments in trading properties in 2007 were in
  Romania (the Casa Radio and Iasi projects), Serbia (Belgrade project), Czech
  Republic (completion of the Pilzen Plaza construction), Hungary (completion
  of the Arena Plaza construction) and India (Trivandrum project). During 2007
  we have consummated several transaction for the sale of trading properties
  which generated to us revenues of NIS 2,820 million ($733 million), however a
  significant part of the proceeds from such sales were collected by us
  following the balance sheet date (mainly the proceeds from the sale of the
  Arena Plaza shopping and entertainment center to aAIM which was collected in
  January 2008). Accordingly, our cash flow from operating activities includes
  a significant increase in trade accounts receivable to NIS 1,442 million
  ($375 million) in 2007 which caused negative cash flow from operations in
  2007 and will positively contribute to cash flow from operations in 2008 when
  the proceeds were actually collected.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (ii) | Operating
  activities in 2007 also included cash operating expenses including research
  and development expenses, sales and marketing and general and administrative
  expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

Cash
flow from investing activities:

Cash
flow used in investing activities amounted to NIS 534.9 million ($139.0
million) in 2007 as compared to NIS 1,086.5 million in 2006.

Our
cash flow from investing activities in 2007 was influenced by the following
factors:

| |       |                                                                                                                                                                                                                                                                                                         
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | Investment
  in initially consolidated company in the amount of NIS 135.1 million ($35.1
  million) in 2007 attributable to our investments in the Chennai Project in
  India.                                                                                                                          
| |       |                                                                                                                                                                                                                                                                                                         
| | (ii)  | Purchase of
  property plant and equipment, investment property and other assets in the
  amount of NIS 339 million ($88.1 million) mainly attributable to the
  renovation of the Radisson SAS Bucharest Hotel in Romania and the acquisition
  of the Cochin project in India.                        
| |       |                                                                                                                                                                                                                                                                                                         
| | (iii) | Payment on
  account of land in the amount of NIS 203.0 million ($52.5 million) related to
  an advance payment on account of the acquisition of land in the Bangalore
  project in India                                                                                                               
| |       |                                                                                                                                                                                                                                                                                                         
| | (iv)  | Purchase of
  deposits and marketable securities in the amount of NIS 422.8 million ($109.9
  million) executed by us in 2007.                                                                                                                                                                          
| |       |                                                                                                                                                                                                                                                                                                         
| | (v)   | Proceeds
  from realization of investments in subsidiaries of NIS 483.7 million ($125.8
  million) in 2007 attributable mainly from the sale of the Ballet Institute
  Building located in Budapest, Hungary and the sale of the Arena Herzliya
  shopping and entertainment center located in Israel.

Cash
flow from financing activities

Cash
flow from financing activities decreased to NIS 699.5 million ($181.9 million)
in 2007 from NIS 879 million in 2006.

Our
cash flow from financing activities in 2007 was influenced by the following
factors:

| |       |                                                                                                                                                                                                                           
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | Proceeds
  from borrowings net of repayment of loans were NIS 1432.7 ($372.5 million)
  which are mainly attributable to the funds raised by the Company and PC from
  unsecured non-convertible notes issued during 2007.
| |       |                                                                                                                                                                                                                           
| | (ii)  | a dividend
  payment in 2007 of NIS 160.4 million ($41.7 million).                                                                                                                                                        
| |       |                                                                                                                                                                                                                           
| | (iii) | Repayment of
  short-term credit in the amount of NIS 323.7 million ($84.2 million) mainly
  related to repayment of short-term credit as a result of disposal of PCs
  project companies during 2007.)                  

74

---

---



Major
balance sheet changes

The
following table discloses the balance sheet balances in NIS million and major
balance sheet items as a percentage of total assets as of December 31, 2007 and
December 31, 2006:

|                                                |  |             |         |      |  |             |      |   |  |  |         |  |  |  |      |   | 
|----------------------------------------------- |  | ----------- | ------- | ---- |  | ----------- | ---- | - |  |  | ------- |  |  |  | ---- | - | 
|                                                |  | 2007        |         | 2006 | 
|                                                |  |             |         |      | 
|                                                |  | NIS million |         | %    |  | NIS million |      | % | 
|                                                |  |             |         |      |  |             |      |   | 
|                                                |  |             |         |      |  |             |      |   |  |  |         |  |  |  |      |   | 
|Current
  assets                                |  |             | 5,864   |      |  |             | 69   | % |  |  | 3,672   |  |  |  | 58.4 | % | 
|Current
  liabilities                           |  |             | 935.3   |      |  |             | 11   | % |  |  | 1,101.7 |  |  |  | 17.5 | % | 
|Non-current
  assets                            |  |             | 2583.1  |      |  |             | 30.5 | % |  |  | 2,613.6 |  |  |  | 41.5 | % | 
|Non-current
  liabilities                       |  |             | 4,283.3 |      |  |             | 50.7 | % |  |  | 2,889.7 |  |  |  | 45.9 | % | 
|Shareholders equity:                           |  |             |         |      |  |             |      |   |  |  |         |  |  |  |      |   | 
|Attributable
  to equity holders of the Company |  |             | 2,035.4 |      |  |             | 24   | % |  |  | 1,644.7 |  |  |  | 26.1 | % | 
|Minority
  interest                             |  |             | 1,193.6 |      |  |             | 14.1 | % |  |  | 649.5   |  |  |  | 10.3 | % | 

The
increase in current assets of NIS 2,192 million ($569.9 million) was mainly as
a result of: (i) an increase in the Groups liquid resources as a result of
funds raised from issuance of notes by us and PC as well as from proceeds
received from realization of trading property and investment property during
2007; (ii) an increase in trade receivables which is attributable to proceeds
due from aAIM in respect of the sale of Arena Plaza in Budapest, Hungary; and
(iii) an increase in the scope of the Groups trading property (which in
accordance with the Companys policy is presented as part of the Companys
current assets) mainly as a result of acquisitions of plots designated for
trading properties and construction of trading properties in 2007.

The increase in non-current liabilities of NIS 1,393.6 million ($362.4
million), was mainly as a result of issuance of new series of notes by us and
PC during 2007.

Concentration
of Credit Risk

The
Company holds cash and cash equivalents, short-term investments and other
financial instruments in various banks and financial institutions. These banks
and financial institutions are located in different geographical regions, and
it is the Groups policy to disperse its investments among different banks and
financial institutions.

Due
to the nature of their activity, the Group companies, which operates hotels,
the image guided ultrasound and the fashion retail businesses, are not
materially exposed to credit risks stemming from dependence on a given
customer. The Group companies examine on an ongoing basis the credit amounts
extended to their customers and, accordingly, record a provision for doubtful
debts based on such factors they consider having an effect on specific
customers. Trade accounts receivable as of December 31, 2007 and December 31,
2006 included balances due from buyers of trading properties in the amount of
NIS 1,476 million ($383.3 million) and NIS 23.8 million, respectively. The vast
majority of these amounts is secured by non refundable bank guarantees provided
to the Group by the debtor and, therefore, the Group is not exposed to a
significant risk from such trade receivables.

Derivative Instruments

For
information on financial instruments used, profile of debt, currencies and
interest rate structure, see Item 11 Quantitative and Qualitative Disclosure
about Market Risks below.

75

---

---



Other Loans

A.          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, and renovation and operation of shopping and
entertainment centers and hotels as well as for various investments in our
other operations. In our opinion our working capital is sufficient for our
current requirements; however, our subsidiaries will 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 us, our subsidiaries and
our jointly controlled companies as of December 31, 2007 The loans granted to
our jointly controlled companies are presented in the table at their (100%)
value:

|                                   |  |                                                                                                                                                             |  |                   |  |                                       |  |                                            |  |                                                                            
|---------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- |  | ------------------------------------- |  | ------------------------------------------ |  | ---------------------------------------------------------------------------
|Borrower                           |  | Lender                                                                                                                                                      |  | Original
  Amount |  | Amount
  Outstanding on Dec. 31, 2007 |  | Interest                                   |  | Payment
  Terms                                                            
|                                   |  |                                                                                                                                                             |  |                   |  |                                       |  |                                            |  |                                                                            
|                                  
|EI                                 |  | Series
  A Notes issued to the public                                                                                                                       |  | NIS 567.6 million |  | NIS
  584.5 million ($151.9 million)  |  | 6% per annum, linked to the
  Israeli CPI. |  | 10 semi annual installments
  commencing 2009 through 2014                 
|                                   |  |                                                                                                                                                             |  |                   |  |                                       |  |                                            |  | Interest payable by semi
  annual installments commencing 2006 through 2014
|                                  
|Principal Security and
  Covenants |  | Unsecured                                                                                                                                                   |  |                   |  |                                       |  |                                            |  |                                                                            
|                                  
|Other Information                  |  | The notes are not
  registered under the Securities Act.                                                                                                    |  |                  
|                                   |  | Events of default include,
  among others, the cross default with other series of notes and delisting from
  both the TASE and Nasdaq Global Select Market.

|                                   |  |                                                                                                                                                             |  |                   |  |                                       |  |               |  |                                                                            
|---------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- |  | ------------------------------------- |  | ------------- |  | ---------------------------------------------------------------------------
|Borrower                           |  | Lender                                                                                                                                                      |  | Original
  Amount |  | Amount
  Outstanding on Dec. 31, 2007 |  | Interest      |  | Payment
  Terms                                                            
|                                   |  |                                                                                                                                                             |  |                   |  |                                       |  |               |  |                                                                            
|                                  
|EI                                 |  | Series
  B Notes issued to the public                                                                                                                       |  | $14.8 million     |  | NIS
  56.6 million ($14.8 million)    |  | Libor + 2.65% |  | 10 semi annual installments
  commencing 2009 through 2014                 
|                                   |  |                                                                                                                                                             |  |                   |  |                                       |  |               |  | Interest payable by semi
  annual installments commencing 2006 through 2014
|                                  
|Principal Security and
  Covenants |  | Unsecured                                                                                                                                                   |  |                   |  |                                       |  |               |  |                                                                            
|                                  
|Other Information                  |  | The notes are not
  registered under the Securities Act.                                                                                                    |  |                  
|                                   |  | Events of default include,
  among others, the cross default with other series of notes and delisting from
  both the TASE and Nasdaq Global Select Market.

|                                   |  |                                                                                                                                                             |  |                   |  |                                       |  |                                              |  |                                                                            
|---------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- |  | ------------------------------------- |  | -------------------------------------------- |  | ---------------------------------------------------------------------------
|Borrower                           |  | Lender                                                                                                                                                      |  | Original
  Amount |  | Amount
  Outstanding on Dec. 31, 2007 |  | Interest                                     |  | Payment
  Terms                                                            
|                                   |  |                                                                                                                                                             |  |                   |  |                                       |  |                                              |  |                                                                            
|                                  
|EI                                 |  | Series
  C Notes issued to the public                                                                                                                       |  | NIS 458.6 million |  | NIS
  463.2million ($120.5 million)   |  | 5.3% per annum, linked to
  the Israeli CPI. |  | 10 annual installments
  commencing 2009 through 2018                      
|                                   |  |                                                                                                                                                             |  |                   |  |                                       |  |                                              |  | Interest payable by semi
  annual installments commencing 2007 through 2014
|Principal Security and
  Covenants |  | Unsecured                                                                                                                                                   |  |                   |  |                                       |  |                                              |  |                                                                            
|                                   |  |                                                                                                                                                             |  |                   |  |                                       |  |                                              |  |                                                                            
|Other Information                  |  | The notes are not
  registered under the Securities Act.                                                                                                    |  |                  
|                                   |  | Events of default include,
  among others, the cross default with other series of notes and delisting from
  both the TASE and Nasdaq Global Select Market.

- 76 -

---

---



|                                   |  |                                                                                                                                                             |  |                   |  |                                       |  |                                            |  |                                                                            
|---------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- |  | ------------------------------------- |  | ------------------------------------------ |  | ---------------------------------------------------------------------------
|Borrower                           |  | Lender                                                                                                                                                      |  | Original
  Amount |  | Amount
  Outstanding on Dec. 31, 2007 |  | Interest                                   |  | Payment
  Terms                                                            
|                                   |  |                                                                                                                                                             |  |                   |  |                                       |  |                                            |  |                                                                            
|                                  
|EI                                 |  | Series
  D Notes issued to the public                                                                                                                       |  | 620 million       |  | NIS
  640.0 million ($166.4 million)  |  | 5% per annum, linked to the
  Israeli CPI. |  | 8 annual installments
  commencing 2013 through 2020                       
|                                   |  |                                                                                                                                                             |  |                   |  |                                       |  |                                            |  | Interest payable by semi
  annual installments commencing 2007 through 2020
|Principal Security and
  Covenants |  | Unsecured                                                                                                                                                   |  |                   |  |                                       |  |                                            |  |                                                                            
|                                   |  |                                                                                                                                                             |  |                   |  |                                       |  |                                            |  |                                                                            
|Other Information                  |  | The notes are not
  registered under the Securities Act.                                                                                                    |  |                  
|                                   |  | Events of default include,
  among others, the cross default with other series of notes and delisting from
  both the TASE and Nasdaq Global Select Market.

|                                   |  |                                                          |  |                   |  |                                       |  |                                              |  |                                                                            
|---------------------------------- |  | -------------------------------------------------------- |  | ----------------- |  | ------------------------------------- |  | -------------------------------------------- |  | ---------------------------------------------------------------------------
|Borrower                           |  | Lender                                                   |  | Original
  Amount |  | Amount
  Outstanding on Dec. 31, 2007 |  | Interest                                     |  | Payment
  Terms                                                            
|                                   |  |                                                          |  |                   |  |                                       |  |                                              |  |                                                                            
|                                  
|EI                                 |  | Series
  E Notes issued to the public                    |  | NIS 66.3 million  |  | NIS
  66.3 million ($17.2 million)    |  | 6.3% per annum, linked to
  the Israeli CPI. |  | 10 annual installments
  commencing 2012 through 2021                      
|                                   |  |                                                          |  |                   |  |                                       |  |                                              |  | Interest payable by semi
  annual installments commencing 2007 through 2021
|                                  
|Principal Security and
  Covenants |  | Unsecured                                                |  |                   |  |                                       |  |                                              |  |                                                                            
|                                  
|Other Information                  |  | The notes are not
  registered under the Securities Act. |  |                  

|                                   |  |                                                          |  |                   |  |                                       |  |                                              |  |                                                                            
|---------------------------------- |  | -------------------------------------------------------- |  | ----------------- |  | ------------------------------------- |  | -------------------------------------------- |  | ---------------------------------------------------------------------------
|Borrower                           |  | Lender                                                   |  | Original
  Amount |  | Amount
  Outstanding on Dec. 31, 2007 |  | Interest                                     |  | Payment
  Terms                                                            
|                                   |  |                                                          |  |                   |  |                                       |  |                                              |  |                                                                            
|                                  
|EI                                 |  | Series
  F Notes issued to the public                    |  | NIS 336.2 million |  | NIS
  336.2 million ($87.4 million)   |  | 5.7% per annum, linked to
  the Israeli CPI. |  | 6 annual installments
  commencing 2010 through 2015                       
|                                   |  |                                                          |  |                   |  |                                       |  |                                              |  | Interest payable by semi
  annual installments commencing 2008 through 2015
|                                  
|Principal Security and
  Covenants |  | Unsecured                                                |  |                   |  |                                       |  |                                              |  |                                                                            
|                                  
|Other Information                  |  | The notes are not registered
  under the Securities Act. |  |                  

- 77 -

---

---



|                                   |  |                                                                                              |  |                   |  |                                       |  |                 |  |                                       
|---------------------------------- |  | -------------------------------------------------------------------------------------------- |  | ----------------- |  | ------------------------------------- |  | --------------- |  | --------------------------------------
|Borrower                           |  | Lender                                                                                       |  | Original
  Amount |  | Amount
  Outstanding on Dec. 31, 2006 |  | Interest        |  | Payment
  Terms                       
|                                   |  |                                                                                              |  |                   |  |                                       |  |                 |  |                                       
|                                  
|EI                                 |  | Bank Leumi Le-Israel B.M.                                                                    |  | $19.1 million     |  | $13 million                           |  | Libor +
  1.75% |  | Short-term
  revolving credit facility
|                                  
|Principal
  Security and Covenants |  |                                                                                              |  |                   |  |                                       |  |                 |  |                                       
|                                  
|Other
  Information                |  | Negative
  pledge provided by the company in respect of the its majority shares in
  Elscint

|                                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                               |  |                                       |  |               |  |                                                                                                                        
|---------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- |  | ------------------------------------- |  | ------------- |  | -----------------------------------------------------------------------------------------------------------------------
|Borrower                           |  | Lender                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | Original
  Amount             |  | Amount
  Outstanding on Dec. 31, 2007 |  | Interest      |  | Payment
  Terms                                                                                                        
|                                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                               |  |                                       |  |               |  |                                                                                                                        
|                                  
|EI /EUBV                           |  | Bank
  Hapoalim B.M.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | $57.5
  million
  $25 million |  | $20
  million
  33 million ($48.6)   |  | Libor + 1.75% |  | Loan for 10 years to be
  repaid by 2013. Repayment is affected by semi-annual installments of principal
  and interest
|                                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                               |  |                                       |  |               |  |                                                                                                                        
|Principal Security and
  Covenants |  | Adjusted Shareholders
  Equity shall represent at least 20% of the Adjusted Balance Sheet Value.
  Net Operating Profit (before deductions for depreciation and amortization
  relating to net operating profit) shall be at each June 30 of every year no
  less than NIS 120 million.
  In the event of (i) the net loan amount is $30 million; (ii) the total amount
  outstanding under the Europe Israel loan agreement is less than $30 million;
  and (iii) there has been no event of default under the loan agreement, the
  above financial covenants shall not apply.
|                                  
|Other Information                  |  | The bank furnished the
  Company with a waiver letter, as at December 31, 2007, in which the bank
  notified the Company that the Company is not obliged to comply with the
  aforementioned financial covenants, save for the Adjusted Shareholders
  Equity over Adjusted Balance Sheet Value. In accordance with the waiver
  letter the bank will not demand payment of principals amount under the loan
  agreement until January 1, 2009.                                                                                                                                 

|                                   |  |                                                                                                                                                                                                                                            |  |                   |  |                                       |  |                   |  |                                                                                                                                                                                               
|---------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- |  | ------------------------------------- |  | ----------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Borrower                           |  | Lender                                                                                                                                                                                                                                     |  | Original
  Amount |  | Amount
  Outstanding on Dec. 31, 2006 |  | Interest          |  | Payment
  Terms                                                                                                                                                                               
|                                   |  |                                                                                                                                                                                                                                            |  |                   |  |                                       |  |                   |  |                                                                                                                                                                                               
|                                  
|Praha Plaza s.r.o                  |  | Erste
  Bank AG                                                                                                                                                                                                                            |  | 7.5
  million    |  | 5.9
  million ($8.7 million)         |  | Euribor +
  1.75% |  | Quarterly payments of
  117,200, beginning on December 31st, 2004. The remaining amount will be paid
  in one installment on December 31st, 2016. Quarterly payment of interest
  until 2016.
|                                   |  |                                                                                                                                                                                                                                            |  |                   |  |                                       |  |                   |  |                                                                                                                                                                                               
|Principal Security and
  Covenants |  | First ranking pre-emption right
  regarding the property. 
  Pledge on shares of Borrower, on accounts, on receivables from the lease
  agreements. Assignment of insurance. 
  Maintenance of Debt Service Cover Ratio of 1.15 or higher.
|                                  
|Other Information                  |  |                                                                                                                                                                                                                                           

- 78 -

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---



|                                   |  |                                       |  |                   |  |                                       |  |                                              |  |                                                                                                                                                                                               
|---------------------------------- |  | ------------------------------------- |  | ----------------- |  | ------------------------------------- |  | -------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Borrower                           |  | Lender                                |  | Original
  Amount |  | Amount
  Outstanding on Dec. 31, 2007 |  | Interest                                     |  | Payment
  Terms                                                                                                                                                                               
|                                   |  |                                       |  |                   |  |                                       |  |                                              |  |                                                                                                                                                                                               
|                                  
|PC                                 |  | Series
  A Notes issued to the public |  | NIS305.14 million |  | NIS
  312.8 million ($81.3 million)   |  | 4.5% per annum, linked to
  the Israeli CPI. |  | 8 equal annual installments
  commencing December 31, 2010 through December 31, 2017.
  Interest payable by semi annual installments commencing 31 December, 2007
  through 31 December, 2017.
|                                   |  |                                       |  |                   |  |                                       |  |                                              |  |                                                                                                                                                                                               
|Principal Security and
  Covenants |  | Unsecured                            
|                                  
|Other Information                  |  |                                      

|                                   |  |                                                                                                                                                                                                                                        |  |                                                                                                                                 |  |                                       |  |               |  |                                                                                                                                                                                                                                                                                
|---------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- |  | ------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Borrower                           |  | Lender                                                                                                                                                                                                                                 |  | Original
  Amount                                                                                                               |  | Amount
  Outstanding on Dec. 31, 2007 |  | Interest      |  | Payment
  Terms                                                                                                                                                                                                                                                                
|                                   |  |                                                                                                                                                                                                                                        |  |                                                                                                                                 |  |                                       |  |               |  |                                                                                                                                                                                                                                                                                
|                                  
|Elscint
  Ltd.                     |  | Bank
  Hapoalim B.M.                                                                                                                                                                                                                   |  | A: 20 million B: 9.6 million + £16.7 million C: 2.4 million D: 1.4 million (stand-by letter
  of credit) + NIS 10.2 million |  | B:
  9.6 million ($14.1 million)     |  | Libor + 1.75% |  | B: 50% to be paid on December
31, 2010 and 50% on December 31, 2015. The agreement also provides accelerated prepayment
of the loan in the event that the subsidiaries financed by such loan were disposed of,
merged, executed a refinancing agreement or an IPO and the like.
|                                   |  |                                                                                                                                                                                                                                        |  |                                                                                                                                 |  |                                       |  |               |  |                                                                                                                                                                                                                                                                                
|Principal Security and
  Covenants |  | Principal Security:
  First and second ranking pledges over certain shares of some of Elscints
  subsidiaries, within its hotel operations and Mango.
  The ratio of Shareholders Equity to Balance Sheet Value is greater than 1:4.
|                                  
|Other Information                  |  | The bank furnished Elscint
  with a waiver letter, as at December 31, 2007, pursuant to which the bank
  will not demand payment of principals amount under the loan agreement up to
  January 1, 2009.                              

|                                         |  |                                                                                                                                                                                                                                                                                               |  |                                 |  |                                       |  |                  |  |                                                                          
|---------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- |  | ------------------------------------- |  | ---------------- |  | -------------------------------------------------------------------------
|Borrower                                 |  | Lender                                                                                                                                                                                                                                                                                        |  | Original
  Amount               |  | Amount
  Outstanding on Dec. 31, 2007 |  | Interest         |  | Payment
  Terms                                                          
|                                         |  |                                                                                                                                                                                                                                                                                               |  |                                 |  |                                       |  |                  |  |                                                                          
|                                        
|BEA Hotels
  Eastern Europe B.V.(BHEE) |  | Bank Leumi Le Israel Ltd.                                                                                                                                                                                                                                                                     |  | A: $13 million
  B: $13 million |  | A:
  $11 million                      |  | A: Libor + 1.75% |  | Short-term revolving credit
  facility; Interest paid every three months;
|                                         |  |                                                                                                                                                                                                                                                                                               |  |                                 |  |                                       |  |                  |  |                                                                          
|Principal Security and
  Covenants       |  | Pledge on Domino and
  Bucharesti Turism SA shares. 
  Lien on BEA Hotel Eastern Europe shares and a floating lien on its assets.
  Pledge on Dominos present and future movable assets. 
  Unlimited guarantee by Elscint.                                                                 
|                                        
|Other Information                        |  | Elscint provided a
  guarantee, unlimited in amount, to secure BHEEs undertakings to the bank.
  The bank restricted its right to realize this guarantee, by linking it to the
  realization terms of the Bucharesti shares (except for certain instances as
  stipulated in the agreement).

- 79 -

---

---



|                                                                                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                       |  |                                           |  |                                                                                            |  |                                                                                                                                                                                                                                                                                  
|---------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------- |  | ----------------------------------------- |  | ------------------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Borrower                                                                           |  | Lender                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | Original
  Amount (*) |  | Amount
  Outstanding on Dec. 31, 2007 (*) |  | Interest                                                                                   |  | Payment
  Terms                                                                                                                                                                                                                                                                  
|                                                                                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                       |  |                                           |  |                                                                                            |  |                                                                                                                                                                                                                                                                                  
|                                                                                  
|Riverbank
  Hotel Holding BV; Victoria Hotel holding BV; Grandis Hotel Holding BV; |  | Goldman Sachs International                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | ₤195 million          |  | ₤192.9
  million ($385.2 million)         |  | Libor + 3%. The interest
  was fixed under a swap transaction at a rate of 7.72% per annum |  | 0.375% of the principal is
  payable in quarterly installments commencing one year as of the draw-down for
  a period of 5 years and the remaining principal is due after five years. The
  borrowers have an option to extend the term by two years, subject to certain
  terms.
|                                                                                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                       |  |                                           |  |                                                                                            |  |                                                                                                                                                                                                                                                                                  
|Principal Security and
  Covenants                                                 |  | First ranking mortgage over
  the properties; -First ranking
  pledges over the entire share capital of the borrowers;
  First ranking pledges over any
  companies owned by the borrowers;An assignment of rent, insurance
  proceeds and the hedging agreements, as well as a fixed charge over specified
  bank accounts. Undertaking to maintain net operating
  income to debt service over 1.05. Prohibition of dividend distribution.                                                                                                                                                                                                                                                                                                   
|                                                                                  
|Other Information                                                                  |  | The loan was made available
  to re-finance certain indebtedness of the borrowers in relation to Park Plaza
  Victoria London Hotel, Park Plaza Riverbank Hotel and the Park Plaza Sherlock
  Holmes London which included shareholder loans. 
  In the event of any cash
  distribution deriving from the sale, disposal or refinancing of the hotels,
  or upon repayment of the loan at the end of term, (transactions), the
  borrowers shall pay to the financing bank an amount equivalent to 15% of the
  difference between the market value of the hotels as determined in such
  transaction and the value of the hotels as agreed upon, as at the grant of
  the current loan; (*) EIs respective share in the such
  amount is 50%

|                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                       |  |                                                                              |  |                                                                                                                      |  |                                                                                                                                                                                                                                                                                               
|---------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------- |  | ---------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Borrower                                                               |  | Lender                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Original
  Amount (**)                                |  | Amount
  Outstanding on Dec. 31, 2007 (**)                                   |  | Interest                                                                                                             |  | Payment
  Terms                                                                                                                                                                                                                                                                               
|                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                       |  |                                                                              |  |                                                                                                                      |  |                                                                                                                                                                                                                                                                                               
|                                                                      
|Victoria
  Hotel C.V., Utrecht Victoria Hotel B.V.Mandarin Hotel BV(*) |  | Merrill Lynch International                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | Victoria:
  57.8 million 
  Utrecht: 14 million (*) |  | Victoria:
  56 million ($82.4 million)
  Utrecht: 6 million ($8.8 million) |  | The interest on the loan is
  hedged by a swap transaction, accordingly the fixed interest rate is 5.11%
  per annum |  | Quarterly principal
  repayment of 112,000 ending on March 30, 2007;
  337,000 to be paid at the end
  of each quarter commencing June 30, 2007 and ending on June 30, 2009;67,664,000 to be paid at the end of
  the term (September 30, 2009);Interest is payable on a quarterly
  basis.
|                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                       |  |                                                                              |  |                                                                                                                      |  |                                                                                                                                                                                                                                                                                               
|Principal Security and
  Covenants                                     |  | Mortgage on both hotels. 
  First ranking pledge on
  moveable assets, bank accounts (operating income and debt service reserve),
  rights of the borrowers under their management agreements and insurance
  proceeds. First ranking pledge on shares of
  borrowers.Borrowers shall not create or permit
  to subsist any pledges and mortgages over the whole or any part of their
  assets.Negative pledge on borrowers assets.Principal Financial Covenants: the amount of loans shall not exceed
  75% of the total value of the hotel; On each interest payment date net
  operating income for each of the previous four financial quarters shall not
  be less than 135% of the interest service costs for the same period.
|                                                                      
|Other Information                                                      |  | (*) Mandarin Hotel is
  wholly owned by Park Plaza. Total amount of the loan granted to all three
  parties was 80 million. The parties have executed an internal reimbursement
  agreement for liabilities born by the joint hotels in respect of that part of
  the loans attributed to Mandarin, and vice versa;
  (**) EIs respective share in
  the such amounts is 50%                                                                                                                                                                                                                                                                                                                                                       

- 80 -

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|                                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                   |  |                                       |  |                |  |                                               
|---------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- |  | ------------------------------------- |  | -------------- |  | ----------------------------------------------
|Borrower                           |  | Lender                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | Original
  Amount |  | Amount
  Outstanding on Dec. 31, 2006 |  | Interest       |  | Payment
  Terms                               
|                                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                   |  |                                       |  |                |  |                                               
|                                  
|Victoria
  Monument BV             |  | Bank
  Hapoalim B.M.                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | 14
  million     |  | 14
  million ($20.6 million)         |  | Euribor + 1.5% |  | December 2008 principal and
  accrued interest
|                                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                   |  |                                       |  |                |  |                                               
|Principal Security and
  Covenants |  | Fixed charge over account;
  Charge over the property; Charge over Purchase Agreement of the property;
  Charge over the shares held in the borrower; owners guarantee provided by EI
  (in respect of its share in the property)
  Each of the guarantors must
  beneficially own 50% of the share capital of the borrower. Prohibition on the distribution of
  dividends by the borrowers, in cash or in kind or making any other
  distribution without lenders prior consent.
|                                  
|Other Information                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|                                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |                   |  |                                       |  |                                                                                                                          |  |                                                                                                                                                                                                                        
|---------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- |  | ------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Borrower                           |  | Lender                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | Original
  Amount |  | Amount
  Outstanding on Dec. 31, 2006 |  | Interest                                                                                                                 |  | Payment
  Terms                                                                                                                                                                                                        
|                                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |                   |  |                                       |  |                                                                                                                          |  |                                                                                                                                                                                                                        
|                                  
|Bucharesti
  Hotel Turism SA       |  | Pireous
  Bank                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | 46
  million     |  | 46
  million ($67.7 million)         |  | Euribor + 1.75% for the
  construction period and nine month thereafter.
  Euribor 1.6% to the entire
  remaining period |  | The loan will be repaid in
  30 quarterly installments of  1.3 million each and the last installment of 
  6.9 million. First repayment will be paid on 31 December 2008. Interest is
  payable on a quarterly basis.
|                                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |                   |  |                                       |  |                                                                                                                          |  |                                                                                                                                                                                                                        
|Principal Security and
  Covenants |  | First rank mortgage on the
  Radisson SAS Bucharest Hotel and the Apartments Hotel land and buildings;
  Future and existing cash flow through the bank accounts opened at Piraeus
  Bank, pledge of receivables arising from lease agreements and insurance
  policies concluded by the borrower; Assignment of any and all amounts which will
  become payable from time to time by SAS HOTELS A/S under the management
  agreement; Cash deposit of  4 million was deposited as at March 31, 2008.
|                                  
|Other Information                  |  | A guarantee from Elscint
  Ltd. in maximum value of the total commitments plus any interest accruing and
  any other present and/or future debts relating the credit agreement                                                                                                                                                                                                                                                                                                                        

|                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                   |  |                                       |  |                 |  |                                                                                                                                                                                                                                                                         
|-------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- |  | ------------------------------------- |  | --------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Borrower                         |  | Lender                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Original
  Amount |  | Amount
  Outstanding on Dec. 31, 2006 |  | Interest        |  | Payment
  Terms                                                                                                                                                                                                                                                         
|                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                   |  |                                       |  |                 |  |                                                                                                                                                                                                                                                                         
|                                
|Astrid
  Plaza Hotel NV          |  | Bank
  Hapoalim                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | _24.4
  million  |  | 23.8
  million ($35 million)         |  | Euribor + 1.75% |  | Semi annual principal
  repayment of 625,000 to be paid at the end of each 6 months commencing
  December 31, 2007 and ending on December 31, 2016;
  12,500,000 to be paid at the
  end of the term (December 31, 2016);Interest is payable on a semi annual
  basis.
|                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                   |  |                                       |  |                 |  |                                                                                                                                                                                                                                                                         
|Principal Security and Covenants |  | First ranking share pledge
  on Astrid Plaza shares; First ranking mortgage over Astrid Plazas real
  estate for a principal amount of 6.25 million; A mortgage mandate over
  Astrid Plazas real estate amount of 18.7 million;
  First ranking pledge on a
  reserve fund of 1 million which is blocked on a deposit account;Principal Financial Covenants: Until
  the actual Debt Service Cover Ratio (DSCR) for the preceding 12 month period
  ending on the previous 30 June or 31 December first equals or exceeds 1.2 for
  2 consecutive times, the borrower shall maintain and preserve at all times a
  Reserve Fund in an amount not less 1 million. From the date of expiration of
  the DSCR examination period, Astrid Plaza shall procure that the actual debt
  service coverage ratio for the preceding 12 month period is not less than
  1.2.The Revenue per Total Available Rooms
  at the hotel shall not be less than 67 in 2008 and 70 as from 2009.
|                                
|Other Information                |  | EI and Elsicint jointly and
  severally guaranty Astrid Plaza undertaking under the loan agreement. The
  guaranty is unlimited in amount.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

- 81 -

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|                                   |  |                                                                                                                                                                                     |  |                    |  |                                       |  |                |  |                           
|---------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ |  | ------------------------------------- |  | -------------- |  | --------------------------
|Borrower                           |  | Lender                                                                                                                                                                              |  | Original
  Amount  |  | Amount
  Outstanding on Dec. 31, 2007 |  | Interest       |  | Payment
  Terms           
|                                   |  |                                                                                                                                                                                     |  |                    |  |                                       |  |                |  |                           
|                                  
|Elbit
  Trade and Retail Ltd.      |  | Bank
  Hapoalim                                                                                                                                                                     |  | NIS
  11.8 million |  | NIS
  5.4 million ($1.4
  million)    |  | Prime + 0.85 % |  | Short-term credit facility
|                                   |  |                                                                                                                                                                                     |  |                    |  |                                       |  |                |  |                           
|Principal Security and
  Covenants |  | Fixed mortgage on all Elbit
  Trade assets and a guaranty for the full amount from Elscint                                                                                         
|                                  
|Other Information                  |  | An additional Stand By
  Letter of Credit has been provided by the Bank to Mango in the amount of 3.1
  million ($7.5 million) in order to secure payment to third party suppliers

- 82 -

---

---



The following is a short summary of material
loans entered into by us after December 31, 2007:

Between
February and May 2008, PC issued an aggregate principal amount of approximately
NIS 798 million (approximately $207.5) unsecured non-convertible Series B
Notes.

The Series B
Notes are linked (principal and interest) to the increases in the Israeli
Consumer Price Index. The principal amount of Series B Notes will be repayable
in five equal annual installments on July 1 of each year between 2011 and 2015.
Interest will be paid in semi-annual installments on July 1 and on December 31
of each year between 2008 and 2015. The first installment is due on July 1,
2008 and the last interest payment is due on July 1, 2015.

For
additional information on the issuances of Series B Notes, see Item 4.A.
History and Development of the Company  Highlights above.

Financial Instruments

For
information on financial instruments used, profile of debt, currencies and
interest rate structure, see Item 11. Quantitative and Qualitative Disclosure
about Market Risks below.

Material Commitments for Capital Expenditure

See Item 5.F.
Tabular Disclosure of Contractual Obligations below.

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

The
Israeli government encourages industrial companies by funding their research
and development activities through grants by the Office of the Chief Scientist
(the OCS).

InSightecs
research and development efforts have been financed, in part, through OCS
grants. InSightec has applied and received grants totaling $16.1 million from
the OCS since its inception in 1999 and is required to repay such grants
through payment of royalties to the OCS amounting to 3% of revenues, for the
initial three years through the end of 2006 and 3.5% of revenues as and from
2007 until the entire amount is repaid.

InSightecs
technology developed with OCS funding is subject to transfer restrictions,
which may impair its ability to sell its technology assets or to outsource
manufacturing. The restrictions continue to apply even after InSightec has paid
the full amount of royalties payable for the grants. In addition, the
restriction may impair InSightecs ability to consummate a merger or similar
transactions in which the surviving entity is not an Israeli company.

In
accordance with IFRSs such grants are recorded in the statements of income if
there is reasonable assurance that the grants will not be repaid. Otherwise,
the grants are recorded as a liability and are measured at fair value at each
balance sheet date. Consequently, we did not offset any OCS grants against
grants against the research and development expenses in the financial statement
of 2006 and 2007.

The
total research and development expenses amounted to NIS 69.5 million
(approximately $18.0 million) in 2007 and amounted to NIS 73.5 million in 2006.

The
total OCS grants received by InSightec during 2007 and 2006 were $1.5 million
and $2.23 million, respectively. These grants were recorded at fair value as
part of our liabilities in the consolidated financial statement.

All
research and development expenses are attributed to InSightec.

|   |                  
|-- | -----------------
|D. | TREND INFORMATION

Shopping and Entertainment Centers Business

Our
shopping and entertainment business is affected by the trends in each of the geographic
areas in which we operate.

The
Eastern European market has been operating in previous years, in a growing
global economic uncertainty. The level of deficit reduction, particularly in
government finance begins to reduce slightly faster than originally planned
while economic growth is slower than targeted and inflation is higher. Overall
development activity is declining and the level of shopping center floor space
per head, is still below that of Western European markets.

- 83 -

---

---



In
Hungary, GDP growth slowed down even more than expected mainly due continued
weakness of domestic demand and an upside pressure from rising food and energy
prices.  2007 was an important year in
terms of the retail market for Hungary. Several new developments were completed
and plans announced to the public show that the market will be evolving towards
new retail formats. By the end of 2007, the modern shopping center stock
reached over 1.4 million m2 which means a 28% increase
compared to 2006. The retail stock per 1,000 inhabitants was 142 m2 in Hun­gary,
which is similar to the figure in the Czech Republic and Poland.
Notwithstanding the volume of retail space, most is located in shopping center
or hypermarket formats. Retail developers are focusing mainly on Budapest and
its outskirts. The total modern retail supply in this area is approximately
800,000 m2.
However, a new trend start­ed in the countryside cities, where strip mall type
projects are playing an important role and bringing famous brands to the
medi­um-size cities in the country.

Yield
compression, which was significant in 2006, has slowed and was not as ap­parent
in each submarket in 2007. Yields are stable in the office and the retail
mar­ket segments with prime yields being es­timated below 6%. While prime
products will most likely remain less affected by global financial up­heaval,
the non-premium sector could ex­perience an outward movement of yields in the
near future.

The
Polish economy grew in 2007 and GDP is expected by Eurostat to grow even
further in the coming years. Economic growth has been driven by rising
employment, consumer spending and increased activity in the commercial,
residential and infrastructure sectors. The focus In retail development
activity has recently moved towards satisfying demand in major population
centers outside of the capital and in smaller regional cities.

With
a population of approximately three quarter inhabitants, Riga is the capital
city and the largest industrial, administrative, cultural and tourist centre of
Latvia. However, the retail market sector has not reached a level of
saturation; there is still scope for new space to enter the market to satisfy
growing demand.  The level of shopping
centre GLA per head in 2007 is stretching to that of the Western European
markets.

Greece
demonstrated a steady demand for large scale, affordable accommodations with parking and
access to public transport, from both public and private sector. Office parks outside the
traditional locations are expected to appear in the next few years. Institutional
investors (local and overseas) as well as shipping interests were pursuing a limited
supply of high quality product.

With
over 300,000 m2 of shopping centers in the pipeline that are due to
be delivered by 2010, the Serbian market segment will experience the most
extensive development in short to medium term. Although the modern shopping
center supply was until now exclusively related to Belgrade, Novi Sad and Nis,
both in Kragujevac and Krusevac the construction of two international shopping
centers was announced. The rate that indicates the relation between gross
leasable area (food and non-food) in shopping centers and number of inhabitants
shows that only 42.5 m2of
leasable area is currently available on 1,000 inhabitants in Belgrade, which is
a considerably low rate in comparison with other European cities.

The
market share of major hypermarkets and retail chains in Serbia has been
constantly growing during the past years. The Serbian retail market is largely
dominated by domestically-owned enterprise chains (consisting of small to
medium sized stores) and small private retail outlets. The face of Serbian
retailing has slowly started to change with the emergence of new, large-store
formats and improving investor confidence coming from international retail
chains.

The
retail market in Romania has entered a booming period last year, being the most
active segment on the real estate market. The shopping center market in Romania
is at an early stage of development. Existing supply is fully occupied. With
the new retailers entering to the market demand is expected to remain strong
for the next 3-4 years. Currently most important cities in Romania have at
least one launched shopping center project for the following 2-3 years and
developers interest is high for this kind of property. The forecast shows that
in Romania the supply of modern shopping center retail space by the end of 2008
could reach a level two times bigger than the present stock and by the end of
2009 three times bigger.

With
approximately 8 million inhabitants, Bulgaria offers a sizeable market for
international retailers and sub-suppliers to the retail sector. Growing income
and consumer demand have lead to the rapid development of malls, retail centers
and out-of-town hypermarkets in Bulgaria since 2004. The entry into the
European Union has been the point of departure for a very dynamic development,
leaving windows of opportunities within retailing. The Bulgarian retail market
remains attractive for foreign retail investors. There is still enough room for
growth, even though the number of outlets has increased considerably. The next
few years will see further expansion of foreign chains in Bulgaria, and their
share in retail sales will grow.

Hotel Business

Our hotel business is affected by the trends in each
of the geographic areas in which it operates.

During
2007, strong economies across most regions, (particularly in China and India),
where more people have more disposable income than ever before, are an
important factor, among others, for 2007 exceeding the 900m
world-tourist-arrivals milestone, overtaking tourism forecasts for the fourth
successive year. However, due to oil prices increasing recently to peak levels,
an opposite effect may be seen in the coming months.

- 84 -

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The
flourishing of international tourism in recent years is attributed in most to a
number of factors, including the economic growth; globalization process;
airfares and accessibility to and from emerging markets; consumer independence
shows a clear preference for making their own travel arrangements, mainly due
to the increased use and availability of internet booking, the increasing
number of online booking engines and the expansion of low-cost airlines; an
increase in price transparency available on the internet, which combined with
economic and social uncertainty, also means that booking lead times remain
short while price sensitivity stays high; and the preference for more frequent
and short stay trips has continued to be evident in travel patterns.

Europe
remains one of the most stable regions of the world, and while economists point
to fiscal tightening and slower demand, confidence remains strong, and with
continued expansion of the low-cost carriers, eager tourists find suitable
solutions to explore the world.

After
celebrating victory in the race to host the 2012 Olympic Games, London was
subjected to terrorist attacks on July 7, 2006. Following the terrorist
bombing, the United Kingdom suffered a short-term drop in visitor numbers.
However, the country bounced back, reinforcing the view that tourists are no
longer deterred by terrorist attacks in the longer term. Recently, the
strengthening of the UK pound against the US dollar has generally meant a
decline in US visitors to the UK. However on the other hand, the strength of
the Euro has brought in more continental neighbors, with London still being at
the top market, with one of the highest occupancy rates in Europe.

Some
of the Central European countries joining the European Union are expected to
have improved hotel operations and performance due to lower prices and cost of
living and extra travel routes with cheaper flight prices. Romania, which has
recently been recruited into the EU, welcomed an increase of visitors during
2007 especially from the business segment. Another positive factor affecting
Romanias growth in tourism was Sibius status as European Cultural Capital,
which serves so as to raise awareness of the countrys cultural attractions.

|   |                               
|-- | ------------------------------
|E. | OFF-BALANCE SHEET ARRANGEMENTS

The
following are our off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes
in financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|· | PC has
  committed to repay 30% of outstanding loans in aggregate amount of 23.0
  million (NIS 130.2 million; $33.8 million) provided by a financial
  institution to its associate company (30%) which holds the rights in and to
  the Dream Island if the associate fails to do so.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|· | Final
  approval for completion of construction of the Arena shopping and
  entertainment center in Israel is contingent on the furnishing, to the local
  municipality, of a bank guarantee by us to secure payment of the land
  betterment tax, for an amount of approximately NIS 4.5 million ($1.2
  million). Arbitration is currently being held as to such liability between
  Marina Herzliya Limited Partnership Ltd. (of the Control Centers Group) and
  the local municipality.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|· | Within the
  framework of the franchise and support agreements executed by our subsidiary,
  Elbit Trade and Retail Ltd. with third parties, Elbit Trade has furnished the
  third parties with a letter of credit in the amount of 3.1 million ($4.5
  million; NIS 17.5 million) in order to secure payments to the third parties
  under the agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|· | Within the
  framework of a lease agreement executed in July 2007 between us and the
  Israel Land Administration (ILA) for a long-term lease of land in Tiberius,
  Israel, we have provided the ILA with two bank guarantees in the aggregate
  amount of NIS 10.0 million ($2.6 million) in order to secure our undertakings
  included in the lease agreement. As a security for the guarantees, we pledged
  deposits in the same amount.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|· | In the framework of the transactions for the sale of our real estate assets, we have
undertaken to indemnify the respective purchasers for any losses and costs incurred in
connection with the sale transactions. The indemnifications usually include: (i)
Indemnifications in respect of integrity of title on the assets and/or the shares sold
(i.e.: that the assets and/or the shares are wholly owned and are clean from any
encumbrances and/or mortgage and the like). Such indemnifications generally survive
indefinitely and are capped at the purchase price in each respective transaction; and (ii)
Indemnifications in respect other representation and warranties included in the sales
agreements (such as: development of the project, responsibility to defects in the
development project, tax matter and others). Such indemnifications are limited in time
(generally 3 years from closing) and are generally capped at 25% to 50% of the purchase
price.    
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|· | A former
  subsidiary of PC incorporated in Prague, Czech Rep. (Bestes), which was
  sold in June 2006 (see note 8C(2)) is a party to an agreement with a third
  party (Lessee), for the lease of commercial areas in a center constructed
  on property owned thereby, for a period of 30 years, with an option to extend
  the lease period by additional 30 years, in consideration for 6.9 million
  (NIS 39.0 million), which as of the balance sheet date has been fully paid.
  According to the lease agreement, the Lessee has the right to terminate the
  lease subject to fulfillment of certain conditions as stipulated in the
  agreement. Within the framework of the agreement for the sale of Bestes to
  Klepierre in June 2006, it was agreed that PC will remain liable to Klepierre
  in case the Lessee terminates its contract. PCs management is of the opinion
  that this commitment will not result in any material amount due to be paid by
  it.

- 85 -

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|   |                                                
|-- | -----------------------------------------------
|F. | TABULAR DISCLOSURE OF CONTRACTUAL
  OBLIGATIONS

Our
contractual obligations mainly consist of long-term loans from banks and
financial institutions and long-term operational leases as well as long-term
non convertible and convertible notes. Our long-term bank loans and our
convertible notes are generally linked to foreign currencies (mainly U.S
dollar, GBP and the EURO) and our long-term non convertible notes are linked to
the Israeli CPI. Below is a summary of our significant contractual obligations
as of December 31, 2007 in NIS, based upon the representative exchange rate as
of the balance sheet date of the NIS against the currency in which the
obligation is originally denominated or based on the respective index of the
Israeli CPI as of December 31, 2007. Actual payments of these amounts (as will
be presented in the financial statements of the Company when executed) are
significantly dependent upon such exchange rate or indexes prevailing as at the
date of execution of such obligation, and therefore may significantly differ
from the amounts presented herein below:

|                                                         |  |                                          |  |                    |         |           |  |           |  |                 |           |  |  |           |  |  |  |  |  | 
|-------------------------------------------------------- |  | ---------------------------------------- |  | ------------------ | ------- | --------- |  | --------- |  | --------------- | --------- |  |  | --------- |  |  |  |  |  | 
|                                                         |  | Payments
  due by Period(NIS in million) | 
|                                                         |  |                                          | 
|Contractual Obligations as of December 31, 2007          |  | Total                                    |  | Less than
  1 Year |         | 2-3 Years |  | 4-5 Years |  | After 5
  Years |          
|                                                         |  |                                          |  |                    |         |           |  |           |  |                 |          
|                                                         |  |                                          |  |                    |         |           |  |           |  |                 |          
|Long-Term
  Debt (1)                                     |  | 5,641,930                                |  |                    | 378,281 |           |  | 1,372,854 |  |                 | 1,601,586 |  |  | 2,289,209 |  | 
|Capital
  (Finance) Leases                               |  |                                         |  |                    |        |           |  |          |  |                 |          |  |  |          |  | 
|Operating
  Leases (2)                                   |  | 844,585                                  |  |                    | 27,001  |           |  | 57,476    |  |                 | 51,049    |  |  | 709,059   |  | 
|Purchase
  Obligations and Commitments (3)               |  | 795,237                                  |  |                    | 544,902 |           |  | 226,764   |  |                 | 23,571    |  |  |          |  | 
|Other
  Long-term Liabilities Reflected on Balance Sheet |  |                                         |  |                    |        |           |  |          |  |                 |          |  |  |          |  | 
|Total                                                    |  | 7,281,752                                |  |                    | 950,184 |           |  | 1,657,094 |  |                 | 1,676,206 |  |  | 2,998,268 |  | 

(1)
Long term debt includes interest that we will pay from January 1, 2007 through
the loan maturity dates. Part of our loans bear variable interest rates and the
interest presented in this table is based on the Libor rates known as of
December 31, 2007. Actual payments of such interest (as will be presented in
the financial statements of the Company) are significantly dependent upon the
Libor rate prevailing as of payment date of payment of such interest. For
additional information in respect of the long term debt, see Note 17 to our
consolidated financial statements included in Item 18 of this annual report and
in Item 5.B Liquidity and Capital Resource - Other Loans above.

(2)
Our operating lease obligations are subject to periodic adjustment of the lease
payments as stipulated in the agreements. In this table we included the lease
obligation based on the most recent available information. For additional
information in respect of our operating lease obligations see Note 13B to our
consolidated financial statements included in Item 18 of this annual report.

(3)
Excludes royalty payments that InSightec may have to pay to the OCS. InSightec
partially finances its research and development expenditures under programs
sponsored by the OCS for the support of research and development activities
conducted in Israel. In exchange for OCS participation in the programs,
InSightec is obligated to pay 3.5% of total sales of products developed within
the framework of these programs. At the time the OCS grants were received,
successful development of the related projects was not assured. The obligation
to pay these royalties is contingent on actual sales of the products.

- 86 -

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

|   |                                
|-- | -------------------------------
|A. | DIRECTORS AND SENIOR MANAGEMENT

The
table below sets forth our current directors and senior officers, as of the
date of this annual report:

|                                 |  |     |  |                                                                 
|-------------------------------- |  | --- |  | ----------------------------------------------------------------
|NAME                             |  | AGE |  | POSITION                                                        
|                                 |  |     |  |                                                                 
|                                 |  |     |  |                                                                 
|Mordechay
  Zisser (1) (3)       |  | 53  |  | Executive
  Chairman of the Board of Directors and Director     
|Shimon
  Yitzhaki (1) (3)        |  | 53  |  | President
  and Director                                        
|Abraham
  (Rami) Goren           |  | 48  |  | Executive
  Vice Chairman of the Board of Directors and Director
|Yehoshua
  (Shuki) Forer (2) (3) |  | 64  |  | Director                                                        
|David Rubner
  (2)               |  | 68  |  | Director                                                        
|Yosef Apter
  (2)                |  | 53  |  | External
  Director                                             
|Zvi Tropp
  (1) (2) (3)          |  | 68  |  | External
  Director                                             
|Moshe Lion                       |  | 47  |  | Director                                                        
|Shmuel
  Peretz                  |  | 68  |  | Director                                                        
|Dudi Machluf
  (3)               |  | 36  |  | Chief
  Financial Officer                                       
|Marc Lavine                      |  | 55  |  | General
  Counsel and Corporate Secretary                       

|    |                                     
|--- | ------------------------------------
|(1) | Member of
  the Donation Committee  
|(2) | Member of
  the Audit Committee     
|(3) | Member of
  the Investment Committee

In
2008, Ms. Rachel Lavine, who served as our director through such date resigned
from her position as a director of the Company.

MORDECHAY
ZISSER. Mr. Zisser was appointed Executive Chairman of
the Companys Board of Directors in May 1999. He has been President and
Chairman of the Board of Directors of Europe-Israel, a private company which is
the controlling shareholder of the Company, since March 1998, and President and
Chairman of the Board of Directors of Control Centers, a private 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
commercial and entertainment malls in Eastern European countries, in venture
capital investments and in the hi-tech, medical and bio-technology industries.
Control Centers also holds direct interests in property development projects in
Israel. In October 2006, Mr. Zisser was also appointed as Executive Chairman of
the Board of Directors of PC. Mr. Zisser is active in charitable organizations.
He is a member of the management of the Oranit hostel.

ABRAHAM
(RAMI) GOREN. Mr. Goren has been a member of our Board
of Directors since April 2006 and Vice Chairman of our Board of Directors since
September 2006. Mr. Goren has also served as the Executive Chairman of the
Board of Directors of Elscint Ltd. (our subsidiary company), from July 1999.
Mr. Goren is engaged in the development of new investments and heads our high-tech
investment division. Until 2004, Mr. Goren served as the Executive Chairman of
the Board of Directors of Nessuah Zannex Ltd., a leading Israeli investment
house. Formerly, Mr. Goren had been a partner in the law firm of Prof. Joseph
Gross, Hodak, Greenberg & Co. (now known as Gross, Kleinhendler, Hodak,
Halevy, Greenberg & Co.), a leading Israeli securities and corporate law
firm. From September 1989 until August 1992, Mr. Goren was an associate in the
law firm of Weil, Gotshal & Manges LLP in New York City. Mr. Goren also
serves as a director of various private companies in Israel and abroad. Mr.
Goren holds an LL.B. degree from Bar Ilan University and an LL.M. degree from
New York University. Mr. Goren was admitted to the Israeli Bar in 1987 and to
the New York State Bar in 1990.

SHIMON
YITZHAKI. Mr. Yitzhaki has served as President and a
member of the Board of Directors since May 1999. Mr. Yitzhaki also served as
our Chief Financial Officer between March 2005 and August 2006. Mr. Yitzhaki
has also served as a member of the Board of Directors of various of our
subsidiaries, including Elscint Ltd. since May 1999 and PC since October 2006.
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.

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 Herzliya 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. 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.

- 87 -

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DAVID
RUBNER. Mr. Rubner has served as a member of the Board
of Directors since July 2003. Mr. Rubner serves as Chairman and Chief Executive
Officer of Rubner Technology Ventures Ltd. as well as General Partner in
Hyperion Israel Advisors Ltd., a venture capital firm. From 1991 until 2000,
Mr. Rubner served as President and Chief Executive Officer of ECI Telecom Ltd.
Prior thereto, Mr. Rubner held the positions of Chief Engineer, Vice President
of operations and Executive Vice President and General Manager of the
Telecommunications Division of ECI. Mr. Rubner serves on the boards of public
companies including Check Point Software Ltd., as well as some privately held
companies. Mr. Rubner serves on the boards of trustees of Bar-Ilan University
and Shaare Zedek Hospital. Mr. Rubner holds a B.S. degree in engineering from
Queen Mary College, University of London and an M.S. degree from Carnegie
Mellon University. Mr. Rubner was recipient of the Industry Prize in 1995.

YOSEF
APTER. Mr. Apter was appointed as an external director
in December 2002 for a period of three years. On December 2005 Mr. Apter was
re-elected as an external director of the Company for a three-year term
commencing on December 25, 2005.  Since June 2006 Mr. Apter has served as
an external director at Adumim Food Additives  Ltd. Since January 1994, Mr. Apter has served as a CEO of
JCT (Jerusalem College of Technology ) until December 2004 and
since June 2005 as a consultant at JDA (Jerusalem Development Authority). Since
2003 Mr. Apter has been a board member in SecureOL Ltd. 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.

ZVI
TROPP. Mr. Tropp was appointed as an external director
in September 2004 for a period of three years. On November 2007 Mr. Tropp was
re-elected as an external director of the Company for a three-year term
commencing on September 1, 2007. Mr. Tropp has been a senior consultant with
Zenovar Consultant Ltd. since 2003. From 2000 until 2003, Mr. Tropp served as a
chief finance officer of Enavis Networks, a member of the ECI group, a company
engaged in the field of development of transport equipment for communications
networks. Mr. Tropp served as a board member of various organizations,
including Rafael (Armament Development Authority), Beit Shemesh Engines, Rada -
Electronic Industries and as the chairman of the Investment Committee of Bank
Leumi Leisrael Trust company Ltd. Since February 2006 Mr. Tropp served as the
chairman of Rafael up to June 2007. Mr. Tropp holds a B.Sc. degree in
Agriculture and an M.Sc. degree in Agricultural Economics and business
administration from the Hebrew University in Jerusalem.

MOSHE
LION. Mr. Lion has served as a member of the Board of Directors since April 2006. Mr.
Lion is a senior partner of Lion, Orlitzky and Co., an accounting firm in Israel. From
April 2003 to April 2006 Mr. Lion was the Chairman of Israel Railways. From October 2000
to December 2005, Mr. Lion served as a director of Elscint. From December 1997 to July
1999, Mr. Lion was Director General of the Israeli Prime Ministers Office and an
economic advisor to the Israeli Prime Minister. From January 1997 to November 1997, he
served as the Head of the Bureau of the Israeli Prime Ministers Office and as an
economic advisor to the Israeli Prime Minister. Mr. Lion served as a director of Massad
Bank from January 2000 and up to November 2006 and as a director of Bank Tefachot from
November 1999 upto May 2004. Mr. Lion serves as a director of the Israel Council for
Higher Education and the Wingate Institute for Physical Education. Mr. Lion holds a
Bachelor of Arts degree in accounting and economics and a Masters Degree in Law
(LL.M.) from Bar Ilan University.

SHMUEL
PERETS. Mr. Perets was appointed as a member of the Board of Directors on April 11,
2006.  Since 1997, Mr. Perets has served as the president of the Israel Aircraft
Industries European division. From March 2003 to December 2005, Mr. Perets served as a
director of Elscint. Between 1991 and 1996, Mr. Perets served as vice president (finance)
of the Israel Aircraft Industries. Between 1980 and 2002, Mr. Perets served as a director
of Elta Ltd., Magal Ltd., Medisel Technologies Inc., SpaceCom Ltd., and Belgium Advanced
Technologies (a Belgium company). Mr. Perets holds a Bachelor of Arts degree in economics
and political science from the Hebrew University in Jerusalem, as well as an MBA from the
New York Institute of Technology.

DUDI
MACHLUF. Mr. Machluf was appointed as the Companys
Chief Financial Officer in August 2006. From 2003 to 2005 Mr. Machluf was head
of the Companys accounting department and managed the transaction department.
Prior to joining the Company from 1998 to 2003 Mr. Machluf served in several
positions including as a manager, at Deloitte & Touche specializing in
treating public companies and tax planning. Mr. Machluf holds an Bachelor of
Arts degree in Economy and an LL.M. from Bar-Ilan University. Mr. Machluf is a
certified public accountant.

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, PC up to May 2007 and
Europe-Israel. From 1977 to 1997 Mr. Lavine was in private practice as an
associate and as a partner in the law firm Miron, Bension & Priwes and from
1997 to 1998 a partner in the law firm Raved, Magriso, Benkel & Co. Mr.
Lavine is a graduate of the University of Zimbabwe.

- 88 -

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|   |                                       
|-- | --------------------------------------
|B. | COMPENSATION OF DIRECTORS AND OFFICERS

The
aggregate compensation paid to or accrued on behalf of all of our officers and
directors (collectively Officers) for the year ended December 31, 2007, as a
group, was approximately NIS 70.3 million (approximately $18.278 million).

Such
aggregate amount includes the following:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | s | Salaries;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | s | Accrued
  amount in respect of pensions and retirement benefits;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | s | Directors
  compensation fees paid to all the directors of the Company;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | s | Annual
  bonuses paid or due to be paid for the year 2007 to our directors and
  officers (including payment of a bonus to our Executive Chairman for the year
  2006 and payment of a bonus to our Executive Vice Chairman for the years 2004
  and 2005 in connection with his position as executive chairman of our
  subsidiary). For information regarding the payment of bonuses to our
  Executive Chairman, Executive Vice Chairman and President (including one
  former director), see Item 7.B. - Related Party Transactions - Compensation
  to Directors and Officers;
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | s | Payment to a
  management company in respect of the provision to the Company of Executive
  Chairman services as approved by our shareholders on May 31, 2006. For
  additional information, see Item 7.B. Related Party Transactions -
  Compensation to Directors and Officers;                                                                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | s | Payment in
  accordance with an executive chairman service agreement between PC and our
  Executive Chairman of the Board of Directors who also serves as PCs
  executive chairman of the Board of Directors as approved by our shareholders
  on November 1, 2007. For additional information, see Item 7.B. Related Party
  Transactions - Compensation to Directors and Officers;                                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | s | Payment in
  accordance with two separate agreements entered into between our former
  director (which term has finalized on March 31, 2008), who served in various
  executive positions, regarding her resignation from employment with us and
  companies under our control, directly or indirectly, and each of us and
  Elscint Ltd as approved by our shareholders on November 1, 2007. For
  additional information, see Item 7.B. Related Party Transactions -
  Compensation to Directors and Officers;                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | s | Accrued
  amounts with regard to an agreement dated October 27, 2006 entered into between
  PC and our Executive Vice Chairman, under which he will be entitled to
  receive options to acquire 5% of the holding company through which PC will
  carry on its operations in India. For additional information, see Item 7.B.
  Related Party Transactions - Compensation to Directors and Officers;                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | s | Payment of
  dividend, in respect of shares granted to directors against a non-recourse
  loan, pursuant to our 2001 Employees, Directors and Officers Incentive Plan
  and Elscints 2001 Employees, Directors and Officers Incentive Plan, which is
  considered as salary compensation under IFRSs.                                                                                                                                                                                                                                                                               

In
addition thereto, our officers participate in share or option allocations in
pursuant to various plans adopted by us, PC and InSightec, see Item 6.E. Share
Ownership - 2006 Employees, Directors and Officers Incentive Plan below. Such
aggregate compensation amount does not include stock based compensation
expenses in respect of options granted to directors and officers.

Insurance
to directors and officers

We
purchased an insurance policy covering the liability of our directors and
officers, including as directors or officers of our subsidiaries. The policy
covers a total liability of $40million per occurrence and during the
duration of the policy, which represents the overall directors and officers
liability policy covering the directors and officers of Europe Israel, our
parent, and companies under its control (the liability of directors and
officers of Europe-Israel and companies controlled by it, other than us and
companies under our control, is limited to the first layer of the policy
coverage up to $10 million out of the aggregate coverage amount of $40
million). The premium with respect to such insurance policy amounted to
approximately $250,000 out of which the Company bore approximately $225,000
paid for the overall policy for Europe Israel and companies controlled thereby.

The
policy is for a one-year period beginning on October 31, 2007 and ending on
October 31, 2008. The coverage of such policy also includes acts and/or
omissions performed by previous directors and officers of the Company for a
one-year period beginning on October 31, 2007 and ending on October 31, 2008
without any retroactive limitation and subject to the terms of the policy.

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In
addition to the above, our Executive Chairman of the Board of Directors and our
President, both of whom serve as directors of PC, are covered through 2012 by
Public Offering of Securities Insurance of up to $5 million for liabilities
arising under the prospectus filed by PC in October 2006. The coverage to
directors or officers, who serve as directors or officers, was approved by our
shareholders on November 1, 2007.

Exemption
of directors and officers.

Our
shareholders approved in February 2001 to exempt our directors and officers
(other than the Companys Executive Chairman of the Board of Directors) in
advance from liability, in whole in part, for damages sustained due to a breach
by such directors and/or offices duty of care to EI.

Indemnification
to directors and officers

We
issued deeds of indemnity to all of our directors and officers, for the grant
of prospective understanding to indemnify our directors and officers for the
aforementioned causes. The aggregate indemnification amount pursuant to our
undertakings to prospectively indemnify its directors and officers shall not
exceed the lower of: (i) 25% of our shareholders equity, as set forth in our
most recent consolidated financial statements prior to such payment; (ii) $40
million, in excess of any amounts paid (if paid) by insurance companies
pursuant to insurance policies maintained by us from time to time with respect
to matters covered by the prospective indemnification undertaking.

In
addition, PC has entered into a deed of indemnity with each of its directors,
in order to protect them against liability incurred by them in the discharge of
their duties. PC must use its best endeavors to procure directors and
officers liability insurance, while any director is a director or an officer
of PC, and for six years after he ceases to hold such position. In respect of
the directors or officers, who serve as our directors or officers, such
indemnity received the approval of our shareholders meeting on November 1,
2007.

In
October 2001 Elscints shareholders approved in their General Meeting, the
grant of prospective indemnification undertaking to directors and officers of
Elscint (including in their capacity as officers of subsidiaries). Total
indemnification shall not exceed the lower of (i) 25% of the shareholders
equity as recorded in Elscints financial statements as at the indemnification
or (ii) $50.0 million, and all in addition to amounts, if any, which are to be
paid by insurance companies under certain risk policies. The General Meeting
also approved an exemption of directors and officers from liability in respect
of any damage caused to Elscint by breach of duty of care.

For
additional information regarding the provisions of our Articles of Association
(as amended in November 2007)  and the
Israeli Companies Law regarding the grant of insurance, exemption and
indemnification, see also Item 10.B. Memorandum and Articles of Association
and General Provisions of Israeli Law below.

|   |                
|-- | ---------------
|C. | BOARD PRACTICES

Election
of Directors

Our
directors are elected by our shareholders at the annual meeting of the
shareholders by an ordinary majority. Generally, the nominees for a directors
office are recommended by the Board of Directors. The directors hold office
until the next annual meeting of our shareholders. Our Board of Directors may
appoint additional directors to our Board of Directors in the event the number
of directors is less than the maximum number authorized by our articles of
association. Any director so appointed will hold office until the next annual
meeting of the shareholders. Our Board of Directors currently consists of nine
members. Our current directors (other than the external directors) were
appointed by our shareholders at their annual meeting on November 1, 2007 and
will hold office until the next annual general meeting of our shareholders.

Substitute
Directors

Our
Articles of Association provide that any director may appoint another person to
serve as a substitute director and may cancel such appointment. Under the
Israeli Companies Law, the following persons may not serve as substitute
directors: (i) any person who is not himself qualified to be appointed as a
director; (ii) a person who is already serving as a director; or (iii) a person
who is already serving as a substitute director for another director.
Nevertheless, a director may be appointed as a substitute director for a committee
of the Board of Directors if he or she is not already serving as a member of
the committee. Under the Israeli Companies Law, a substitute director shall not
be appointed for an external director, except under specific circumstances
provided in the Companies Law which are intended to ensure that the substitute
director maintain certain qualifications of the external director.

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External Directors; Independent Directors

The
Israeli Companies Law requires Israeli public companies (such as the Company)
to appoint at least two external directors. The Israeli Companies Law provides
for certain qualifications that a candidate for external directorship must
comply with. Among such requirements, a person may not be appointed as an external
director if such person or persons relative, partner or employer, or any
entity controlled by such person, has, at the date of appointment, or had at
any time during the two years preceding such date, any affiliation with the
company, any entity controlling the company at the date of his appointment or
any entity controlled by the company or by the entity controlling the company.
The term affiliation is broadly defined in the Companies Law, including an
employment relationship, a business or professional relationship maintained on
a regular basis or control, service as a director or officer, other than
service as a director who was appointed in order to serve as an external
director of a company when such company was about to make an initial public offering.

In
addition, no person may serve as an external director if such persons position
or other business creates, or may create, conflict of interest with the
persons position as an external director, or if such position or other
business may impair such persons ability to serve as an external director.
Until the lapse of two years from termination of office, a company may not
engage an external director to serve as a director or officer and cannot employ
or receive services from that person, either directly or indirectly, including
through a corporation controlled by that person. The Companies Law provides for
additional qualification requirements that are imposed on such candidates.

External
directors are to be elected by a majority vote at the general meeting of shareholders,
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, or anyone on their behalf,
voted at such general meeting, excluding abstaining votes, or (ii) the total number of
votes of the shareholders mentioned in clause (i) above that voted against such election
does not exceed one percent (1%) of the total voting rights in the company.

The
initial term of an external director is three years and such term may be
extended for an additional three-year period. In the case of a company whose
shares are traded in certain exchanges outside of Israel, including the Nasdaq
Global Select Market, such as our Company, regulations promulgated under the
Companies Law provide that the service of an external director can be extended
to additional three-year terms, if both the audit committee and the board of
directors confirm that in light of the expertise and contribution of the
external director, the extension of such external directors term would be in
the interest of the company. Election of external directors requires a special
majority, as described above. External
directors may be removed only in a general meeting, by the same percentage of
shareholders as is required for their election, or by a court, and in both
cases only if the external directors
cease to meet the statutory qualifications for their appointment or if they
violate their fiduciary duty to us. Each committee of a company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.

An
external director is entitled to reimbursement of expenses and to monetary and
other compensation as provided in regulations promulgated under the Companies
Law, but is otherwise prohibited from receiving any other compensation,
directly or indirectly, for his serving as a director of the company.

Mr.
          Yosef Apter and Mr. Zvi Tropp were elected in December 2002 and September 2004,
          respectively, as our external directors. Mr. Apter was re-elected as an external
          director in December 2005 for a second three-year term which commenced on
          December 25, 2005. Mr. Tropp was re-elected as an external director in November
          2007 for a second three-year term which commenced on September 1, 2007.

Pursuant
to a recent amendment to the Israeli Companies Law at least one external
director is required to have accounting and financial expertise and the other
director(s) are required to have professional qualification or accounting
and financial expertise. A director has professional qualification if he or
she satisfies one of the following:

| |       |                                                                                                                                                                                                                                                                                                                                                                                        
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | the director
  holds an academic degree in one of these areas: economics, business
  administration, accounting, law or public administration;                                                                                                                                                                                                                                         
| |       |                                                                                                                                                                                                                                                                                                                                                                                        
| | (ii)  | the director
  holds an academic degree or has other higher education, all in the main
  business sector of the company or in a relevant area for the board position;
  or                                                                                                                                                                                                             
| |       |                                                                                                                                                                                                                                                                                                                                                                                        
| | (iii) | the director
  has at least five years experience in one or more of the following or an
  aggregate five years experience in at least two or more of these: (a) senior
  management position in a corporation of significant business scope; (b)
  senior public office or senior position in the public sector; or (c) senior
  position in the main business sector of the company.

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A
director with accounting and financial expertise is a person that due to his
or her education, experience and skills has high skills and understanding of
business-accounting issues and financial reports which allow him to deeply
understand the financial reports of the company and hold a discussion relating
to the presentation of financial information. The companys board of directors
will take into consideration in determining whether a director has accounting
and financial expertise, among other things,
his or her education, experience and knowledge in any of the following:

| |       |                                                                                                                                                                              
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | accounting
  issues and accounting control issues characteristic to the segment in which
  the company operates and to companies of the size and complexity of the
  company;
| |       |                                                                                                                                                                              
| | (ii)  | the
  functions of the external auditor and the obligations imposed on such
  auditor;                                                                                       
| |       |                                                                                                                                                                              
| | (iii) | preparation
  of financial reports and their approval in accordance with the companies law
  and the securities law.                                                         

The
above qualifications do not apply to external directors appointed prior to
January 19, 2006, such as one of our external directors. However, an external
director may not be appointed to an additional term unless: (i) such director
has accounting and financial expertise; or (ii) he or she has professional
expertise, and on the date of appointment for another term there is another
external director who has accounting and financial expertise and the number
of accounting and financial experts on the board of directors is at least
equal to the minimum number determined appropriate by the board of directors.

The
Company currently meets the criteria set forth in the Companies Law, with
regard to the number of minimum directors having financial expertise
considering Company size and scope of activity.

Under
Nasdaq Marketplace Rules, a foreign private issuer may follow its home country
practice in lieu of the requirements of Rule 4350, provided, however, that such
an issuer complies with selected rules as defined therein. We currently comply
with all mandatory requirements as are applicable to us by virtue of our
foreign status except that in June 2008, our external legal counsel has
notified Nasdaq that we have elected to follow home country practice and accordingly,
we do not hold separate meetings of independent directors. We also comply with
certain other voluntary guidelines that correspond to certain Israeli mandatory
rules, although there is no assurance that we will continue to do so in the
future should such Israeli rules cease to apply.

Our
current composition of our Board of Directors consists of a majority of
independent directors. Two of our independent directors serve as external
directors as defined by the Companies Law. For further elaboration as to
election, qualification and roles of external directors, see above.

The
compensation of our President, who also serves as a director, is approved by
our Audit Committee, Board of Directors and shareholders.

As
to procedures governing the election of our directors, see above.

Our
Audit Committee is comprised of four members, all of whom meet the independence and other
professional requirements as stipulated by both Nasdaq Marketplace Rules and
Rule 10A-3(b)(1) under the Exchange Act. The Nasdaq rules also require that at
least one member of the Audit Committee be a financial expert. Our Board of
Directors has re-determined in August 2007 that Mr. Zvi Tropp qualifies as a
financial  expert
in terms of the Nasdaq requirements  .

As
to details of directors service or employment contracts with the Company or
subsidiaries thereof, see Item 7.B. Related Party Transactions - Compensation
to Directors and Officers below.

Board Committees

Our
Board of Directors has established an audit committee, a donation committee and
an investment committee, as described below.

Audit
committee. The Companies Law requires public companies
to appoint an audit committee. 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
providing services to the company on a regular basis, any controlling
shareholder and any relative of a controlling shareholder may not be a member
of the audit committee. The responsibilities of the Audit Committee include
identifying and examining flaws in the business management of a companys, in
consultation with the internal auditor and the companys independent
accountants and suggesting appropriate course of actions. In addition, an Audit
Committee recommends approval of transactions that are deemed interested party
transactions, including directors compensation and transactions between a company
and its controlling shareholder or transactions between a company and another
person in which its controlling shareholder has a personal interest. An
interested party is defined in the Israeli Companies Law as a 5% or greater
shareholder, any person or entity who has the right to designate one director
or more or the general manager of ours or any person who serves as a director
or as a general manager.

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Our
Audit Committee is comprised of four members, and, in accordance with the Sarbanes-Oxley
Act of 2002 and Nasdaq requirements, all of whom meet the independence and
other professional requirements as stipulated by said rules.

The
Nasdaq rules also require that at least one member of the Audit Committee be a
financial expert. Our Board of Directors has determined that Mr. Zvi Tropp
qualifies as a financial expert in terms of the Nasdaq requirements.

Our
Audit Committee operates in accordance with a Charter adopted in July 2005 and
written procedures governing approval of any proposed transactions with our
external auditors. Within the framework of such governing documents, the Audit
Committee oversees  the
appointment, compensation, and oversight of the public accounting firm  engaged to prepare or issue an audit report
on our financial statements. The audit committees specific responsibilities in
carrying out its oversight role include the approval of all audit and non-audit
services to be  provided
by the external auditor and quarterly review the firms non-audit  services and related fees. These services
may include audit services  , audit-related services, tax services and others. The  Audit Committee approves in advance the
particular services or categories of services to be provided to us during the
following yearly period and  also sets forth a specific budget for such audit and non-audit services.
Additional services may be pre-approved by the Audit Committee on an individual  basis during the year. None of
Audit-related Fees, Tax Fees or Other Fees  provided to us by Brightman Almagor & Co., were
approved by the Audit Committee pursuant to the de minimis exception to the pre-approval requirement  provided by Section 10A of the Exchange
Act.

Our
Audit Committee has the authority to retain independent legal, accounting or
other consultants as advisors, for which we will provide funding, and handle
complaints relating to accounting, internal accounting controls or auditing
matters.

Donation
committee. Our Articles of Association authorize us to
make, from time to time, contributions of reasonable sums for worthy causes,
even if such contributions do not fall within our business considerations as
referred to in section 11 of the Companies Law, 1999. Our donation committee 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.

Investment
committee. Our investment committee, established by
our Board of Directors at the end of 2006, is responsible for developing and
monitoring our financial risk management policies and determining our
investments in short-term liquidity funds, all in order to preserve money
value.

|   |          
|-- | ---------
|D. | EMPLOYEES

As
of May 31, 2008, EI employed 36 persons in investment, administration and managerial
services, all of whom were employed in its headquarters in Israel. As of May 31, 2008, PC
had approximately 135 employees, 41 freelancers as well as 15 part time employees in
Central and Eastern Europe, Russia, Greece and in India. As of May 31, 2008, our Hotel
division had 1,230 employees (including employees in proportionally consolidated companies
in which we hold 50%). As of May 31, 2008, Elscint Ltd. and Elbit Trade and Retail Ltd.
had 426 employees.

As
of May 31, 2007, EI employed 33 persons in investment, administration and managerial
services, all of whom were employed in its headquarters in Israel. As of May 31, 2007, PC
had approximately 59 employees in Eastern Europe and 33 freelancers as well as 5 part time
employees. As of May 31, 2007, our Hotel division had approximately 838 employees
(including employees in proportionally consolidated companies in which we hold 50%). As of
May 31, 2007, Elscint Ltd. and Elbit Trade and Retail Ltd. had 320 employees.

As
of May 31, 2006, EI employed 19 persons in investment, administration and managerial
services, all of whom were employed in its headquarters in Israel. As of May 31, 2006, PC
had approximately 68 employees in Eastern Europe and 27 freelancers. As of May 31, 2006,
our Hotel division had approximately 940 employees (including employees in proportionally
consolidated companies in which we hold 50%). As of May 31, 2006, Elscint Ltd. and Elbit
Trade and Retail Ltd. had 305 employees.

The
increase in working power in PC reflects the expansion of PC operations and its
additional obligations assumed upon its becoming a public company.

|   |                
|-- | ---------------
|E. | SHARE OWNERSHIP

2006
Employees, Directors and Officers Incentive Plan

Our
2006 Employees, Directors and Officers Incentive Plan, as amended (the 2006
Plan), provides for the grant of up to 1,000,000 non-marketable options to our
employees, directors and officers and to employees, directors and officers of
companies controlled directly or indirectly by us. The options will be granted
to the recipients for no consideration. The exercise price per option ranges
between the lower of: (i) NIS 100; or (ii) the average closing price of our
ordinary shares on the TASE during the 30-trading day period preceding the date
of grant of such options.

The
options may be exercised into shares in such manner that on the exercise date
we will issue to each recipient shares equivalent to the gain from the exercise
of the options (i.e., each option
may be exercised to such number of shares equaling to the opening price of our
shares on the TASE on the exercise date minus the exercise price while the
difference is then divided by the above opening price; provided however, that
such opening price will not exceed 200% of the exercise price of each option
(during 2007, we have amended the limit from 166% to 200%). Accordingly, the
maximum number of shares issuable upon exercise of all of the options that may
be granted under the 2006 Plan is 500,000 (not including effect on number of
shares resulting from dividend adjustments). The rights of the recipients to
exercise the options vest over periods of three years following the grant (i.e., 33.33% of the options may be
exercised at the end of each year). The options will expire after the lapse of
five years from their date of grant.

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As
of May 31, 2008, we had granted 857,250 options under the 2006 Plan out of
which 500 options were exercised and 8,667 options returned to the pool of
options for future grants.

In
accordance with Nasdaq rules applicable to foreign private issuers, we have
elected to follow home country practice, and accordingly, the 2006 Plan was not
approved by our shareholders. See also 2001 Employees, Directors and Officers
Incentive Plan below.

Elscints
2003 Employees, Directors and Officers Incentive Plan

Elscints
2003 Employees, Directors and Officers Incentive Plan (the Elscint 2003 Plan)
provided for the grant of up to 116,000 options exercisable into up to 116,000
ordinary shares of Elscint. Elscint granted 50,000 options exercisable into
50,000 shares of Elscint to two of its then serving directors at an exercise
price of $4.68 per option. Elscint 2003 Plan was terminated by Elscint board of
directors on November 27, 2003. Upon the completion of the merger by way of
exchange of shares between us and Elscint during November 2005, the 50,000
options were exchange for 26,500 options exercisable into 26,500 of our shares
at an exercise price of NIS 38.67 per option. During 2007, all of the above
options were exercised 27,964 of our shares (taking into consideration
adjustments for distribution of dividends) pursuant to their terms and were
sold.

2001
Employees, Directors and Officers Incentive Plan

Our
2001 Employees, Directors and Officers Incentive Plan (the 2001 Plan)
provides for the issuance of up to 550,000 of our ordinary shares to our
employees, directors and officers and to employees, directors and officers of
companies controlled by us, of Europe-Israel and of companies controlled by
Europe-Israel. The shares are issued to a trustee for the benefit of each
recipient. Our Board of Directors approved on July 22, 2004 and on December 4,
2005 an increase in the number of shares available for grant under the 2001
Plan by 34,500 and 42,400 respectively. As of May 31, 2008, we have issued all
626,900 available shares.

All
the shares issued under the 2001 Plan were purchased at a purchase price of NIS
24.1 per share. Each recipient was granted a loan in an amount equal to the
full purchase price of the shares to be issued to such recipient. The loan was
for a five-year period bearing interest at an annual rate of 6%. The shares
issued for the benefit of each recipient served as sole collateral for the
repayment of the loan granted to such recipient (non-recourse) except that the
loan would have become a recourse loan in the event of payment of the loan
prior to the lapse of the five-year period as a result of transfer or sale of
shares issued to such recipient with respect to the interest rate for the
portion of shares so sold or transferred. On February 16, 2006, our Board of
Directors extended the term of the loan for an additional two years until
February 24, 2008 for offerees, who do not serve as our directors or executive
officers. As of May 31, 2008, there are 71,265 ordinary shares of the Company
outstanding under the 2001 plan, all of which have vested and may be
exercisable. The loans granted to the directors were repaid in full on February
24, 2008, all loans with regards to the 2001 Plan have been re-paid and the
amount of 555,635 shares were sold.

Under
the Nasdaq Marketplace rules, foreign private issuers may follow home country
practice in lieu of certain Nasdaq corporate governance requirements provided
that such foreign private issuer shall submit to the Nasdaq a written statement
from an independent counsel in such issuers home country certifying that the
issuers practices are not prohibited by the home countrys laws. Nasdaq has in
the past required that foreign private issuers shall be granted exemptions from
its Marketplace rules before following home country practice. In April 2004, we
received an exemption from the Nasdaq Marketplace Rule requiring shareholders
approval for an increase in the number of shares available for issuance under
the 2001 Plan, and increased such number by additional 34,500 shares. In
January 2006, in accordance with applicable Israeli law, we increased the
number of shares available for issuance under the 2001 Plan by additional
42,400 shares without shareholder approval.

Elscints
2001 Employees, Directors and Officers Incentive Plan

Elscints
2001 Employees, Directors and Officers Incentive Plan (the Elscint 2001 Plan)
provided for the issuance of up to 850,000 ordinary shares of Elscint to
employees, directors and officers of Elscint and its subsidiaries and to
employees of Europe-Israel or other companies controlled by Europe-Israel.
Under the Elscint 2001 Plan, 802,500 shares have been issued at a price per
share of NIS 15.65. The remaining 81,000 shares were subsequently transferred
as available shares for a subsequent option plan adopted by Elscint in 2003,
see above. The rights of the recipients to retain the shares vest over periods
of two or three years following the issuance (i.e.,
50% or 33% of the shares will become available for purchase at the end of each
year). All other terms and conditions of the Elscint 2001 Plan are
substantially similar to those of our 2001 Plan. Elscint 2001 Plan was
terminated by Elscints board of directors on November 27, 2003.

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Upon
the completion of the merger by way of exchange of shares between EI and
Elscint during November 2005, the 522,500 shares that remained outstanding as
of such date were exchanged for 276,925 of our shares. As of May 31, 2008, the
number of shares outstanding under the Elscint 2001 Plan was 47,700 of our
shares.

Issuance
of Options to our Executive Chairman of the Board

In
May 2006, we have granted 350,000 options to our Executive Chairman of the
Board of Directors. For additional information, see Item 6.B. Compensation of
Directors and Officers above.

InSightec
Incentive Plans

InSightecs
1999 Employee Stock Ownership Plan (the 1999 Plan) provides for the grant of
up to 2,650,000 options, at an exercise price of NIS 0.01. The rights of the recipients to
exercise the options vest over a four-year period from the grant date, 50% after two years
and 25% after each of the third and fourth years. The options generally expire following
seven years as of their date of grant. On January 30, 2006, InSightecs board of
directors extended the exercise period by additional 2-year period to nine years as of
their date of grant. On February 13, 2008, InSightecs board of directors extended
the exercise period by additional 3-year period to twelve years as of their date of grant.

InSightecs
2003 Employee Stock Ownership Plan (the 2003 Employee Plan) provides for the
grant of up to 1,094,000 options (700,000 plus 394,000 that were transferred
from the 1999 Plan), at an exercise price that varies from $5.85 to $16.
Options granted under the 2003 Employee Plan generally vest after a two-year
period from the end of calendar year in which the options were granted. On
January 30, 2005 InSightecs board resolved to amend the 2003 Employee Plan so
that the options granted under the such plan after January 30, 2005, would
generally vest over a four-year period from the grant date, 50% after two years
and 25% after each of the third and fourth years. The options generally expire
following seven years as of their date of grant. On January 30, 2006 all
outstanding options under 2003 Plan are transferred into 2006 Plan (for
additional information see below).

InSightecs
2003 Service Providers Plan (the 2003 Service Providers Plan) provides for
the grant of up to 300,000 options, at an exercise price of $5.50. The options
generally expire following seven years as of their date of grant. On January
30, 2006 all outstanding options under 2003 Plan were transferred into 2006
Plan (for additional information see below).

InSightecs
2006 Stock Option Plan provides for the grant of up to 400,000 options, at an exercise
price equal to fair value at the date of grant. At InSightecs board of directors
meeting on January 30, 2006, a resolution was made to transfer the balance of unallocated
options from the 2003 Employee Plan and the 2003 Service Providers Plan to the 2006 Plan,
in addition to the 400,000 options. The rights of the recipients to exercise the options
vest over a four-year period from the grant date, 50% after two years and 25% after each
of the third and the fourth years. The options generally expire following seven years as
of their date of grant or following 5 years if some criterions are met as stipulated in
the 2006 plan. On October 24, 2006 InSightecs board of directors approved an
increase in 2006 Plan by 300,000 options.

InSightecs
2007 Stock Option Plan (the 2007 Plan) provides for the grant of up to
1,000,000 options. The rights of the recipients to exercise the options vest
over a four-year period from the earlier of (i) InSightecs initial public
offering or (ii) material change to InSightec (as defined in 2007 Plan) (the
Commencement Date), 50% after two years from the Commencement Date and 25%
after each of the third and the fourth years from the Commencement Date. The
options generally expire following seven years as of the Commencement Date or
following 5 years if some criteria are met as stipulated in the 2007 Plan. On
October 31, 2007 InSightecs board of directors approved that all the options
which will be granted starting October 30, 2007 under 2007 Plan, shall become
fully vested and exercisable on the second anniversary of the Commencement Date
and shall remain exercisable until the end of the term of the options, as
defined in 2007 Plan. On February 13, 2008 InSightecs board of directors
approved an increase in 2007
Plan by 1,000,000 options
from 1,000,000 options to 2,000,000 options.

As
of May 31, 2008 the total number of options, which are available for grant
(from all option plans other than the 2007 Plan) is 427,550 out of which
250,000 options are reserved to Mr. Mordechay Zisser, at an exercise price of
$5.50.

As
of May 31, 2008 the total number of options, under the 2007 Plan, which are
available for grant (from 2007 Plan) is 1,174,250 options.

All
of these four plans automatically vest and become exercisable without any
discretion on the part of InSightecs board of directors or compensation
committee upon certain events that constitute a material change to InSightec,
such as: a change of control; a resolution of InSightecs shareholders or their
board of directors for its dissolution or a distribution in kind of most of
their assets; types of mergers etc. Each of the above five plans contains a
first refusal right among the recipients.

- 95 -

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PC
Share Option Scheme

On
October 26, 2006 a Share Option Scheme was adopted by PC pursuant to which, options
granted there-under will vest annually in three equal parts. Options expire,
unless otherwise determined by PCs Board of directors, on the 5th anniversary
of the date of grant. Grantees eligible to receive options, are PCs board
members and employees of PC or any of its subsidiaries (Company Group). With
respect to the first allocation of options, affected on October 26, 2006,
Eligible Grantees included also other persons who provide similar services to a
company within the Company Group and employees, officers and directors of EI.

The
options may be exercised into ordinary shares of PC in such manner that on the
exercise date PC will issue to grantee PC shares equivalent to the gain from
the exercise of the options (i.e.:
each option may be exercised to such number of PC shares equaling to the
opening price of PC shares on the London Stock Exchange on the exercise date
minus the exercise price while the difference is then divided by the above
opening price, provided however, that such opening price will not exceed 180%
of the exercise price of each option (without adjustments for the distribution
of cash dividends). Accordingly, the maximum number of PC shares issuable upon
exercise of all of the options that may be granted under the Share Option
Scheme is 16,579,611 shares.

The
total number of Options that may be granted under the PC Share Option Scheme
was set at 33,834,586. The exercise price of an option shall be the average
closing price of PCs ordinary shares on the London Stock Exchange during the
5-day period prior to and including the date of grant. Notwithstanding the
foregoing, the exercise price of the options granted pursuant to the PC Share
Option Scheme prior to IPO is 180 pence.

Upon
the occurrence of an event of change of control in PC (as defined in the PC
Share Option Scheme), the vesting of all the outstanding options granted by PC
that were not exercised or did not expire by such date, shall be fully
accelerated. Grantees who cease to be employees or directors are entitled to
all the options granted to them in accordance with their vesting schedules if
the grantees were employed by or served as directors within the Company Group
for more than three years.

The
following table indicates share ownership and percentage ownership as of May
31, 2008 in us and our subsidiaries, of all current directors and officers:

|                         |  |                                                      |  |                         |            |      |  |        |     |  |          
|------------------------ |  | ---------------------------------------------------- |  | ----------------------- | ---------- | ---- |  | ------ | --- |  | ---------
|NAME                     |  | TOTAL NUMBER OFOPTIONS OUTSTANDING AS OFMAY 31, 2008 |  | NUMBER OF SECURITIES(4) |            | %(1) |  | ENTITY
|                         |  |                                                      |  |                         |            |      |  |       
|                         |  |                                                      |  |                         |            |      |  |        |     |  |          
|Mordechay
  Zisser       |  | 350,000                                              |  |                         | 12,926,967 | (2)  |  | 50.10  |     |  | EI       
|Mordechay
  Zisser       |  | 3,907,895                                            |  |                         | 643,275    | (4)  |  |        | (3) |  | PC       
|Abraham
  (Rami) Goren   |  | 50,000                                               |  |                         | 66,087     | (4)  |  |        | (3) |  | EI       
|Abraham
  (Rami) Goren   |  | 150,000                                              |  |                         | 24,691     | (4)  |  |        | (3) |  | PC       
|Shimon
  Yitzhaki        |  | 90,000                                               |  |                         | 100,361    | (4)  |  |        | (3) |  | EI       
|Shimon
  Yitzhaki        |  | 1,116,541                                            |  |                         | 183,793    | (4)  |  |        | (3) |  | PC       
|Shimon
  Yitzhaki        |  | 100,000                                              |  |                         | 100,000    |      |  |        | (3) |  | InSightec
|Yehoshua
  (Shuki) Forer |  | 15,000                                               |  |                         | 5,636      | (4)  |  |        | (3) |  | EI       
|David Rubner             |  | 30,000                                               |  |                         | 11,032     | (4)  |  |        | (3) |  | EI       
|Yosef Apter              |  | 30,000                                               |  |                         | 11,032     | (4)  |  |        | (3) |  | EI       
|Zvi Tropp                |  | 30,000                                               |  |                         | 11,032     | (4)  |  |        | (3) |  | EI       
|Moshe Lion               |  | 16,750                                               |  |                         | 6,160      | (4)  |  |        | (3) |  | EI       
|Shmuel
  Peretz          |  | 16,750                                               |  |                         | 6,160      | (4)  |  |        | (3) |  | EI       
|Two EI
  officers        |  | 95,000                                               |  |                         | 34,935     | (4)  |  |        | (3) |  | EI       
|Two EI
  officers        |  | 1,800,000                                            |  |                         | 296,296    | (4)  |  |        | (3) |  | PC       
|EI officer               |  | 7,500                                                |  |                         | 7,500      |      |  |        | (3) |  | InSightec

(1) With
regard to securities of EI, the Number of our ordinary shares and percentage
ownership are based on ordinary shares outstanding as of May 31, 2008. Such
number excludes 2,800,000 shares repurchased by the Company in a self tender
offer with respect to which the Company does not have any voting or equity
rights. Beneficial ownership is determined in accordance with the rules of the
U.S. Securities and Exchange Commission (the SEC) based on voting and
investment power with respect to such shares. Shares subject to options that
are currently exercisable or exercisable within 60 days of May 31, 2008 are
deemed to be outstanding and to be beneficially owned by the person holding
such options for the purpose of computing the percentage ownership of such
person, but are not deemed to be outstanding and to be beneficially owned for
the purpose of computing the percentage ownership of any other person. All
information with respect to the beneficial ownership of any principal
shareholder has been furnished by such shareholder or is based on the most
recent Schedule 13D filed with the SEC and, unless otherwise indicated below,
we believes that persons named in the table have sole voting and sole
investment power with respect to all the shares shown as beneficially owned,
subject to community property laws, where applicable.  Shares beneficially owned by the directors include shares owned
by their family members to which such directors disclaim beneficial ownership.

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(2) Includes:
(i) 12,145,630 ordinary shares held by Europe-Israel, which may be deemed indirectly
beneficially owned by Mr. Mordechay Zisser by virtue of his control of Europe-Israel (ii)
24,837 held by Marina Herzelia (Limited Partnership) 1988, which may be deemed to be
beneficially owned by Mr. Mordechay Zisser, by virtue of his control of Control Centers,
see Item 7. Major Shareholders and Related Party Transactions  Major
Shareholders below. (iii) 350,000 options granted on September 9, 2001 that were
exercised to 350,000 shares of EI in an aggregate consideration of NIS 16 million
(approximately $3.6 million); (iv) 350,000 options to purchase 350,000 ordinary shares of
EI at an exercise price of NIS 127.42 per option which have fully vested as of May 31,
2008 held directly by Mr. Zisser with an expiry date in June 2009.

(3)
Less than 1% of the outstanding ordinary shares of the respective entity.

(4)
Such number represents the number of shares and number of shares underlying
options exercisable on May 31, 2008 or within 60 days thereafter, granted under
the relevant option plans as provided in further details at Item 6.E - Share
Ownership above. Such number further includes shares granted to our directors
and executive officers in accordance with our 2001 Plan and Elscint 2003 Plan.
For additional information on such plans, see above.

Options
exercisable into our ordinary shares granted to our directors and executive
officers as described above generally vest over a three-year period and have an
exercise price of NIS 100. The options expire after 5 years from their date of
grant. For additional information on the terms of the 2006 Plan, see above.

Options
exercisable into PCs ordinary shares granted to our directors and executive
officers as described above generally vest over a three-year period and have an
exercise price of 180 pence. The options expire after 5 years from their date
of grant. For additional information on the terms of the PC Share Option
Scheme, see above.

Options
exercisable into InSightecs ordinary shares granted to our directors and executive
officers as described above have fully vested as of May 31, 2008 and have an exercise
price ranging from NIS 0.01 to $3.33. The options expire in May 2010. For additional
information on the terms of InSightecs 2003 Plan.

We
have one class of shares. All of our ordinary shares have the same voting and
equity rights.

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

|   |                   
|-- | ------------------
|A. | MAJOR SHAREHOLDERS

We
had, as of May 31, 2008, 25,454,524 ordinary shares outstanding, excluding
2,800,000 shares held by us which do not have any voting and equity rights. The
following table sets forth certain information as of May 31, 2008 concerning:
(i) persons or entities who, to our knowledge, beneficially own more than 5% of
our outstanding ordinary shares; and (ii) the number of our ordinary shares
beneficially owned by all of our directors and officers as a group:

|                                                                    |  |                     |     |                                             |        |  | 
|------------------------------------------------------------------- |  | ------------------- | --- | ------------------------------------------- | ------ |  | 
|Name and
   Address                                                 |  | Number of
   Shares |     | Percent
   of Shares Beneficially Owned (1)
|                                                                    |  |                     |     |                                            
|                                                                    |  |                     |     |                                            
|Mordechay Zisser (2)                                                |  | 12,926,967          | (3) |                                             | 50.10% | 
|Europe-Israel (M.M.S.) Ltd.
  (4)                                   |  | 12,145,630          |     |                                             | 47.72% | 
|All officers and directors
  of the Company as a group (11 persons) |  | 13,210,830          | (5) |                                             | 50.87% | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Number of shares and
  percentage ownership are based on our ordinary shares outstanding as of May
  31, 2008. Such number excludes 2,800,000 ordinary shares repurchased by us in
  a self tender offer with respect to which we do not have any voting or equity
  rights. Beneficial ownership is determined in accordance with the rules of
  the SEC based on voting and investment power with respect to such ordinary
  shares. Ordinary shares subject to options that are currently exercisable or
  exercisable within 60 days of May 31, 2008 are deemed to be outstanding and
  to be beneficially owned by the person holding such options for the purpose
  of computing the percentage ownership of such person, but are not deemed to
  be outstanding and to be beneficially owned for the purpose of computing the
  percentage ownership of any other person. All information with respect to the
  beneficial ownership of any principal shareholder has been furnished by such
  shareholder or is based on the most recent Schedule 13D or 13G filed with the
  SEC and, unless otherwise indicated below, we believe that persons named in
  the table have sole voting and sole investment power with respect to all the
  shares shown as beneficially owned, subject to community property laws, where
  applicable. The ordinary shares beneficially owned by our directors include
  ordinary shares owned by their family members as to which such directors
  disclaim beneficial ownership.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(2) | Mr. Zisser is considered
  our indirect controlling shareholder by virtue of his control of
  Europe-Israel and serves as our Executive Chairman of the Board of Directors.
  See footnote 4 below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(3) | Includes (i) 12,145,630 of our ordinary shares held by Europe-Israel, which may
          be deemed to be beneficially owned by Mr. Mordechay Zisser, our Executive
          Chairman of the Board of Directors, by virtue of his control of Europe-Israel;
          (ii) 24,837 of our ordinary shares held by Marina Herzelia (Limited Partnership)
          1988, which may be deemed to be beneficially owned by Mr. Mordechay Zisser, by
          virtue of his control of Control Centers, the parent company of Europe-Israel;
          and (iii) 350,000 options to purchase 350,000 of our ordinary shares at an
          exercise price of NIS 127.42 per share held by Mr. Zisser directly, which are
          fully exercisable as of May 31, 2008. See also footnote 4 below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(4) | Europe-Israel is an Israeli
  corporation wholly-owned by Control Centers, a private company controlled by
  Mr. Mordechay Zisser.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(5) | Includes: (i) 12,145,630 shares held by Europe-Israel, which may be deemed to be
          beneficially owned by Mr. Mordechay Zisser, (see footnote 4 above); (ii) 24,837
          shares held by Marina Herzelia (Limited Partnership) 1988, which may be deemed
          to be beneficially owned by Mr. Mordechay Zisser, our Executive Chairman of the
          Board of Directors, by virtue of his control of Marina Herzelia (Limited
          Partnership) 1988. (iii) Mr. Zissers 350,000 options to purchase 350,000
          ordinary shares at an exercise price of NIS 127.42 per Share, which are fully
          exercisable as of May 31, 2008; (iv) 118,965 of our ordinary shares issued to
          other directors and officers of the Company pursuant to our 2001 Employees,
          Directors and officers incentive plan; and (v) 164,928 options exercisable as of
          May 31, 2008 and within 60 days thereafter granted to other directors and
          officers of the Company pursuant to our 2006 Employees, Directors and Officers
          Incentive Plan.                                                                                                                                                                                                                                                                                                                                                                                                                  

- 97 -

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Changes
in Major Shareholders Holdings during the Last Three Years

The
following is a list of changes in major shareholders holdings during the last
three years:

As
a result of the completion of a merger by way of exchange of shares between EI
and Elscint, Elscint became a wholly-owned subsidiary of EI and each
outstanding share of Elscint (other than Elscint ordinary shares held by us and
by or for the benefit of Elscint) was exchanged for 0.53 ordinary shares of EI.
Accordingly, on December 2, 2005, EI issued 3,479,216 ordinary shares to
Elscint shareholders (other than Elscint ordinary shares held by EI and by or
for the benefit of Elscint). Following the merger, and the subsequent
distribution of cash dividend, which triggered the adjustment mechanism as per
the Elscint 2003 Plan, additional 27,964 shares of EI were issued to those holders
of Elscint 2003 Plan option-holders who notified exercise.

On
May 17, 2006, Elscint sold 524,187 shares of EI in consideration for NIS 115
for each share, through a private transaction. The aggregate consideration with
respect to such sale was approximately NIS 60.2 million (approximately $14.2
million). Prior to the reported transaction, part of these shares did not have
voting rights inasmuch as they were acquired by Elscint following the amendment
to the Israeli Companies Law. Following the transaction such shares enjoy full
equity and voting rights.

On
February 9, 2006 Europe Israel, Control Centers and Mr. Mordechay Zisser
(Reporting persons) filed Schedule 13-D Amendment no. 7 in respect of
11,812,082 shares beneficially owned by each Reporting Person except Mr.
Mordechay Zisser, who had additional 350,000 shares held by him, constituted at
that date 46.5% and 1.4% respectively of our share capital (calculated based on
25,426,298 shares outstanding as of February 8, 2006, excluding 2,800,000
dormant shares held by us which do not have any voting or equity rights).

On
September 10, 2007 Europe Israel, Control Centers and Mr. Mordechay Zisser
(Reporting persons) filed Schedule 13-D Amendment No. 8 in respect of 12,110,134
shares beneficially owned by each Reporting Person except Mr. Mordechay Zisser,
who had additional 350,000 shares held by him, constituted at that date 47.58%
and 1.38% respectively of our share capital (calculated Based on 25,454,524
shares outstanding as of September 4, 2007 (excluding 2,800,000 dormant shares
held by us which do not have any voting or equity rights).

On
January 10, 2008 Europe Israel, Control Centers, Marina Herzelia (Limited
Partnership) 1988 and Mr. Mordechay Zisser (Reporting persons) filed Schedule
13-D Amendment No. 9 in respect of 12,089,682 shares beneficially owned by
Europe Israel and in respect of 12,114,519 shares beneficially owned by Control
Centers Ltd. and in respect of 24,837 shares beneficially owned by Marina
Hertzelia (Limited Partnership) 1988 and in respect of Mr. Mordechay Zisser,
who had additional 406,500 shares held by him, constituted at that date 47.50%,
47.59%, 0.1% and 1.60% respectively of our share capital (calculated Based on
25,454,524 shares outstanding as of January 9, 2008 excluding 2,800,000 dormant
shares held by us which do not have any voting or equity rights).

To
our knowledge, between January 10, 2008 and May 2008, Europe-Israel acquired
additional 44,323 of our ordinary shares in various transactions on the TASE at
an approximate average price per share of $44.162.

During
the period from February through May 2006, Europe-Israel acquired 324,533 of
our ordinary shares in various transactions on the TASE at an approximate
average price per share of $16.92. In addition thereto, and throughout the last
three years, Europe-Israels voting percentage in EI in respect of the shares
owned thereby, varied and was affected, among other things by transactions of
other shareholders.

On February 13, 2006 the Provident Funds of Bank Leumi Le-Israel B.M. filed
Schedule 13-G/A in respect of 716,713 shares beneficially owned by it, then
constituting 2.8% of our share capital (calculated excluding 2,842,400 shares
then held by us which did not have any equity rights and 3,161,156 shares then
held by us and Elscint which did not have any voting rights). As of such date,
the Provident Funds of Bank Leumi le-Israel B.M., ceased being a major
shareholder of EI.

On
September 21, 2006 Clal Insurance Enterprises Holdings Ltd., IDB Development
Corporation Ltd., IDB Holding Corporation Ltd., Nochi Dankner, Shelly Bergman,
Ruth Manor and Avraham Livnat (Reporting persons) filed Schedule 13-G/A in respect
of 1,301,270 shares beneficially owned by each Reporting Person, then
constituting 5.1% of our share capital (calculated excluding 2,800,000 shares
held by us which do not have any voting or equity rights). In addition, such
number excluded 22,442 of our shares which were held at that time for members
of the public through, among others, provident funds and mutual funds, which
are managed by companies controlled by Epsilon Investment House Ltd., an
indirect subsidiary of IDB Development.

- 98 -

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On
February 5, 2007 Clal Insurance Enterprises Holdings Ltd., IDB Development
Corporation Ltd., IDB Holding Corporation Ltd., Nochi Dankner, Shelly Bergman,
Ruth Manor and Avraham Livnat (Reporting persons) filed Schedule 13-G/A in
respect of 1,509,165 shares beneficially owned by each Reporting Person except
Ms. Manor, who had additional 2,121 shares held by her affiliates. Such
respective holdings, excluded 11,622 our shares which were held at that time
for members of the public through, among others, provident funds and mutual
funds, which are managed by companies controlled by Epsilon Investment House
Ltd., an indirect subsidiary of IDB Development. Each Reporting Persons
respective holdings, constituted at that date 5.9% of our share capital
(calculated excluding 2,800,000 shares held by us which do not have any voting
or equity rights).

On
February 14, 2008 Clal Insurance Enterprises Holdings Ltd., IDB Development
Corporation Ltd., IDB Holding Corporation Ltd., Nochi Dankner, Shelly Bergman,
Ruth Manor and Avraham Livnat (Reporting persons) filed Schedule 13-G/A in
respect of 377,805 shares beneficially owned by each Reporting Person. Such
respective holdings, excluded 21,797.51 our shares which were held at that time
for members of the public through, among others, provident funds and mutual
funds, which are managed by companies controlled by Epsilon Investment House
Ltd., an indirect subsidiary of IDB Development. Each Reporting Persons
respective holdings, constituted at that date 1.48% of our share capital
(calculated excluding 2,800,000 shares held by us which do not have any voting
or equity rights).

As
of May 31, 2008, there were approximately 848 holders of record of our ordinary
shares with addresses in the United States, holding approximately 24.80% of our
issued and outstanding ordinary shares (excluding 2,800,000 ordinary shares
held by us which do not have any voting and equity rights).

|   |                           
|-- | --------------------------
|B. | RELATED PARTY TRANSACTIONS

Lease

Until
October 2006, we leased office space from Control Centers, our indirect parent,
on customary terms. From October 2006 and until March 2007 we (including our
wholly owned subsidiary Elbit Trade which leased the property from May 2005)
leased office space from Europe Israel, our parent (for information regarding
the lease, see Item 4.D. Property, Plant and Equipment above). Europe Israel
had disposed of such office building on April 1, 2007, and assigned the rental
fee rights in respect of same, to an unrelated third party. All the lease
agreements were approved by our Audit Committee and Board of Directors as a
non-extraordinary transaction within the meaning of the Israeli Companies Law.

A
small portion of such office space is used by companies controlled, directly or
indirectly, by our Executive Chairman who is also considered our controlling
shareholder and the rental fees are divided between us and such companies in
accordance with the m2
used by each party. Our Audit Committee and Board of Directors approved the division
as a non-extraordinary transaction within the meaning of the Israeli Companies
Law.

In
2005, Elscints Audit Committee and Board of Directors approved lease
agreements between a company - 25% of which are held by Elscints then director
- as a lessee in the Arena commercial and entertainment center. The approval
related also to a loan and a grant awarded to such lessee within a framework of
the lease agreement. The transactions were approved as non-extraordinary
transaction within the meaning of the Israeli Companies Law.

Allocation
of Costs Agreement

From
January 2000 and until December 2005, we were a party to an allocation of costs
and expenses agreement, together with Europe Israel and Elscint. Allocation of
costs related to those costs incurred in connection with services rendered to
those companies by their in-house legal, economic and taxation and accounting
departments. The allocation carried out so that Europe-Israel bore 35%, while
Elscint and EI each bore 32.5% of such costs. The parties executed set off in
those years where actual services provided deviated by more than 10% from
estimation.

Agreement
for the purchase of coordination, planning and supervision services over
construction projects

Companies
controlled by our Executive Chairman, who is also considered our controlling
shareholder, are parties to various agreements with subsidiaries of PC,
pursuant to which such entities have agreed to provide services of coordination,
planning, execution and supervision over construction projects, to PCs
subsidiaries, in consideration for 5% of the actual construction costs of each
such project (excluding land acquisition cost, financing costs and general and
administrative costs), plus VAT. In addition, PCs subsidiaries will reimburse
such companies, for all reasonable costs incurred in connection with the
services rendered thereby, not to exceed a total of $50,000 per project. Such
agreements were entered into pursuant to a framework agreement signed by us and
Control Centers (the parent company of these two companies), which was approved
by our shareholders meeting during 2000. The framework agreement was terminated
on December 31, 2002 without prejudice to validity of all those agreements signed
there-under prior to such termination.

- 99 -

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Following
the termination of the above framework agreement pursuant to its terms, a
similar agreement for the receipt of such services for real estate projects,
subject to certain amendments, and the receipt of aviation service was approved
by our shareholders on May 31, 2006. Under the agreement entered into between
us and Control Centers we receive from Control Centers (either directly or
through its subsidiaries or affiliates, other than us) coordination, planning,
execution and supervision services over our real estate projects and/or real
estate projects of our subsidiaries and/or affiliates in consideration for a
fee equal to 5% of the actual execution costs (excluding land acquisition costs,
financing cost and the consideration for Control Centers under the agreement)
of each such project. The agreement applies to real estate projects initiated
following the approval of the agreement by our shareholders and to the
following projects: (i) a shopping and entertainment center in Liberec, Czech
Republic; (ii) a shopping and entertainment center in Kerepesi, Hungary; and
(iii) a complex of shopping and entertainment center, hotels, congressional
centers and other facilities in Obuda, Hungary, which were at that time in
early stage of development.

Such
fee will be paid in installments upon the meeting of milestones as stipulated
in the agreement. In addition, we will reimburse Control Centers for all
reasonable costs incurred in connection with the services rendered thereby, not
to exceed a total of 75,000 (approximately $110,000; NIS 423,060) per real
estate project.

If
the purpose of a real estate project is changed for any reason prior to the
completion of the project or if the development of the real estate project is
terminated for any reason (including the sale of the real estate project), the
payment to Control Centers will be calculated as a percentage of the budget for
the project, provided that such percentage shall not exceed the percentage
determined for the next milestone of the project had it continued as planned.
The calculation of such payments to Control Centers will be subject to the
approval of an external accountant and the approval of our Audit Committee and Board
of Directors.

In
addition, we and/or our subsidiaries and/or affiliates may also purchase from
Control Centers, our indirect parent, through Jet Link Ltd. (Jet Link), an
aviation company a wholly-owned subsidiary of Control Centers, up to 125 flight
hours per calendar year in consideration for payments to Jet Link in accordance
with its price list to unaffiliated companies less a 5% discount. This
agreement does not derogate from a previous agreement entered into between us
and Jet Link for the purchase of aviation services which was approved by our
shareholders on September 10, 2000, see - Agreement for aviation service
below.

The
agreement with Control Centers has a five-year term commencing May 31, 2006.

Agreement
for aviation services

Pursuant
to an agreement between us and Jet Link, which was approved by our shareholders
on September 10, 2000, we, or our subsidiaries, may purchase aviation services
from Jet Link for our operations in the shopping and entertainment centers
business for up to 150 hours per annum in consideration for payments in
accordance with Jet Links price list to unaffiliated companies less a 5%
discount. Due to our increasing business needs, we and our subsidiaries
purchased during 2005, 2006 and 2007 additional flight hours from Jet Link,
under same terms and conditions. The purchase of the additional flight hours
was approved by our Audit Committee and Board of Directors as a
non-extraordinary transaction within the meaning of the Israeli Companies Law.

Agreement
for the purchase of coordination, planning and supervision services over the
Bucharesti hotel complex

In
October 2001, an engagement between Bucharesti and Control Centers (through its
wholly owned subsidiary) was approved at an Elscint shareholders
meeting. In accordance with such engagement, Control Centers provides
coordination, planning and supervision services with respect to the renovation
works of the Bucharesti Hotel complex, for a fee equal to the lower of (i) 5%
of total actual costs of the renovation works (excluding general and
administrative as well as financing costs); and (ii) 5% of $30 million. A
definitive agreement has not been executed in respect of such engagement
although the parties perform their duties and obligations thereunder.

Guarantee Towards a Local
Municipality

We
furnished the local municipality with a bank guarantee to secure payment of
certain land betterment tax, in an amount of approximately NIS 4.5 million.
Arbitration is currently being held as to this tax liability between Marina
Herzliya Limited Partnership Ltd. (a company controlled by Control Centers) and
the local municipality. We estimate, based on professional opinion that no
significant costs will be borne thereby, in respect of this guarantee.

Tax
Arrangement

During
2004, we, Europe-Israel and Elscint finalized an arrangement with the Israeli
Tax Authority, with effect from December 31, 2002, whereby a new tax basis has
been determined for our investments (on a consolidated basis) in foreign
subsidiaries (regulated revaluation and regulated assets). The arrangement
provides for no additional tax to be imposed in Israel on gains generated from
the realization of regulated assets, and on dividends distributed therefrom,
and all up to the amount of the regulated revaluation.

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Loan Agreement with Bank Hapoalim
B.M.

Within
the framework of our loan agreements with Bank Hapoalim B.M. we undertook to
maintain financial covenants for so long as the credit provided by the bank to
us or to Europe Israel exceeds $30 million. See Item 5.B. Liquidity and
Capital Resources - Other Loans above.

Compensation to Directors and
Officers

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|s | For details regarding securities issued to our directors and officers
  under different incentive plans, see Item 6.B.  Compensation and Item 6.E. - Share Ownership above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|s | Our officers receive salaries and related benefits customary to their
  respective positions. All such agreements have been approved by our
  respective organs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|s | In October 2000, Elscints shareholders approved the annual cost of
  the employment of Mr. Abraham (Rami) Goren, the then executive chairman of
  the board of directors of Elscint as $250,000, linked to the Israeli Consumer
  Price Index, plus reimbursement of Mr. Gorens expenses incurred in connection
  with his services to Elscint in the foregoing capacity. There has been no
  change to Mr. Gorens employment terms following his election to the Board of
  Directors of EI and his nomination as Vice Chairman. The agreement between
  Elscint and Mr. Goren was terminated in April 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|s | In December 2002, our shareholders approved the monthly cost of
  employment of Mr. Shimon Yitzhaki, our President and Director, as $33,750
  linked to the Israeli Consumer Price Index. Such cost includes customary
  social benefits and the use of a car fully maintained by us. In addition, Mr.
  Yitzhaki is entitled to reimbursement of expenses incurred in connection with
  his services in the foregoing capacities. Mr. Yitzhaki will devote at least
  90% of his working time to us.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|s | In August 2003, Elscints shareholders approved the annual cost of
  the employment of Ms. Lavine in her capacity as a director and president of
  Elscint as $390,000, linked to the Israeli Consumer Price Index, plus
  reimbursement of Ms. Lavines expenses incurred in connection with her
  services to Elscint in the foregoing capacities. Ms. Lavine has agreed to
  devote at least 90% of her working time to EI. Regarding termination
  agreements entered into between us and Ms. Lavine, see below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|s | In March 2005, our shareholders approved an amendment to the terms of
  employment of Mr. Mordechay Zisser, the Executive Chairman of our Board of
  Directors, so that the monthly cost of employment of Mr. Mordechay Zisser
  will be increased to NIS 220,000, with effect as from January 1, 2005. Mr.
  Zissers employment agreement was terminated in July 31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|s | On May 31, 2006, our shareholders approved an agreement for the
  receipt of executive chairman services between EI and a management company
  (the Management Company) controlled by Mr. Mordechay Zisser, our Executive
  Chairman. Under the agreement, the Management Company will provide us with
  Executive Chairman services (Services). The Management Company may provide
  the Services to our private subsidiaries and/or affiliates. The Services will
  be provided by Mr. Zisser only, as an employee of the Management Company. Mr.
  Zisser will devote at least 80% of his time, skills and efforts to his
  position as Executive Chairman. The control of the Management Company will not
  be changed during the term of the agreement. We will pay the Management
  Company a monthly amount of $50,000 plus applicable value added tax as well
  as reimbursement of expenses. In addition, the Management Company is entitled
  to other benefits, such as: an appropriate vehicle, telephone, facsimile,
  mobile phone, computer, printer and modem and we shall bear all their
  installation costs and all reasonable expenses related thereto. The agreement
  is for a five-year term commencing retroactively on August 1, 2005, following
  termination of Mr. Zissers previous employment agreement, on July 31, 2005.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  | Termination of Mr. Zissers service as Executive Chairman of the
  Board for any reason whatsoever will result in an immediate termination of
  the agreement. Notwithstanding the above, at our request, Mr. Zisser will
  serve (through the Management Company) in addition to his service as
  Executive Chairman or in its stead as our director or officer, and in such
  event, the agreement will remain in effect with regard to the additional or
  other service of Mr. Zisser in EI. Mr. Zisser has guaranteed all of the
  Management Companys obligations as far as they relate to Mr. Zisser and has
  further guaranteed the Management Companys indemnification undertakings and
  responsibility for damages in the event of determination of the existence of
  employer-employee relations between Mr. Zisser and EI during the period of
  this agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|s | On May 31, 2006, our shareholders approved the payment of an annual
  bonus to each of Mr. Shimon Yitzhaki, our President and a director who at
  that time also served as our Chief Financial Officer, and Ms. Rachel Lavine,
  a former director of the Company, who also served at that time as the
  president of Elscint and Acting Chief Executive Officer of PC, for 2005 in an
  amount of $175,000 and for 2006 and any year thereafter in accordance with
  the following mechanism:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  | Payment of an annual bonus within 30 days following the approval by
  the Board of Directors of each years audited consolidated financial
  statements of the Company which will be calculated, as follows: (i) 0.75% of
  the first NIS 125 million of Profits (as defined below); (ii) 0.875% of
  Profits between NIS 125 million and NIS 150 million; and (iii) 1% of Profits
  exceeding NIS 150 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  | For the purposes of determining the annual bonus, Profits mean
  profits of the Company before taxes as disclosed on the Companys annual
  audited consolidated financial statements. On May 29, 2008 the Companys
audit committee has resolved to amend the definition of the term Profit for
the purpose of the annual bonus calculation and define it as profit before tax and after
deduction of the minority interest, based on the Companys audited consolidated
financial statements. Such definition shall be applied, retroactively, to bonuses payable
in respect of the years 2007 and thereafter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  | The annual bonus will be paid to each of the above, for so long as he
  or she serve as a director or officer of the Company or of any of the
  Companys subsidiaries. Regarding the termination agreements entered into
  between us and Ms. Levine, including with respect to the payment of such
  annual bonus, see below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|s | On October 27, 2006 PC entered into a sourcing agreement with our
  Executive Vice Chairman, Mr. Abraham (Rami) Goren, under which he will be
  entitled to receive options (the Options) to acquire 5% of the holding
  company through which PC will carry on its operations in India. Where
  considered appropriate, and by agreement, Mr. Goren will be entitled to take
  up a 5% interest in specific projects, in which case necessary adjustments
  will be made at the holding company level. The Options will be subject to a
  vesting over a three-year period, whereby 60% of the Options have already
  vested and 20% of the Options will vest each on the following dates: March
  31, 2008 and March 31, 2009. If Mr. Goren elects to take up Options in a
  specific project which commences after any of the vesting dates specified
  above, an immediate vesting will be allowed in respect of Options which would
  have vested as of the above dates. The Options may be exercised at any time,
  at a price calculated in accordance with an agreed upon formula.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  | Mr. Goren has a cash-in right to require PC to purchase shares held
  by him following exercise of the Options, at a price to be determined by an
  independent value. In addition, Mr. Goren has the right to pay the exercise
  price on a partial exercise of Options by way of the surrender to PC of
  Options valued at the Exercise Price of the exercised Options. If PC sells
  its shares in the India holding company to a third party, Mr. Gorens Options
  will not be affected. However, if a new investor is allotted shares in the
  holding company, Mr. Gorens options will be diluted pro-rata. The share
  option arrangement will apply to all projects sourced to PC from EI under the
  terms of the sourcing agreement. The sourcing agreement includes tag-along rights
  and rights of first refusal.                                                                                                                                                                                                                                                           
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|s | On November 1, 2007, our shareholders approved a service agreement
  dated October 26, 2006 entered into between PC and Mr. Zisser, the Executive
  Chairman of the Board of Directors of both the Company and PC. Mr. Zisser
  will receive an annual salary of $300,000 which will be paid monthly as well
  as reimbursement of his reasonable expenses incurred by him in the
  performance of his duties under the service agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  | The salary will be reviewed by the Board of Directors of PC each year
  and may be increased at the discretion of PCs Board of Directors and subject
  to applicable law. Mr. Zisser waived his right to any entitlement to
  severance pay under the Israeli Severance Pay Law of 1963 and social benefit.
  Under Israeli law, waiver of certain social benefits, including severance
  pay, has no effect and, therefore, the Company is exposed to potential
  additional payments to Mr. Zisser in an aggregate amount which the Company
  believes to be not material to the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  | The service agreement entered into effect on
  November 1, 2007, with retroactive effect as of October 26, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  | Each party may terminate the service agreement by a
  12-month prior notice.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|s | On
  November 1, 2007, our shareholders approved and ratified two separate
  agreements entered into between Ms. Rachel Lavine who served as president of
  Elscint and acting chief executive officer of PC, and each of the Company and
  Elscint, dated February 7, 2007, regarding Ms. Lavines resignation from her
  employment by the Company and companies under its control, directly or
  indirectly (the Company Group). The agreement with Elscint provides that
  Ms. Lavine, who served as President and director of Elscint, shall resign
  from her positions effective February 7, 2007. Ms. Lavine shall continue to
  enjoy the same payments and benefits from the date of her resignation until
  March 31, 2008, of which part constitutes unexploited accumulated vacation
  days, and part an agreed adjustment period during which time Ms. Lavine shall
  not be obligated to work.                                                                                                                                                                             
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  | Ms.
  Lavine is entitled to
  the annual bonus payable in respect of the years 2007 and 2008 as a
  retirement bonus, as approved by our shareholders on May 31, 2006 (see above).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  | Elscint
  limited shall pay the tuition fee of Ms. Lavine in the Kellogg-Recanati
  Executive MBA program in an aggregate amount of $47,000 and shall bear all
  tax expenses associated with such payment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  | Elscint
  undertook to continue to purchase directors and officers liability insurance
  policy which shall cover Ms. Lavines liability as a director and/or officer
  of Elscint and companies under its control, directly or indirectly, in a
  scope and quality which shall not be less than the existing directors and
  officers liability insurance policy, for a period of at least 7 years from
  the last date upon which Ms. Lavine served as a director or officer of
  Elscint or companies under its control, directly or indirectly.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  | The
  agreement with the Company provides that, effective as of February 7, 2007,
  Ms. Lavine shall be entitled to: (i) all of the 75,000 options exercisable
  into our ordinary shares in accordance with our incentive plan; and (ii) all
  of the 250,000 options exercisable into PC ordinary shares in accordance with
  PC incentive plan; and same regardless of her continued employment by and/or
  service as a director in the Company, PC or any other company directly or
  indirectly controlled by the Company or PC. The remaining terms of each grant
  under the Companys and PC incentive plans respectively shall remain
  unchanged.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  | We undertook to continue to purchase directors and officers
  liability insurance policy which shall cover Ms. Lavines liability as a
  director and/or officer of the Company and companies under its control,
  directly or indirectly, in a scope and quality which shall not be less than
  the existing directors and officers liability insurance policy for a period
  of at least 7 years from the last date Ms. Lavine serves as a director or
  officer of the Company or companies under its control, directly or
  indirectly.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|s | On November 1, 2007, our shareholders approved the payment of an
  annual bonus to Mr. Zisser with respect to the year 2006 and each year
  thereafter. The calculation of the annual bonus is as follows: (i) 0% of the
  first NIS 100 million of Profits (as defined below); (ii) 2.5% of Profits
  between NIS 100 million and NIS 125 million; (iii) 3% of Profits between NIS
  125 million and NIS 150 million; and (iv) 3.5% of Profits exceeding NIS 150
  million.  For the purpose of
  determining the annual bonus, Profits for any year, mean profits of the
  Company before taxes, as disclosed in Companys annual audited consolidated
  financial statements for that year minus such losses before taxes disclosed
  on Companys annual audited consolidated financial statements for all years
  commencing 2007, that had not already been deducted for the purpose of
  calculating such annual bonus for any previous year. Notwithstanding the
  above, the annual bonus to be granted to Mr. Zisser shall not exceed NIS 18
  million.On May 29, 2008, the Companys
Audit Committee resolved to amend the definition of the term Profit for the
purpose of the calculation of the annual bonus and define it as profit before tax and
after deduction of the minority interest, based on the Companys audited consolidated
financial statements. Such definition shall be applied, retroactively, to bonuses payable
in respect of the years 2007 and thereafter.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|s | On November 22, 2007, our Audit Committee and Board of Directors
  approved and ratified the amendment of employment agreement of two of our
  officers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|s | On January 17, 2008, our shareholders approved the compensation of
  Mr. Goren, the Executive Vice Chairman of the Board of Directors, pursuant to
  an employment agreement between the Company and Mr. Goren and pursuant to an
  agreement between Elscint for his service as Executive Vice Chairman of the
  Board of Directors, and the responsibility of business activities of the
  Company and its subsidiaries, directly or indirectly, in Asia and in
  particular, India. The annual cost of Mr. Gorens salary to the Company shall
  not exceed NIS 2,134,000, linked to increases in the rate of the Israeli
  consumer price index.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  | The Company will provide Mr. Goren with a vehicle suitable to his
  position at the Company and shall bear all costs and expenses in connection
  with such vehicle, including any tax payments applicable to Mr. Goren related
  thereto. The Company will also provide Mr. Goren with a telephone, facsimile,
  mobile phone, internet connection, computer, and laptop and shall bear all
  installation costs and all reasonable expenses related thereto. Mr. Goren
  shall be entitled to medical insurance and coverage of Mr. Gorens liability
  within the Companys directors and officers liability insurance policy.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  | The agreement does not derogate from any of Mr. Gorens rights under
  existing options agreements between the Company and/or its subsidiaries with
  Mr. Goren. Mr. Goren shall be entitled to participate in existing and/or
  future grants of shares and options by the Company and its subsidiaries, as
  decided from time to time by the Audit Committee and Board of Directors of the
  Company at their sole discretion, and subject to any applicable law.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  | Mr. Goren has been employed by Elscint, since January 1, 2001.
  Effective April 1, 2006, all employer-employee relations between Mr. Goren
  and Elscint have terminated and Mr. Goren has become an employee of the
  Company. Mr. Gorens rights in connection with his employment with Elscint
  shall be fully preserved by the Company as if the Company was Mr. Gorens
  employer from January 1, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  | The Company paid Mr. Goren an annual bonus for the calendar year 2006
  in the amount in New Israeli Shekels as is equal to $150,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  | Elscint will pay Mr. Goren bonuses for the years 2004 and 2005 in the
  amounts of NIS 450,000 and NIS 250,000, respectively, in respect of the
  period during which Mr. Goren acted as the Executive Chairman of the board of
  directors of Elscint.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|s | On
  January 17, 2008, our shareholders approved a sourcing agreement between us
  and Mr. Goren with regard to the rendering of sourcing services by Mr. Goren
  in connection with our business activities in India and in other countries in
  Asia in which Mr. Goren renders such sourcing activities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In consideration for all and any
activities carried out and to be carried out by Mr. Goren pertaining to the sourcing,
initiation, operation or management of Business Activities (as defined below) in India and
in other countries in Asia in which Mr. Goren renders such services (the
Territory) for the benefit of the Company and its affiliates (excluding PC and
its subsidiaries), as well as for the performance of other activities assigned to Mr.
Goren by the Company (the Sourcing Activities), Mr. Goren shall be entitled to
receive 5% (five percent) of the aggregate issued and outstanding share capital in each
entity through which the Company will conduct Business Activities which are initiated in
the Territory (the Investment Vehicle) during the Sourcing Period, as defined
below. In the event the Investment Vehicle is not wholly owned by the Company or its
affiliates, Mr. Goren will be allotted that number of shares as is equal to 5% of the
issued and outstanding share capital in such Investment Vehicle held by the Company or its
affiliates. Mr. Gorens share in any Investment Vehicle shall be referred to herein
as the Goren Shares. Mr. Goren shall retain the rights to the Goren Shares to
which he is entitled in accordance with the terms of the agreement in perpetuity. In this
regard, the term Business Activity means any business and/or commercial
activity and/or investment activity of any nature or kind which is conducted, carried out
and pursued directly or indirectly by the Company and/or its affiliates in the Territory
and which was initiated during the Sourcing Period (as defined below), either directly or
through the agency of any investment vehicle or otherwise.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | The Goren Shares shall not be
entitled to receive any distributions (including, but not limited to, payment of
dividends, interest, other expenses and principle repayments of shareholder loans,
management fees or other payments made to Mr. Goren and any loans provided by the
Investment Vehicle to Mr. Goren or his affiliates) from the Investment Vehicle until the
Companys investments (principal and interest calculated in accordance with a
mechanism provided for in the agreement) in such Investment Vehicle have been returned in
full.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Mr.
          Gorens right to receive the Goren Shares in each Investment Vehicle will
          be subject to vesting over a three-year period, whereby as December 11, 2007,
          the right to receive 60% of the Goren Shares have already vested and the right
          to receive 20% of the Goren Shares will vest on each of the following dates:
          March 31, 2008 and March 31, 2009. The right to receive the Goren Shares in any
          Investment Vehicle in which the Company or any of its affiliates obtains equity
          rights after March 31, 2009 shall vest immediately on the earlier of (i) the
          incorporation of such Investment Vehicle; or (ii) the first acquisition by the
          Company of the equity rights of such Investment Vehicle. The Goren Shares that
          are subject to vesting will be held in trust.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Mr.
          Gorens right to receive the Goren Shares shall continue to vest, according
          to the above vesting schedule, for so long as Mr. Goren devotes, in the
          aggregate, a substantial part of his time and attention to the Sourcing
          Activities. In the event Mr. Goren ceases for any reason to devote, in the
          aggregate, a substantial part of his time and attention to the Sourcing
          Activities as aforementioned (the Cut-Off Date), then Mr.
          Gorens vesting rights as discussed above (i.e. the remaining
          vesting of 20% of the Goren Shares on March 31, 2009) shall cease as and from
          the Cut-Off Date, provided however, that in such event, such Goren Shares that
          have not yet vested shall vest pro rata from the last vesting date as
          aforementioned until the Cut-Off Date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | The Companys obligation
  to issue the Goren Shares to Mr. Goren shall apply to all Business Activities
  initiated in the Territory since the Company has commenced its operations in
  India and shall remain in effect until the date 30 months after the Cut-Off
  Date (the Sourcing Period).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | In the event the Company
  elects to sell all or any of its equity rights in any Investment Vehicle to unrelated third party, Mr. Goren shall have
  a right of tag-along to such sale and the Company shall have a drag along
  right with respect to all of the Goren Shares. If Mr. Goren wishes to sell
  all or any of his shares in any Investment Vehicle to a third party, the
  Company shall have a right of first refusal to acquire such shares on the
  same terms as such shares are offered to the third party). Additionally, Mr.
  Goren shall have a right of first refusal to purchase, pro rata, new
  securities (subject to certain exceptions) that any Investment Vehicle
  proposes to issue and allot to third parties. In the event the Company shall
  acquire new securities in any Investment Vehicle, the Investment Vehicle
  shall issue to Mr. Goren on the same date additional equity rights in such
  Investment Vehicle equal to 5% of the new securities issued to the Company.
  Mr. Goren shall not be entitled to assign his rights under the agreement, or
  to transfer the Goren Shares which have vested, to a third party without the
  prior consent of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Prior to the consummation
  of a listing of the equity rights in any subsidiary of an Investment Vehicle
  (the Listing Subsidiary) for trade, Mr. Goren shall have the right to be
  issued equity rights in the Listing Subsidiary reflecting his indirect
  percentage interest in the Listing Subsidiary by virtue of his holding the
  Goren Shares in the relevant Investment Vehicle (being the parent company of
  the Listing Subsidiary) and to have such shares registered for trading
  together with the other shares of the Listing Subsidiary. In the event the
  Company acquires new securities in any Investment Vehicle, the Investment
  Vehicle shall issue to Mr. Goren additional equity rights equal to 5% of the
  Companys new securities. Mr. Goren will also receive registration rights
  with respect to all of the Goren Shares that have vested.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

- 104 -

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Goren
  Shares shall be subject to the same rights and obligations as the Companys
  shares in any Investment Vehicle and rank pari
  passu in all respects with such Companys shares including,
  without limitation, with regard to voting, attendance at meetings and all
  other rights and obligations, except that the holders of the Goren Shares
  shall not be entitled to receive any distributions from the Investment
  Vehicle including in the event of the winding up of the Investment Vehicle or
  other return of capital, until such time as the Companys investment has been
  repaid in full, which will be determined according to the formula set out in
  the agreement.                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Our
  shareholders further approved on January 31, 2008 the entering of Mr. Goren
  and PC into a new agreement in substantially the same terms and conditions as
  the agreement described above between Mr. Goren and the Company (the New
  Agreement) which will replace and supersede the previous share option
  agreement between Mr. Goren and PC (see above). The New Agreement shall enter
  into effect following the receipt of the approval of the relevant organs of
  PC as required under applicable law. However, in the event the New Agreement
  is not approved by the relevant organs of the Company and PC, as discussed
  above, the previous agreement shall remain in effect. The share option
  arrangement will apply to all projects sourced to PC from the Company. The
  New Agreement was approved by the Companys shareholders meeting on November
  1, 2007.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Indemnification, Insurance and Exemption                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | For details
  regarding the grant of insurance, exemption and indemnification to our
  directors and officers, by EI or our subsidiaries, see Item 6.B.
  Compensation - Insurance, Indemnification and Exemptions above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Inter-company guarantees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | We provide
  from time to time, guarantees to financial institutions or other unrelated
  parties in connection with undertakings, monetary and otherwise, that are
  assumed by our subsidiaries. Details as to material guarantees are provided
  in Item 5.B. Liquidity and Capital Resources - Loans above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Relationship with Associates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | For
  information regarding transactions with the company holding the Dream
  Island Project, see Item 4.B. Business Overview  Shopping and Entertainment
  Centers  Mixed Use Projects above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | For
  information regarding transactions with Gamida Cell Ltd., Olive Software
  Inc., Easyrun Ltd. and Varcode Ltd. see Item 4.B. Business Overview  Other
  Activities  Venture Capital Investments above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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

|   |                                                                       
|-- | ----------------------------------------------------------------------
|A. | CONSOLIDATED
  STATEMENTS AND OTHER FINANCIAL INFORMATION             
|   |                                                                       
|   | See our
  consolidated financial statements included in Item 18 below.
|   |                                                                       
|   | Legal
  Proceedings                                                   

For
information regarding the legal proceeding we are involved in see Note 21B to
our financial statements included in Item 18 herein.

Dividend Distribution Policy

On
January 11, 2007, our Board of Directors, adopted a dividend distribution
policy (Policy) pursuant to which we will distribute a cash dividend of at
least 50% of the surplus accrued by it every year; provided that such
dividend does not exceed 50% of the cash flow accrued by us from dividends and
repayment of owners loans received by us from subsidiaries in that year,
all determined in accordance with our audited and consolidated annual financial
results. Any distribution of dividends under this policy is subject to specific
resolution of our Board of Directors determining our compliance with the
distribution criteria, as prescribed in the Companies Law, as may be from time
to time, and to any applicable law. In reaching such resolution, our Board of
Directors will take into account, inter alia,
our liabilities and undertakings towards third parties, our cash-flow needs and
financing resources available to us. The Board of Directors is authorized in
its sole discretion to change or terminate such policy at any time. The
adoption of the policy does not serve to constitute any undertaking towards any
third party.

|   |                      
|-- | ---------------------
|B. | SIGNIFICANT
  CHANGES

There
are no significant changes that occurred since December 31, 2007, which are not
included in the consolidated financial statements included in Item 18 below.



- 105 -

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

|   |                          
|-- | -------------------------
|A. | OFFER AND LISTING DETAILS

Our
ordinary shares are listed on the Nasdaq Global Select Market under the symbol
EMITF and on the TASE.

Information regarding the price history of the stock
listed

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

|                          |  |          |  |         |       |          |  |         |  |  |       |  | 
|------------------------- |  | -------- |  | ------- | ----- | -------- |  | ------- |  |  | ----- |  | 
|                          |  | Nasdaq   |  | TASE    |      
|                          |  |          |  |         |      
|Year Ended
  December 31, |  | High ($) |  | Low ($) |       | High ($) |  | Low ($) | 
|                          |  |          |  |         |       |          |  |         | 
|                          |  |          |  |         |       |          |  |         | 
|2007                      |  | 57.43    |  |         | 31.30 |          |  | 58.51   |  |  | 33.16 |  | 
|2006                      |  | 34.54    |  |         | 15.28 |          |  | 34.82   |  |  | 15.37 |  | 
|2005                      |  | 19.54    |  |         | 8.9   |          |  | 19.18   |  |  | 9.01  |  | 
|2004                      |  | 10       |  |         | 6.92  |          |  | 9.97    |  |  | 7.21  |  | 
|2003                      |  | 7.14     |  |         | 3.70  |          |  | 6.91    |  |  | 3.80  |  | 

(b)
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:

|                    |  |          |  |         |       |          |  |         |  |  |       |  | 
|------------------- |  | -------- |  | ------- | ----- | -------- |  | ------- |  |  | ----- |  | 
|                    |  | Nasdaq   |  | TASE    |      
|                    |  |          |  |         |      
|Financial
  Quarter |  | High ($) |  | Low ($) |       | High ($) |  | Low ($) | 
|                    |  |          |  |         |       |          |  |         | 
|                    |  |          |  |         |       |          |  |         |  |  |       |  | 
|2008                |  |          |  |         |       |          |  |         |  |  |       |  | 
|Q1                  |  | 52.54    |  |         | 36.63 |          |  | 56.55   |  |  | 37.65 |  | 
|Q2*                 |  | 56.09    |  |         | 41.5  |          |  | 56.1    |  |  | 40.39 |  | 
|                    |  |          |  |         |       |          |  |         |  |  |       |  | 
|2007                |  |          |  |         |       |          |  |         |  |  |       |  | 
|Q1                  |  | 39.94    |  |         | 31.30 |          |  | 43.04   |  |  | 33.16 |  | 
|Q2                  |  | 45.88    |  |         | 39.87 |          |  | 47.70   |  |  | 42.32 |  | 
|Q3                  |  | 49.75    |  |         | 38.01 |          |  | 52.67   |  |  | 39.15 |  | 
|Q4                  |  | 57.43    |  |         | 47.05 |          |  | 58.51   |  |  | 48.64 |  | 
|                    |  |          |  |         |       |          |  |         |  |  |       |  | 
|2006                |  |          |  |         |       |          |  |         |  |  |       |  | 
|Q1                  |  | 20.04    |  |         | 15.28 |          |  | 20.05   |  |  | 15.37 |  | 
|Q2                  |  | 26.2     |  |         | 19.03 |          |  | 26.13   |  |  | 18.4  |  | 
|Q3                  |  | 26.1     |  |         | 19.84 |          |  | 26.25   |  |  | 20.52 |  | 
|Q4                  |  | 34.54    |  |         | 25.9  |          |  | 34.82   |  |  | 26.62 |  | 

*
Through June 26, 2008.

(c)
The monthly high and low sale prices for our ordinary shares during the six
months of December 2007 through June 2008 were:

|                |  |          |  |         |       |          |  |         |  |  |       |  | 
|--------------- |  | -------- |  | ------- | ----- | -------- |  | ------- |  |  | ----- |  | 
|                |  | Nasdaq   |  | TASE    |      
|                |  |          |  |         |      
|Month           |  | High ($) |  | Low ($) |       | High ($) |  | Low ($) | 
|                |  |          |  |         |       |          |  |         | 
|                |  |          |  |         |       |          |  |         |  |  |       |  | 
|June 2008*      |  | 52.74    |  |         | 42.8  |          |  | 52.53   |  |  | 43.18 |  | 
|May 2008        |  | 56.09    |  |         | 43.36 |          |  | 56.10   |  |  | 44.74 |  | 
|April 2008      |  | 45.69    |  |         | 40.01 |          |  | 47.16   |  |  | 40.39 |  | 
|March 2008      |  | 44.58    |  |         | 36.63 |          |  | 46.42   |  |  | 37.65 |  | 
|February
  2008 |  | 46.36    |  |         | 42.42 |          |  | 49.00   |  |  | 43.53 |  | 
|January 2008    |  | 52.54    |  |         | 41.21 |          |  | 56.55   |  |  | 42.06 |  | 
|December
  2007 |  | 57.43    |  |         | 50.05 |          |  | 58.51   |  |  | 52.10 |  | 

*
Through June 26, 2008.

The
closing price of our ordinary shares on Nasdaq on May 31, 2008 was $55.69 and
on the TASE was NIS 183 ($56.1).

- 106 -

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The
closing prices of our ordinary shares listed on the TASE for each of the
periods referred to in the tables above have been translated into dollars using
the representative rate of exchange of the NIS to the U.S. dollar as published
by the Bank of Israel on the same dates.

|   |                     
|-- | --------------------
|B. | PLAN OF DISTRIBUTION

Not applicable.

|C.                                                                                                                                                                                                                                        | MARKETS              
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------
|                                                                                                                                                                                                                                         
|Since
  our initial public offering in November 1996, our ordinary shares have been
  traded both on the TASE and on Nasdaq Global Select Market under ticker
  symbol EMITF. Prior to such date, we were a privately held corporation.
|                                                                                                                                                                                                                                          |                      
|D.                                                                                                                                                                                                                                        | SELLING SHAREHOLDERS 
|                                                                                                                                                                                                                                          |                      
|                                                                                                                                                                                                                                          | Not applicable.      
|                                                                                                                                                                                                                                          |                      
|E.                                                                                                                                                                                                                                        | DILUTION             
|                                                                                                                                                                                                                                          |                      
|                                                                                                                                                                                                                                          | Not applicable.      
|                                                                                                                                                                                                                                          |                      
|F.                                                                                                                                                                                                                                        | EXPENSES OF THE ISSUE
|                                                                                                                                                                                                                                          |                      
|                                                                                                                                                                                                                                          | Not applicable.      

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

|   |                                                                               
|-- | ------------------------------------------------------------------------------
|A. | SHARE
  CAPITAL                                                               
|   |                                                                               
|   | Not applicable                                                                
|   |                                                                               
|B. | MEMORANDUM
  AND ARTICLES OF ASSOCIATION AND GENERAL PROVISIONS OF ISRAELI LAW

Transfer Agent

Our
transfer agent in the United States is American Stock Transfer and Trust
Company whose address is 59 Maiden Lane New York, New York 10038.

Purposes
and Objects of the Company

We
are a public company registered under the Israeli Companies Law of 1999 as
Elbit Imaging Ltd., registration number 52-004303-5. We were incorporated under
the name of Elbit Medical Imaging Ltd. and on November 15, 2007, we changed our
name to Elbit Imaging Ltd.

Pursuant
to Section 2 of 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. In addition, our Articles of
Association authorizes us to make, from time to time, contributions of reasonable
sums for worthy causes even if such contributions do not fall within our
business considerations as referred to in Section 11 of the Companies Law.

Approval of Certain Transactions

Generally,
under the Companies Law, engagement terms of directors, including the grant of
an exemption from liability, purchase of directors and officers insurance, or
grant of indemnification (whether prospective or retroactive) and engagement
terms of such director in other positions require the approval of the audit
committee, the board of directors and the shareholders of the company. In
addition, transactions between a public company and its officers or directors
or a transaction between such company and other person in which such officer or
director has a personal interest must be approved by such companys board of
directors, and if such transaction is considered an extraordinary transaction
(as defined below) the transaction must also be approved by such companys
audit committee.

- 107 -

---

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The
Companies Law also requires that any extraordinary transaction between a public
company and its controlling shareholder or an extraordinary transaction between
such company and other person in which such companys controlling shareholder
has a personal interest must be approved by the audit committee, the Board of
Directors and the shareholders of the company by a an ordinary majority,
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 and voting at the meeting (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
Companies Law prohibits any director who has a personal interest in a matter
from participating in the discussion and voting pertaining to such matter in
the companys board of directors or audit committee except for in circumstances
when the majority of the board of directors have a personal interest in the
matter in which case such matter must be approved by the companys
shareholders.

Our
Articles of Association further provide that, subject to the Companies Law, all
actions executed by the board of directors or by a committee thereof or by any
person acting as a director or a member of a committee of the board of
directors or by the general manager will be deemed to be valid even if, after
their execution, it is discovered that there was a certain flaw in the
appointment of such persons or that any one of such persons was disqualified
from serving at his or her office.

For the purpose of this section:

An
extraordinary transaction is defined in the Companies Law as any of the
following: (i) a transaction not in the ordinary course of business; (ii) a
transaction that is not on market terms; or (iii) a transaction that is likely
to have a material impact on the companys profitability, assets or liability.

A
personal interest is defined in the Companies Law as a personal interest of a
person in an act or transaction of a company, including: (i) a personal
interest of that persons relative (i.e.
spouse, brother or sister, parent, grandparent, child, child of such persons
spouse or the spouse of any of the above); or (ii) a personal interest of
another entity in which that person or his or her relative (as defined above)
holds 5% or more of such entitys issued shares or voting rights, has the right
to appoint a director or the chief executive officer of such entity, or serves
as director or chief executive officer of such entity. A personal interest
resulting merely from holding the companys shares will not be deemed a
personal interest.

Fiduciary Duty and Duty of Care of Directors
and Officers

The
Companies Law codifies the duties Officers owe to a company. An Officer is
defined in the Companies Law as a director, general manager, general business
manager, 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 Officers principal duties to the company are a duty of care and a
fiduciary duty to act in good faith for the companys benefit, which include:

|  |                                                                                                                                                                                     
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|s | the
  avoidance of any conflict of interest between the directors or officers
  position with the company and any other position he fulfills or with his
  personal affairs;      
|  |                                                                                                                                                                                     
|s | the
  avoidance of any act in competition with the companys business;                                                                                                              
|  |                                                                                                                                                                                     
|s | the
  avoidance of exploiting any of the companys business opportunities in order
  to gain a personal advantage for himself or for others; and                                    
|  |                                                                                                                                                                                     
|s | the
  disclosure to the company of any information and documentation relating to
  the companys affairs obtained by the director or officer due to his position
  with the company.

The
Companies Law requires that officers or a controlling shareholder of a public company
disclose to the company any personal interest that he or she may have, including all
related material facts or documents in connection with any existing or proposed
transaction by the company. The disclosure must be made without delay and no later than
the first board of directors meeting at which the transaction is first discussed.

Duty of a Shareholder

Under
the 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) the approval of
related party transactions. In addition, a shareholder shall refrain from
prejudicing the rights of other shareholders. 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 officer in the company or
possesses any other power towards the company, is subject to a duty to act in
fairness towards the company. The Companies Law does not detail the substance
of this duty.

- 108 -

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Board of Directors

In
accordance with our articles of association, the directors may, from time to
time, at their discretion, raise or borrow or secure the payment of any sum or
sums of money for the purposes of EI. The directors may secure the repayment of
such sum or sums in such manner and upon such terms and conditions in all
respects as they think fit, and in particular by the issue of notes or note
stock of EI charged upon all or any part of the property of EI (both present
and future) including its uncalled capital for the time being.

Neither
our memorandum or our articles of association, nor the laws of the State of
Israel require retirement or non-retirement of directors at a certain age, or
share ownership for directors qualification, nor do they contain any
restriction on directors borrowing powers.

Our
Articles of Association provide that the Board of Directors may delegate all of
its powers to such committees of the Board of Directors as it deems
appropriate, subject to the provisions of the Companies Law. See Item 6.C
Board Practices above.

Indemnification, exemption and insurance of Directors and
Officers

General
- EIs Articles of Association as amended following the approval of EIs
shareholders meeting dated November 1, 2007 set forth the following provisions
regarding the grant of exemption, insurance and indemnification to any director
and/or officer of EI, all subject to the provisions of the Israeli Companies
Law:

A.
Insurance - EI may insure the liability of any director and/or officer
therein to the fullest extent permitted by law. Without derogating from the
aforesaid EI may enter into a contract to insure the liability of a director
and/or officer therein for an obligation imposed on him in consequence of an
act done in his capacity as a director and/or officer therein, in any of the
following cases:

| |       |                                                                                                                                                                                              
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | A breach of the duty of
  care via-a-vis EI or via-a-vis another person;                                                                                                                     
| |       |                                                                                                                                                                                              
| | (ii)  | A breach of the fiduciary
  duty via-a-vis EI, provided that the director and/or officer acted in good
  faith and had reasonable basis to believe that the act would not harm the
  Company;
| |       |                                                                                                                                                                                              
| | (iii) | A monetary obligation
  imposed on him in favor of another person.                                                                                                                           
| |       |                                                                                                                                                                                              
| | (iv)  | Any other matter in respect
  of which it is permitted or will be permitted under applicable law to insure
  the liability of a director and/or officer in EI.                               

B.
Indemnification

(1)
EI may indemnify a director and/or officer therein, to the fullest extent permitted
by law. Without derogating from the aforesaid, EI may indemnify a director
and/or officer in EI for liability or expense imposed on him in consequence of
an action made by him in the capacity of his position as a director and/or
officer in EI, as follows:

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)
  Any financial liability he incurs or imposed on him in favor of another
  person in accordance with a judgment, including a judgment given in a
  settlement or a judgment of an arbitrator, approved by a court.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (ii)
  Reasonable litigation expenses, including legal fees, incurred by the
  director and/or officer or which he was ordered to pay by a court, within the
  framework of proceedings filed against him by or on behalf of EI, or by a
  third party, or in a criminal proceeding in which he was acquitted, or in a
  criminal proceeding in which he was convicted of a felony which does not
  require a criminal intent.                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (iii)
  Reasonable litigation expenses, including legal fees he incurs due to an
  investigation or proceeding conducted against him by an authority authorized
  to conduct such an investigation or proceeding, and which was ended without
  filing an indictment against him and without being subject to a financial
  obligation as a substitute for a criminal proceeding, or that was ended
  without filing an indictment against him, but with the imposition of a
  financial obligation, as a substitute for a criminal proceeding relating to
  an offence which does not require criminal intent, within the meaning of the
  relevant terms in the Companies Law.

- 109 -

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | 
| | (2)
  EI may give an advance undertaking to indemnify a director and/or officer
  therein in respect of the following matters:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (i)          Matters
  as detailed in section B(1)(i), provided however, that the undertaking is
  restricted to events, which in the opinion of the Board of Directors, are
  anticipated in light of the Companys actual activity at the time of granting
  the obligation to indemnify and is limited to a sum or measurement determined
  by the Board of Directors as reasonable under the circumstances. The
  indemnification undertaking shall specify the events that, in the opinion of
  the Board of Directors are expected in light of the Companys actual activity
  at the time of grant of the indemnification and the sum or measurement, which
  the Board of Directors determined to be reasonable under the circumstances.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (ii)          Matters as detailed in
  section (B)(1)(ii) and B(1)(iii).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | 
| | (iii)         Any matter permitted by
  applicable law.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | 
| | EI may indemnify a
  director and/or officer therein, save for the events subject to any
  applicable law.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 
| | The
  aggregate indemnification amount, shall not exceed the lower of (i) 25% of
  the shareholders equity of the Company as of the date of actual payment by
  the Company of the indemnification amount (as set forth in the EI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 EI, with respect to matters
  covered by such indemnification.                                                                                                                                                                                                                               

C.
Exemption - EI may exempt a director and/or officer therein in advance
and retroactively for all or any of his liability for damage in consequence of
a breach of the duty of care vis-a-vis EI, to the fullest extent permitted by
law.

D.
Insurance, Exemption and Indemnity - General

The
above provisions with regard to insurance, exemption and indemnity are not and
shall not limit EI in any way with regard to its entering into an insurance
contract and/or with regard to the grant of indemnity and/or exemption in
connection with a person who is not a director and/or officer of EI, including
employees, contractors or consultants of EI, all subject to any applicable law.

The
above provisions shall apply mutatis
mutandis in respect of the grant of insurance, exemption and/or
indemnification for persons serving on behalf of EI as directors and/or
officers in companies controlled by EI, or in which EI has an interest.

An
undertaking to insure, exempt and indemnify a director and/or officer in EI as
set forth above shall remain in full force and effect even following the
termination of such director and/or officers service with the Company.

E.
Prohibition on the grant of exemption, insurance and indemnification -
The Israeli Companies Law provides that a company may not give insurance,
indemnification nor exempt its directors and/or officers from their liability
in the following events:

| |       |                                                                                                                                                                                                                                                                                                      
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | a breach of
  the fiduciary duty vis-a-vis the company, except in relation to
  indemnification and insurance due to a breach of fiduciary duty towards the
  Company if the director or officer acted in good faith and had a reasonable
  basis to believe that the act would not harm the Company;
| |       |                                                                                                                                                                                                                                                                                                      
| | (ii)  | an
  intentional or reckless breach of the duty of care, except if such breach of
  duty of care was made in negligence only;                                                                                                                                                                        
| |       |                                                                                                                                                                                                                                                                                                      
| | (iii) | an act done
  with the intention of unduly deriving a personal profit; or                                                                                                                                                                                                                            
| |       |                                                                                                                                                                                                                                                                                                      
| | (iv)  | a fine
  imposed on the officer or director.                                                                                                                                                                                                                                                         

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 25,454,524 ordinary shares were
issued and outstanding as of May 31, 2008. Such number excludes 2,800,000
shares held by us or for our benefit which do not have any voting or equity
right.

- 110 -

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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 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.

If
a year passes after a dividend has been declared and such dividend remains
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 on an unclaimed dividend.

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 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 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.

As
the Nasdaq Marketplace Rules provide for a quorum to be not less that 33.33% of
the outstanding shares of the Companys common voting stock, our independent
counsel have informed Nasdaq our practice is not prohibited under our home
countrys law.

Rights to the Companys Profits

Our
shareholders have the right to share in our profits distributed as a dividend
and any other permitted distribution.

Rights in the Event of Liquidation and Winding Up

If
the Company is wound up voluntarily, the liquidators may, with the approval of
the majority of shareholders at the general meeting, divide among the members
in specie any part of the assets of the Company, and may, with such approval,
vest any part of the assets of the Company in trustees upon such trusts for the
benefit of the members as the liquidators with such approval shall think fit.

Changing Rights Attached to Shares

If
at any time 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, such
shareholders must adopt a resolution to change such rights. The provisions of
our Articles of Association relating to general meetings shall apply, mutatis mutandis, except that the
necessary quorum required shall be two persons 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.

- 111 -

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Annual and Special Meetings

In
accordance with the 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 from 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 (i) any two directors or 25% of the serving directors; or (ii) one
shareholder or more holding in the aggregate at least 5% of our issued capital
and at least 1% of the voting rights in the Company or one shareholder or more
holding at least 5% of the voting rights in the Company. An extraordinary
meeting must be held not more than 35 days from the publication date of the
announcement of the meeting.

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 non-residents of Israel and neither the memorandum or Articles
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 an enemy state of 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 our shareholders at a general
meeting by an ordinary majority.

Anti Takeover Provisions

The
Companies Law prohibits the purchase of our shares in the event the purchasers
holding following such purchase increase above certain percentages without
conducting a tender offer. See Item 3. D. Risk Factors - Risks Relating to
Israel - Anti-takeover provisions could negatively impact our shareholders
above.

Amendment of Articles of Association

Any
amendment to our Articles requires the approval of our shareholders by an
ordinary majority.  Our Articles of
Association were amended in November, 2007 following the approval of our
shareholders in November, 2007.

|   |                   
|-- | ------------------
|C. | MATERIAL CONTRACTS

The
following is a list of material agreements entered into by us or any of our
subsidiaries during the last two years prior to the filing of this annual
report:

Shopping and Entertainment Centers

Sale
of Arena Plaza in Budapest, Hungary

On
July 10, 2007, PC has executed a binding agreement for the sale of its entire
interest (100%) in a company which holds the rights in and to the Arena Plaza
shopping and entertainment center in Budapest (Arena) to a UK-based Active
Asset Investment Management (aAIM).

The
parties further agreed that aAIM would be entitled to receive all rental income
of the Arena as and from the closing (November 30, 2007). PC undertook to
complete the agreed upon construction works for the completion of the Arena at
an agreed amount which was deducted from the purchase price and was deposit
into an escrow account.

The
value of the Arena at the closing was determined to be 381 million (NIS 2,156
million; $560.6 million) which was calculated based on gross rentals prevailing
at the closing capitalized at agreed yields. Purchase price adjustment will be
conducted in respect of additional leases during the two consecutive earn-out
periods, which end three months and twelve months respectively following the
closing. Notwithstanding the above, the value of the Arena is capped to the
amount of  400 million. The cash consideration, which was paid to PC on
January 21, 2008, amounted to 254.8 million (NIS 1,419 million) and was
determined according to the value of the Arena together with monetary assets
and other debit balances, after deduction of bank and other monetary
liabilities pertaining thereto.

In
the framework of this transaction, we have undertaken to indemnify aAIM for
certain losses and costs incurred in connection with the sale. The
indemnifications include: (i) Indemnifications in respect of integrity of title
on the assets and/or the shares sold (i.e.:
that the assets and/or the shares are wholly owned and are clean from any
encumbrances and/or mortgage etc.), which survive indefinitely and are capped
at the full amount of the transaction purchase price; and (ii) Indemnifications
in respect of breaches of covenants and the representation and warranties given
by us under the sale agreements (such as: development of the project,
responsibility to defects in the development project, tax matter and others),
which are limited in time (18 months from closing) and are generally capped at
25% of the purchase price.

- 112 -

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Sale
of four Operational Shopping and Entertainment Centers in Poland and four
Shopping and Entertainment Centers Under Development in Poland and the Czech
Republic to Klepierre

On
July 29, 2005, PC signed agreements with Klépierre for the sale of four operational
shopping and entertainment centers in Poland and four shopping centers under development
in Poland and in the Czech Republic upon their construction. In addition, PC has awarded
Klépierre with an option to acquire an additional center under development in
Poland (the Lublin Plaza in Poland, then under development), subject to certain
conditions. The option was since exercised, as herein-below described.

The transaction is comprised of two
stages.

Within
the framework of the first stage of the transaction (Stage A),
Klépierre acquired the entire equity and voting rights (100%) of the companies
owning four operational shopping centers in Poland (Sadyba Best Center, Krakow Plaza, Ruda
Slaska Plaza and Poznan Plaza) as well as the entire outstanding share capital of
PCs Polish subsidiary which operates the operational centers. The consideration was
based on asset value of the centers sold which amounted (following purchase price
adjustments carried out in 2006) to approximately 213 million. The aggregate net
consideration received by us following the aforementioned purchase price adjustments, was
approximately 82.9 million.

Under
the second stage of the transaction, the parties have agreed on the future
acquisition by Klepierre of all equity and voting rights (100%) in the
companies developing two shopping centers in Poland (Rybnik Plaza and Sosnoweic
Plaza), two companies developing shopping centers in the Czech Republic (Novo
Plaza and Pilzen Plaza) and an option under certain conditions, to acquire all
equity and voting rights of a third company developing a shopping center in
Poland, upon the fulfillment of certain conditions, on same terms and
conditions applicable to the remaining centers (the Lublin Plaza) (Stage B).
The purchase price of each specific center is to be calculated based on gross
rentals prevailing at a date close to delivery, capitalized at agreed yields. A
final purchase price adjustment for each of these development centers will be
conducted not later than 10 months following delivery, on the basis of actual
gross rentals prevailing on their respective adjustment dates, discounted at
the agreed yields.

In
June 2006 PC completed the construction of the Novo Plaza shopping and
entertainment center and in accordance with the terms of the agreement it was
delivered to Klepierre. The asset value of the Novo Plaza, following execution
of price adjustment, totaled 43.9 million ($63.6 million; NIS 244.5 million)
and the net cash consideration paid to PC amounted to 5 million ($7.4 million;
NIS 28.3 million).

In
May 2007 PC has formally completed the hand over of the Rybnik Plaza and the Sosnowiec
Plaza shopping and entertainment centers to Klepierre in accordance with the terms of the
Stage B agreement. The asset value of such centers amounted to 89.3 million
(approximately $131.3 million; approximately NIS 505 million) and the net cash
consideration paid to PC for such transactions amounted to 48.2 million
(approximately $71 million NIS 273 million).

In
July 2007 PC and its partner in the Lublin Plaza project (Vendor) executed an
agreement with Klepierre for the sale of their respective interest in the joint
venture company holding the Lublin Plaza shopping and entertainment center to
Klepierre in accordance with the terms of the Stage B transaction. The asset
value (100%) as at closing amounted to 78 million (approximately $114.8
million; approximately. NIS 441.4 million) and the cash consideration paid to
PC amounted to  27.3 million (approximately $40.2 million NIS 154.5 million).

As
at the date of this annual report, the Pilzen Plaza shopping and entertainment center has
been completed but is yet to be delivered to Klepierre, which delivery is expected to be
carried out during 2008.

As
to the indemnity issued by PC to Klepierre see Item 5.E. Off-Balance Sheet
Arrangements.

Sale
of Arena Shopping and Entertainment Center in Hertzliya, Israel

In
July 2007, Elscint, our  wholly owned
subsidiary, has consummated a transaction with Israel Financial Levers Ltd.
(Israel Financial Levers) for the sale of the Arena Shopping and
Entertainment Center, located at the Hertzliya Marina in Israel (Arena
Center), pursuant to which Israel Financial Levers acquired all rights in and
to the Arena Center reflecting an asset value of NIS 538 million (approximately
$139.9 million) The net consideration received by us was NIS 331 million
(approximately $86 million). Following purchase price adjustments, to be
calculated based on Arena Centers adjusted rent revenues (as this term is
defined in the agreement) as of June 30, 2009, an additional amount of up to
NIS 10.5 million (approximately $2.7 million) may be paid to us.

Hotels Business

Management
agreement with Park Plaza

For
information regarding the management agreement with Park Plaza, see Item 4.B.
Business Overview - Hotels - Management of Hotels - Management Agreement with
Park Plaza above.

- 113 -

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General

Issuance
of Series B Notes by PC

For
information regarding the issuance of Series B Notes by PC see Item 4.A.
Business Overview  History and Development of the Company above and Item 5.B.
- Liquidity and Capital Resources - Liquidity - Other Loans, below.

|   |                    
|-- | -------------------
|D. | EXCHANGE
  CONTROLS

In
1998, the government of Israel promulgated a general permit under the Israeli
Currency Control Law. Pursuant to such permit, substantially all transactions
in foreign currency are permitted.

Our
Memorandum and Articles of Association do not restrict in any way the ownership
of our shares by non-residents and neither the Memorandum of Association nor
Israeli law restricts the voting rights of non-residents.

|   |         
|-- | --------
|E. | TAXATION

The
following is a discussion of certain tax laws that may be material to our
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.
For further information as to taxes that apply to us and our subsidiaries, see
Note 16 to our consolidated financial statements included in Item 18 below.

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 TAXES.

Taxation in Israel

On
January 1, 2006 an amendment to the Israeli tax regime became effective (the
2006 Tax Reform). The 2006 Tax Reform significantly changed the tax rates
applicable to income derived from shares.

Capital
Gains Tax on Sales of Our Ordinary Shares

Israeli
law generally imposes a capital gains tax on the sale of capital assets, by
both residents and non-residents of Israel, if those assets either (i) are
located in Israel; (ii) are shares or a right to a share in an Israeli resident
corporation; or (iii) represent, directly or indirectly, rights to assets
located in Israel, unless a specific exemption is available or unless a double
tax convention concluded between Israel and the shareholders country of
residence provides otherwise. The law distinguishes between real gain and
inflationary surplus. The inflationary surplus is equal to the increase in the
purchase price of the relevant asset attributable solely to the increase in the
Israeli consumer price index between the date of purchase and the date of sale.
The real gain is the excess of the total capital gain over the inflationary
surplus.

According
to the 2006 Tax Reform, the capital gain accrued by individuals on the sale of
an asset purchased on or after January 1, 2003 will be taxed at the rate of
20%. However, if the individual shareholder is a Controlling Shareholder (i.e., a person who holds, directly or
indirectly, alone or together with other, 10% or more of one of the Israeli
resident companys means of control at the time of sale or at any time during
the preceding 12 month period), such gain will be taxed at the rate of 25%. In
addition, capital gain derived by an individual claiming deduction of financing
expenses in respect of such gain will be taxed at the rate of 25%. The real
capital gain derived by corporation (which was not subject to the provision of
the Inflationary Adjustment Law, prior to the publishing of amendment no. 147
to the Income Tax Ordinance, in 2005) will be subject to tax at the rate of
25%. However, the real capital gain derived from sale of securities, as defined
in Section 6 of the Inflationary Adjustment Law, by a corporation, which was
subject in 2005 to the provisions of Section 6 of the Inflationary Adjustment
Law, will be taxed at the regular corporate tax rate (29% in 2007). Individual
and corporate shareholders dealing in securities in Israel are taxed at the tax
rates applicable to business income (in 2007
- 29% tax rate for a corporation and a marginal
tax rate of up to 48% for individual).

The
capital gain accrued on the sale of an asset purchased prior to January 1, 2003
will be subject to tax at a blended rate.

Notwithstanding
the foregoing, if the shareholder is a non-Israeli resident, then such taxation
is subject to the provision of any applicable double tax treaty. Moreover,
capital gain derived from the sale of the Shares by a non-Israeli shareholder
may be exempt under the Israeli income tax ordinance from Israeli taxation
provided the following cumulative conditions are met: (i) the Shares were
purchased upon or after the registration of the Shares on the stock exchange,
(ii) the seller doesnt have a permanent establishment in Israel to which the
derived capital gain is attributed and (iii) if the seller is a corporation,
less than 25% of its means of control or beneficiary rights in the revenues or
profits of such corporation, whether directly or indirectly, are held by
Israeli resident shareholders. In addition, the sale of the Shares may be
exempt from Israeli capital gain tax under an applicable tax treaty.

- 114 -

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Pursuant
to the Convention between the Government of the United States of America and
the Government of Israel with Respect to Taxes on Income, as amended (the the
U.S.- Israel Tax Treaty), the sale, exchange or disposition of ordinary shares
by a person who (i) holds the ordinary shares as a capital asset, (ii)
qualifies as a resident of the United States within the meaning of the
U.S.-Israel Tax Treaty and (iii) is entitled to claim the benefits afforded to
such resident by the U.S.-Israel Tax Treaty generally will not be subject to
Israeli capital gains tax unless (i) either such resident holds, directly or
indirectly, shares representing 10% or more of the voting power of a company
during any part of the 12-month period preceding such sale, exchange or
disposition, subject to certain conditions, or (ii)_the capital gains from such
sale, exchange or disposition can be allocated to a permanent establishment in
Israel. In the event that the exemption shall not be available, the sale,
exchange or disposition of ordinary shares would be subject to such Israeli
capital gains tax to the extent applicable; however, under the U.S.-Israel Tax
Treaty, such residents should be permitted to claim a credit for such taxes
against U.S. federal income tax imposed with respect to such sale, exchange or
disposition, subject to the limitations in U.S. laws applicable to foreign tax
credits. The U.S.-Israel Tax Treaty does not relate to state or local taxes.

In
some instances where our shareholders may be liable to Israeli tax on the sale
of their ordinary shares, the payment of the consideration may be subject to the
withholding of Israeli tax at the source.

Foreign
Exchange Regulations

Dividends
(if any) paid to the holders of our ordinary shares, any amounts payable upon
our dissolution, liquidation or winding up, and as the proceeds of any sale of
our ordinary shares in Israel may be paid in non-Israeli currency or, if paid
in Israeli currency, may be converted into freely repatriable dollars at the
rate of exchange prevailing at the time of conversion.

Taxation
of dividends Distributions

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

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

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

- 115 -

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U.S. Federal Income Tax Considerations

Subject
to the limitations described herein, this discussion summarizes certain U.S. federal
income tax consequences of the purchase, ownership and disposition of our ordinary shares
to a U.S. holder. A U.S. holder is a holder of our ordinary shares who is:

| |   |                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | s | an
  individual citizen or resident of the U.S. for U.S. federal income tax
  purposes;                                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                             
| | s | a
  corporation (or another entity taxable as a corporation for U.S. federal
  income tax purposes) created or organized under the laws of the United
  States, any political subdivision thereof or the District of Columbia;                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                             
| | s | an estate,
  the income of which may be included in the gross income for U.S. federal
  income tax purposes regardless of its source; or                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                             
| | s | a trust if, in general, (i) a U.S. court is able to exercise primary supervision over its
administration and one or more U.S. persons have the authority to control all of its
substantial decisions, or (ii) that has in effect a valid election under applicable U.S.
Treasury Regulations to be treated as a U.S. person.

Unless
otherwise specifically indicated, this discussion does not consider the U.S.
tax consequences to a person that is not a U.S. holder (a non-U.S. holder)
and considers only U.S. holders that will own the ordinary shares as capital
assets (generally, for investment).

This
discussion is based on current provisions of the Internal Revenue Code of 1986, as amended
(the Code), current and proposed Treasury Regulations promulgated under the
Code and administrative and judicial interpretations of the Code, all as currently in
effect and all of which are subject to change, possibly with retroactive effect. This
discussion does not address all aspects of U.S. federal income taxation that may be
relevant to any particular U.S. holder based on the U.S. holders particular
circumstances. In particular, this discussion does not address the U.S. federal income tax
consequences to U.S. holders who are broker-dealers; who have elected mark-to-market
accounting; who own, directly, indirectly or constructively, 10% or more of our
outstanding voting shares; U.S. holders that received ordinary shares as a result of
exercising employee stock options or otherwise as compensation; U.S. holders holding the
ordinary shares as part of a hedging, straddle or conversion transaction; U.S. holders
whose functional currency is not the U.S. dollar, real estate investments trusts,
regulated investment companies, insurance companies, tax-exempt organizations, financial
institutions, grantor trusts; certain former citizens or long term residents of the United
States; and persons subject to the alternative minimum tax, who may be subject to special
rules not discussed below. Additionally, the tax treatment of persons who are, or hold the
ordinary shares through, a partnership or other pass-through entity is not considered, nor
is the possible application of U.S. federal estate or gift taxes or any aspect of state,
local or non-U.S. tax laws.

Each
holder of our ordinary shares is advised to consult his or her tax advisor with respect to
the specific U.S. federal, state, local and foreign tax consequences to him or her of
purchasing, holding or disposing of our ordinary shares.

Distributions

Subject
to the discussion below under Tax Consequences if We are a Passive Foreign
Investment Company, a distribution paid by us with respect to the ordinary shares to
a U.S. holder will be treated as dividend income to the extent that the distribution does
not exceed our current and accumulated earnings and profits, as determined for U.S.
federal income tax purposes. The amount of a distribution with respect to the ordinary
shares will equal the amount of cash and the fair market value of any property distributed
and will also include the amount of any non-U.S. taxes withheld from such distribution.
Dividends that are received by U.S. holders that are individuals, estates or trusts will
be taxed at the rate applicable to long-term capital gains (a maximum rate of 15% for
taxable years beginning on or before December 31, 2010), provided that such dividends meet
the requirements of qualified dividend income. For this purpose, qualified
dividend income generally includes dividends paid by a non-U.S. corporation if certain
holding period and other requirements are met and either (a) the stock of the non-U.S.
corporation with respect to which the dividends are paid is readily tradable
on an established securities market in the U.S. (e.g., the Nasdaq Global Select Market) or
(b) the non-U.S. corporation is eligible for benefits of a comprehensive income tax treaty
with the U.S. which includes an information exchange program and is determined to be
satisfactory by the U.S. Secretary of the Treasury. The United States Internal Revenue
Service (IRS) has determined that the U.S.-Israel income tax treaty is
satisfactory for this purpose. Dividends that fail to meet such requirements, and
dividends received by corporate U.S. holders are taxed at ordinary income rates. No
dividend received by a U.S. holder will be a qualified dividend (1) if the U.S.
holder held the ordinary share with respect to which the dividend was paid for less than
61 days during the 121-day period beginning on the date that is 60 days before the
ex-dividend date with respect to such dividend, excluding for this purpose, under the
rules of Code Section 246(c), any period during which the U.S. holder has an option to
sell, is under a contractual obligation to sell, has made and not closed a short sale of,
is the grantor of a deep-in-the-money or otherwise nonqualified option to buy, or has
otherwise diminished its risk of loss by holding other positions with respect to, such
ordinary share (or substantially identical securities); or (2) to the extent that the
U.S. holder is under an obligation (pursuant to a short sale or otherwise) to make related
payments with respect to positions in property substantially similar or related to the
ordinary share with respect to which the dividend is paid. If we were to be a
passive foreign investment company (as such term is defined in the Code) for
any taxable year, dividends paid on our ordinary shares in such year or in the following
taxable year would not be qualified dividends. See discussion below regarding our PFIC
status at Tax Consequences If We Are a Passive Foreign Income Company. In
addition, a non-corporate U.S. holder will be able to take a qualified dividend into
account in determining its deductible investment interest (which is generally limited to
its net investment income) only if it elects to do so; in such case the dividend will be
taxed at ordinary income rates.

- 116 -

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The
amount of any distribution which exceeds the amount treated as a dividend will
be treated first as a non-taxable return of capital, reducing the U.S. holders
tax basis in its ordinary shares to the extent thereof, and then as capital
gain from the deemed disposition of the ordinary shares. Corporate holders will
not be allowed a deduction for dividends received in respect of the ordinary
shares.

Dividends
paid by us in NIS will be included in the income of U.S. holders at the dollar amount of
the dividend (including any non-U.S. taxes withheld therefrom), based upon the spot rate
of exchange in effect on the date the distribution is included in income. U.S. holders
will have a tax basis in the NIS for U.S. federal income tax purposes equal to that dollar
value. Any subsequent gain or loss in respect of the NIS arising from exchange rate
fluctuations will generally be taxable as U.S. source ordinary income or loss.

Subject
to certain conditions and limitations set forth in the Code and the Treasury Regulations
thereunder, including certain holding period requirements, U.S. holders may elect to claim
as a foreign tax credit against their U.S. federal income tax liability the non-U.S.
income taxes withheld from dividends received in respect of the ordinary shares. The
limitations on claiming a foreign tax credit include, among others, computation rules
under which foreign tax credits allowable with respect to specific classes of income
cannot exceed the U.S. federal income taxes otherwise payable with respect to each such
class of income. In this regard, dividends paid by us generally will be foreign source
passive income for U.S. foreign tax credit purposes. U.S. holders that do not
elect to claim a foreign tax credit may instead claim a deduction for the non-U.S. income
taxes withheld if they itemize deductions for U.S. federal income tax purposes. The rules
relating to foreign tax credits are complex, and U.S. holders should consult their tax
advisors to determine whether and to what extent they would be entitled to this credit.

Disposition of Ordinary Shares

Subject
to the discussion below under Tax Consequences If We Are a Passive Foreign
Investment Company, upon the sale, exchange or other disposition of our ordinary
shares, a U.S. holder will recognize capital gain or loss in an amount equal to the
difference between the amount realized on the disposition and the U.S. holders tax
basis in the ordinary shares. The gain or loss recognized on the disposition of the
ordinary shares will be long-term capital gain or loss if the U.S. holder held the
ordinary shares for more than one year at the time of the disposition. Long-term capital
gains are subject to a maximum rate of 15% for taxable years beginning on or before
December 31, 2010. Capital gain from the sale, exchange or other disposition of ordinary
shares held for one year or less is short-term capital gain and taxed at ordinary income
tax rates. Gain or loss recognized by a U.S. holder on a sale, exchange or other
disposition of ordinary shares generally will be treated as U.S. source income or loss for
U.S. foreign tax credit purposes. A U.S. holder that receives foreign currency upon
disposition of ordinary shares and converts the foreign currency into dollars after the
settlement date (in the case of a cash method taxpayer or an accrual method taxpayer that
elects to use the settlement date) or trade date (in the case of an accrual method
taxpayer) may have foreign exchange gain or loss based on any appreciation or depreciation
in the value of the foreign currency against the dollar, which will generally be U.S.
source ordinary income or loss.

Tax Consequences If We are a Passive Foreign Investment
Company

We
will be a passive foreign investment company, or PFIC, if either (1) 75% or
more of our gross income in a taxable year is passive income or (2) 50% or more
of the value, determined on the basis of a quarterly average, of our assets in
a taxable year are held for the production of passive income. If we own
(directly or indirectly) at least 25% by value of the stock of another
corporation, we will be treated for purposes of the foregoing tests as owning
our proportionate share of that other corporations assets and as directly
earning our proportionate share of that other corporations income. If we are a
PFIC, a U.S. holder must determine under which of three alternative taxing
regimes it wishes to be taxed.

The
QEF regime applies if the U.S. holder elects to treat us as a qualified
electing fund (QEF) for the first taxable year in which the U.S. holder owns
our ordinary shares or in which we are a PFIC, whichever is later, and if we
comply with certain reporting requirements. If the QEF regime applies, then
each taxable year that we are a PFIC such U.S. holder will include in its gross
income a proportionate share of our ordinary earnings (which is taxed as
ordinary income) and net capital gain (which is taxed as long-term capital
gain), subject to a separate election to defer payment of taxes, which deferral
is subject to an interest charge. These amounts would be included in income by
an electing U.S. holder for its taxable year in which our taxable year ends, whether
or not such amounts are actually distributed to the U.S. holder. A U.S.
holders basis in our ordinary shares for which a QEF election has been made
would be increased to reflect the amount of any taxed but undistributed income.
Generally, a QEF election allows an electing U.S. holder to treat any gain
realized on the disposition of its ordinary shares as capital gain.

- 117 -

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Once
made, the QEF election applies to all subsequent taxable years of the U.S.
holder in which it holds our ordinary shares and for which we are a PFIC and
can be revoked only with the consent of the IRS. A shareholder makes a QEF
election by attaching a completed IRS Form 8621, including the PFIC annual
information statement, to a timely filed United States federal income tax
return. Even if a QEF election is not made, a U.S. person who is a shareholder
in a PFIC must file a completed IRS Form 8621 every year.

If
a QEF election is made after the first taxable year in which a U.S. holder
holds our ordinary shares and we are a PFIC, then special rules would apply.

A
second regime, the mark-to-market regime, may be elected so long as our
ordinary shares are marketable stock (i.e., regularly
traded on the Nasdaq Global Select Market). Pursuant to this regime, an electing
U.S. holders ordinary shares are marked-to-market each taxable year that we are a
PFIC and the U.S. holder recognizes as ordinary income or loss an amount equal to the
difference as of the close of the taxable year between the fair market value of our
ordinary shares and the U.S. holders adjusted tax basis in our ordinary shares.
Losses are allowed only to the extent of net mark-to-market gain previously included by
the U.S. holder under the election for prior taxable years. An electing U.S. holders
adjusted basis in our ordinary shares is increased by income recognized under the
mark-to-market election and decreased by the deductions allowed under the election.

Under
the mark-to-market election, gain on the sale of our ordinary shares is treated
as ordinary income, and loss on the sale of our ordinary shares, to the extent
the amount of loss does not exceed the net mark-to-market gain previously
included, is treated as ordinary loss.
Any loss on the sale of our ordinary shares in excess of net
mark-to-market gain previously included is generally treated as a capital
loss.  The mark-to-market election
applies to the taxable year for which the election is made and all later
taxable years, unless the ordinary shares cease to be marketable stock or the
IRS consents to the revocation of the election.

If
the mark-to-market election is made after the first taxable year in which a
U.S. holder holds our ordinary shares and we are a PFIC, then special rules
would apply.

A
U.S. holder making neither the QEF election nor the mark-to-market election is subject to
the excess distribution regime. Under this regime, excess
distributions are subject to special tax rules. An excess distribution is either (1)
a distribution with respect to shares that is greater than 125% of the average
distributions received by the U.S. holder from us over the shorter of either the preceding
three taxable years or such U.S. holders holding period for our shares prior to the
distribution year, or (2) gain from the disposition of our shares (including gain deemed
recognized if the ordinary shares are used as security for a loan).

Excess distributions must be
allocated ratably to each day that a U.S. holder has held our ordinary shares. A U.S.
holder must include amounts allocated to the current taxable year, as well as amounts
allocated to taxable years prior to the first taxable year in which we were a PFIC, in its
gross income as ordinary income for that year. All amounts allocated to other taxable
years would be taxed at the highest tax rate for each such prior year applicable to
ordinary income and the U.S. holder also would be liable for interest on the deferred tax
liability for each such year calculated as if such liability had been due with respect to
each such year. A U.S. person who inherits shares in a non-U.S. corporation that was a
PFIC in the hands of the decedent generally is denied the otherwise available step-up in
the tax basis of such shares to fair market value at the date of death.

We
believe that we were not a PFIC in 2007 or in prior taxable years. However, since the
determination of whether we are a PFIC is based upon such factual matters as the valuation
of our assets and, in certain cases, the assets of companies held by us, there can be no
assurance with respect to the position of the IRS on our status as a PFIC. In addition,
there can be no assurance that we will not become a PFIC for the current taxable year
ending December 31, 2008 or in a future taxable year. We will notify U.S. holders in the
event we conclude that we will be treated as a PFIC for any taxable year to enable U.S.
holders to consider whether or not to elect to treat us as a QEF for U.S. federal income
tax purposes, or to mark-to-market the ordinary shares or to become subject to
the excess distribution regime.

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

Non-U.S. Holders

Subject
to the discussion below under Information Reporting and Back-up Withholding,
a non-U.S. holder of our ordinary shares generally will not be subject to U.S.
federal income or withholding tax on the payment of dividends on, and the
proceeds from the disposition of, our ordinary shares, unless, in the case of
U.S. federal income taxes (i) the item is effectively connected with the
conduct by the non-U.S. holder of a trade or business in the United States and
in the case of a resident of a country which has a treaty with the United
States, the item is attributable to a permanent establishment, or in the case
of an individual, the item is attributable to a fixed place of business in the
United States, or (ii) non-U.S. holder is an individual who holds the ordinary
shares as a capital asset and is present in the United States for 183 days or
more in the taxable year of the disposition and certain other conditions are
met.

- 118 -

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Information Reporting and Backup Withholding

U.S.
holders (other than exempt recipients such as corporations) generally are
subject to information reporting requirements with respect to dividends paid on
Ordinary Shares in the United States or by a U.S. payor or U.S. middleman or
the gross proceeds from disposing of Ordinary Shares. U.S. holders generally
are also subject to backup withholding (currently 28% for taxable years through
2010) on dividends paid in the United States or by a U.S. payor or U.S.
middleman on Ordinary Shares and on the gross proceeds from disposing of
Ordinary Shares, unless the U.S. holder provides an IRS Form W-9 or is
otherwise exempt from backup withholding.

Non-U.S.
holders generally are not subject to information reporting or backup
withholding with respect to dividends paid on Ordinary Shares in the United
States or by a U.S. payor or U.S. middleman or the gross proceeds from the
disposition of Ordinary Shares, provided that such non-U.S. holder certifies to
its foreign status, or is otherwise exempt from backup withholding or information
reporting.

The
amount of any backup withholding may be allowed as a credit against a holders
U.S. federal income tax liability and may entitle such holder to a refund
provided that certain required information is timely furnished to the IRS.

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                              
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------
|F.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | DIVIDENDS
  AND PAYING AGENTS
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Not applicable.              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                              
|G.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | STATEMENT
  BY EXPERTS       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Not applicable.              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                              
|H.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | DOCUMENTS
  ON DISPLAY       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|EI
is subject to the informational requirements of the Exchange Act. In
accordance with these requirements, EI 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 100 F Street, N.W., Washington, D.C. 20549. 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. Additionally,
copies of the materials may be obtained from the SECs website at
http://www.sec.gov.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                              
|I.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | SUBSIDIARY
  INFORMATION     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Not applicable.              

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

A. Management of financial risks

The
operations of the Company and its subsidiaries and jointly-controlled companies
(in this Item 11, the Group) expose it to risks that relate to various
financial instruments, such as market risks (including currency risk, fair
value risk with respect to interest rates, cash flow risk with regard to
interest rates and price risk), credit risk and liquidity risk. The
comprehensive risk management program of the Group focuses on actions to reduce
the possible negative effects on the financial performance of the Group to a
minimum. In certain cases the Group uses derivative financial instruments in
order to hedge certain risk exposures.

The
Companys Board of Directors has overall responsibility for the establishment
and oversight of the Groups risk management framework. The Companys Board of
Directors has established a continuous process for identifying and managing the
risks faced by the Group, and confirms that any appropriate actions have been
or are being taken to address any weaknesses. The Board of Directors has
established an investment committee, which is responsible for developing and
monitoring the Groups financial risk management policies and determining the
EIs investments in short-term liquidity funds, all in order to preserve money
value. The risk management policies and systems are reviewed regularly to
reflect changes in market conditions and the Groups activities.

- 119 -

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As of December 31, 2007, the
Group had exposure to the following risks that are related to financial
instruments:

1. Foreign currency risk

The
Group has international activities in many countries and, therefore, it is
exposed to foreign currency risks as a result of fluctuations in the different
exchange rates. Foreign currency risks steam from transactions executed and/or
financial assets and liabilities held in currency which is different than the
functional currency of the Groups entity which executed the transaction or
hold these financial assets and liabilities. In order to minimize such
exposure, the Group policy is to hold financial assets and liabilities in a
currency which is the functional currency of the specific entity in the Group.
The Companys functional currency is the NIS and our investees use different
functional currencies (mainly the Euro, GBP, US Dollar and the RON). In
addition, part of the Companys long-term loans (mainly Euro and US Dollar) are
hedged against the Companys investments in foreign operations.

The
following table details sensitivity analysis to a change of 10% in the Groups
main foreign currencies items as of December 31, 2007 against their relevant
functional currency and their effect on the Companys statements of income
(before tax and before capitalizing any exchange results to qualified assets):

|                             |  |                     |  |                  |  |                                 |  |               |   |  |         |     
|---------------------------- |  | ------------------- |  | ---------------- |  | ------------------------------- |  | ------------- | - |  | ------- | ----
|                             |  | Functional currency |  | Linkage currency |  | Change in the exchange rate (%) |  | Profit (loss) |  
|                             |  |                     |  |                  |  |                                 |  |               |  
|                             |  | (in thousand NIS)  
|                             |  |                     | 
|                             |  |                    
|Financial assets             |  |                     |  |                  |  |                                 |  |               |   |  |         |     
|Cash and deposits            |  | NIS                 |  |                  |  | US
  Dollar                     |  | +10           | % |  | 27,030  |     
|Cash and deposits            |  | NIS                 |  |                  |  | Euro                            |  | +10           | % |  | 7,973   |     
|                             |  |                     |  |                  |  |                                 |  |               |   |  |         |     
|                             |  |                     |  |                  |  |                                 |  |               |   |  | 35,003  |     
|                             |  |                     |  |                  |  |                                 |  |               |   |  |         |     
|                             |  |                     |  |                  |  |                                 |  |               |   |  |         |     
|Financial Liablities         |  |                     |  |                  |  |                                 |  |               |   |  |         |     
|Loans at amortized cost      |  | NIS                 |  |                  |  | US
  Dollar                     |  | +10           | % |  | (12,786 | )(*)
|Loans at amortized cost      |  | NIS                 |  |                  |  | Euro                            |  | +10           | % |  | (24,318 | )(*)
|Debentures at amortized cost |  | NIS                 |  |                  |  | US
  Dollar                     |  | +10           | % |  | (5,788  | )   
|Loans at amortized cost      |  | RON                 |  |                  |  | Euro                            |  | +10           | % |  | (26,024 | )   
|Loans at amortized cost      |  | RON                 |  |                  |  | US
  Dollar                     |  | +10           | % |  | (4,236  | )   
|                             |  |                     |  |                  |  |                                 |  |               |   |  |         |     
|                             |  |                     |  |                  |  |                                 |  |               |   |  | (73,152 | )   
|                             |  |                     |  |                  |  |                                 |  |               |   |  |         |     

|    |                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(*) | The effect of the exchange
  rates result in respect of these financial liabilities will be offset against
  the exchange rate resulting from our investments in the foreign operations
  which has the same functional currency.

2. Price risk

Marketable
securities

The
Company invests in marketable securities based on the investment policy adopted
by the Companys investment committee. In accordance with this policy, the
Company will invest up to NIS 500.0 million ($130.0 million) through several
Israeli investment houses. The portfolio investment will be divided as follows:
up to 15% in shares and at least 85% in government bonds and corporate bonds
with a rating of at least A, on a local scale. In addition the portfolio may
not include investment in derivative instruments and trust funds.

The
Groups investments in marketable securities are classified as trading
securities and are, therefore, exposed to market-price fluctuations which will
be recorded as gains or losses in the statements of income. Capital markets are
subject to fluctuations in respect of events over which the Group has no
control. Such changes may have an impact on the value of these investments upon
realization.

An
increase of 10% in the prices of the Group marketable securities as of December
31, 2007 will increase our finance income by NIS 54.2 million.

- 120 -

---

---



Embedded
derivative

The
Group is committed to pay to a financing bank additional exit fee in the event
of cash distributions deriving from the sale, disposal, refinancing of the Park
Plaza Victoria London, Park Plaza Riverbank and Park Plaza Sherlock Holmes
hotels which were financed by the bank loan funds or in the event of other
repayment of the loan (the Transaction). For more information, see Item 5.B
- Liquidity and Capital Resources - Other Loans.  The exit fee will be calculated as the amount equivalent to 15%
of the difference between the market value of the hotels as determined in such
Transaction and the current agreed value of the hotels. In accordance with the
IFRSs, the embedded derivative included in the host contracts (i.e.: the loan agreement) is measured at
fair value at each balance sheet date. Such measurement is preformed using the
Black-Scholes model. One of the most significant parameters which influences
the fair value of the embedded derivative is the market value of the underlying
assets (i.e.: the value of the
hotels which were financed by the loan).

An
increase in the fair value of the above-mentioned underlying assets will cause
an increase in the fair value of the embedded derivative which will lead to a
loss of NIS 5.3 million.

3.
Credit risk

The
Group holds cash and cash equivalents, short-term investments and other
financial instruments in various reputable banks and financial institutions.
These banks and financial institutions are located in different geographical
regions, and it is the Groups policy to disperse its investments among
different banks and financial institutions.

Due
to the nature of certain Groups activities, the Group companies which operate
the hotels, the image guided treatment and the fashion retail businesses, are
not materially exposed to credit risks stemming from dependence on a given
customer. The Group examines on an ongoing basis the credit amounts extended to
its customers and, accordingly, records a provision for doubtful debts based on
such factors it considers as having an effect on specific customers. Trade
account receivable as of December 31, 2007 and 2006 included balances due from
buyers of trading property in the amount of NIS 1,476 million ($383.8 million)
and NIS 23.8 million, respectively. The vast majority of these amounts are
secured by non-refundable bank guarantee provided to the Group by the debtor
and, therefore, the Group is not exposed to significant risks from such trade
receivable.

4.
Interest rate risk

Fair
value risk

A
significant portion of the Groups long-term loans and notes bear fixed interest rate
and, therefore, expose the Group to changes in their fair value as a result of changes in
the market interest rate. The vast majority of these loans and notes are measured at
amortized cost and, accordingly, changes in the fair value will not have any effect on the
statement of income.

PCs
Series A notes, issued in July 2007, are linked to the Israeli CPI and bear a
fixed interest rate of 5% per annum. Consistent with its risk management
policies, PC entered into a cross currency interest rate swap transaction,
pursuant to which PC will pay six month Euribor + 2.19% interest and receive 5%
interest linked to the Israeli CPI with the same amortization schedule as the
Series A notes. The derivative is measured at fair value with changes in the
fair value are charged to the statements of income. The Series A Notes are
designated to fair value through profit and loss since it is significantly
reduce a measurement or recognition inconsistently with the said derivative. As
a result, the fair value of such notes is exposed to changes in interest rate.

- 121 -

---

---



The
following table analyses the change in the fair value of the Series A Notes and
the derivative as of December 31, 2007. This analysis assumes that in each case
all other parameters affecting the derivative and such notes fair value remain
constant:

|                                                |  |                       |  |               |  
|----------------------------------------------- |  | --------------------- |  | ------------- | -
|                                                |  | Scope of
  change
  % |  | Profit
(loss) |  
|                                                |  |                       |  |               |  
|                                                |  |                       |  | NIS
thousands |  
|                                                |  |                       |  |               |  
|                                                |  |                       |  |               |  
|Exchange rate of the Euro against the NIS       |  | +5%                   |  | (385          | )
|                                                |  |                       |  |               |  
|Change in the Israeli CPI                       |  | +2%                   |  | 164           |  
|                                                |  |                       |  |               |  
|Change in the interest rate of the
  debentures |  | +1%                   |  | 679           |  
|                                                |  |                       |  |               |  

5.
Cash flow risk

Part
of the Groups long-term loans and notes, as well as long-term loans,
receivable bear variable interest rate. Cash and cash equivalents, short-term
deposits and short-term bank credit are mainly deposited in or obtained at
variable interest rate. Changes in the market interest rate will affect the
Groups finance income and expenses and its cash flow.

In
certain cases the Group uses interest rate swap transaction in order to swap
loans with a variable interest rate to fixed interest rate.

The
following table presents the effect of an increase of 2% in the Libor rate with
respect to financial liabilities as of December 31, 2007 that are exposed to
cash flow risk (before tax and before capitalization to qualifying assets):

|                                                                       |  |               |         |  
|---------------------------------------------------------------------- |  | ------------- | ------- | -
|                                                                       |  | Profit (loss) |        
|                                                                       |  | NIS thousands |        
|                                                                       |  |               |         |  
|Loans,
  debentures and convertible debentures linked to the US dollar |  |               | (12,714 | )
|Loans linked
  to the Euro                                             |  |               | (13,627 | )
|Loans linked
  to the NIS                                              |  |               | (127    | )
|                                                                       |  |               |         |  
|                                                                       |  |               | (26,469 | )
|                                                                       |  |               |         |  

The
following table presents the Groups long-term financial liabilities classified
according to their interest rate and their contractual maturity date:

|                    |  |                  |  |                    |  |                         |  |                 |      |   |  |       |  |   |      |   |  |                  |  |       |      |  |  |       |  |  |      
|------------------- |  | ---------------- |  | ------------------ |  | ----------------------- |  | --------------- | ---- | - |  | ----- |  | - | ---- | - |  | ---------------- |  | ----- | ---- |  |  | ----- |  |  | -----
|                    |  |                  |  |                    |  |                         |  | Repayment Years
|                    |  |                  |  |                    |  |                         |  |                
|Functional Currency |  | Linkage Currency |  | Interest
  Rate %  |  | Average
  Interest Rate |  | 1               |      | 2 |  | 3     |  | 4 |      | 5 |  | 6 and thereafter |  | Total
|                    |  |                  |  |                    |  |                         |  |                 |      |   |  |       |  |   |      |   |  |                  |  |      
|                    |  |                  |  |                    |  |                         |  |                 |      |   |  |       |  |   |      |   |  |                  |  |       |      |  |  |       |  |  |      
|                   |  |                 |  | 5.1 (i)            |  | 5.1                     |  |                 | 3.1  |   |  | 192.7 |  |   |     |   |  |                 |  |       |     |  |  |      |  |  | 195.8
|                    |  |                  |  |                    |  |                         |  |                 |      |   |  |       |  |   |      |   |  |                  |  |       |      |  |  |       |  |  |      
|USD                 |  | USD              |  | Libor +3           |  | 8.2                     |  |                 |     |   |  | 51.9  |  |   |     |   |  | 19.1             |  |       |     |  |  |      |  |  | 71   
|                    |  |                  |  |                    |  |                         |  |                 |      |   |  |       |  |   |      |   |  |                  |  |       |      |  |  |       |  |  |      
|                   |  |                 |  | Euribor + 1.5-2.19 |  | 4.5                     |  |                 | 9.1  |   |  | 9.2   |  |   | 9.2  |   |  | 47.3             |  |       | 47.3 |  |  | 348.3 |  |  | 470.4
|                    |  |                  |  |                    |  |                         |  |                 |      |   |  |       |  |   |      |   |  |                  |  |       |      |  |  |       |  |  |      
|GBP                 |  | GBP              |  | 7.3 (i)            |  | 7.7                     |  |                 | 10.5 |   |  | 10.5  |  |   | 10.5 |   |  | 664.5            |  |       |     |  |  |      |  |  | 696  
|                    |  |                  |  |                    |  |                         |  |                 |      |   |  |       |  |   |      |   |  |                  |  |       |      |  |  |       |  |  |      
|NIS                 |  | US Dollar        |  | Libor + 1.75       |  | 7.5                     |  |                 |     |   |  | 76.9  |  |   |     |   |  |                 |  |       |     |  |  |      |  |  | 76.9 

- 122 -

---

---



|                    |  |                     |  |                   |  |                         |  |  |                 |  |   |       |   |  |       |  |   |       |                  |  |       |  |  |         |  |  |        
|------------------- |  | ------------------- |  | ----------------- |  | ----------------------- |  |  | --------------- |  | - | ----- | - |  | ----- |  | - | ----- | ---------------- |  | ----- |  |  | ------- |  |  | -------
|                    |  |                     |  |                   |  |                         |  |  | Repayment Years
|                    |  |                     |  |                   |  |                         |  |  |                
|Functional Currency |  | Linkage Currency    |  | Interest
  Rate % |  | Average
  Interest Rate |  |  | 1               |  | 2 |       | 3 |  | 4     |  | 5 |       | 6 and thereafter |  | Total
|                    |  |                     |  |                   |  |                         |  |  |                 |  |   |       |   |  |       |  |   |       |                  |  |      
|                    |  |                     |  |                   |  |                         |  |  |                 |  |   |       |   |  |       |  |   |       |                  |  |       |  |  |         |  |  |        
|NIS                 |  |                    |  | Euribor + 1.75    |  | 5.5                     |  |  |                |  |   | 242.9 |   |  |      |  |   |      |                  |  |      |  |  |        |  |  | 242.9  
|                    |  |                     |  |                   |  |                         |  |  |                 |  |   |       |   |  |       |  |   |       |                  |  |       |  |  |         |  |  |        
|NIS                 |  | US Dollar           |  | Libor + 2.65      |  | 8.1                     |  |  |                |  |   | 3.7   |   |  | 11.2  |  |   | 11.2  |                  |  | 11.2  |  |  | 18.7    |  |  | 56.    
|                    |  |                     |  |                   |  |                         |  |  |                 |  |   |       |   |  |       |  |   |       |                  |  |       |  |  |         |  |  |        
|NIS                 |  | NIS (linked to CPI) |  | 5-6.3             |  | 6.0                     |  |  |                |  |   | 54    |   |  | 176   |  |   | 217.8 |                  |  | 221.2 |  |  | 1,415   |  |  | 2,084  
|                    |  |                     |  |                   |  |                         |  |  |                 |  |   |       |   |  |       |  |   |       |                  |  |       |  |  |         |  |  |        
|RON                 |  |                    |  | Euribor + 4.25    |  | 7.2                     |  |  | 7.2             |  |   | 28.9  |   |  | 28.9  |  |   | 29    |                  |  | 29    |  |  | 132.8   |  |  | 255.8  
|                    |  |                     |  |                   |  |                         |  |  |                 |  |   |       |   |  |       |  |   |       |                  |  |       |  |  |         |  |  |        
|NIS                 |  | NIS                 |  | Prime +2.25       |  | 7.2                     |  |  |                |  |   | 6.3   |   |  |      |  |   |      |                  |  |      |  |  |        |  |  | 6.3    
|                    |  |                     |  |                   |  |                         |  |  | 30              |  |   | 677   |   |  | 235.8 |  |   | 988.9 |                  |  | 308.7 |  |  | 1,914.8 |  |  | 4,155.1

| |      |                                                                                                              
| | ---- | -------------------------------------------------------------------------------------------------------------
| | (i)  | The interest
  rates on this loan was fixed by swap transactions.                                            
| |      |                                                                                                              
| | (ii) | See note 17D
  and 17E to our consolidated financial statements, included in Item 18 of this
  annual report.

6.
Israeli CPI risk

A
significant part of the Groups borrowing consists of notes raised by the Group
on the TASE and which are linked to the increase in the Israeli CPI. An
increase of 3% in the Israeli CPI would have caused an increase in the Groups
finance expenses for the year ended December 31, 2007 (before tax and
capitalizations of finance expenses to qualifying assets) in the amount of NIS
62.7 million.

B.
Fair value of financial instruments

The
financial instruments of the Group include primarily, cash and cash
equivalents, short and long-term deposits, marketable securities, trade
receivables, short and long-term other receivables, short- term banks credit,
other current liabilities and long-term monetary liabilities.

Fair
value of financial instruments

The
fair value of traded financial instruments (such as: marketable securities and
notes of the Company) are calculated according to quoted closing prices as of
the balance sheet date, multiplied by the issued quantity of the traded
financial instrument as of that date. The fair value of financial instruments
that are not traded is estimated by means of accepted costing models, such as:
present value of future cash flows which are capitalized at a discount interest
at a rate that, in the Companys assessment, reflects the level of risk that is
incorporated in the financial instrument. The Company relies, in part, on a
discount interest which is quoted in an active market, as well as on various
techniques of approximation that are based, among other things, on quoted
interest from financial entities. Estimation of the fair value was computed by
means of assessments of future cash flows and a determination of the discount
interest rate on dates close to the balance sheet date, that are based, inter alia, on assumptions by the
management of the Company. Therefore, for most of the financial instruments,
the estimation of fair value presented below is not necessarily an indication
of the realization value of the financial instrument as of the balance sheet
date. The estimation of fair value is carried out, as mentioned above,
according to the discount rates in proximity to the date of the balance sheet
and does take into account the variability of the interest rates from the date
of the computation through the date of issuance of the financial statements.
Under an assumption of other discount rates, different fair value assessments
would be received which could be materially different from those estimated by
the Company, mainly with respect to financial instruments at fixed interest
rate. Moreover, in determining the assessments of fair value, the commissions
that could be payable at the time of repayment of the instrument have not been
taken into account and they also do not include any tax effect. The difference
between the balances of the financial instruments as of the balance sheet date
and the fair value as estimated by the Company may not necessarily be
realizable, in particular in respect of a financial instrument which will be held
until its redemption date.

- 123 -

---

---



Following
are the principal methods and assumptions which served to compute the
estimation of fair value of the financial instruments:

| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a) | Financial instruments included in current assets(cash
  and cash equivalents, deposits and marketable securities, trade receivables,
  other current assets and non current assets classified as held for sale) -
  Due to their nature, their fair values approximate to those presented in the
  balance sheet.                                                                                                                   
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | b) | Financial instruments included in long-term receivables-
  Mainly loans and deposits which bear variable interest rate and, accordingly,
  their fair value is approximate to those presented in the balance sheet.                                                                                                                                                                                                                 
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | c) | Financial instruments included in current liabilities
  (short-term credit, suppliers, other current liabilities and liabilities
  associated with non current assets classified as held for sale) - Due to
  their nature, their fair values approximate to those presented in the balance
  sheet.                                                                                                                                
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | d) | Financial instruments included in long- term liabilities-
  The fair value of the traded liabilities (notes) is determined according to
  closing prices as of the balance sheet date quoted on the TASE, multiplied by
  the quantity of the marketable financial instrument issued as of that date.
  The fair value of liabilities which carried variable interest rate is
  approximate to those presented in the balance sheet.
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  |    | The fair
  value of non-traded liabilities at fixed rate interest is determined
  according to the present value of future cash flows, discounted at a rate
  which reflects, in the estimation of the Group, the level of risk embedded in
  the financial instrument.                                                                                                                                                             

The
following table presents the book value and fair value of the Groups financial
liabilities, which are presented in the financial statements at other than
their fair value:

|                                          |  |                        |           |              |  |           | 
|----------------------------------------- |  | ---------------------- | --------- | ------------ |  | --------- | 
|                                          |  | As of December 31,2007 |          
|                                          |  |                        |          
|                                          |  | Book Value             |           | Fair
  Value | 
|                                          |  |                        |           |              | 
|                                          |  |                        |           |              |  |           | 
|Long- term
  loans at fixed rate interest |  |                        | 890,870   |              |  | 913,302   | 
|                                          |  |                        |           |              |  |           | 
|Series A, B,
  C, D, E and F Notes        |  |                        | 2,140,640 |              |  | 2,220,974 | 
|                                          |  |                        |           |              |  |           | 
|                                          |  |                        | 3,031,510 |              |  | 3,313,276 | 
|                                          |  |                        |           |              |  |           | 

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

None.

- 124 -

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

| |    |                                    
| | -- | -----------------------------------
| | a. | Disclosure Controls and Procedures.

Our
management, with the participation of our chief executive officer and chief
financial officer, evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as
of December 31, 2007. Based on this evaluation, our chief executive officer and
chief financial officer concluded that, as of December 31, 2007, our disclosure
controls and procedures were (1) designed to ensure that material information
relating to the Company, including its consolidated subsidiaries, is made known
to the Companys management, including our chief executive officer and chief
financial officer, by others within those entities, as appropriate to allow
timely decisions regarding required disclosure, particularly during the period
in which this report was being prepared; and (2) effective, in that they
provide reasonable assurance that information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms.

| |    |                                                                                                                                      
| | -- | -------------------------------------------------------------------------------------------------------------------------------------
| | b. | Managements Annual Report on Internal Control Over Financial
  Reporting and Attestation Report of Registered Public Accounting Firm

Our
management is responsible for establishing and maintaining adequate internal
control over our financial reporting. Internal control over financial reporting
is designed to provide reasonable assurance to our management and the Board of
Directors regarding the reliability of financial reporting and the preparation
and fair presentation of published financial statements. Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Therefore, even those systems determined to be
effective can provide only reasonable assurances with respect to financial
statement preparation and presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may decline. Our management
evaluated the effectiveness of our internal control over financial reporting
established in Internal Control - Integrated Frameworkissued by the
Committee of Sponsoring Organizations of the Treadway Commission, or COSO.
Based on this evaluation, management has assessed the effectiveness of our
internal control over financial reporting, as at December 31, 2007, and
concluded that such internal control over financial reporting is effective.

| |    |                                                              
| | -- | -------------------------------------------------------------
| | c. | Attestation Report of the Registered Public
  Accounting Firm

This
annual report includes an attestation report of our registered public
accounting firm regarding internal control over financial reporting on pages 4
and 5 of our audited consolidated financial statements set forth in Item 18 -
Financial Statements, and are incorporated herein by reference.

| |    |                                                       
| | -- | ------------------------------------------------------
| | d. | Changes in Internal Control Over Financial
  Reporting

There
has been no change in our internal control over financial reporting (as defined
in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) identified with the
evaluation thereof that occurred during the year ended December 31, 2007 that
has materially affected, or is reasonably likely to materially affect our
internal controls over financial reporting.

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

Our
Board of Directors has determined that Mr. Zvi Tropp is an Audit Committee
financial expert as defined in the instructions to Item 16.A. of Form 20-F and
is independent in accordance with the Nasdaq listing standards for audit
committees applicable to us.

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

Our
principal executive officer, principal financial officer, principal accounting
officer or controller or persons performing similar functions, as well as all
other directors, officers and employees are bound by a Code of Ethics and
Business Conduct. Our Code of Ethics was filed as an exhibit to our annual
report on Form 20-F for the year ended December 31, 2003. We will provide any
person, without charge, upon request, a copy of such code. Any person so
requesting a copy is required to submit such request to the Corporate Secretary
at 2 Weitzman St. Tel Aviv 64239 Israel and provide a mailing address for such
person.

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

Brightman
Almagor & Co., a firm of certified public accountants in Israel and a
member firm of Deloitte Touche Tohmatsu, and other Deloitte member firms (where
applicable), (Deloitte) have served as our independent registered public
accounting firm for the fiscal year ended December 31, 2007, for which audited
financial statements appear in this annual report on Form 20-F.

- 125 -

---

---



| |     |           
| | --- | ----------
| | (a) | Audit Fees

Audit
Fees are the aggregate fees billed for the audit of our annual financial statements;
audit in accordance with section 404 the Sarbanes-Oxley Act of
2002, statutory audits and services that
are normally provided in connection with statutory and regulatory filings or
engagements.

The
aggregate fees billed for professional services constituting Audit Fees,
rendered to us by Deloitte in 2006 and 2007 were $506,000 and $857,000,
respectively.

| |     |                   
| | --- | ------------------
| | (b) | Audit-Related Fees

Audit-Related
Fees are the aggregate fees billed for assurance and related services that are
reasonably related to the performance of the audit or review of our financial
statements and are not reported under Audit Fees.

The
aggregate fees billed for professional services constituting Audit-Related Fees, rendered
to us by Deloitte in 2006 and 2007 were $34,000 and $122,000, respectively. In 2006
Audit-Related Fees included mainly an engagement for issuing a consent letter for
incorporation by reference of the auditors report which was required for a
prospectus for issuing of unsecured non-convertible notes on the TASE. In 2007,
Audit-Related Fees included mainly an engagement for issuing a consent letter for
incorporation by reference of the auditors report which was required for a
prospectus for the issuing of notes on the TASE and professional services incurred in
respect of pre-clearance correspondence on revenue recognition by InSightec to the SEC in
the U.S.

| |     |         
| | --- | --------
| | (c) | Tax Fees

Tax
Fees are the aggregate fees billed for professional services rendered for tax
compliance, tax advice on actual or contemplated transactions and tax planning such as
assistance with tax audits, tax opinions and tax pre-rulings.

The
aggregate fees billed for professional services constituting Tax Fees, rendered
to us by Deloitte in 2006 and 2007 were $36,000 and $27,000, respectively. Such
services related to tax consulting services provided to us in various issues.

| |     |               
| | --- | --------------
| | (d) | All Other Fees

All Other
Fees are the aggregate fees billed for products and services provided by
Deloitte other than as described above.

The
aggregate fees billed for professional services constituting all Other Fees
rendered to us by Deloitte in 2006 and 2007 were $924,000 and $0, respectively.
Such professional fees incurred by us in 2006 were for professional services
related to our preparation to comply with section 404 of the Sarbanes-Oxley Act
of 2002 and for the role of reporting accountant for PC for the initial public
offering of PCs shares on the London Stock Exchange.

| |     |                                     
| | --- | ------------------------------------
| | (e) | Pre-Approval Policies and Procedures

Our
Audit Committee oversees the appointment, compensation, and oversight of the
public accounting firm engaged to prepare or issue an audit report on the
financial statements of the Company. The audit committees specific
responsibilities in carrying out its oversight role include the approval of all
audit and non-audit services to be provided by the external auditor and
quarterly review the firms non-audit services and related fees. These services
may include audit services, audit-related services, tax services and other
services, as described above. The Audit Committee approves in advance the
particular services or categories of services to be provided to us during the
following yearly period and also sets forth a specific budget for such audit
and non-audit services. Additional services may be pre-approved by the Audit
Committee on an individual basis during the year.

None
of Audit-Related Fees, Tax Fees or Other Fees provided to us by Deloitte were
approved by the Audit Committee pursuant to the de minimis exception to the pre-approval requirement
provided by Section 10A of the Exchange Act.

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

Not applicable.

- 126 -

---

---



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

|                     |  |                                      |  |                                  |       |                                                                                        |  |                                                                                                                      |  |  |   |  | 
|-------------------- |  | ------------------------------------ |  | -------------------------------- | ----- | -------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  |  | - |  | 
|Period               |  | (a) Total number of shares purchased |  | (b) Average price paid per share |       | (c) Total number of shares purchased as part of publicly
  announced plans or programs |  | (d) Maximum number (or approximately dollar value) of
  shares that may yet be purchased under the plans or programs | 
|                     |  |                                      |  |                                  |       |                                                                                        |  |                                                                                                                      | 
|                     |  |                                      |  |                                  |       |                                                                                        |  |                                                                                                                      |  |  |   |  | 
|August, 2007
  (1)   |  | 56,500                               |  | $                                | 41.15 |                                                                                        |  |                                                                                                                     |  |  |  |  | 
|November,
  2007 (2) |  | 24,837                               |  | $                                | 54.68 |                                                                                        |  |                                                                                                                     |  |  |  |  | 
|November,
  2007 (3) |  | 8,094                                |  | $                                | 56.57 |                                                                                        |  |                                                                                                                     |  |  |  |  | 
|December,
  2007 (3) |  | 20,754                               |  | $                                | 55.43 |                                                                                        |  |                                                                                                                     |  |  |  |  | 
|January,
  2008 (3)  |  | 42,798                               |  | $                                | 48.99 |                                                                                        |  |                                                                                                                     |  |  |  |  | 
|March, 2008
  (3)    |  | 17,050                               |  | $                                | 40.80 |                                                                                        |  |                                                                                                                     |  |  |  |  | 
|April, 2008
  (3)    |  | 3,300                                |  | $                                | 42.76 |                                                                                        |  |                                                                                                                     |  |  |  |  | 

(1)          
In August 2007, Mordechay Zisser acquired 56,500 Ordinary Shares of EI in
various transactions on the TASE in consideration fir approximately $2.35 million.

(2)          In
November 2007, Marina Herzelia (Limited Partnership) 1988, which may be deemed
to be beneficially owned by Mr. Mordechay Zisser, by virtue of his control of
Control Centers acquired 24,837 Ordinary Shares of EI in various transactions
on the TASE in consideration for approximately $1.36 million.

(3)          Between
November 2007 through May 2008, Europe-Israel (our parent) acquired 91,996
Ordinary Shares of EI in various transactions on the TASE in consideration for
approximately $4.57
million.

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

In
lieu of responding to this item, we have responded to Item 18 of this annual
report.

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

The
information required by this item is set beginning on page F-1 of this annual
report.

- 127 -

---

---



ELBIT IMAGING LTD.

(FORMERLY: ELBIT MEDICAL IMAGING LTD.)


CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2007


---

---

|                                   
|-----------------------------------
|ELBIT IMAGING LTD.                 
|CONSOLIDATED FINANCIAL
  STATEMENTS
|AS OF DECEMBER 31, 2007            
|                                   

Contents

|                                                           |  |             
|---------------------------------------------------------- |  | ------------
|                                                           |  | Page        
|                                                           |  |             
|                                                           |  |             
|Reports of independent registered public
  accounting firm |  | F-2 - F-5   
|                                                           |  |             
|Consolidated Financial Statements:                         |  |             
|                                                           |  |             
|Balance sheets                                             |  | F-6 - F-7   
|                                                           |  |             
|Income statements                                          |  | F-8         
|                                                           |  |             
|Statements of changes in shareholders equity              |  | F-9 - F-11  
|                                                           |  |             
|Statements of cash flows                                   |  | F-12 - F-14 
|                                                           |  |             
|Notes to the consolidated financial statements             |  | F-15 - F-145
|                                                           |  |             
|Appendix                                                   |  | F-146       

---

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

ELBIT IMAGING LTD
TEL-AVIV, ISRAEL

We have audited the
accompanying consolidated balance sheets of Elbit Imaging Ltd. and its
subsidiaries (the Company) as of December 31, 2007 and 2006, and the related
consolidated statements of income, shareholders equity, and cash flows for
each of the two years in the period ended December 31, 2007.  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 constitute 25% and 34% of the total
consolidated assets, as of December 31, 2007 and 2006, respectively and whose
revenues included in consolidation constitute 7% and 24% of total consolidated
revenues for the two years ending December 31 2007,  and 2006, respectively. We also did not audit the financial
statements of an associated company accounted for by use of the equity method.
The Companys equity of NIS 34.7 million and NIS 32.5 million in this
associates  net assets as of December
31, 2007 and 2006, respectively, and of NIS 4.9 million net loss and NIS 4.9
million net income in this associated company for each of the two years ended
December 31, 2007, respectively, are included in the accompanying financial
statements The financial statements of those subsidiaries and associate were
audited by other auditors whose reports thereon were furnished to us, and our
opinion, insofar at it relates to the amounts included with respect to those
subsidiaries and associate, is based solely on the reports of the other
auditors.

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

In our opinion, based on our
audits and the report of the other auditors, such consolidated financial
statements present fairly, in all material respects, the financial position of
the Company. And its subsidiaries as of December 31, 2007 and 2006, and the
consolidated  results of their
operations and their cash flows for each of the two years in the period ended
December 31, 2007, in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board (IASB).

F - 2

---

---

As discussed in Note 21B,
claims have been filed against Group companies. For some of those claims
petitions have been filed for certification as class actions.

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

|                                           
|-------------------------------------------
|Brightman
  Almagor & Co.                  
|                                           
|Certified
  Public Accountants             
|A member
  firm of Deloitte Touche Tohmatsu
|                                           
|Tel - Aviv, Israel                         
|June 30, 2008                              

F - 3

---

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

ELBIT IMAGING LTD
TEL-AVIV, ISRAEL

We have audited the internal
control over financial reporting of Elbit Imaging Ltd. and its subsidiaries
(the Company), as of  December 31,
2007, based on criteria established in Internal
Control  Integrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission.  The Companys management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting.  Our responsibility is to express an opinion on the Companys
internal control over financial reporting based on our audit.

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

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

F - 4

---

---

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

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

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

|                                           
|-------------------------------------------
|Brightman
  Almagor & Co.                  
|                                           
|Certified
  Public Accountants             
|A member
  firm of Deloitte Touche Tohmatsu
|                                           
|Tel - Aviv, Israel                         
|June 30, 2008                              

F - 5

---

---

|                           
|---------------------------
|ELBIT IMAGING LTD.         
|CONSOLIDATED BALANCE SHEETS
|                           

|                                                                    |  |      |      |                   |  |                                       |  |      |           |  |  |           | 
|------------------------------------------------------------------- |  | ---- | ---- | ----------------- |  | ------------------------------------- |  | ---- | --------- |  |  | --------- | 
|                                                                    |  |      |      | December 31       | 
|                                                                    |  |      |      |                   | 
|                                                                    |  |      |      | 2007              |  | 2006                                  |  | 2007 |          
|                                                                    |  |      |      |                   |  |                                       |  |      |          
|                                                                    |  |      |      |                   |  | Convenience
  translation
  (note 2D) | 
|                                                                    |  |      |      |                   |  |                                       | 
|                                                                    |  | Note |      | (in thousand NIS) |  | US$000                               | 
|                                                                    |  |      |      |                   |  |                                       | 
|                                                                    |  |      |      |                   |  |                                       |  |      |           |  |  |           | 
|Current Assets                                                      |  |      |      |                   |  |                                       |  |      |           |  |  |           | 
|Cash and cash equivalents                                           |  |      | (3)  |                   |  | 1,416,710                             |  |      | 2,150,871 |  |  | 368,359   | 
|Short-term deposits and investments                                 |  |      | (4)  |                   |  | 700,055                               |  |      | 279,112   |  |  | 182,022   | 
|Trade accounts receivable                                           |  |      | (5)  |                   |  | 1,521,521                             |  |      | 74,974    |  |  | 395,611   | 
|Other receivable                                                    |  |      | (6)  |                   |  | 65,271                                |  |      | 80,746    |  |  | 16,971    | 
|Prepayments and other assets                                        |  |      | (6A) |                   |  | 386,160                               |  |      | 125,666   |  |  | 100,406   | 
|Inventories                                                         |  |      | (7)  |                   |  | 25,492                                |  |      | 24,491    |  |  | 6,628     | 
|Trading property                                                    |  |      | (8)  |                   |  | 1,738,213                             |  |      | 923,634   |  |  | 451,953   | 
|Non-current assets classified as held for
  sale                    |  |      | (26) |                   |  | 11,120                                |  |      | 12,483    |  |  | 2,891     | 
|                                                                    |  |      |      |                   |  |                                       |  |      |           |  |  |           | 
|                                                                    |  |      |      |                   |  | 5,864,542                             |  |      | 3,671,977 |  |  | 1,524,841 | 
|                                                                    |  |      |      |                   |  |                                       |  |      |           |  |  |           | 
|                                                                    |  |      |      |                   |  |                                       |  |      |           |  |  |           | 
|Non-Current Assets                                                  |  |      |      |                   |  |                                       |  |      |           |  |  |           | 
|Deposits, loans and other long-term
  balances                      |  |      | (9)  |                   |  | 109,114                               |  |      | 105,784   |  |  | 28,371    | 
|Investments in associates                                           |  |      | (10) |                   |  | 58,062                                |  |      | 55,460    |  |  | 15,097    | 
|Property, plant and equipment                                       |  |      | (11) |                   |  | 1,761,350                             |  |      | 1,622,975 |  |  | 457,970   | 
|Investment property and payment on account
  of investment property |  |      | (12) |                   |  | 454,623                               |  |      | 562,950   |  |  | 118,207   | 
|Other assets and deferred expenses                                  |  |      | (13) |                   |  | 148,137                               |  |      | 254,210   |  |  | 38,517    | 
|Intangible assets                                                   |  |      | (14) |                   |  | 51,820                                |  |      | 7,272     |  |  | 13,474    | 
|Deferred taxes                                                      |  |      | (20) |                   |  |                                      |  |      | 4,997     |  |  |          | 
|                                                                    |  |      |      |                   |  |                                       |  |      |           |  |  |           | 
|                                                                    |  |      |      |                   |  | 2,583,106                             |  |      | 2,613,648 |  |  | 671,636   | 
|                                                                    |  |      |      |                   |  |                                       |  |      |           |  |  |           | 
|                                                                    |  |      |      |                   |  |                                       |  |      |           |  |  |           | 
|                                                                    |  |      |      |                   |  | 8,447,648                             |  |      | 6,285,625 |  |  | 2,196,477 | 
|                                                                    |  |      |      |                   |  |                                       |  |      |           |  |  |           | 

The accompanying
notes to the financial statements constitute an integral part thereof.

F - 6

---

---

|                           
|---------------------------
|ELBIT IMAGING LTD.         
|CONSOLIDATED BALANCE SHEETS
|                           

|                                                                             |  |      |       |                   |             |                                       |   |      |           |   |  |           |  
|---------------------------------------------------------------------------- |  | ---- | ----- | ----------------- | ----------- | ------------------------------------- | - | ---- | --------- | - |  | --------- | -
|                                                                             |  |      |       |                   | December 31 |                                      
|                                                                             |  |      |       |                   |             |                                      
|                                                                             |  |      |       | 2007              |             | 2006                                  |   | 2007 |          
|                                                                             |  |      |       |                   |             |                                       |   |      |          
|                                                                             |  |      |       |                   |             | Convenience
  translation
  (note 2D) |  
|                                                                             |  |      |       |                   |             |                                       |  
|                                                                             |  | Note |       | (in thousand NIS) |             | US$000                               |  
|                                                                             |  |      |       |                   |             |                                       |  
|                                                                             |  |      |       |                   |             |                                       |   |      |           |   |  |           |  
|Current Liabilities                                                          |  |      |       |                   |             |                                       |   |      |           |   |  |           |  
|Short-term credits                                                           |  |      | (15)  |                   |             | 166,469                               |   |      | 688,553   |   |  | 43,284    |  
|Suppliers and service providers                                              |  |      |       |                   |             | 181,226                               |   |      | 155,009   |   |  | 47,121    |  
|Payables and other credit balances                                           |  |      | (16A) |                   |             | 437,813                               |   |      | 204,601   |   |  | 113,836   |  
|Other liabilities                                                            |  |      | (16B) |                   |             | 119,680                               |   |      | 13,008    |   |  | 31,118    |  
|Liabilities associated with non-current
  assets classified as held for sale |  |      | (26)  |                   |             | 30,123                                |   |      | 40,513    |   |  | 7,832     |  
|                                                                             |  |      |       |                   |             |                                       |   |      |           |   |  |           |  
|                                                                             |  |      |       |                   |             | 935,311                               |   |      | 1,101,684 |   |  | 243,191   |  
|                                                                             |  |      |       |                   |             |                                       |   |      |           |   |  |           |  
|                                                                             |  |      |       |                   |             |                                       |   |      |           |   |  |           |  
|Non-Current Liabilities                                                      |  |      |       |                   |             |                                       |   |      |           |   |  |           |  
|Borrowings                                                                   |  |      | (17)  |                   |             | 4,123,904                             |   |      | 2,683,595 |   |  | 1,072,258 |  
|Other long-term financial liabilities                                        |  |      | (18)  |                   |             | 91,685                                |   |      | 110,841   |   |  | 23,839    |  
|Other long-term liabilities                                                  |  |      | (19)  |                   |             | 12,607                                |   |      | 23,129    |   |  | 3,278     |  
|Deferred taxes                                                               |  |      | (20)  |                   |             | 55,139                                |   |      | 72,145    |   |  | 14,337    |  
|                                                                             |  |      |       |                   |             |                                       |   |      |           |   |  |           |  
|                                                                             |  |      |       |                   |             | 4,283,335                             |   |      | 2,889,710 |   |  | 1,113,712 |  
|                                                                             |  |      |       |                   |             |                                       |   |      |           |   |  |           |  
|                                                                             |  |      |       |                   |             |                                       |   |      |           |   |  |           |  
|Commitments,
  Contingencies, Liens and Collaterals                          |  |      | (21)  |                   |             |                                       |   |      |           |   |  |           |  
|                                                                             |  |      |       |                   |             |                                       |   |      |           |   |  |           |  
|Shareholders Equity                                                         |  |      | (22)  |                   |             |                                       |   |      |           |   |  |           |  
|Share capital and share premium                                              |  |      |       |                   |             | 853,307                               |   |      | 853,144   |   |  | 221,869   |  
|Reserves                                                                     |  |      |       |                   |             | 91,629                                |   |      | 81,528    |   |  | 23,824    |  
|Retained earnings                                                            |  |      |       |                   |             | 1,232,399                             |   |      | 852,416   |   |  | 320,436   |  
|Treasury stock                                                               |  |      |       |                   |             | (138,519                              | ) |      | (138,519  | ) |  | (36,016   | )
|Loans to employees to acquire Company
  shares                               |  |      |       |                   |             | (3,378                                | ) |      | (3,853    | ) |  | (878      | )
|                                                                             |  |      |       |                   |             |                                       |   |      |           |   |  |           |  
|Attributable to equity holders of the
  Company                              |  |      |       |                   |             | 2,035,438                             |   |      | 1,644,716 |   |  | 529,235   |  
|Minority interest                                                            |  |      |       |                   |             | 1,193,564                             |   |      | 649,515   |   |  | 310,339   |  
|                                                                             |  |      |       |                   |             |                                       |   |      |           |   |  |           |  
|                                                                             |  |      |       |                   |             | 3,229,002                             |   |      | 2,294,231 |   |  | 839,574   |  
|                                                                             |  |      |       |                   |             |                                       |   |      |           |   |  |           |  
|                                                                             |  |      |       |                   |             |                                       |   |      |           |   |  |           |  
|                                                                             |  |      |       |                   |             | 8,447,648                             |   |      | 6,285,625 |   |  | 2,196,477 |  
|                                                                             |  |      |       |                   |             |                                       |   |      |           |   |  |           |  

|                        |  |                                          
|----------------------- |  | -----------------------------------------
|                        |  |                                          
|Dudi Machluf            |  | Shimon Yitzhaki                          
|Chief Financial Officer |  | CEO, a member of the Board of
  Directors

Approved by the Board of Directors
on: June 30, 2008.

The accompanying
notes to the financial statements constitute an integral part thereof.

F - 7

---

---

|                              
|------------------------------
|ELBIT IMAGING LTD.            
|CONSOLIDATED INCOME STATEMENTS
|                              

|                                                 |  |      |       |                             |             |                                       |      |  |           |   |  |         |  
|------------------------------------------------ |  | ---- | ----- | --------------------------- | ----------- | ------------------------------------- | ---- |  | --------- | - |  | ------- | -
|                                                 |  |      |       |                             | December 31 |                                      
|                                                 |  |      |       |                             |             |                                      
|                                                 |  |      |       |                             | 2007        |                                       | 2006 |  | 2007      |  
|                                                 |  |      |       |                             |             |                                       |      |  |           |  
|                                                 |  |      |       |                             |             | Convenience
  translation
  (note 2D) |     
|                                                 |  |      |       |                             |             |                                       |     
|                                                 |  | Note |       | (in thousand NIS)           |             | US$000                               |     
|                                                 |  |      |       |                             |             |                                       |     
|                                                 |  |      |       | (Except for per-share data) |             |                                       |     
|                                                 |  |      |       |                             |             |                                       |     
|                                                 |  |      |       |                             |             |                                       |      |  |           |   |  |         |  
|Revenues and gains                               |  |      |       |                             |             |                                       |      |  |           |   |  |         |  
|Commercial centers                               |  |      | (23A) |                             |             | 2,917,616                             |      |  | 397,202   |   |  | 758,610 |  
|Hotels operations and management                 |  |      | (23B) |                             |             | 395,227                               |      |  | 351,610   |   |  | 102,763 |  
|Gains from sale of real estate assets            |  |      | (23C) |                             |             | 62,621                                |      |  | 81,794    |   |  | 16,282  |  
|Sale of medical systems                          |  |      |       |                             |             | 49,648                                |      |  | 85,824    |   |  | 12,909  |  
|Decrease in shareholding of subsidiaries         |  |      | (23D) |                             |             | 5,310                                 |      |  | 667,014   |   |  | 1,381   |  
|Sale of fashion merchandise                      |  |      |       |                             |             | 68,139                                |      |  | 58,035    |   |  | 17,717  |  
|                                                 |  |      |       |                             |             |                                       |      |  |           |   |  |         |  
|                                                 |  |      |       |                             |             | 3,498,561                             |      |  | 1,641,479 |   |  | 909,662 |  
|                                                 |  |      |       |                             |             |                                       |      |  |           |   |  |         |  
|Expenses and losses                              |  |      |       |                             |             |                                       |      |  |           |   |  |         |  
|Commercial centers                               |  |      | (23E) |                             |             | 1,714,253                             |      |  | 395,814   |   |  | 445,724 |  
|Hotels operations and management                 |  |      | (23F) |                             |             | 330,063                               |      |  | 308,623   |   |  | 85,820  |  
|Cost and expenses of medical systems
  operation |  |      | (23G) |                             |             | 69,953                                |      |  | 71,746    |   |  | 18,188  |  
|Cost of fashion merchandise                      |  |      | (23H) |                             |             | 80,308                                |      |  | 67,834    |   |  | 20,881  |  
|Research and development expenses                |  |      | (23I) |                             |             | 69,559                                |      |  | 73,538    |   |  | 18,086  |  
|General and administrative expenses              |  |      | (23J) |                             |             | 116,992                               |      |  | 66,983    |   |  | 30,419  |  
|Share in losses (profits) of associates, net     |  |      |       |                             |             | 12,667                                |      |  | (736      | ) |  | 3,294   |  
|Financial expenses                               |  |      | (23K) |                             |             | 232,062                               |      |  | 144,166   |   |  | 60,338  |  
|Financial income                                 |  |      | (23L) |                             |             | (91,136                               | )    |  | (25,580   | ) |  | (23,696 | )
|Other expenses, net                              |  |      | (23M) |                             |             | 38,233                                |      |  | 77,048    |   |  | 9,941   |  
|                                                 |  |      |       |                             |             |                                       |      |  |           |   |  |         |  
|                                                 |  |      |       |                             |             | 2,572,954                             |      |  | 1,179,436 |   |  | 668,995 |  
|                                                 |  |      |       |                             |             |                                       |      |  |           |   |  |         |  
|Profit before income taxes                       |  |      |       |                             |             | 925,607                               |      |  | 462,043   |   |  | 240,667 |  
|Income taxes (tax benefit)                       |  |      | (20)  |                             |             | 16,288                                |      |  | (1,787    | ) |  | 4,235   |  
|                                                 |  |      |       |                             |             |                                       |      |  |           |   |  |         |  
|Profit from continuing operations                |  |      |       |                             |             | 909,319                               |      |  | 463,830   |   |  | 236,432 |  
|Profit from discontinued operation, net          |  |      | (26)  |                             |             | 10,289                                |      |  | 35,665    |   |  | 2,675   |  
|                                                 |  |      |       |                             |             |                                       |      |  |           |   |  |         |  
|                                                 |  |      |       |                             |             |                                       |      |  |           |   |  |         |  
|Profit for the year                              |  |      |       |                             |             | 919,608                               |      |  | 499,495   |   |  | 239,107 |  
|                                                 |  |      |       |                             |             |                                       |      |  |           |   |  |         |  
|                                                 |  |      |       |                             |             |                                       |      |  |           |   |  |         |  
|Attributable to:                                 |  |      |       |                             |             |                                       |      |  |           |   |  |         |  
|Equity holders of the Company                    |  |      |       |                             |             | 539,749                               |      |  | 510,803   |   |  | 140,340 |  
|Minority interest                                |  |      |       |                             |             | 379,859                               |      |  | (11,308   | ) |  | 98,767  |  
|                                                 |  |      |       |                             |             |                                       |      |  |           |   |  |         |  
|                                                 |  |      |       |                             |             | 919,608                               |      |  | 499,495   |   |  | 239,107 |  
|                                                 |  |      |       |                             |             |                                       |      |  |           |   |  |         |  
|                                                 |  |      |       |                             |             |                                       |      |  |           |   |  |         |  
|Earnings per share - (in
  NIS)                  |  |      | (23N) |                             |             |                                       |      |  |           |   |  |         |  
|Basic earnings per share:                        |  |      |       |                             |             |                                       |      |  |           |   |  |         |  
|From continuing operation                        |  |      |       |                             |             | 20.99                                 |      |  | 18.83     |   |  | 5.46    |  
|From discontinuing operation                     |  |      |       |                             |             | 0.40                                  |      |  | 1.41      |   |  | 0.11    |  
|                                                 |  |      |       |                             |             |                                       |      |  |           |   |  |         |  
|                                                 |  |      |       |                             |             | 21.39                                 |      |  | 20.24     |   |  | 5.57    |  
|                                                 |  |      |       |                             |             |                                       |      |  |           |   |  |         |  
|                                                 |  |      |       |                             |             |                                       |      |  |           |   |  |         |  
|Diluted earnings per share:                      |  |      |       |                             |             |                                       |      |  |           |   |  |         |  
|From continuing operation                        |  |      |       |                             |             | 20.18                                 |      |  | 18.83     |   |  | 5.25    |  
|From discontinuing operation                     |  |      |       |                             |             | 0.40                                  |      |  | 1.41      |   |  | 0.11    |  
|                                                 |  |      |       |                             |             |                                       |      |  |           |   |  |         |  
|                                                 |  |      |       |                             |             | 20.58                                 |      |  | 20.24     |   |  | 5.36    |  
|                                                 |  |      |       |                             |             |                                       |      |  |           |   |  |         |  

The accompanying notes to the financial
statements constitute an integral part thereof.

F - 8

---

---

|                                                              
|--------------------------------------------------------------
|ELBIT IMAGING LTD.STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
|                                                              

|                                                                                     |  |                                                   |        |                 |  |                    |  |                                    |        |                                            |  |                     |  |                |         |                  |  |                                                |   |                                                 |           |                     |  |                              |   |  |         |   |  |           |   |  |         |   |  |           |  
|------------------------------------------------------------------------------------ |  | ------------------------------------------------- | ------ | --------------- |  | ------------------ |  | ---------------------------------- | ------ | ------------------------------------------ |  | ------------------- |  | -------------- | ------- | ---------------- |  | ---------------------------------------------- | - | ----------------------------------------------- | --------- | ------------------- |  | ---------------------------- | - |  | ------- | - |  | --------- | - |  | ------- | - |  | --------- | -
|                                                                                     |  | Attributable
  to the shareholders of the Company |        |                 |  |                    |  |                                    |       
|                                                                                     |  |                                                   |        |                 |  |                    |  |                                    |       
|                                                                                     |  | Share
  capital                                   |        | Share
  premium |  | Hedging
  reserves |  | Stock-based
  compensation reserve |        | Foreign
  currency translation adjustments |  | Retained
  earnings |  | Gross
  amount |         | Treasury
  stock |  | Loans
  to employees to acquire Company shares |   | Attributable
  to equity holders of the Company |           | Minority
  interest |  | Total
  shareholders equity |  
|                                                                                     |  |                                                   |        |                 |  |                    |  |                                    |        |                                            |  |                     |  |                |         |                  |  |                                                |   |                                                 |           |                     |  |                              |  
|                                                                                     |  | (In
  thousand NIS)                               |       
|                                                                                     |  |                                                   |       
|                                                                                     |  |                                                   |        |                 |  |                    |  |                                    |        |                                            |  |                     |  |                |         |                  |  |                                                |   |                                                 |           |                     |  |                              |   |  |         |   |  |           |   |  |         |   |  |           |  
|Balance
  - January 1, 2006                                                          |  |                                                   | 37,480 |                 |  | 789,163            |  |                                    | (1,883 | )                                          |  |                    |  |                | (11,209 | )                |  | 465,773                                        |   |                                                 | 1,279,324 |                     |  | (162,383                     | ) |  | (19,034 | ) |  | 1,097,907 |   |  | 6,067   |   |  | 1,103,974 |  
|                                                                                     |  |                                                   |        |                 |  |                    |  |                                    |        |                                            |  |                     |  |                |         |                  |  |                                                |   |                                                 |           |                     |  |                              |   |  |         |   |  |           |   |  |         |   |  |           |  
|                                                                                     |  |                                                   |        |                 |  |                    |  |                                    |        |                                            |  |                     |  |                |         |                  |  |                                                |   |                                                 |           |                     |  |                              |   |  |         |   |  |           |   |  |         |   |  |           |  
|Exchange
  differences arising from translation of foreign operations                |  |                                                   |       |                 |  |                   |  |                                    |       |                                            |  |                    |  |                | 62,301  |                  |  |                                               |   |                                                 | 62,301    |                     |  |                             |   |  |        |   |  | 62,301    |   |  | 18,404  |   |  | 80,705    |  
|Loss on hedge of
  foreign investments                                               |  |                                                   |       |                 |  |                   |  |                                    |       |                                            |  |                    |  |                | (1,051  | )                |  |                                               |   |                                                 | (1,051    | )                   |  |                             |   |  |        |   |  | (1,051    | ) |  |        |   |  | (1,051    | )
|Gain on cash flow
  hedge                                                            |  |                                                   |       |                 |  |                   |  |                                    | 26,801 |                                            |  |                    |  |                |        |                  |  |                                               |   |                                                 | 26,801    |                     |  |                             |   |  |        |   |  | 26,801    |   |  |        |   |  | 26,801    |  
|Related income
  tax                                                                 |  |                                                   |       |                 |  |                   |  |                                    | (4,838 | )                                          |  |                    |  |                | (3,390  | )                |  |                                               |   |                                                 | (8,228    | )                   |  |                             |   |  |        |   |  | (8,228    | ) |  |        |   |  | (8,228    | )
|                                                                                     |  |                                                   |        |                 |  |                    |  |                                    |        |                                            |  |                     |  |                |         |                  |  |                                                |   |                                                 |           |                     |  |                              |   |  |         |   |  |           |   |  |         |   |  |           |  
|Net gain
  recognized directly in equity                                             |  |                                                   |       |                 |  |                   |  |                                    | 21,963 |                                            |  |                    |  |                | 57,860  |                  |  |                                               |   |                                                 | 79,823    |                     |  |                             |   |  |        |   |  | 79,823    |   |  | 18,404  |   |  | 98,227    |  
|Transfer to
  profit and loss on disposal of foreign operations                      |  |                                                   |       |                 |  |                   |  |                                    |       |                                            |  |                    |  |                | 1,315   |                  |  |                                               |   |                                                 | 1,315     |                     |  |                             |   |  |        |   |  | 1,315     |   |  |        |   |  | 1,315     |  
|Profit for the
  year                                                                |  |                                                   |       |                 |  |                   |  |                                    |       |                                            |  |                    |  |                |        |                  |  | 510,803                                        |   |                                                 | 510,803   |                     |  |                             |   |  |        |   |  | 510,803   |   |  | (11,308 | ) |  | 499,495   |  
|                                                                                     |  |                                                   |        |                 |  |                    |  |                                    |        |                                            |  |                     |  |                |         |                  |  |                                                |   |                                                 |           |                     |  |                              |   |  |         |   |  |           |   |  |         |   |  |           |  
|Total recognized
  income and expenses                                               |  |                                                   |       |                 |  |                   |  |                                    | 21,963 |                                            |  |                    |  |                | 59,175  |                  |  | 510,803                                        |   |                                                 | 591,941   |                     |  |                             |   |  |        |   |  | 591,941   |   |  | 7,096   |   |  | 599,037   |  
|                                                                                     |  |                                                   |        |                 |  |                    |  |                                    |        |                                            |  |                     |  |                |         |                  |  |                                                |   |                                                 |           |                     |  |                              |   |  |         |   |  |           |   |  |         |   |  |           |  
|                                                                                     |  |                                                   |        |                 |  |                    |  |                                    |        |                                            |  |                     |  |                |         |                  |  |                                                |   |                                                 |           |                     |  |                              |   |  |         |   |  |           |   |  |         |   |  |           |  
|Exercise of
  warrants                                                               |  |                                                   | 28     |                 |  | 1,105              |  |                                    |       |                                            |  |                    |  |                |        |                  |  |                                               |   |                                                 | 1,133     |                     |  |                             |   |  |        |   |  | 1,133     |   |  |        |   |  | 1,133     |  
|Dividend paid                                                                        |  |                                                   |       |                 |  |                   |  |                                    |       |                                            |  |                    |  |                |        |                  |  | (124,160                                       | ) |                                                 | (124,160  | )                   |  |                             |   |  |        |   |  | (124,160  | ) |  |        |   |  | (124,160  | )
|Repayment of
  loans as a result of the realization by employees of rights to shares |  |                                                   |       |                 |  |                   |  |                                    |       |                                            |  |                    |  |                |        |                  |  |                                               |   |                                                 |          |                     |  |                             |   |  | 16,970  |   |  | 16,970    |   |  |        |   |  | 16,970    |  
|Sale of treasury
  stock                                                             |  |                                                   | 524    |                 |  | 23,055             |  |                                    |       |                                            |  |                    |  |                |        |                  |  |                                               |   |                                                 | 23,579    |                     |  | 23,864                       |   |  |        |   |  | 47,443    |   |  |        |   |  | 47,443    |  
|Employees share
  premium                                                            |  |                                                   |       |                 |  | 1,789              |  |                                    |       |                                            |  |                    |  |                |        |                  |  |                                               |   |                                                 | 1,789     |                     |  |                             |   |  | (1,789  | ) |  |          |   |  |        |   |  |          |  
|Issuance of
  shares to the minority by a subsidiary                                 |  |                                                   |       |                 |  |                   |  |                                    |       |                                            |  |                    |  |                |        |                  |  |                                               |   |                                                 |          |                     |  |                             |   |  |        |   |  |          |   |  | 612,158 |   |  | 612,158   |  
|Purchase of the
  minority interest                                                  |  |                                                   |       |                 |  |                   |  |                                    |       |                                            |  |                    |  |                |        |                  |  |                                               |   |                                                 |          |                     |  |                             |   |  |        |   |  |          |   |  | (402    | ) |  | (402      | )
|Stock-based
  compensation expenses                                                  |  |                                                   |       |                 |  |                   |  |                                    |       |                                            |  | 13,482              |  |                |        |                  |  |                                               |   |                                                 | 13,482    |                     |  |                             |   |  |        |   |  | 13,482    |   |  | 23,543  |   |  | 37,025    |  
|Equity component
  of convertible note issued by a subsidiary                        |  |                                                   |       |                 |  |                   |  |                                    |       |                                            |  |                    |  |                |        |                  |  |                                               |   |                                                 |          |                     |  |                             |   |  |        |   |  |          |   |  | 1,053   |   |  | 1,053     |  
|                                                                                     |  |                                                   |        |                 |  |                    |  |                                    |        |                                            |  |                     |  |                |         |                  |  |                                                |   |                                                 |           |                     |  |                              |   |  |         |   |  |           |   |  |         |   |  |           |  
|                                                                                     |  |                                                   |        |                 |  |                    |  |                                    |        |                                            |  |                     |  |                |         |                  |  |                                                |   |                                                 |           |                     |  |                              |   |  |         |   |  |           |   |  |         |   |  |           |  
|Balance
  - December 31, 2006                                                        |  |                                                   | 38,032 |                 |  | 815,112            |  |                                    | 20,080 |                                            |  | 13,482              |  |                | 47,966  |                  |  | 852,416                                        |   |                                                 | 1,787,088 |                     |  | (138,519                     | ) |  | (3,853  | ) |  | 1,644,716 |   |  | 649,515 |   |  | 2,294,231 |  
|                                                                                     |  |                                                   |        |                 |  |                    |  |                                    |        |                                            |  |                     |  |                |         |                  |  |                                                |   |                                                 |           |                     |  |                              |   |  |         |   |  |           |   |  |         |   |  |           |  

The accompanying notes to the financial
statements constitute an integral part thereof.

F - 9

---

---

|                                                                         
|-------------------------------------------------------------------------
|ELBIT IMAGING LTD.
  STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY (CONT.)
|                                                                         

|                                                                                     |  |                                                   |        |                 |  |                    |  |                                    |        |                                            |  |                     |  |               |        |                 |  |                                                |   |                                                 |           |                     |  |                               |   |  |        |   |  |           |   |  |           |   |  |           |  
|------------------------------------------------------------------------------------ |  | ------------------------------------------------- | ------ | --------------- |  | ------------------ |  | ---------------------------------- | ------ | ------------------------------------------ |  | ------------------- |  | ------------- | ------ | --------------- |  | ---------------------------------------------- | - | ----------------------------------------------- | --------- | ------------------- |  | ----------------------------- | - |  | ------ | - |  | --------- | - |  | --------- | - |  | --------- | -
|                                                                                     |  | Attributable
  to the shareholders of the Company |        |                 |  |                    |  |                                    |       
|                                                                                     |  |                                                   |        |                 |  |                    |  |                                    |       
|                                                                                     |  | Share
  capital                                   |        | Share
  premium |  | Hedging
  reserves |  | Stock-based
  compensation reserve |        | Foreign
  currency translation adjustments |  | Retained
  earnings |  | Gross  amount |        | Treasury  stock |  | Loans
  to employees to acquire Company shares |   | Attributable
  to share- holders of the company |           | Minority
  interest |  | Total
  shareholders  equity |  
|                                                                                     |  |                                                   |        |                 |  |                    |  |                                    |        |                                            |  |                     |  |               |        |                 |  |                                                |   |                                                 |           |                     |  |                               |  
|                                                                                     |  | (In
  thousand NIS)                               |       
|                                                                                     |  |                                                   |       
|                                                                                     |  |                                                   |        |                 |  |                    |  |                                    |        |                                            |  |                     |  |               |        |                 |  |                                                |   |                                                 |           |                     |  |                               |   |  |        |   |  |           |   |  |           |   |  |           |  
|Balance
  - January 1, 2007                                                          |  |                                                   | 38,032 |                 |  | 815,112            |  |                                    | 20,080 |                                            |  | 13,482              |  |               | 47,966 |                 |  | 852,416                                        |   |                                                 | 1,787,088 |                     |  | (138,519                      | ) |  | (3,853 | ) |  | 1,644,716 |   |  | 649,515   |   |  | 2,294,231 |  
|                                                                                     |  |                                                   |        |                 |  |                    |  |                                    |        |                                            |  |                     |  |               |        |                 |  |                                                |   |                                                 |           |                     |  |                               |   |  |        |   |  |           |   |  |           |   |  |           |  
|                                                                                     |  |                                                   |        |                 |  |                    |  |                                    |        |                                            |  |                     |  |               |        |                 |  |                                                |   |                                                 |           |                     |  |                               |   |  |        |   |  |           |   |  |           |   |  |           |  
|Exchange
  differences arising from translation of foreign operations                |  |                                                   |       |                 |  |                   |  |                                    |       |                                            |  |                    |  |               | (3,328 | )               |  |                                               |   |                                                 | (3,328    | )                   |  |                              |   |  |       |   |  | (3,328    | ) |  | 10,233    |   |  | 6,905     |  
|Gain on hedge of
  foreign investments                                               |  |                                                   |       |                 |  |                   |  |                                    |       |                                            |  |                    |  |               | 1,859  |                 |  |                                               |   |                                                 | 1,859     |                     |  |                              |   |  |       |   |  | 1,859     |   |  |          |   |  | 1,859     |  
|Loss on cash flow
  hedge                                                            |  |                                                   |       |                 |  |                   |  |                                    | (8,897 | )                                          |  |                    |  |               |       |                 |  |                                               |   |                                                 | (8,897    | )                   |  |                              |   |  |       |   |  | (8,897    | ) |  |          |   |  | (8,897    | )
|Related income
  tax                                                                 |  |                                                   |       |                 |  |                   |  |                                    | 1,665  |                                            |  |                    |  |               | (2,953 | )               |  |                                               |   |                                                 | (1,288    | )                   |  |                              |   |  |       |   |  | (1,288    | ) |  |          |   |  | (1,288    | )
|                                                                                     |  |                                                   |        |                 |  |                    |  |                                    |        |                                            |  |                     |  |               |        |                 |  |                                                |   |                                                 |           |                     |  |                               |   |  |        |   |  |           |   |  |           |   |  |           |  
|Net gain (loss)
  recognized directly in equity                                      |  |                                                   |       |                 |  |                   |  |                                    | (7,232 | )                                          |  |                    |  |               | (4,422 | )               |  |                                               |   |                                                 | (11,654   | )                   |  |                              |   |  |       |   |  | (11,654   | ) |  | 10,233    |   |  | (1,421    | )
|Transfer to
  profit and loss on disposal of foreign operations                      |  |                                                   |       |                 |  |                   |  |                                    |       |                                            |  |                    |  |               | 2,328  |                 |  |                                               |   |                                                 | 2,328     |                     |  |                              |   |  |       |   |  | 2,328     |   |  |          |   |  | 2,328     |  
|Profit for the
  year                                                                |  |                                                   |       |                 |  |                   |  |                                    |       |                                            |  |                    |  |               |       |                 |  | 539,749                                        |   |                                                 | 539,749   |                     |  |                              |   |  |       |   |  | 539,749   |   |  | 379,859   |   |  | 919,608   |  
|                                                                                     |  |                                                   |        |                 |  |                    |  |                                    |        |                                            |  |                     |  |               |        |                 |  |                                                |   |                                                 |           |                     |  |                               |   |  |        |   |  |           |   |  |           |   |  |           |  
|Total recognized
  income and expenses                                               |  |                                                   |       |                 |  |                   |  |                                    | (7,232 | )                                          |  |                    |  |               | (2,094 | )               |  | 539,749                                        |   |                                                 | 530,423   |                     |  |                              |   |  |       |   |  | 530,423   |   |  | 390,092   |   |  | 920,515   |  
|                                                                                     |  |                                                   |        |                 |  |                    |  |                                    |        |                                            |  |                     |  |               |        |                 |  |                                                |   |                                                 |           |                     |  |                               |   |  |        |   |  |           |   |  |           |   |  |           |  
|                                                                                     |  |                                                   |        |                 |  |                    |  |                                    |        |                                            |  |                     |  |               |        |                 |  |                                                |   |                                                 |           |                     |  |                               |   |  |        |   |  |           |   |  |           |   |  |           |  
|Initially
  consolidated company                                                     |  |                                                   |       |                 |  |                   |  |                                    |       |                                            |  |                    |  |               |       |                 |  |                                               |   |                                                 |          |                     |  |                              |   |  |       |   |  |          |   |  | 32,415    |   |  | 32,415    |  
|Issuance of
  shares to the Group by a subsidiary                                    |  |                                                   |       |                 |  |                   |  |                                    |       |                                            |  |                    |  |               |       |                 |  |                                               |   |                                                 |          |                     |  |                              |   |  |       |   |  |          |   |  | 12,035    |   |  | 12,035    |  
|Issuance of
  shares to the minority by a subsidiary                                 |  |                                                   |       |                 |  |                   |  |                                    |       |                                            |  |                    |  |               |       |                 |  |                                               |   |                                                 |          |                     |  |                              |   |  |       |   |  |          |   |  | 33,424    |   |  | 33,424    |  
|Purchase of
  minority interest                                                      |  |                                                   |       |                 |  |                   |  |                                    |       |                                            |  |                    |  |               |       |                 |  |                                               |   |                                                 |          |                     |  |                              |   |  |       |   |  |          |   |  | (367      | ) |  | (367      | )
|Dividend paid                                                                        |  |                                                   |       |                 |  |                   |  |                                    |       |                                            |  |                    |  |               |       |                 |  | (159,766                                       | ) |                                                 | (159,766  | )                   |  |                              |   |  |       |   |  | (159,766  | ) |  |          |   |  | (159,766  | )
|Repayment of
  loans as a result of the realization by employees of rights to shares |  |                                                   |       |                 |  |                   |  |                                    |       |                                            |  |                    |  |               |       |                 |  |                                               |   |                                                 |          |                     |  |                              |   |  | 638    |   |  | 638       |   |  |          |   |  | 638       |  
|Employees share
  premium                                                            |  |                                                   |       |                 |  | 163                |  |                                    |       |                                            |  |                    |  |               |       |                 |  |                                               |   |                                                 | 163       |                     |  |                              |   |  | (163   | ) |  |          |   |  |          |   |  |          |  
|Stock-based
  compensation expenses                                                  |  |                                                   |       |                 |  |                   |  |                                    |       |                                            |  | 19,427              |  |               |       |                 |  |                                               |   |                                                 | 19,427    |                     |  |                              |   |  |       |   |  | 19,427    |   |  | 76,450    |   |  | 95,877    |  
|                                                                                     |  |                                                   |        |                 |  |                    |  |                                    |        |                                            |  |                     |  |               |        |                 |  |                                                |   |                                                 |           |                     |  |                               |   |  |        |   |  |           |   |  |           |   |  |           |  
|                                                                                     |  |                                                   |        |                 |  |                    |  |                                    |        |                                            |  |                     |  |               |        |                 |  |                                                |   |                                                 |           |                     |  |                               |   |  |        |   |  |           |   |  |           |   |  |           |  
|Balance
  - December 31, 2007                                                        |  |                                                   | 38,032 |                 |  | 815,275            |  |                                    | 12,848 |                                            |  | 32,909              |  |               | 45,872 |                 |  | 1,232,399                                      |   |                                                 | 2,177,335 |                     |  | (138,519                      | ) |  | (3,378 | ) |  | 2,035,438 |   |  | 1,193,564 |   |  | 3,229,002 |  
|                                                                                     |  |                                                   |        |                 |  |                    |  |                                    |        |                                            |  |                     |  |               |        |                 |  |                                                |   |                                                 |           |                     |  |                               |   |  |        |   |  |           |   |  |           |   |  |           |  

The accompanying notes to the financial
statements constitute an integral part thereof.

F - 10

---

---

|                                                                         
|-------------------------------------------------------------------------
|ELBIT IMAGING LTD.
  STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY (CONT.)
|                                                                         

|                                                                                     |  |                                                   |       |                 |  |                    |  |                                    |        |                                            |  |                     |  |               |        |                 |  |                                                |   |                                                 |         |                     |  |                               |   |  |        |   |  |         |   |  |         |   |  |         |  
|------------------------------------------------------------------------------------ |  | ------------------------------------------------- | ----- | --------------- |  | ------------------ |  | ---------------------------------- | ------ | ------------------------------------------ |  | ------------------- |  | ------------- | ------ | --------------- |  | ---------------------------------------------- | - | ----------------------------------------------- | ------- | ------------------- |  | ----------------------------- | - |  | ------ | - |  | ------- | - |  | ------- | - |  | ------- | -
|                                                                                     |  | Attributable
  to the shareholders of the Company |       |                 |  |                    |  |                                    |       
|                                                                                     |  |                                                   |       |                 |  |                    |  |                                    |       
|                                                                                     |  | Share
  capital                                   |       | Share
  premium |  | Hedging
  reserves |  | Stock-based
  compensation reserve |        | Foreign
  currency translation adjustments |  | Retained
  earnings |  | Gross  amount |        | Treasury  stock |  | Loans
  to employees to acquire Company shares |   | Attributable
  to share- holders of the company |         | Minority
  interest |  | Total
  shareholders  equity |  
|                                                                                     |  |                                                   |       |                 |  |                    |  |                                    |        |                                            |  |                     |  |               |        |                 |  |                                                |   |                                                 |         |                     |  |                               |  
|                                                                                     |  | Convenience translation into US$000 (note 2D)    |      
|                                                                                     |  |                                                   |      
|                                                                                     |  |                                                   |       |                 |  |                    |  |                                    |        |                                            |  |                     |  |               |        |                 |  |                                                |   |                                                 |         |                     |  |                               |   |  |        |   |  |         |   |  |         |   |  |         |  
|Balance
  - January 1, 2007                                                          |  |                                                   | 9,889 |                 |  | 211,938            |  |                                    | 5,221  |                                            |  | 3,505               |  |               | 12,471 |                 |  | 221,637                                        |   |                                                 | 464,661 |                     |  | (36,016                       | ) |  | (1,002 | ) |  | 427,643 |   |  | 168,881 |   |  | 596,524 |  
|                                                                                     |  |                                                   |       |                 |  |                    |  |                                    |        |                                            |  |                     |  |               |        |                 |  |                                                |   |                                                 |         |                     |  |                               |   |  |        |   |  |         |   |  |         |   |  |         |  
|Exchange
  differences arising from translation of foreign operations                |  |                                                   |      |                 |  |                   |  |                                    |       |                                            |  |                    |  |               | (865   | )               |  |                                               |   |                                                 | (865    | )                   |  |                              |   |  |       |   |  | (865    | ) |  | 2,660   |   |  | 1,795   |  
|Gain on hedge of
  foreign investments                                               |  |                                                   |      |                 |  |                   |  |                                    |       |                                            |  |                    |  |               | 484    |                 |  |                                               |   |                                                 | 484     |                     |  |                              |   |  |       |   |  | 484     |   |  |        |   |  | 484     |  
|Loss on cash flow
  hedge                                                            |  |                                                   |      |                 |  |                   |  |                                    | (2,313 | )                                          |  |                    |  |               |       |                 |  |                                               |   |                                                 | (2,313  | )                   |  |                              |   |  |       |   |  | (2,313  | ) |  |        |   |  | (2,313  | )
|Related income
  tax                                                                 |  |                                                   |      |                 |  |                   |  |                                    | 433    |                                            |  |                    |  |               | (768   | )               |  |                                               |   |                                                 | (335    | )                   |  |                              |   |  |       |   |  | (335    | ) |  |        |   |  | (335    | )
|                                                                                     |  |                                                   |       |                 |  |                    |  |                                    |        |                                            |  |                     |  |               |        |                 |  |                                                |   |                                                 |         |                     |  |                               |   |  |        |   |  |         |   |  |         |   |  |         |  
|Net gain (loss)
  recognized directly in equity                                      |  |                                                   |      |                 |  |                   |  |                                    | (1,880 | )                                          |  |                    |  |               | (1,149 | )               |  |                                               |   |                                                 | (3,029  | )                   |  |                              |   |  |       |   |  | (3,029  | ) |  | 2,660   |   |  | (369    | )
|Transfer to
  profit and loss on disposal of foreign operations                      |  |                                                   |      |                 |  |                   |  |                                    |       |                                            |  |                    |  |               | 605    |                 |  |                                               |   |                                                 | 605     |                     |  |                              |   |  |       |   |  | 605     |   |  |        |   |  | 605     |  
|Profit for the
  year                                                                |  |                                                   |      |                 |  |                   |  |                                    |       |                                            |  |                    |  |               |       |                 |  | 140,340                                        |   |                                                 | 140,340 |                     |  |                              |   |  |       |   |  | 140,340 |   |  | 98,767  |   |  | 239,107 |  
|                                                                                     |  |                                                   |       |                 |  |                    |  |                                    |        |                                            |  |                     |  |               |        |                 |  |                                                |   |                                                 |         |                     |  |                               |   |  |        |   |  |         |   |  |         |   |  |         |  
|Total recognized
  income and expenses                                               |  |                                                   |      |                 |  |                   |  |                                    | (1,880 | )                                          |  |                    |  |               | (544   | )               |  | 140,340                                        |   |                                                 | 137,916 |                     |  |                              |   |  |       |   |  | 137,916 |   |  | 101,427 |   |  | 239,343 |  
|                                                                                     |  |                                                   |       |                 |  |                    |  |                                    |        |                                            |  |                     |  |               |        |                 |  |                                                |   |                                                 |         |                     |  |                               |   |  |        |   |  |         |   |  |         |   |  |         |  
|Initially
  consolidated company                                                     |  |                                                   |      |                 |  |                   |  |                                    |       |                                            |  |                    |  |               |       |                 |  |                                               |   |                                                 |        |                     |  |                              |   |  |       |   |  |        |   |  | 8,428   |   |  | 8,428   |  
|Issuance of
  shares to the Group by a subsidiary                                    |  |                                                   |      |                 |  |                   |  |                                    |       |                                            |  |                    |  |               |       |                 |  |                                               |   |                                                 |        |                     |  |                              |   |  |       |   |  |        |   |  | 3,129   |   |  | 3,129   |  
|Issuance of
  shares to the minority by a subsidiary                                 |  |                                                   |      |                 |  |                   |  |                                    |       |                                            |  |                    |  |               |       |                 |  |                                               |   |                                                 |        |                     |  |                              |   |  |       |   |  |        |   |  | 8,691   |   |  | 8,691   |  
|Purchase of
  minority interest                                                      |  |                                                   |      |                 |  |                   |  |                                    |       |                                            |  |                    |  |               |       |                 |  |                                               |   |                                                 |        |                     |  |                              |   |  |       |   |  |        |   |  | (95     | ) |  | (95     | )
|Dividend paid                                                                        |  |                                                   |      |                 |  |                   |  |                                    |       |                                            |  |                    |  |               |       |                 |  | (41,541                                        | ) |                                                 | (41,541 | )                   |  |                              |   |  |       |   |  | (41,541 | ) |  |        |   |  | (41,541 | )
|Repayment of
  loans as a result of the realization by employees of rights to shares |  |                                                   |      |                 |  |                   |  |                                    |       |                                            |  |                    |  |               |       |                 |  |                                               |   |                                                 |        |                     |  |                              |   |  | 166    |   |  | 166     |   |  |        |   |  | 166     |  
|Employees share
  premium                                                            |  |                                                   |      |                 |  | 42                 |  |                                    |       |                                            |  |                    |  |               |       |                 |  |                                               |   |                                                 | 42      |                     |  |                              |   |  | (42    | ) |  |        |   |  |        |   |  |        |  
|Stock-based
  compensation expenses                                                  |  |                                                   |      |                 |  |                   |  |                                    |       |                                            |  | 5,051               |  |               |       |                 |  |                                               |   |                                                 | 5,051   |                     |  |                              |   |  |       |   |  | 5,051   |   |  | 19,878  |   |  | 24,929  |  
|                                                                                     |  |                                                   |       |                 |  |                    |  |                                    |        |                                            |  |                     |  |               |        |                 |  |                                                |   |                                                 |         |                     |  |                               |   |  |        |   |  |         |   |  |         |   |  |         |  
|                                                                                     |  |                                                   |       |                 |  |                    |  |                                    |        |                                            |  |                     |  |               |        |                 |  |                                                |   |                                                 |         |                     |  |                               |   |  |        |   |  |         |   |  |         |   |  |         |  
|Balance - December 31, 2007                                                          |  |                                                   | 9,889 |                 |  | 211,980            |  |                                    | 3,341  |                                            |  | 8,556               |  |               | 11,927 |                 |  | 320,436                                        |   |                                                 | 566,129 |                     |  | (36,016                       | ) |  | (878   | ) |  | 529,235 |   |  | 310,339 |   |  | 839,574 |  
|                                                                                     |  |                                                   |       |                 |  |                    |  |                                    |        |                                            |  |                     |  |               |        |                 |  |                                                |   |                                                 |         |                     |  |                               |   |  |        |   |  |         |   |  |         |   |  |         |  

The accompanying notes to the financial
statements constitute an integral part thereof.

F - 11

---

---

ELBIT IMAGING LTD.

|                                      
|--------------------------------------
|CONSOLIDATED STATEMENT OF CASH
  FLOWS
|                                      

|                                                                 |  |                   |            |         |  |                                       |   |  |          |  
|---------------------------------------------------------------- |  | ----------------- | ---------- | ------- |  | ------------------------------------- | - |  | -------- | -
|                                                                 |  | December 31       |           
|                                                                 |  |                   |           
|                                                                 |  | 2007              |            | 2006    |  | 2007                                  |  
|                                                                 |  |                   |            |         |  |                                       |  
|                                                                 |  |                   |            |         |  | Convenience
  translation
  (note 2D) |  
|                                                                 |  |                   |            |         |  |                                       |  
|                                                                 |  | (in thousand NIS) |            | US$000 | 
|                                                                 |  |                   |            |         | 
|                                                                 |  |                   |            |         |  |                                       |   |  |          |  
|CASH FLOWS FROM OPERATING
  ACTIVITIES                           |  |                   |            |         |  |                                       |   |  |          |  
|Profit for the year                                              |  |                   | 919,608    |         |  | 499,495                               |   |  | 239,107  |  
|Income tax expenses (tax benefit)
  recognized in profit or loss |  |                   | 16,288     |         |  | (1,787                                | ) |  | 4,235    |  
|Finance costs recognized in profit or loss                       |  |                   | 140,926    |         |  | 118,586                               |   |  | 36,642   |  
|Income tax paid                                                  |  |                   | (2,531     | )       |  | (5,068                                | ) |  | (658     | )
|Discontinuing operation                                          |  |                   | (10,289    | )       |  | (35,665                               | ) |  | (2,675   | )
|Depreciation and amortization (including
  impairment)           |  |                   | 111,520    |         |  | 175,768                               |   |  | 28,997   |  
|Share in losses of associates                                    |  |                   | 12,667     |         |  | (736                                  | ) |  | 3,294    |  
|Loss from realization of assets and
  liabilities                |  |                   | 2,790      |         |  | 18,237                                |   |  | 725      |  
|Stock based compensation expenses                                |  |                   | 72,226     |         |  | 32,263                                |   |  | 18,780   |  
|Profit from realization of investments                           |  |                   | (60,736    | )       |  | (80,218                               | ) |  | (15,792  | )
|Profit from decrease in holding in
  subsidiary                  |  |                   | (4,870     | )       |  | (667,016                              | ) |  | (1,269   | )
|Others                                                           |  |                   | 184        |         |  | (8,031                                | ) |  | 48       |  
|Trade accounts receivables                                       |  |                   | (1,442,203 | )       |  | (40,265                               | ) |  | (374,987 | )
|Receivables and other debit balances                             |  |                   | (15,528    | )       |  | (5,202                                | ) |  | (4,037   | )
|Long-term receivables                                            |  |                   | 234        |         |  | 251                                   |   |  | 61       |  
|Inventories                                                      |  |                   | (2,082     | )       |  | (2,058                                | ) |  | (541     | )
|Trading property                                                 |  |                   | (693,119   | )       |  | (287,889                              | ) |  | (180,218 | )
|Payment on account of trading property                           |  |                   | (233,286   | )       |  | (108,515                              | ) |  | (60,657  | )
|Suppliers and service providers                                  |  |                   | 26,092     |         |  | 48,931                                |   |  | 6,784    |  
|Payables and other credit balances                               |  |                   | 307,337    |         |  | 13,286                                |   |  | 79,911   |  
|                                                                 |  |                   |            |         |  |                                       |   |  |          |  
|Net cash used in continuing operations                           |  |                   | (854,772   | )       |  | (335,633                              | ) |  | (222,250 | )
|Net cash provided by discontinued
  operating activities         |  |                   | 1,309      |         |  | 13,872                                |   |  | 340      |  
|                                                                 |  |                   |            |         |  |                                       |   |  |          |  
|Net cash used in
  operating activities                          |  |                   | (853,463   | )       |  | (321,761                              | ) |  | (221,910 | )
|                                                                 |  |                   |            |         |  |                                       |   |  |          |  

The accompanying notes to the financial
statements constitute an integral part thereof.

F - 12

---

---

ELBIT IMAGING LTD.

|                                              
|----------------------------------------------
|CONSOLIDATED STATEMENT OF CASH
  FLOWS (CONT.)
|                                              

|                                                                                                |  |                   |             |         |  |           |   |                                       |          |  
|----------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | ------- |  | --------- | - | ------------------------------------- | -------- | -
|                                                                                                |  |                   | December 31 |        
|                                                                                                |  |                   |             |        
|                                                                                                |  |                   | 2007        |         |  | 2006      |   | 2007                                  |         
|                                                                                                |  |                   |             |         |  |           |  
|                                                                                                |  |                   |             |         |  |           |   | Convenience
  translation
  (note 2D) |         
|                                                                                                |  |                   |             |         |  |           |   |                                       |         
|                                                                                                |  | (in thousand NIS) |             | US$000 | 
|                                                                                                |  |                   |             |         | 
|                                                                                                |  |                   |             |         |  |           |   |                                       |          |  
|CASH FLOWS FROM INVESTING
  ACTIVITIES                                                          |  |                   |             |         |  |           |   |                                       |          |  
|Investment in initially-consolidated
  subsidiaries (Appendix B)                                |  |                   | (135,083    | )       |  |          |   |                                       | (35,123  | )
|Purchase of property plant and equipment,
  investment property and other assets                |  |                   | (339,337    | )       |  | (204,639  | ) |                                       | (88,231  | )
|Payment on account of investment property                                                       |  |                   | (203,099    | )       |  | (24,741   | ) |                                       | (52,808  | )
|Proceeds from realization of property
  plant and equipment, investments and loans              |  |                   | 914         |         |  | 918       |   |                                       | 238      |  
|Proceeds from realization of investments
  in subsidiaries (Appendix C)                         |  |                   | 483,722     |         |  | 74,532    |   |                                       | 125,773  |  
|Investments in investee and other
  companies                                                   |  |                   | (18,445     | )       |  | (16,683   | ) |                                       | (4,796   | )
|Investment in long-term deposits and
  long-term loans                                          |  |                   | (6,337      | )       |  | (29,786   | ) |                                       | (1,648   | )
|Interest received in cash                                                                       |  |                   | 84,123      |         |  | 51,414    |   |                                       | 21,873   |  
|Issuance of shares, by a subsidiary, to
  its minority shareholders                             |  |                   | 38,286      |         |  | 1,280,108 |   |                                       | 9,955    |  
|Purchase of minority shares in
  subsidiaries                                                   |  |                   | (16,845     | )       |  | (447      | ) |                                       | (4,380   | )
|Short-term deposits and marketable
  securities, net                                            |  |                   | (422,822    | )       |  | (44,182   | ) |                                       | (109,938 | )
|                                                                                                |  |                   |             |         |  |           |   |                                       |          |  
|Net cash used in
  investing activities                                                         |  |                   | (534,923    | )       |  | 1,086,494 |   |                                       | (139,085 | )
|                                                                                                |  |                   |             |         |  |           |   |                                       |          |  
|                                                                                                |  |                   |             |         |  |           |   |                                       |          |  
|CASH FLOWS FROM FINANCING
  ACTIVITIES                                                          |  |                   |             |         |  |           |   |                                       |          |  
|Excercise of options into shares                                                                |  |                   |            |         |  | 1,133     |   |                                       |         |  
|Dividend paid                                                                                   |  |                   | (159,767    | )       |  | (124,160  | ) |                                       | (41,541  | )
|Interest paid                                                                                   |  |                   | (250,301    | )       |  | (193,426  | ) |                                       | (65,081  | )
|Issuance of convertible debentures by a
  subsidiary to its minority shareholders               |  |                   |            |         |  | 22,979    |   |                                       |         |  
|Proceeds from long-term borrowings                                                              |  |                   | 1,570,963   |         |  | 2,002,021 |   |                                       | 408,467  |  
|Repayment of long-term borrowings                                                               |  |                   | (138,251    | )       |  | (710,924  | ) |                                       | (35,947  | )
|Proceeds from issuance of treasury stocks                                                       |  |                   |            |         |  | 59,657    |   |                                       |         |  
|Proceeds from repayments of loans as a
  result of realization by employees of rights to shares |  |                   | 638         |         |  | 16,970    |   |                                       | 166      |  
|Proceed from short-term credit                                                                  |  |                   | 281,622     |         |  | 235,744   |   |                                       | 73,226   |  
|Repayment of short-term credit                                                                  |  |                   | (605,362    | )       |  | (431,016  | ) |                                       | (157,400 | )
|                                                                                                |  |                   |             |         |  |           |   |                                       |          |  
|Net cash provided by
  financing activities                                                     |  |                   | 699,542     |         |  | 878,978   |   |                                       | 181,888  |  
|                                                                                                |  |                   |             |         |  |           |   |                                       |          |  
|                                                                                                |  |                   |             |         |  |           |   |                                       |          |  
|Increase (decrease) in
  cash and cash equivalents                                              |  |                   | (688,844    | )       |  | 1,643,711 |   |                                       | (179,107 | )
|Cash and cash equivalents
  at the beginning of the year                                        |  |                   | 2,150,871   |         |  | 489,343   |   |                                       | 559,249  |  
|Net effect on cash due to
  currency exchange rates changes                                     |  |                   | (45,317     | )       |  | 17,817    |   |                                       | (11,783  | )
|                                                                                                |  |                   |             |         |  |           |   |                                       |          |  
|                                                                                                |  |                   |             |         |  |           |   |                                       |          |  
|Cash and cash equivalents
  at the end of the year                                              |  |                   | 1,416,710   |         |  | 2,150,871 |   |                                       | 368,359  |  
|                                                                                                |  |                   |             |         |  |           |   |                                       |          |  

The accompanying notes to the financial
statements constitute an integral part thereof.

F - 13

---

---

ELBIT IMAGING LTD.

|                                              
|----------------------------------------------
|CONSOLIDATED STATEMENT OF CASH
  FLOWS (CONT.)
|                                              

|                                                                                              |  |                   |          |         |  |                                       |   |  |         |  
|--------------------------------------------------------------------------------------------- |  | ----------------- | -------- | ------- |  | ------------------------------------- | - |  | ------- | -
|                                                                                              |  | December 31       |         
|                                                                                              |  |                   |         
|                                                                                              |  | 2007              |          | 2006    |  | 2007                                  |  
|                                                                                              |  |                   |          |         |  |                                       |  
|                                                                                              |  |                   |          |         |  | Convenience
  translation
  (note 2D) |  
|                                                                                              |  |                   |          |         |  |                                       |  
|                                                                                              |  | (in thousand NIS) |          | US$000 | 
|                                                                                              |  |                   |          |         | 
|                                                                                              |  |                   |          |         |  |                                       |   |  |         |  
|Appendix A                                                                                   |  |                   |          |         |  |                                       |   |  |         |  
|Non-cash transactions                                                                         |  |                   |          |         |  |                                       |   |  |         |  
|                                                                                              |  |                   |          |         |  |                                       |   |  |         |  
|Acquisition of property plant and equipment, investment property
  and other assets by credit |  |                   | 13,311   |         |  | 5,078                                 |   |  | 3,461   |  
|                                                                                              |  |                   |          |         |  |                                       |   |  |         |  
|                                                                                              |  |                   |          |         |  |                                       |   |  |         |  
|Acquisition of minority interest by credit                                                    |  |                   | 16,977   |         |  |                                      |   |  | 4,414   |  
|                                                                                              |  |                   |          |         |  |                                       |   |  |         |  
|                                                                                              |  |                   |          |         |  |                                       |   |  |         |  
|Appendix B                                                                                   |  |                   |          |         |  |                                       |   |  |         |  
|Initially consolidated subsidiaries                                                           |  |                   |          |         |  |                                       |   |  |         |  
|                                                                                              |  |                   |          |         |  |                                       |   |  |         |  
|Deficit in working capital (excluding
  cash), net                                            |  |                   | (62      | )       |  |                                      |   |  | (16     | )
|Investment property                                                                           |  |                   | (168,827 | )       |  |                                      |   |  | (43,897 | )
|Minority interest                                                                             |  |                   | 33,806   |         |  |                                      |   |  | 8,790   |  
|                                                                                              |  |                   |          |         |  |                                       |   |  |         |  
|                                                                                              |  |                   | (135,083 | )       |  |                                      |   |  | (35,123 | )
|                                                                                              |  |                   |          |         |  |                                       |   |  |         |  
|                                                                                              |  |                   |          |         |  |                                       |   |  |         |  
|Appendix C                                                                                   |  |                   |          |         |  |                                       |   |  |         |  
|Proceeds from realization
  of investments in subsidiaries                                    |  |                   |          |         |  |                                       |   |  |         |  
|                                                                                              |  |                   |          |         |  |                                       |   |  |         |  
|Working capital (excluding cash), net                                                         |  |                   | (9,935   | )       |  | (6,423                                | ) |  | (2,583  | )
|Long-term receivables, investments and
  deposits                                             |  |                   | 778      |         |  | 753                                   |   |  | 202     |  
|Property, plant, equipment and other
  assets                                                 |  |                   | 38,773   |         |  | 2,052                                 |   |  | 10,081  |  
|Investment property                                                                           |  |                   | 603,104  |         |  |                                      |   |  | 156,813 |  
|Long term liabilities                                                                         |  |                   | (213,363 | )       |  | (3,382                                | ) |  | (55,476 | )
|Profit from realization of subsidiaries                                                       |  |                   | 60,733   |         |  | 5,429                                 |   |  | 15,792  |  
|Realization of capital reserves from
  foreign currency translation adjustments               |  |                   | (781     | )       |  | 1,315                                 |   |  | (203    | )
|                                                                                              |  |                   |          |         |  |                                       |   |  |         |  
|                                                                                              |  |                   | 479,309  |         |  | (256                                  | ) |  | 124,626 |  
|Proceed from realization of subsidiaries
  which were disposed of in previous years           |  |                   | 4,413    |         |  | 74,788                                |   |  | 1,147   |  
|                                                                                              |  |                   |          |         |  |                                       |   |  |         |  
|                                                                                              |  |                   | 483,722  |         |  | 74,532                                |   |  | 125,773 |  
|                                                                                              |  |                   |          |         |  |                                       |   |  |         |  

The accompanying notes to the financial
statements constitute an integral part thereof.

F - 14

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING LTD.                              
|                                                
|NOTES TO THE CONSOLIDATED FINANCIAL
  STATEMENTS
|                                                

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

|   |                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                              
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|A. | Elbit
  Imaging Ltd. (the Company) is incorporated in Israel. The Companys
  registered office is at 2 Weizman St. Tel Aviv, Israel. In November 2007 the
  Companys name was changed from Elbit Medical Imaging Ltd. to its current
  name. The Companys shares are registered for trade on the Tel Aviv Stock
  Exchange and in the United States on NASDAQ.
|   |                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                              
|B. | The Group
  engages, directly and through its investee companies, in Israel and abroad,
  mainly in the following areas:                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                              
|   | ·                                                                                                                                                                                                                                                                                                                                                                   | Commercial
  and entertainment centers - Initiation,
  construction, operation, management and sale of commercial and entertainment
  centers and other mixed-use in Israel, in Central and Eastern Europe and in
  India.                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                              
|   | ·                                                                                                                                                                                                                                                                                                                                                                   | Hotels
  - Hotels ownership, primarily in major European cities, as well as operation,
  management and sale of same.                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                              
|   | ·                                                                                                                                                                                                                                                                                                                                                                   | Image guide
  treatment - Investments in the research and
  development, production and marketing of magnetic resonance imaging guided
  focused ultrasound treatment equipment.                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                              
|   | ·                                                                                                                                                                                                                                                                                                                                                                   | Other
  activities  Other activities consisting of (i)
  investments in real estate assets in India designated for residential
  projects and other mixed-use projects, (ii) the distribution and sale of
  fashion retail in Israel, and (iii) venture-capital investments. Other
  activities also include investments in hospitals and farm dairy plant which
  are in preliminary stage.
|   |                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                              
|C. | Definitions                                                                                                                                                                                                                                                                                                                                                        

| |                                |                                                                                                                                              
| | ------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------
| | Group -                        | The Company
  and its Investees.                                                                                                             
| |                                |                                                                                                                                              
| | Investees -                    | Subsidiaries,
  joint ventures and associates.                                                                                               
| |                                |                                                                                                                                              
| | 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 shareholder of EIL (CC).                                                                          
| |                                |                                                                                                                                              
| | Control
  Centers Group -      | Control
  Centers and its investee companies.                                                                                                
| |                                |                                                                                                                                              
| | Ultimate
  controlling party - | The
  controlling shareholder of Control Centers, Mr. Mordechay Zisser, which also
  serves as the Companys Executive Chairman of the Board.
| |                                |                                                                                                                                              
| | Related
  parties -            | As defined
  in International Accounting Standard (IAS) 24.                                                                                

F - 15

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING LTD.                              
|                                                
|NOTES TO THE CONSOLIDATED FINANCIAL
  STATEMENTS
|                                                

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

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|A. | Statement of compliance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The
  consolidated financial statements have been prepared in accordance with
  International Financial Reporting Standards (IFRSs) as issued by the
  International Accounting Standards Board (IASB).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|B. | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | First time adoption
  of IFRSs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | These are the Groups first
consolidated financial statements in accordance with IFRSs. The Groups previous
consolidated financial statements were prepared in accordance with Israeli GAAP. In
accordance with IFRS 1 (First Time Adoption of IFRS) and the SEC release
number 33-8879 accepted from foreign private issuers of financial statements prepered in
accordance with IFRSs without reconciliation to U.S. GAAP. The Group has presented
comparative financial statements only for one year. Accordingly, the transition date to
IFRSs is January 1, 2006. An explanation of how the transition to IFRSs has affected the
consolidated financial statements of the Group and the exemptions selected by the Group is
provided in note 28.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | Basis for
  preparations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | The
  consolidated financial statements have been prepared on the historical cost
  basis except for certain property plant and equipment which were measured at
  the transition date at deemed cost (see note 28) and except for financial
  instruments which are measured at fair value. The principal accounting
  policies are set out below.                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|C. | Presentation of the income statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Based on the
  Groups business model, the Group is involved in investment in a wide range
  of different activities. Accordingly, management believes that its income
  statements should be presented in the Single - step form. According to this
  form, all costs and expenses (including general and administrative and
  financial expenses) should be considered as continuously contributing to the
  generation of the overall revenues and gains. Management is also believes
  that its operating expenses should be classified by function to: (i) those
  directly related to each revenues (including general and administrative
  expenses and selling and marketing expenses relating directly to each
  operation); and (ii) overhead expenses which serve the business as a whole
  and are to be determined as general and administrative expenses.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|D. | Convenience translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The balance
  sheet as of December 31, 2007 and statement of income, statement of changes
  in shareholders equity and statement of cash flows for the year then ended
  have been translated into U.S. dollar using the representative exchange rate
  as of that date (U.S.$1.0 = NIS 3.846). Such translation was made solely for
  the convenience of the U.S. readers. The dollar amounts so presented in these
  financial statements should not be construed as representing amounts
  receivable or payable in dollars or convertible into dollars but rather a
  translation of reported amounts into U.S. dollars, unless otherwise
  indicated. Such convenience translation is unaudited and is supplementary
  only and it is not presented in accordance with IFRSs.                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|E. | Operating cycle                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The Group
  operating cycle in respect of operations relating to the construction of real
  estate projects designated for sale, which are classified as trading
  properties is up to five years. Accordingly, assets and liabilites including
  directly related financial liabilities, are classified as current assets and
  liabilities. For other Groups operations it is assumed that the operating
  cycle is twelve months.                                                                                                                                                                                                                                                                                                                                                                                                                                    

F - 16

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING LTD.                              
|                                                
|NOTES TO THE CONSOLIDATED FINANCIAL
  STATEMENTS
|                                                

|          |                                        
|--------- | ---------------------------------------
|NOTE 2   | SIGNIFICANT ACCOUNTING POLICIES (CONT.)

|   |                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|F. | Basis for consolidation                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | (i)                                                                                                                                                                                                                                                                                                                                    | The
  consolidated financial statements incorporate the financial statements of the
  Company and entities controlled by the Company (Subsidiaries). Control is
  achieved where the Company has the power to govern the financial and
  operating policies of an entity so as to obtain benefits from its activities.
  The results of subsidiaries acquired or disposed of during the year are
  included in the consolidated income statement from the effective date of
  acquisition or up to the effective date of disposal, as appropriate. Where
  necessary, adjustments are made to the financial statements of subsidiaries
  to bring their accounting policies into line with those used by the Company.
|   |                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                        | Material
  intra-group transactions, balances, income and expenses are eliminated in
  full on consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                        | Losses
  applicable to the minority in excess of the minoritys interest in the
  subsidiarys equity are allocated against the interests of the Group except
  to the extent that the minority has a binding obligation (including by a way
  of loans of the minority to the subsidiary) and it is able to make an
  additional investment to cover the losses.                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | (ii)                                                                                                                                                                                                                                                                                                                                   | In instances
  that the Group acquires minority interest, the difference between the cost of
  acquisitions and the minority interests book value acquired is recognized as
  goodwill. If the difference is negative it is recognized as an income in the
  income statements.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                        | When the
  Group interest is reduced, without loss of control (either by sale or by
  issuance of shares by the subsidiary)the differences between the
  consideration received and the book value of the Groups sold is recognized
  in income statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|G. | Interest in joint ventures                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | A joint
  venture is a contractural arrangement whereby the Group and other parties
  undertake an economic activity that is subject to joint control; that is when
  the strategic financial and operating policy decisions relating to the
  activities of the joint venture require the unanimous of the parties sharing
  control.
|   |                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Jointly
  controlled entities are accounted for using the proportionate consolidation
  method using line by line basis. The financial statements of jointly
  controlled entities are included in the consolidated financial statements
  from the date that joint control commences through the date that joint
  control, ceases.  
|   |                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Where
  necessary, adjustments are made to the financial statements of jointly
  controlled entities to bring their accounting policies into line with those used
  by the Company.                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Material
  intra-group transactions, balances, income and expenses are eliminated in
  consolidation to the extent of the Groups interest in the joint ventures.                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|H. | Investments in associates                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                       
|   | An associate
  is an entity over which the Group has significant influence and that is
  neither a subsidiary nor an interest in a joint venture. Significant
  influence is the power to participate in the financial and operating policy
  decisions of the investee but is not control or joint control over those
  policies.    

F - 17

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING LTD.                              
|                                                
|NOTES TO THE CONSOLIDATED FINANCIAL
  STATEMENTS
|                                                

|          |                                        
|--------- | ---------------------------------------
|NOTE 2   | SIGNIFICANT ACCOUNTING POLICIES (CONT.)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|H. | Investments in associates (cont.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The results
  and assets and liabilities of associates are incorporated in these financial
  statements using the equity method of accounting. Under the equity method,
  investments in associates are carried in the consolidated balance sheet at
  cost as adjusted for post-acquisition changes in the Groups share of the net
  assets of the associate, less any impairment in the value of individual
  investments. Losses of an associate in excess of the Groups interest in that
  associate (which includes any long-term interests that, in substance, form
  part of the Groups net investment in the associate) are not recognized,
  unless the Group has incurred legal or constructive obligations or made
  payments on behalf of the associate.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | Any excess
  of the cost of acquisition over the Groups share of the net fair value of
  the identifiable assets, liabilities and contingent liabilities of the
  associate at the date of acquisition is recognized as goodwill. The goodwill
  is included within the carrying amount of the investment and is assessed for
  impairment as part of the investment.                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | In
  circumstances where the Groups ownership in an investee company (mainly,
  venture capital investments) is in the form of preferred securities or other
  senior securities, the Group records equity losses based on the ownership
  level of the specific associates securities or loans extended by the Group
  to which the equity method losses are being applied.                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | Gain or loss
  from issuance of shares by an associate to a third party, is recognized
  immediately in the statement of income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | Where
  necessary, adjustments are made for the financial statements of associates to
  bring their accounting policies into line with those used by the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|I. | Buisiness
  combination under common control                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | Business
  combinations arising from transfers of interests in entities that are under
  the control of the shareholder that controls the Group are accounted for as
  if the entities have been always combined or, if later, at the date that
  common control was established. The assets and liabilities acquired are
  recognized at the carrying amounts recognized previously in the Groups
  controlling shareholders consolidated financial statements.                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|J. | Foreign
  currency                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Foreign
  currency transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | Each
  individual entity of the Group presented its financial statements in its
  functional currency. Transactions in currencies other than each individual
  entitys functional currency (foreign currency) are translated at the foreign
  exchange rate prevailing at the date of the transaction. Monetary assets and
  liabilities denominated in foreign currencies are translated to the
  functional currency at the foreign exchange rate prevailing at the balance
  sheet date. Non-monetary assets and liabilities that are measured in terms of
  historical cost in a foreign currency are translated using the exchange rate
  at the date of the transaction. Non-monetary assets and liabilities
  denominated in foreign currencies that are stated at fair value are
  translated to the functional currency at foreign exchange rates prevailing at
  the dates the fair value was determined.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | Exchange
  differences from the above are recognized in statement of income, except for:
  (i) exchange differences capitalized to qualified asset (see note 2AF); and
  (ii) exchange differences recorded in foreign currency translation reserve
  (see (ii) below).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

F - 18

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING LTD.                              
|                                                
|NOTES TO THE CONSOLIDATED FINANCIAL
  STATEMENTS
|                                                

|          |                                        
|--------- | ---------------------------------------
|NOTE 2   | SIGNIFICANT ACCOUNTING POLICIES (CONT.)

|   |                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | -------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|J. | Foreign
  currency (cont.)
|   |                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | (ii)                       | Financial
  statements of foreign operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                            | For the
  purpose of the consolidated financial statements, the assets and liabilities
  of foreign operations (each has a functional currency of its primary economic
  environment in which it operates) are translated to the functional currency,
  which is also the presentation currency of the Company (New Israeli Shekel 
  NIS) at foreign exchange rates prevailing at the balance sheet date. The
  revenues and expenses of foreign operations are translated to the functional
  currency of the Company based on exchange rate as at the date of each
  transaction or for sake of practicality - using average exchange rate for the
  period. Goodwill and fair value adjustments arising on the acquisition of a
  foreign operation are treated as assets and liabilities of the foreign
  operation and translated at closing date.
|   |                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                            | Foreign
  exchange differences arising on translation are recognized directly to
  foreign currency translation reserve within shareholders equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                            | Exchange
  differences on (i)monetary items receivable from or payable to a foreign
  operation for which settlement is neither planned nor likely to occur, which
  form part of the net investment in a foreign operation; and (ii) borrowings
  used to hedge investments in foreign entities in the same currency have been
  also included in the foreign currency translation reserve.                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                            | Income taxes
  relating to such exchange differences have also been included in that item of
  shareholders equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                            | Upon
  realization of a foreign operation, 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), such foreign currency, translation
  reserve relating to the realized investment is charged to the income statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | (iii)                      | Rate of
  exchange of NIS, in effect, in relation to foreign currency (in NIS) are as
  follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

|                       |  |             |       |      |  |  |       |  | 
|---------------------- |  | ----------- | ----- | ---- |  |  | ----- |  | 
|                       |  | December 31 |      
|                       |  |             |      
|                       |  | 2007        |       | 2006 | 
|                       |  |             |       |      | 
|                       |  |             |       |      |  |  |       |  | 
|US Dollar ($)          |  |             | 3.846 |      |  |  | 4.225 |  | 
|EURO ()               |  |             | 5.659 |      |  |  | 5.564 |  | 
|British Pound (£)      |  |             | 7.710 |      |  |  | 8.228 |  | 
|Romanian New Lei (RON) |  |             | 1.567 |      |  |  | 1.645 |  | 
|Indian Rupee (INR)     |  |             | 0.096 |      |  |  | 0.095 |  | 

Scope
of change in the exchange rate, in effect, of the NIS in relation to the
foreign currency (%):

|                       |  |                        |       |      |  |  |       |   | 
|---------------------- |  | ---------------------- | ----- | ---- |  |  | ----- | - | 
|                       |  | Year ended December 31 |      
|                       |  |                        |      
|                       |  | 2007                   |       | 2006 | 
|                       |  |                        |       |      | 
|                       |  |                        |       |      |  |  |       |   | 
|US Dollar ($)          |  |                        | (8.97 | )    |  |  | (8.21 | ) | 
|EURO ()               |  |                        | 1.71  |      |  |  | 2.16  |   | 
|British Pound (£)      |  |                        | (6.29 | )    |  |  | 3.62  |   | 
|Romanian New Lei (RON) |  |                        | (4.74 | )    |  |  | 11.10 |   | 
|Indian Rupee (INR)     |  |                        | 1.05  |      |  |  | (5.94 | ) | 

F - 19

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING LTD.                              
|                                                
|NOTES TO THE CONSOLIDATED FINANCIAL
  STATEMENTS
|                                                

|          |                                        
|--------- | ---------------------------------------
|NOTE 2   | SIGNIFICANT ACCOUNTING POLICIES (CONT.)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|K. | Consumer price index financial liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The Company
  has Consumer Price Index (CPI)-linked financial liabilities that are not
  measured at fair value through profit or loss. For those liabilities, the
  Company determines the effective interest rate as a real rate plus linkage
  differences according to the actual changes in the CPI up to the balance
  sheet date. This is the same approach taken under Israeli GAAP. As of the
  balance sheet date, the Company had such CPI-linked financial liabilities in
  the amount of NIS 2,091 thousand.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | A different
  interpretation of IFRSs exists that would require the effective interest rate
  for such liabilities to include the anticipated inflation through the
  applicable payment dates (as opposed to accruing the real interest plus
  linkage differences based on the actual changes in the CPI up to the balance
  sheet date).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | In Israel,
  the vast majority of medium and long term loans and borrowings are
  CPI-linked. Therefore, the Israel Accounting Standards Board submitted an
  inquiry to the International Financial Reporting Interpretations Committee
  (IFRIC) to clarify the method that should be applied for measuring the
  effective interest rate for such assets and liabilities under IFRSs. It is
  not possible to reliably predict IFRICs final response to this issue and its
  implications. If IFRICs response will show that the current practice
  followed in Israel (as applied in these financial statements and as described
  in this note) is not appropriate under IFRSs, the Company would then be
  required to change the measurement of such assets and liabilities, possibly
  through a restatement to its financial statements. In the current
  circumstances, the Company is unable to reliably assess the potential impact
  on its financial statements should that be the case.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Rate of
  increase in the Israeli CPI in 2007 was 3.4% (2006 - decrease of 0.1%).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|L. | Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Cash
  equivalents include unrestricted liquid deposits, maturity period of which,
  as at the date of investments therein, does not exceed three months.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|M. | Financial assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Financial
  assets of the Group are classified into the following specified categories:
  financial assets as fair value through profit or loss (FVTPL) and loans
  and receivables. The classification depends on the nature and purpose of the
  financial assets and is determined at the time of initial recognition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Financial
  assets are recognized and derecognized on a trade date where the purchase or
  sale of an investment is under a contract whose terms require delivery of the
  investment within the timeframe established by the market concerned, and are
  initially measured at fair value, plus transaction costs except for those
  financial assets classified as at fair value through profit or loss, which
  are initially measured at fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Financial
  assets at FVTPL                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The Groups
  financial assets at this category consist of: (i) marketable securities held
  for trading (an identified portfolio of financial instruments that the Group
  manages together and has a recent actual pattern of short-term
  profit-taking); (ii) derivative that is not designated or effective as a
  hedging instrument; and (iii) financial asset designated as at FVTPL upon
  initial recognition if such designation eliminates or significantly reduces a
  measurement or recognition inconsistency that would otherwise arise from
  measuring assets or liabilities, which are linked on different basis.                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Financial
  assets at FVTPL are stated at fair value, with any gain or loss recognized in
  profit or loss. The net gain or loss recognized in profit or loss
  incorporates any dividend or interest earned on the financial asset. Fair
  value is determined in the manner described in note 27.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

F - 20

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING LTD.                              
|                                                
|NOTES TO THE CONSOLIDATED FINANCIAL
  STATEMENTS
|                                                

|          |                                        
|--------- | ---------------------------------------
|NOTE 2   | SIGNIFICANT ACCOUNTING POLICIES (CONT.)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|M. | Financial assets (cont.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Loans and
  receivables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The Groups
  financial assets at this category consist of trade receivables, deposits in
  banks, and financial institutions, loans, and other receivables that have
  fixed or determinable payments that are not quoted in an active market. Loans
  and receivables are measured at amortized cost using the effective interest
  method less any impairment. Interest income is recognized by applying the
  effective interest rate, except for short-term receivables where the recognition
  of interest would be immaterial.                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Impairment
  of financial assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Financial
  assets, other than those at FVTPL, are assessed for indicators of impairment
  at each balance sheet date. Financial assets are impaired where there is
  objective evidence that, as a result of one or more events that occurred
  after the initial recognition of the financial asset, the estimated future
  cash flows of the assets have been impacted. For financial assets carried at
  amortized cost, the amount of the impairment is the difference between the
  assets carrying amount and the present value of estimated future cash flows,
  discounted at the original effective interest rate.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The carrying
  amount of the financial asset is reduced through the use of an allowance account.
  When a trade receivable is uncollectible, it is written off against the
  allowance account. Subsequent recoveries of amounts previously written off
  are credited against the allowance account. Changes in the carrying amount of
  the allowance account are recognized in profit or loss.                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | If, in a
  subsequent period, the amount of the impairment loss decreases and the
  decrease can be related objectively to an event occurring after the
  impairment was recognized, the previously recognized impairment loss is
  reversed through profit or loss to the extent that the carrying amount of the
  asset at the date the impairment is reversed does not exceed what the
  amortized cost would have been had the impairment not been recognized.                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|N. | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Inventories
  are stated at the lower of cost and net realizable value. Costs, including an
  appropriate portion of fixed and variable overhead expenses, are assigned to
  inventories using the method most appropriate to the particular class of
  inventory. Net realizable value represents the estimated selling price for
  inventories less all estimated costs of completion and costs necessary to
  make the sale. The cost of inventories is determined in the following method:                                                                                                                               

| |   |                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Hotel
  inventory and fashion merchandise - by the first-in, first-out method;                                                                                                                                                                        
| |   |                                                                                                                                                                                                                                                         
| |  | Imaged
  guided treatment inventories -raw materials on the basis of moving average
  cost per unit; finished products on the basis of standard cost, which
  approximates actual production cost (materials, labor and indirect
  manufacturing costs).

|   |                                                                                                                                                                                                                                                                                                                                                                                          
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|O. | Trading property                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                          
|   | Real estate
  properties that are being constructed or developed for future sale
  (inventory) are classified as trading properties and are stated at the lower
  of cost and net realizable value. Net realizable value is the estimated
  selling price in the ordinary course of business less the estimated costs of
  completion and the estimated costs necessary to make the sale.
|   |                                                                                                                                                                                                                                                                                                                                                                                          
|   | Costs of
  trading properties include costs directly associated with the purchase of trading
  properties and all subsequent expenditures for the development of such
  properties as well as borrowing costs capitalized in accordance with the
  Groups accounting policy described in item AF.                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                          
|   | Cost of
  trading properties is determined on the basis of specific identification of
  their individual costs (other than non-specific borrowing costs capitalized
  to the cost of trading property).                                                                                                                                                                                  

F - 21

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING LTD.                              
|                                                
|NOTES TO THE CONSOLIDATED FINANCIAL
  STATEMENTS
|                                                

|          |                                        
|--------- | ---------------------------------------
|NOTE 2   | SIGNIFICANT ACCOUNTING POLICIES (CONT.)

|   |                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | ---------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|P. | Property plant and equipment
|   |                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | (I)                          | Property
  Plant and equipment are stated at cost less accumulated deprecation and
  accumulated impairment losses. Government grants have been deducted from cost
  of assets for which they have been granted. Cost of land and building include
  direct construction and supervision costs incurred in the construction period
  as well as borrowing costs capitalized in accordance with the Groups
  accounting policy described in item AF.
|   |                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                              | Improvements
  and renovations are charged to cost of assets. Maintenance and repair costs
  are charged to the statement of operations as incurred. Consideration paid
  for multiple assets acquired at an aggregate amount (package) is allocated
  to each asset on the basis of relatively fair value.                                                                                                                                       
|   |                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | (II)                         | Depreciation
  is calculated by the straight-line method over the assets estimated useful
  lives. Leasehold improvements are amortized over the estimated useful period
  of use not exceeding the lease period (including the period of renewal
  options that the Group intends to exercise).                                                                                                                                                    
|   |                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                              | Annual
  depreciation rates are as follows:                                                                                                                                                                                                                                                                                                                                                                                                         

| |                            |  |   |               |  | 
| | -------------------------- |  | - | ------------- |  | 
| |                            |  | % |              
| |                            |  |   |              
| |                            |  |   |               |  | 
| | Freehold
  land            |  |   | 0             |  | 
| | Hotels                     |  |   | 1.1 - 1.5     |  | 
| | Other buildings            |  |   | 2.0 - 2.5     |  | 
| | Building operating systems |  |   | 7.0 (average) |  | 
| | Others (*)                 |  |   | 6.0 - 33.0    |  | 

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |     |                                                                                                                                                                                          
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | (*) | Consists of motor vehicles, aircraft, office furniture and equipment,
  machinery and equipment, electronic equipment, computers and peripheral
  equipment, leasehold improvements, etc.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |     |                                                                                                                                                                                          
|Q. | Investment property                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |     |                                                                                                                                                                                          
|   | Investment
  property is stated at cost less accumulated deprecation and accumulated
  impairment losses. Cost include direct construction and supervision costs
  incurred in the construction period as well as borrowing costs capitalized in
  accordance with the Groups accounting policy described in item AF.
  Depreciation is calculated by the straight-line method over the investment
  property estimated useful lives. The average annual deprecation rate is
  2%-2.5%.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |     |                                                                                                                                                                                          
|   | The Group
  classified land acquired with no defined and final designation as an
  investment property. When the use of a property is defined the Group will
  transfer the relevant part of the investment in the land to property plant
  and equipment and/or to trading property as the case may be.                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |     |                                                                                                                                                                                          
|R. | Leasing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |     |                                                                                                                                                                                          
|   | Operating
  lease payments (including prepaid leasehold rights) are recognized as an
  expense on a straight-line basis over the lease term (including the period of
  renewal options that the Group intends to exercise).                                                                                                                                                                                                                                                             

F - 22

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING LTD.                              
|                                                
|NOTES TO THE CONSOLIDATED FINANCIAL
  STATEMENTS
|                                                

|          |                                        
|--------- | ---------------------------------------
|NOTE 2   | SIGNIFICANT ACCOUNTING POLICIES (CONT.)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|S. | Other assets and deferred expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | (I)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Operating costs relating to initiation of real estate projects-
  (prior to finalization of the investment transaction or land acquisition,
  etc.) are capitalized as incurred, when an investment or a property
  acquisition transaction is probable, and are charged to the cost of the
  investment or the real estate project cost upon the execution of the
  investment or the acquisition. In circumstances where execution of investment
  or transaction is not probable or the expected economic benefit is doubtful,
  these costs are charged to the statement of income.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | (II)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Costs of a long-term service contract- are stated at cost and amortized over the
  service period (5 years).                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|T. | Goodwill                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Goodwill is
  initially recognized as an asset at cost and is subsequently measured at cost
  less any accumulated impairment losses. For the purpose of impairment
  testing, goodwill is allocated to each of the Groups cash-generating units
  expected to benefit from the synergies of the combination. Cash-generating
  units to which goodwill has been allocated are tested for impairment
  annually, or more frequently when there is an indication that the unit may be
  impaired. If the recoverable amount of the cash-generating unit is less than
  the carrying amount of the unit, the impairment loss is allocated first to
  reduce the carrying amount of any goodwill allocated to the unit and then to
  the other assets of the unit pro-rata on the basis of the carrying amount of
  each asset in the unit. An impairment loss recognized for goodwill is not
  reversed in a subsequent period.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | On disposal
  of a subsidiary or a jointly controlled entity, the attributable amount of
  goodwill is included in the determination of the profit or loss on disposal.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The Groups
  policy for goodwill arising on the acquisition of an associate is described
  in item H above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|U. | Intangible assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Intangible
  assets (excluding goodwill) are stated at cost less accumulated amortization
  and accumulated impairment losses. Amortization is charged according to the
  straight-line method over their estimated useful life (usually 10 years)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

F - 23

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING LTD.                              
|                                                
|NOTES TO THE CONSOLIDATED FINANCIAL
  STATEMENTS
|                                                

|          |                                        
|--------- | ---------------------------------------
|NOTE 2   | SIGNIFICANT ACCOUNTING POLICIES (CONT.)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|V. | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Income tax expense represents the sum of the tax currently payable
  and deferred tax.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Current taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The tax currently payable is based on taxable profit for the year.
  Taxable profit differs from profit as reported in the income statement
  because it excludes items of income or expense that are taxable or deductible
  in other years and it further excludes items that are never taxable or
  deductible. The Groups liability for current tax is calculated using tax
  rates that have been enacted or substantively enacted as of the balance sheet
  date.                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Deferred taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Deferred taxes are calculated in respect of all temporary
  differences, including (i) differences between the carrying amounts of assets
  and liabilities in the financial statements and the corresponding tax bases
  used in the computation of taxable profit; (ii) differences between the fair
  value of identifiable assets and liabilities of subsidiaries upon a business
  acquisition, and their value for tax purposes; and (iii) tax losses and
  deductions that may be carried forward for future years or used against
  previous years.                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Deferred taxes are not recognized if the temporary difference arises
  from goodwill or from the initial recognition (other than in a business
  combination) of other assets and liabilities in a transaction that affects
  neither the taxable profit nor the accounting profit.                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The calculation of tax liabilities (current and deferred) does not
  include taxes that would have arisen in the event of a realization of
  investments in certain investee companies or upon receiving their retained
  earnings as dividends, since it is managements policy not to realize them or
  to declare dividend out of their retained earnings, or other form of profit
  distributions, in the foreseeable future, in a manner which entails
  additional substantial tax burden on the Group. For certain other Groups
  investee companies, which management intention is to liquidate or to
  distribute their retaining earnings as taxable dividend, tax liabilities
  (current and deferred) are calculated.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Deferred tax assets and liabilities are measured at the tax rates
  that are expected to apply in the period in which the liability is settled or
  the asset realized, based on tax rates (and tax laws) that have been enacted
  or substantively enacted as of the balance sheet date. The measurement of
  deferred tax liabilities and assets reflects the tax consequences that would
  follow from the manner in which the Group expects, at the reporting date, to
  recover or settle the carrying amount of its assets and liabilities.                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Deferred tax asset is
  recorded, to the extent that it is probable that it would be realized against
  future taxable profits. The carrying amount of deferred tax assets is
  reviewed at each balance sheet date and reduced to the extent that it is no
  longer probable that sufficient taxable profits will be available to allow
  all or part of the asset to be recovered.                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Deferred tax assets and liabilities are offset when there is a
  legally enforceable right to set off current tax assets against current tax
  liabilities and when they relate to income taxes levied by the same taxation
  authority and the Group intends to settle its current tax assets and
  liabilities on a net basis.                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Current and deferred taxes are recognized as an expense or income in
  profit or loss, except when they relate to items credited or debited directly
  to equity, in which case the tax is also recognized directly in equity, or
  where they arise from the initial accounting for a business combination. In
  the case of a business combination, the tax effect is taken into account in
  calculating goodwill or in determining the excess of the acquirers interest
  in the net fair value of the acquirees identifiable assets, liabilities and
  contingent liabilities over cost.                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Deferred taxes in respect of exempt profits of an approved enterprise
  - see note 20.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

F - 24

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING LTD.                              
|NOTES TO THE CONSOLIDATED FINANCIAL
  STATEMENTS
|                                                

|          |                                        
|--------- | ---------------------------------------
|NOTE 2   | SIGNIFICANT ACCOUNTING POLICIES (CONT.)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|W. | Impairment of tangible and intangible
  assets (excluding goodwill and including investments in assiciates)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | At each balance sheet date, the Group reviews the carrying amounts of
  its tangible and intangible assets to determine whether there is any
  indication that those assets have suffered an impairment loss. If any such
  indication exists, the recoverable amount of the asset is estimated in order
  to determine the extent of the impairment loss (if any). Where it is not
  possible to estimate the recoverable amount of an individual asset, the Group
  estimates the recoverable amount of the cash-generating unit to which the asset
  belongs.                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Recoverable amount is the higher of fair value less costs to sell and
  value in use. In assessing value in use, the estimated future cash flows are
  discounted to their present value using a pre-tax discount rate that reflects
  current market assessments of the time value of money and the risks specific
  to the asset for which the estimates of future cash flows have not been
  adjusted. If the recoverable amount of an asset (or cash-generating unit) is
  estimated to be less than its carrying amount, the carrying amount of the
  asset (or cash-generating unit) is reduced to its recoverable amount. An
  impairment loss is recognized immediately in profit or loss.                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Where an impairment loss subsequently reverses, the carrying amount
  of the asset (or cash-generating unit) is increased to the revised estimate
  of its recoverable amount, but so that the increased carrying amount does not
  exceed the carrying amount that would have been determined had no impairment
  loss been recognized for the asset (or cash-generating unit) in prior years.
  A reversal of an impairment loss is recognized immediately in profit or loss.                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|X. | Financial liabilities and equity instruments issued by the Group                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Equity
  instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | An equity
  instrument is any contract that evidences a residual interest in the assets
  of an entity after deducting all of its liabilities. Equity instruments are
  recorded at the proceeds received, net of direct issue costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Treasury stocks                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Companys
  shares held by the Group (dormant shares), are presented at cost and
  deducted from share capital of the Company according to the treasury stock
  method. The sale of treasury stock or the issuance of Companys shares to
  third parties is recorded based on the fair value of the assets or cash
  received in consideration thereof or the fair market value of shares issued,
  as applicable. Income taxes resulting from sale of treasury stock (if any)
  are charged directly to the shareholders equity.                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Convertible debentures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The
  component parts of convertible debentures are classified separately as
  financial liabilities and equity in accordance with the substance of the
  contractual arrangement. At the date of issue, the fair value of the
  liability component is estimated using the prevailing market interest rate
  for a similar non-convertible instrument. This amount is recorded as a
  liability on an amortized cost basis until extinguished upon conversion or at
  the instruments maturity date. The equity component is determined by
  deducting the amount of the liability component from the fair value of the
  convertible debentures as a whole. This is recognized and included in equity
  and is not subsequently remeasured.

F - 25

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING LTD.                              
|NOTES TO THE CONSOLIDATED FINANCIAL
  STATEMENTS
|                                                

|          |                                        
|--------- | ---------------------------------------
|NOTE 2   | SIGNIFICANT ACCOUNTING POLICIES (CONT.)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|X. | Financial liabilities and equity instruments issued by the Group
  (cont.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Financial
  liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Financial
  liabilities of the Group are classified as either financial liabilities at
  FVTPL or other financial liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Financial liabilities at FVTPL                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Financial
  liabilities of the Group at this category consist of a derivative that is not
  designated or effective as a hedging instrument or financial liabilities
  designated to FVTPL if such designation eliminates or significantly reduces a
  measurement of recognition in consistency that would otherwise arise.
  Financial liabilities at FVTPL are stated at fair value, with any gain or
  loss recognized in profit or loss. The net gain or loss recognized in profit
  or loss incorporates any interest paid on the financial liability. Fair value
  is determined in the manner described in note 27.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Other financial liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Other
  financial liabilities of the Group consist of short-term credits, suppliers
  and service providers, borrowings and other payables, which are initially
  measured at fair value, net of transaction costs. Other financial liabilities
  are subsequently measured at amortized cost using the effective interest
  method.                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Y. | Derivative financial instruments and hedge accounting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The Group
  enters into a variety of derivative financial instruments, some of which are
  intended to manage its exposure to interest rate and foreign exchange rate
  risk, including interest rate swaps and cross currency swaps and others which
  are embedded derivatives (see below). Further details of derivative financial
  instruments are disclosed in note 27 to the financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Derivatives
  are initially recognized at fair value at the date a derivative contract is
  entered into and are subsequently remeasured to their fair value at each
  balance sheet date, other than derivative on equity instruments of investees,
  the fair value of which cannot be reliably measured and accordingly are
  measured at cost. The resulting gain or loss is recognized in profit or loss
  immediately unless the derivative is designated and effective as a hedging
  instrument, in which event the timing of the recognition in profit or loss
  depends on the nature of the hedge relationship. The Group designates certain
  derivatives as cash flow hedges. A derivative is presented as a non-current
  asset or a non-current liability if the remaining maturity of the derivative
  is more than 12 months and as a current asset or a current liability if the
  remaining maturity of the derivative is less than 12 months.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Embedded
  derivatives                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Derivatives
  embedded in other financial instruments or other host contracts are treated
  as separate derivatives when their risks and characteristics are not closely
  related to those of the host contracts and the host contracts are not
  measured at FVTPL.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

F - 26

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING LTD.                              
|NOTES TO THE CONSOLIDATED FINANCIAL
  STATEMENTS
|                                                

|          |                                        
|--------- | ---------------------------------------
|NOTE 2   | SIGNIFICANT ACCOUNTING POLICIES (CONT.)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Y. | Derivative financial instruments (cont.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Hedge
  accounting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The Group
  designates certain hedging instruments, which include derivatives, and
  non-derivatives (borrowings) in respect of foreign currency risk, at either
  cash flow hedges or hedges of net investments in foreign operations. At the
  inception of the hedge relationship the entity documents the relationship
  between the hedging instrument and hedged item, along with its risk
  management objectives and its strategy for undertaking various hedge
  transactions. Furthermore, at the inception of the hedge and on an ongoing
  basis, the Group documents whether the hedging instrument that is used in a
  hedging relationship is highly effective in offsetting changes in fair values
  or cash flows of the hedged item. Details of the fair values of the
  derivative instruments used for hedging purposes is described in note 27.
  Movements in the hedging reserve in equity are detailed in the statement of
  changes in shareholders equity.                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Cash flow hedge                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | The
  effective portion of changes in the fair value of derivatives that are
  designated and qualify as cash flow hedges are deferred in equity. The gain
  or loss relating to the ineffective portion is recognized immediately in
  profit or loss. Amounts deferred in equity are recycled in profit or loss in
  the periods when the hedged item is recognized in profit or loss. Hedge
  accounting is discontinued when the Group revokes the hedging relationship,
  the hedging instrument expires or is sold, terminated, or exercised, or no
  longer qualifies for hedge accounting. Any cumulative gain or loss deferred
  in equity at that time remains in equity and is recognized when the forecast
  transaction is ultimately recognized in profit or loss. When a forecast
  transaction is no longer expected to occur, the cumulative gain or loss that
  was deferred in equity is recognized immediately in profit or loss.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Hedges of net investments in foreign operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Hedges of
  net investments in foreign operations are accounted for similarly to cash
  flow hedges. Any gain or loss on the hedging instrument relating to the
  effective portion of the hedge is recognized in equity in the foreign
  currency translation reserve. The gain or loss relating to the ineffective
  portion is recognized in profit or loss. Gains and losses deferred in the
  foreign currency translation reserve are recognized in profit or loss on
  disposal or partial disposal of the foreign operation.                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Z. | Provisions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Provisions
  are recognized when the Group has a present obligation (legal or
  constructive) as a result of a past event, it is more likely than not
  (probable) that the Group will be required to settle the obligation, and a
  reliable estimate can be made of the amount of the obligation. The amount
  recognized as a provision is the best estimate of the consideration required
  to settle the present obligation as of the balance sheet date, taking into
  account the risks and uncertainties surrounding the obligation. Where a
  provision is measured using the cash flows estimated to settle the present
  obligation, its carrying amount is the present value of those cash flows.
  When some or all of the economic benefits required to settle a provision are
  expected to be recovered from a third party, the receivable is recognized as
  an asset if it is virtually certain that reimbursement will be received and
  the amount of the receivable can be measured reliably.

F - 27

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING LTD.                              
|NOTES TO THE CONSOLIDATED FINANCIAL
  STATEMENTS
|                                                

|          |                                        
|--------- | ---------------------------------------
|NOTE 2   | SIGNIFICANT ACCOUNTING POLICIES (CONT.)

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|AA. | Grants from the Office of Chief Scientist (OCS)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Certain
  Groups invstees are obliged to pay royalties to the OCS in respect of sales
  of products, the development of which was funded by grants provided by the
  OCS, at a percentage of their revenues and up to the amount of the grants
  received. Such grants are recorded in the statements of income if there is
  reasonable assurance that the grants will not be repaid. Otherwise, the
  grants are recorded as a liability and are designated at fair value through
  profit and loss at each balance sheet date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|AB. | Retirement benefit costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Contributions
  to defined contribution retirement benefit plans are recognized as an expense
  when employees have rendered service entitling them to the contributions. For
  defined benefit retirement benefit plans, the cost of providing benefits is
  determined using the Projected Unit Credit Method, with actuarial valuations
  being carried out at each balance sheet date. Actuarial gains and losses are
  recognized immediately in the statement of income. The retirement benefit
  obligation recognized in the balance sheet represents the present value of
  the defined benefit obligation as reduced by the fair value of plan assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|AC. | Share-based payments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Equity-settled
  share-based payments to employees and others providing similar services are
  measured at the fair value of the equity instrument at the grant date. The
  Fair value is measured by use of a binomial model or the Black and Sholes
  model as applicable. The expected life used in the Black and Sholes model has
  been adjusted, based on managements best estimate, for the effects of
  non-transferability, exercise restrictions and behavioural considerations.
  The fair value determined at the grant date of the equity-settled share-based
  payments is expensed on a straight-line basis for each award over the vesting
  period, based on the Groups estimate of shares that will eventually vest.
  Equity-settled share-based payment transactions with other parties are
  measured at the fair value of the goods and services received, except where
  the fair value cannot be estimated reliably, in which case they are measured
  at the fair value of the equity instruments granted, measured at the date the
  entity obtains the goods or the counterparty renders the service                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Modifications
  to share-based transaction arrangements are recognized if the effects of
  modifications increase the total fair value of the share-based payment
  transaction or are otherwise beneficial to the employee. The incremental fair
  value granted is the difference between the fair value of the modified equity
  instrument and that of the original equity instrument, both estimated as at
  the date of the modification. If the modification occurs during the vesting
  period, the incremental fair value granted is recognized for services
  received over the period from the modification date until the date when the
  modified equity instruments vest, in addition to the amount based on the
  grant date fair value of the original equity instruments, which is recognized
  over the remainder of the original vesting period. If the modification occurs
  after vesting date, the incremental fair value granted is recognized
  immediately, or over the vesting period if the employee is required to
  complete an additional period of service before becoming unconditionally
  entitled to those modified equity instruments.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | In some
  cases the grant date is determined following certain organ approvals and
  after the employees begun rending services to the Group (Commencement
  Date).In these cases the Group estimates the fair value at the end of each
  reporting period and recognizes it at services received during the period
  between Commencement Date and grant date. Once the grant date is established
  the Group revises the earlier estimates so that the amounts recognized for
  service received are based on grant date fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

F - 28

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING LTD.                              
|NOTES TO THE CONSOLIDATED FINANCIAL
  STATEMENTS
|                                                

|          |                                        
|--------- | ---------------------------------------
|NOTE 2   | SIGNIFICANT ACCOUNTING POLICIES (CONT.)

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                  
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|AC. | Share-based payments (cont.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                  
|    | Share based
  payment transactions in which the terms of the arrangement provide the
  counterparty with the choice of whether the transaction will be settled in
  cash (or other assets) or by issuing equity instrument, the fair value is
  measured by the goods or services acquired and the liability incurred at the
  fair value of the liability. Through the liability settlement, the Company
  shall re-measure the fair value of the liability at each reporting date and
  at the date of settlement, with any changes in the fair value is to be
  recognized in profit or loss for the period.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                  
|    | The above
  policy is applied to all equity-settled share-based payments that were
  granted after November 7, 2002 that vested after January 1, 2006 (the date
  of transition to the IFRSs).                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                  
|    | Loans
  granted to employees for purchasing the Companys shares which constitute the
  sole security for the loans repayment, and which shall be repaid out of
  proceeds of the sale thereof, are included in the balance sheet as a
  deduction from shareholders equity.                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                  
|AD. | Revenue recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                  
|    | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Revenues
  from the leasing of property and management fees, as well as other revenue
  relating to the operations of commercial and entertainment centers, are
  recognized over the term of the lease and/or the service.                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                  
|    | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Revenues
  from hotel operations are recognized upon performance of service.                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                  
|    | (iii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Revenues on
  sales of real estate assets and trading properties are recognized when all
  the following conditions are satisfied:                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | a.                                                                                                                                                                                                                                                                                                                                                      | the enterprise has transferred to the buyer the significant risks and
  rewards of ownership of the goods;                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | b.                                                                                                                                                                                                                                                                                                                                                      | the enterprise retains neither continuing managerial involvement to
  the degree usually associated with ownership nor effective control over the
  goods sold;                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | c.                                                                                                                                                                                                                                                                                                                                                      | the amount of revenue can be measured reliably                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | d.                                                                                                                                                                                                                                                                                                                                                      | it is probable that the economic benefits associated with the
  transaction will flow to the enterprise (including the fact that the buyers
  initial and continuing investment is adequate to demonstrate commitment to
  pay);
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | e                                                                                                                                                                                                                                                                                                                                                       | the costs incurred or to be incurred in respect of the transaction
  can be measured reliably; and                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | f.                                                                                                                                                                                                                                                                                                                                                      | there are no significant acts that the Group is obliged to complete
  according to the sale agreement.                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | For the
  Group, these conditions are usually fulfilled upon the closing of a binding
  sales contract.                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | For sales
  transactions with some degree of continuing involvement (for example, in a
  form of a guarantee to the buyer), revenues recognized at date of sale is
  reduced by the estimated exposure to loss measured at fair value related to
  the continuing involvement.                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | In
  circumstances where the terms of the transaction provide for the Group to
  receive additional consideration which is contingent upon fulfillment of
  certain conditions without risk of loss, and the transaction otherwise
  qualifies for profit recognition, the contingent future profits are recognized
  when the contingency is resolved.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | The Group
  includes provisions for expenses for further works to be provided on real
  estate assets already delivered to the buyer.                                                                                                                                                                                                                  

F - 29

---

---

|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|                                              

|          |                                        
|--------- | ---------------------------------------
|NOTE 2   | SIGNIFICANT ACCOUNTING POLICIES (CONT.)

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|AD. | Revenue recognition (cont.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | (iv)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Revenues from sale of medical products recognized when all the
  following conditions have been satisfied: (a) persuasive evidence of an
  arrangement exists; (b) delivery has occurred or services have been
  rendered; (c) the amount of revenue can be measured reliably; and
  (d) it is probable that the economic benefits associated with the
  transaction will flow to the entity. For sale arrangements
  which include multiple deliverables such as system sales, installation at the
  customers site and training, the revenue is recognized by reporting the
  consideration to the deliverables. If there is objective and reliable
  evidence of fair value for all units of accounting in an arrangement, the
  Company allocates the arrangement consideration to the separate units of
  accounting based on their relative fair value. In instances, which there is
  objective and reliable evidence of the fair value of the undeliverable item
  in an arrangement but no such evidence for the delivered item, the Company
  allocates the arrangement consideration to the deliverables using the
  residual method.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | (v)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | Service
  revenues from product support agreements are recognized ratably over the service
  period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | (vi)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Revenues
  from the sale of goods in the retail industry are recognized upon delivery.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|AE. | Research and development costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Research
  costs are charged to the statement of income, as incurred. Development costs
  are recognized as an asset when it is probable that the expected future
  economic benefits associated with them will flow in to the Group and they can
  be reliably measured. Otherwise, such costs are charged to the statement of
  income as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|AF. | Capitalization of borrowing costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Borrowing
  costs directly attributable to the acquisition, construction or production of
  qualifying assets, which are assets that necessarily take a substantial
  period of time to get ready for their intended use or sale, are capitalized
  to the cost of those assets. Investment income earned on the temporary
  investment of specific borrowings pending their expenditure on qualifying
  assets is deducted from the borrowing costs eligible for capitalization.
  Non-specific borrowing costs are capitalized to qualified assets not financed
  by specific borrowing, by using a rate constituting a weighted average of the
  costs in respect of the Groups borrowings not specifically capitalized.
  Capitalization of borrowing to assets continues, generally, until such time
  as the assets are substantially ready for their intended use or sale.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | All other
  borrowing costs are recognized in profit or loss in the period in which they
  are incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Borrowing
  costs qualified for capitalization includes mainly: Interest expenses
  (including consumer price index linkage), amortization of cost of raising
  debt and foreign exchange on borrowing to the extent that they are considered
  as an adjustment to interest costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The
  borrowing costs eligible for capitalization also include the net cash
  cost on an accruals accounting basis of a swap which is measured at FVTPL and
  is related to a debenture measured also at FVTPL because it eliminates or
  significantly reduces an accounting mismatch.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

F - 30

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING LTD.                              
|NOTES TO THE CONSOLIDATED FINANCIAL
  STATEMENTS
|                                                

|          |                                        
|--------- | ---------------------------------------
|NOTE 2   | SIGNIFICANT ACCOUNTING POLICIES (CONT.)

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|AG. | Earnings (loss) per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Basic
  earnings (loss) per share is computed with regard to income or loss
  attributable to the Companys ordinary shareholders, and is calculated for
  income (loss) from continuing operations attributable to the ordinary
  shareholders of the reported entity, should such be presented. Basic earnings
  per share is to be computed by dividing income(loss) attributed to holders of
  ordinary shares of the Company (numerator), by the weighted average of the
  outstanding ordinary shares (denominator) during the period.                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | In the
  computation of diluted earnings per share, the Company adjusted its income
  (loss) attributable to its ordinary shareholders for its share in income
  (loss) of investees by multiplying their diluted EPS by the Companys holding
  in the investees including its holding in dilutive potential ordinary share
  of the investee and the weighted average of the outstanding shares for the
  effects of all the dilutive potential ordinary shares of the Company.                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|AH. | Statement of cash flows                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Interest and
  dividend received from deposits and investments are included as cash flow
  from investing activities. Dividend paid to the Companys shareholders and
  interest paid on the Groups borrowing (including interest capitalized to
  qualifying assets) are included as cash flow from financing activities.                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|AI. | Critical judgment in applying accounting policies and use of
  estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | In the
  application of the Groups accounting policies, management is required to
  make judgments, estimates and assumptions about the carrying amounts of
  assets and liabilities that are not readily apparent from other sources. The
  estimates and associated assumptions are based on historical experience and
  other factors that are considered to be relevant. Actual results may differ
  from these estimates. The estimates and underlying assumptions are reviewed
  on an ongoing basis. Revisions to accounting estimates are recognized in the
  period in which the estimate is revised if the revision affects only that
  period or in the period of the revision and future periods if the revision
  affects both current and future periods.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The
  followings are the critical judgments and key sources of estimation
  uncertainty, that management has made in the process of applying the Groups
  accounting policies and that have the most significant effect on the amounts
  recognized in financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | a.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Use of estimates
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | (i)              | Litigation
  and other contingent liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                  | The Group is involved in litigation and other contingent liabilities
  in substantial amounts including certification request for class action (see
  note 21B). The Group recognizes a provision for such litigation when it is
  probable that the Group will be required to settle the obligation, and a
  reliable estimate can be made of the amount of the obligation. The Group
  evaluates the probability and outcome of these litigations based on, among
  other factors, legal opinion and consultation and past experience. The
  outcome of such contingent liabilities may differ materially from
  managements assessment. The Group periodically evaluates these assessments
  and makes appropriate adjustments to the consolidated financial statements.
  In addition, as facts concerning contingencies become known, the Group will
  reassess its position and make appropriate adjustments to the consolidated
  financial statements.

F - 31

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING LTD.                              
|NOTES TO THE CONSOLIDATED FINANCIAL
  STATEMENTS
|                                                

|          |                                        
|--------- | ---------------------------------------
|NOTE 2   | SIGNIFICANT ACCOUNTING POLICIES (CONT.)

|    |                                                                                  |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | -------------------------------------------------------------------------------- | ------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|AI. | Critical judgment in applying accounting policies and use of
  estimates (cont.)
|    |                                                                                  |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                               
|    | a.                                                                               | Use of estimates (cont.)
|    |                                                                                  |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                  | (ii)                     | Share based
  payment arrangements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                  |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                  |                          | The Group has adopted several stock based compensation arrangements
  to employees, directors and service providers. Stock based compensation
  arrangements are measured at fair value. Fair value is usually determined
  using an option pricing model which requires management to make judgment and
  assumptions regarding a number of variables. In determining the appropriate
  option model for each option plan adopted by the Group, the Group uses the
  advice of professional advisers. These variables include, but not limited to:
|    |                                                                                  |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                  |                          | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | Share price in respect of options plans adopted by the Groups
  private investees which has no quoted market price. The Group generally uses
  the price per share determined at the last investment round prior to the
  measurement date. Nevertheless, there is no assurance that such price
  reflects the accurate share price.                                                                         
|    |                                                                                  |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                  |                          | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | Expected stock price volatility over the term of the plan. The
  expected volatility for share based transactions adopted by the Company and
  its public traded investees are determined base on the market price of the
  share in the past years. Non- traded companies used excepted volatility of
  public traded companies with similar operations since they have no historical
  data.                
|    |                                                                                  |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                  |                          | (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | Actual and projected employee stock option exercise behaviors - the
  assumption in respect of (i) the forfeitures rate of options; (ii) the
  exercise coefficient (i.e.: the price per share in which it is expected that
  an employee will exercise the options); and (iii) the expected estimated term
  the options would be held by the employees, are determined generally based on
  past experience.
|    |                                                                                  |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                  |                          | Although the fair value of stock based compensation arrangements
  determined using an option-pricing model, it may not be indicative of the
  fair value observed in a willing buyer / willing seller market transaction.
  In addition, under different assumptions or conditions the fair value of
  these options plans may yield a different result.                                                                                                                                                                                          
|    |                                                                                  |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                  | (iii)                    | Accounting
  for income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                  |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                  |                          | The calculation of the Groups tax liabilities involves dealing with
  uncertainties in the application and/or interpretation of complex tax laws,
  tax regulations and tax treaties, in respect of various jurisdictions in
  which the Group operates and which frequently vary.                                                                                                                                                                                                                                                                
|    |                                                                                  |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                  |                          | In addition, tax authorities may interpret certain tax issues in a
  manner other than that which the Group has adopted. Should such contrary
  interpretive principles be adopted upon adjudication of such cases, the tax
  burden of the Group may be significantly increased.                                                                                                                                                                                                                                                                  
|    |                                                                                  |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                  |                          | In calculating its deferred taxes, the Group required to evaluate (i)
  the probability of the realization of its deferred income tax assets against
  future taxable income and (ii) the anticipated tax rates in which its
  deferred taxes would be utilized.                                                                                                                                                                                                                                                                                   

F - 32

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING LTD.                              
|NOTES TO THE CONSOLIDATED FINANCIAL
  STATEMENTS
|                                                

|          |                                        
|--------- | ---------------------------------------
|NOTE 2   | SIGNIFICANT ACCOUNTING POLICIES (CONT.)

|    |                                                                                  |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------- | ------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|AI. | Critical judgment in applying accounting policies and use of
  estimates (cont.)
|    |                                                                                  |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                          
|    | a.                                                                               | Use of estimates (cont.)
|    |                                                                                  |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                  | (iv)                     | Embedded
  derivatives financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                  |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                  |                          | The Group is committed to pay to a financing bank an additional exit
  fee in the event of cash distributions deriving from the sale, disposal,
  refinancing of the hotels which were financed by the bank loan funds or in
  the event of other repayment of the loan (Transaction). The exit fee will
  be calculated as the amount equivalent to 15% of the difference between the
  market value of the hotels as determined in such Transaction and the current
  agreed value of the hotels.                                                                                                                                                                                          
|    |                                                                                  |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                  |                          | The exit fee is considered as an embedded derivative in accordance
  with IAS 39 and it should bifurcated form the loan contract and measured at
  fair value at each balance sheet date. The Group determined the fair value of
  the exit fee using an economic model which requires management to make
  judgment and assumptions regarding a number of variables. In determining the
  appropriate model the Group uses the advice of professional advisers. These
  variables include, mainly the following:                                                                                                                                                                              
|    |                                                                                  |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                  |                          | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Since the underlying assets (i.e.: the hotels) do not have quoted
  market price, their fair value was determined based on valuation techniques
  which also contain significant estimates and judgment.                                                                                                                                 
|    |                                                                                  |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                  |                          | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Expected hotel fair value volatility was computed according to
  comparable hotel holdings firms in the real estate industry. Such
  determination involves a significant degree of judgement since the Group has
  to choose public companies which have similar operations and risks as the
  hotels that are subject to the agreement.
|    |                                                                                  |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                  |                          | (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | In accordance with the agreement, the exit fee is payable in several
  cases through the duration of the loan agreement. Management has to use
  critical assumption regarding the probability and the term for a Transaction
  to occur in order to determine the expected useful life of the embedded
  derivative.                    
|    |                                                                                  |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                  | (v)                      | Potential
  penalties, guarantees issued and expired building permits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                  |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                  |                          | Penalties
  and guaranties are part of the on-going construction activities, and result
  from obligations the Group have towards third parties, such as banks and
  municipalities. The Groups management is required to provide estimations
  about risks evolving from such potential guarantees or penalties that the
  Group might have to pay. In addition, the Group is subject to authorizations
  from local authorities in respect of building permits. It may occur (such as
  in the case of Helios Plaza Project, see note 8 B. (8)) that building permits
  will expire and might cause additional costs and expenses to the Group,
  delays or abandoned of construction works.

F - 33

---

---

|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|                                              

|          |                                        
|--------- | ---------------------------------------
|NOTE 2   | SIGNIFICANT ACCOUNTING POLICIES (CONT.)

|    |                                                                                  |                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------- | -------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|AI. | Critical judgment in applying accounting policies and use of
  estimates (cont.)
|    |                                                                                  |                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | a.                                                                               | Use of estimates (cont.)                          
|    |                                                                                  |                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                  | (vi)                                               | Valuation of
  debentures and the derivative associated to it.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                  |                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                  |                                                    | Series A
  debentures issued by Plaza Centers N.V (PC) are measured at fair value. As
  of the balance sheet date PCs debentures are not traded in the stock
  exchange and therefore have no quoted prices. Accordingly the valuation is
  done by relying on third party professional services. The calculation of the
  fair value is sensitive to changes in market conditions and is based on
  assumptions that are reasonable but can not be virtually guaranteed. The
  debentures were listed for trade in the Tel Aviv Stock Exchange subsequent to
  the balance sheet date and therefore the fair value in the following periods
  will be determined based on the debentures price in the TASE.                                                                                                                                                                            
|    |                                                                                  |                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                  |                                                    | As mentioned
  in note 9A.(5), PC has executed a swap transaction with an Israeli bank in
  order to swap the interest rate of the debenture from NIS linked to the CPI
  to Euro. The derivative is measured at fair value at each balance sheet date.
  The valuation of the derivative is done by relying on third party
  professional services. The calculation is sensitive to changes in market
  conditions and is based on assumptions that are reasonable but can not be
  virtually guaranteed. PC is using the same valuator as the one mentioned
  above, and by that improving the link between the derivative and the
  financial instrument to which the derivative was created.                                                                                                                                                                                           
|    |                                                                                  |                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | b.                                                                               | Critical judgement in applying accounting policies
|    |                                                                                  |                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                  | (i)                                                | Revenue
  recognition from sale of trading property                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                  |                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                  |                                                    | Revenues from sale of real estate assets are recognized when all the
  criteria mentioned in item AD below are met. Determination whether these
  criteria have been met for each sale transaction, requires a significant
  judgment by the Group management.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                  |                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                  |                                                    | Significant judgment is made in determination whether, as of the
  balance sheet date, the Group has transferred to the buyer the significant
  risks and rewards associated to the real estate assets sold. Such
  determination is based on an analysis of the terms included in the sale
  agreement executed with the buyer as well as an analysis of other commercial
  understandings with the buyer in respect of the real estate sold. Generally,
  the sale agreement with the buyer is signed during the construction period
  and the consummation of the transaction is subject to certain conditions
  precedents which have to be fulfilled prior to delivery. Revenues are,
  therefore, recognized when all the significant conditions precedent included
  in the agreement have been fulfilled by the Group and/or waived by the buyer
  prior to the balance sheet date.
|    |                                                                                  |                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                  |                                                    | The delivery of the commercial center to the buyer is generally
  executed close to the end of construction and to the opening of the
  commercial center to the public. As a result, the Group has to use estimates
  in order to determined the costs and expenses required to complete the
  construction works which, as of the delivery date, has not been completed
  and/or been paid in full.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                  |                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                  |                                                    | Generally,
  the Group is provided with a bank guaranty from the buyer for the total
  estimated proceeds in order to secure the payment by the buyer at delivery.
  Therefore, the Group does not inherent any significant risks in respect of
  payment of the proceeds by the buyer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

F - 34

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING
  LTD.                            
|                                                
|NOTES TO THE
  CONSOLIDATED FINANCIAL STATEMENTS
|                                                

|          |                                        
|--------- | ---------------------------------------
|NOTE 2   | SIGNIFICANT ACCOUNTING POLICIES (CONT.)

|    |                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|AI. | Critical judgment in applying accounting
  policies and use of estimates (cont.)                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                           
|    | b.                                                                                                                                                                                                                                                                                                                                                                                                         | Critical judgement in applying accounting
  policies (cont.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                            | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Capitalization of costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | The Group
  capitalize direct acquisition, construction and development costs (including
  initiation, pre-development financing costs, and others), as and from the
  pre-acquisition stage until the time that construction of such real-estate
  project is completed and its development is ready for its intended use. The
  Groups cost capitalization method requires the use of management estimates
  regarding the fair value of each project component. Managements estimation
  is also required in determining whether it is probable that a real estate
  project in its pre acquisition stage or in its early stage would be executed.
  Actual results may differ from these estimates and anticipated returns on a project,
  as well as the gain or loss from disposal of individual project components,
  could vary significantly from estimated amounts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | The Group is
  capitalizing finance expenses to real estate assets under construction
  commencing from the starts of the Groups activities for the preparation of
  the assets for its intend use or sale. Such determination requires management
  to use critical estimations and assumptions as well as management judgment to
  determine whether a specific asset under construction or development is
  qualified for capitalization. Borrowing costs qualified for capitalization
  includes mainly: Interest expenses (including linkage to the CPI),
  amortization of cost of raising debts and foreign exchange on borrowing to
  the extent that they are considered as an adjustment to interest costs. In
  order to determine whether foreign exchange differences are considered as an
  adjustment to the interest expenses, management is required, for each
  specific loan, to evaluate the alternative borrowing cost for a loan that
  would have been provided in the functional currency of the borrower in the
  same term and conditions as the actual loan. Such determination requires
  management to use considerable degree of judgement and estimations. In
  addition, the Group used critical judgement in respect of capitalization of
  non-specific borrowing costs to qualified assets in the consolidated
  financial statements.
|    |                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|AJ. | New accounting standards and clarifications issued that are not yet
  effective                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The
  following are new accounting standards and amendmends to standards that have
  been issued by the IASB, and clarifications to them issued by the IFRIC
  (International Financial Reporting Interpretations Committee), as of the date
  of approval of the financial statements, which are applicable, or are
  expected to be applicable, to the Group, and which have not yet become
  effective.
|    |                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | (1)                                                                                                                                                                                                                                                                                                                                                                                                        | IFRS 3, Business Combinations (Revised)-
  the new standard stipulates the accounting treatment for business
  combinations. Among other things, the standard determines measurement
  provisions for contingent consideration in business combinations which is to
  be evaluated as a derivative financial instrument. The transaction costs
  directly connected with the business combination will be recorded to the
  statement of operations when incurred. Minority interests will be measured at
  the time of the business combination at their share in the fair value of the
  assets, (including goodwill), liabilities and contingent liabilities of the
  acquired entity, or at their share in the fair value of the net assets, as
  aforementioned, but excluding their share in the goodwill. As for business
  combinations where control is achieved after a number of acquisitions
  (acquisition in stages), the earlier purchases of the acquired company will
  be measured at the time that control is achieved at their fair value, while
  recording the difference to the statement of operations. The standard will
  apply to business combinations that take place from January 1, 2010 and
  thereafter. Earlier adoption is possible, provided that it will be
  simultaneous with early adoption of IAS 27 (revised). Management of the
  Company estimates that, the implementation of the standard will have no
  material effect on the financial statements of the Group.

F - 35

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING
  LTD.                            
|                                                
|NOTES TO THE
  CONSOLIDATED FINANCIAL STATEMENTS
|                                                

|          |                                        
|--------- | ---------------------------------------
|NOTE 2   | SIGNIFICANT ACCOUNTING POLICIES (CONT.)

|    |                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|--- | --------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|AJ. | New accounting standards and clarifications issued that are not yet
  effective (cont.)
|    |                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|    | (2)                                                                                     | IFRS 8, Operating Segments- the standard
  itemizes how an entity must report on segments reporting in the annual
  financial statements and makes reference to selected details with respect to
  segments reporting in interim reports. In addition, the standard relates to
  the disclosure that is necessary in connection with products and services,
  geographical regions and principal customers. The standard will apply to
  annual reporting periods commencing on January 1, 2009, with restatement of
  comparative figures upon the initial adoption of the standard. The standard
  permits earlier adoption. At this stage, the management of the Company is
  unable to assess the effect of implementing the standard on its financial
  condition and results of operations.                                                                                                                                                                                          
|    |                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|    | (3)                                                                                     | IAS 1, Presentation of Financial Statements (Revised)-
  In the framework of the amendment to this standard, changes were made in the
  current presentation format of financial statements, and the presentation and
  disclosure requirements for financial statements were also expanded,
  including the presentation of an additional report known as the statement of
  comprehensive income, and the addition of a balance sheet as of the
  beginning of the earliest period presented in the financial statements in
  cases of a retroactive change in accounting policies or in cases of a
  restatement. The standard will apply to reporting periods that begin on
  January 1, 2009. The standard permits earlier implementation. At this stage,
  the management of the Company is unable to assess the effect of implementing
  the standard on the financial statements.                                                                                                
|    |                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|    | (4)                                                                                     | IAS 23, Borrowing Costs (Revised)- the
  standard stipulates the accounting treatment of borrowing costs. The standard
  eliminates the possibility recognition of borrowing costs related to
  qualified assets in the statement of operations. The standard will apply to
  borrowing costs that relate to qualifying assets as to which the
  capitalization period commences after January 1, 2009. The standard permits
  earlier implementation. Management of the Company estimates that the
  application of the standard will not affect the financial statements of the
  Group.                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|    | (5)                                                                                     | IAS 27, Consolidated and Separate Financial Statements (Revised)-
  the standard provide the accounting treatment of consolidated and separate
  financial statements. Among other things, the standard stipulates that
  transactions with minority shareholders, in the context of which the Company
  retains control before and after the transaction, will be treated as capital
  transactions. In respect of transaction with the minority, subsequent to
  which the Company do not have control in the subsidiary, the investment will
  be measured at fair value as of that date, with the difference as compared to
  investments book value to be recorded to the statement of operations. The
  minority interest in the losses of a subsidiary, which exceed its share in
  the subsidiarys shareholders equity, will be charged to the minority
  interest in every case, while ignoring its obligations and ability to make
  additional investments in the subsidiary.
|    |                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 
|    |                                                                                         | The
  provisions of the standard will apply to annual financial reporting periods
  which start on January 1, 2010 and thereafter. Earlier adoption is permitted,
  provided that it will be done simultaneous with early adoption of IFRS 3
  (revised). The standard will be implemented retrospectively, excluding a
  number of exceptions, as to which the provisions of the standard will be
  implemented prospectively. At this stage, the management of the Company is
  unable to assess the effect of implementing the standard on its financial
  condition and results of operations.                                                                                                                                                                                                                                                                                                                                                                                         

F - 36

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING
  LTD.                            
|                                                
|NOTES TO THE
  CONSOLIDATED FINANCIAL STATEMENTS
|                                                

|          |                                        
|--------- | ---------------------------------------
|NOTE 2   | SIGNIFICANT ACCOUNTING POLICIES (CONT.)

|    |                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|AJ. | New accounting standards and clarifications issued that are not yet
  effective (cont.)
|    |                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                             
|    | (6)                                                                                     | Addendum to IFRS 2, share based payments- vesting conditions and
  cancellation- the addendum to the standard
  determined the vesting conditions which have to be taken into account in fair
  value measurement of share based payment arrangements. In addition the
  addendum explain the accounting treatment in instruments without vesting
  conditions and cancellations. The addendum will apply to annual reporting
  periods commencing on January 1, 2009.Earliy adoption is permitted. At this
  stage, the management of the Company is unable to assess the effect of
  implementing the standard on its financial condition and results of
  operations.      
|    |                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                             
|    | (7)                                                                                     | Addendum to IAS 32, financial instruments: presentation and IAS 1
  presentation of financial statements- the addendum
  to IAS 32 change the definition of financial liability, financial assets and
  equity instrument. The addendum determined that certain financial
  instruments, which can be realized at the option of the holder, will be
  classified as equity instruments. The addendum will apply to annual reporting
  periods commencing on January 1, 2009.Earliy adoption is permitted. At this
  stage, the management of the Company is unable to assess the effect of
  implementing the standard on its financial condition and results of
  operations.
|    |                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                             
|    | (8)                                                                                     | Clarifications
  issued by the IFRIC (International Financial Reporting Interpretations
  Committee) as of the date of approval of the financial statements and amendment
  to existing standards are presented below, are not yet effective and, in the
  opinion of the Companys management, are not applicable or are not materials
  to the Group:                                                                                                                                                                                                                                                                                                                       
|    |                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                             
|    |                                                                                         | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | IFRIC 11, Group and Treasury Share Transactions-
  transactions in shares of the company carried out by the Group.                                                                                                          
|    |                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                             
|    |                                                                                         | b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | IFRIC 12, Service Concession Arrangements-
  concession arrangements for the rendering of services.                                                                                                                         
|    |                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                             
|    |                                                                                         | c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | IFRIC 13, Customer Loyalty Programs-
  customer loyalty programs.                                                                                                                                                           
|    |                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                             
|    |                                                                                         | d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | IFRIC 14, the Limit on a Defined Benefit Asset, Minimum Funding
  Requirements and their Interaction- ceiling of an
  asset for defined benefit programs; minimal financing requirements and the
  interaction between them.

|          |                          
|--------- | -------------------------
|NOTE 3   | CASH AND CASH EQUIVALENTS

|                                      |  |                  |          |                   |  |           |  |  |           | 
|------------------------------------- |  | ---------------- | -------- | ----------------- |  | --------- |  |  | --------- | 
|                                      |  | December 31      |         
|                                      |  |                  |         
|                                      |  | 2007             |          | 2006              | 
|                                      |  |                  |          |                   | 
|                                      |  | Interest 
  rate |          |                   | 
|                                      |  |                  |          |                   | 
|                                      |  | %                |          | (in thousand NIS) | 
|                                      |  |                  |          |                   | 
|                                      |  |                  |          |                   |  |           |  |  |           | 
|Euro                                  |  |                  | 3.5-3.7  |                   |  | 430,459   |  |  | 1,199,834 | 
|NIS                                   |  |                  | 4.5-5.3  |                   |  | 276,830   |  |  | 665,026   | 
|US dollar                             |  |                  | 5.0-5.22 |                   |  | 318,521   |  |  | 244,199   | 
|Indian Rupee                          |  |                  | 5.5      |                   |  | 339,425   |  |  |          | 
|British Pound                         |  |                  | 4.0      |                   |  | 29,276    |  |  | 19,762    | 
|Other (mainly, Forint, Zloty and Ron) |  |                  | 1.0-3.0  |                   |  | 22,199    |  |  | 22,050    | 
|                                      |  |                  |          |                   |  |           |  |  |           | 
|                                      |  |                  |          |                   |  | 1,416,710 |  |  | 2,150,871 | 
|                                      |  |                  |          |                   |  |           |  |  |           | 

F - 37

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING
  LTD.                            
|                                                
|NOTES TO THE
  CONSOLIDATED FINANCIAL STATEMENTS
|                                                

|          |                                    
|--------- | -----------------------------------
|NOTE 4   | SHORT-TERM DEPOSITS AND INVESTMENTS

|   |             
|-- | ------------
|A. | Composition:

|                                                        |  |                  |         |                   |  |         |  |  |         | 
|------------------------------------------------------- |  | ---------------- | ------- | ----------------- |  | ------- |  |  | ------- | 
|                                                        |  | December 31      |        
|                                                        |  |                  |        
|                                                        |  | 2007             |         | 2006              | 
|                                                        |  |                  |         |                   | 
|                                                        |  | Interest 
  rate |         |                   | 
|                                                        |  |                  |         |                   | 
|                                                        |  | %                |         | (in thousand NIS) | 
|                                                        |  |                  |         |                   | 
|                                                        |  |                  |         |                   |  |         |  |  |         | 
|Bank deposits:                                          |  |                  |         |                   |  |         |  |  |         | 
|US dollar                                               |  |                  | 5.0-5.1 |                   |  | 88,775  |  |  | 73,595  | 
|Euro                                                    |  |                  |         |                   |  |        |  |  | 21,606  | 
|Euro                                                    |  |                  | (i)     |                   |  | 56,196  |  |  |        | 
|Other                                                   |  |                  | 1.0-3.0 |                   |  | 5,942   |  |  | 34,504  | 
|In NIS                                                  |  |                  |         |                   |  |        |  |  | 8,651   | 
|                                                        |  |                  |         |                   |  |         |  |  |         | 
|                                                        |  |                  |         |                   |  | 150,913 |  |  | 138,356 | 
|                                                        |  |                  |         |                   |  |         |  |  |         | 
|Marketable securities held for trading:                 |  |                  |         |                   |  |         |  |  |         | 
|Government bonds                                        |  |                  |         |                   |  | 246,426 |  |  | 122,685 | 
|Corporates bonds                                        |  |                  |         |                   |  | 175,474 |  |  |        | 
|Shares                                                  |  |                  |         |                   |  | 120,394 |  |  | 2,301   | 
|                                                        |  |                  |         |                   |  |         |  |  |         | 
|                                                        |  |                  |         |                   |  | 542,294 |  |  | 124,986 | 
|                                                        |  |                  |         |                   |  |         |  |  |         | 
|Current Maturities of long-term loans and
  receivables |  |                  |         |                   |  | 6,848   |  |  | 15,770  | 
|                                                        |  |                  |         |                   |  |         |  |  |         | 
|                                                        |  |                  |         |                   |  | 700,055 |  |  | 279,112 | 
|                                                        |  |                  |         |                   |  |         |  |  |         | 

|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | -------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | (i)                  | On December
  22, 2007 the Group entered into a transaction with a financing institution,
  according to which the Group invested an amount of
   10.0 million (NIS 55.6 million) for a
  period of 15 years in a note which bear interest of 12% per annum, which is
  payable if the margin between the 30 years Euro swap interest rate and the 10
  years Euro swap interest rate (measured on a daily basis) is higher than the
  accrual barrier as stipulated in the agreement. The interest is payable
  quarterly commencing March 2008.The issuer has a call option to redeem the
  note(in part or in whole) on June 20,2008 and each quarter thereafter by
  giving 5 days prior notice.
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                      | Subsequent
   to the balance sheet date, the Group has entered into
   25.0 million (NIS139.1 million) credit
   line agreement with another financial institution for the purpose of
   investing the credit funds in a similar aforementioned notes. The credit
   line bears an interest rate which shall be the monthly average EONIA (Euro
   Over Night Index Average) rate plus a margin of 0.5% per annum and shall
   become due for repayment in January 2009.The Group can repay the loan at any
   time either in full or in part. The sole security for the loan is the notes
   issued to the Group.                                                                                  
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|B. | Liens see note 21D.

|          |                          
|--------- | -------------------------
|NOTE 5   | TRADE ACCOUNTS RECEIVABLE

|                                    |  |                   |           |      |  |         |  
|----------------------------------- |  | ----------------- | --------- | ---- |  | ------- | -
|                                    |  | December 31       |          
|                                    |  |                   |          
|                                    |  | 2007              |           | 2006 | 
|                                    |  |                   |           |      | 
|                                    |  | (in thousand NIS) |          
|                                    |  |                   |          
|                                    |  |                   |           |      |  |         |  
|Outstanding accounts (*)            |  |                   | 1,532,238 |      |  | 85,532  |  
|Less - allowance for doubtful debts |  |                   | (10,717   | )    |  | (10,558 | )
|                                    |  |                   |           |      |  |         |  
|                                    |  |                   | 1,521,521 |      |  | 74,974  |  
|                                    |  |                   |           |      |  |         |  

|    |                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(*) | Include receivable in respect of realization of trading property
    amount to NIS 1,476 million and NIS 23.8 million as of December 31, 2007
    and December 31, 2006, respectively. See note 8C.

F - 38

---

---

|                                                  
|--------------------------------------------------
|ELBIT
    IMAGING LTD.                            
|                                                  
|NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
|                                                  

|          |                 
|--------- | ----------------
|NOTE 6   | OTHER RECEIVABLE

|                                                       |  |                   |        |      |  |        | 
|------------------------------------------------------ |  | ----------------- | ------ | ---- |  | ------ | 
|                                                       |  | December 31       |       
|                                                       |  |                   |       
|                                                       |  | 2007              |        | 2006 | 
|                                                       |  |                   |        |      | 
|                                                       |  | (in thousand NIS) |       
|                                                       |  |                   |       
|                                                       |  |                   |        |      |  |        | 
|Income taxes                                           |  |                   | 2,193  |      |  | 1,714  | 
|Other government institutions                          |  |                   | 42,284 |      |  | 55,844 | 
|Related parties                                        |  |                   | 8,060  |      |  | 5,993  | 
|Receivable in respect of realization of investment (i) |  |                   |       |      |  | 7,022  | 
|Other                                                  |  |                   | 12,734 |      |  | 10,173 | 
|                                                       |  |                   |        |      |  |        | 
|                                                       |  |                   | 65,271 |      |  | 80,746 | 
|                                                       |  |                   |        |      |  |        | 

|    |                 
|--- | ----------------
|(i) | See note 11C(2).

|           |                             
|---------- | ----------------------------
|NOTE 6A   | PREPAYMENTS AND OTHER ASSETS

|                                                                                |  |                    |         |                   |  |         |  |  |         | 
|------------------------------------------------------------------------------- |  | ------------------ | ------- | ----------------- |  | ------- |  |  | ------- | 
|                                                                                |  | December 31        |        
|                                                                                |  |                    |        
|                                                                                |  | 2007               |         | 2006              | 
|                                                                                |  |                    |         |                   | 
|                                                                                |  | Interest 
    rate |         |                   | 
|                                                                                |  |                    |         |                   | 
|                                                                                |  | %                  |         | (in thousand NIS) | 
|                                                                                |  |                    |         |                   | 
|                                                                                |  |                    |         |                   |  |         |  |  |         | 
|Restricted bank deposits designated for
    acquisition of trading property (i) |  |                    |         |                   |  |         |  |  |         | 
|Euro                                                                            |  |                    | 3.4-3.7 |                   |  | 126,560 |  |  | 107,953 | 
|Other                                                                           |  |                    | 4.5     |                   |  | 15,795  |  |  |        | 
|                                                                                |  |                    |         |                   |  |         |  |  |         | 
|                                                                                |  |                    |         |                   |  | 142,355 |  |  | 107,953 | 
|                                                                                |  |                    |         |                   |  |         |  |  |         | 
|                                                                                |  |                    |         |                   |  |         |  |  |         | 
|Advance for plot purchase
    (ii)                                              |  |                    |         |                   |  | 205,654 |  |  |        | 
|Advance to supplier                                                             |  |                    |         |                   |  | 29,849  |  |  | 1,594   | 
|Prepaid expenses                                                                |  |                    |         |                   |  | 8,302   |  |  | 16,119  | 
|                                                                                |  |                    |         |                   |  |         |  |  |         | 
|                                                                                |  |                    |         |                   |  | 386,160 |  |  | 125,666 | 
|                                                                                |  |                    |         |                   |  |         |  |  |         | 

|     |                                                                                                                                                                                                                                                                                                                             
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)  | December
    31, 2007: Include mainly  16.7 million (NIS 94.5 million) to secure
    acquisition of plots in Romania (mainly Iasi, and Timisoara project); 6.8
    million (NIS 38.5 million) to secure acquisition of plots in Poland; and
    1.0 million (NIS 5.6 million) to secure acquisition of plots in Bulgaria.
|     |                                                                                                                                                                                                                                                                                                                             
|     | December
    31, 2006: included advance payment for a purchase of plot of land in
    Bucharest in the amount of 19.4 million (see note 8 B.(4)).                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                                                             
|(ii) | Include
    mainly advance payments in the amount of, 13 million (NIS 73.6 million)
    for the acquisitions of plots in Romania; 19.8 million (NIS 112.0 million)
    for the acquisitions of plots in Serbia; and 2.2 million (NIS 12.5
    million) for the purchases of plots in Poland. See also note 29            

F - 39

---

---

|                                                  
|--------------------------------------------------
|ELBIT
    IMAGING LTD.                            
|                                                  
|NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
|                                                  

|          |            
|--------- | -----------
|NOTE 7   | INVENTORIES

|                                              |  |                   |        |      |  |        | 
|--------------------------------------------- |  | ----------------- | ------ | ---- |  | ------ | 
|                                              |  | December 31       |       
|                                              |  |                   |       
|                                              |  | 2007              |        | 2006 | 
|                                              |  |                   |        |      | 
|                                              |  | (in thousand NIS) |       
|                                              |  |                   |       
|                                              |  |                   |        |      |  |        | 
|Hotels inventories                            |  |                   | 2,887  |      |  | 2,726  | 
|Image Guided Treatment:                       |  |                   |        |      |  |        | 
|Raw materials                                 |  |                   | 8,342  |      |  | 8,568  | 
|Products under process and
    finished goods |  |                   | 2,834  |      |  | 2,907  | 
|Fashion - merchandise                         |  |                   | 11,429 |      |  | 10,290 | 
|                                              |  |                   |        |      |  |        | 
|                                              |  |                   | 25,492 |      |  | 24,491 | 
|                                              |  |                   |        |      |  |        | 

|          |                 
|--------- | ----------------
|NOTE 8   | TRADING PROPERTY

|   |             
|-- | ------------
|A. | Composition:

|                                                                                       |  |                   |            |      |  |          |  
|-------------------------------------------------------------------------------------- |  | ----------------- | ---------- | ---- |  | -------- | -
|                                                                                       |  | December 31       |           
|                                                                                       |  |                   |           
|                                                                                       |  | 2007              |            | 2006 | 
|                                                                                       |  |                   |            |      | 
|                                                                                       |  | (in thousand NIS) |           
|                                                                                       |  |                   |           
|                                                                                       |  |                   |            |      |  |          |  
|Balance as of January 1                                                                |  |                   | 923,634    |      |  | 591,848  |  
|Additions during the year                                                              |  |                   | 2,267,536  |      |  | 576,524  |  
|Disposal during the year                                                               |  |                   | (1,492,020 | )    |  | (253,941 | )
|Adjustment resulting from
    translation of foreign subsidiaries financial statements |  |                   | 39,063     |      |  | 9,203    |  
|                                                                                       |  |                   |            |      |  |          |  
|Balance as of December 31                                                              |  |                   | 1,738,213  |      |  | 923,634  |  
|                                                                                       |  |                   |            |      |  |          |  

F - 40

---

---

ELBIT IMAGING
LTD.

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS

|
|
|

|          |                         
|--------- | ------------------------
|NOTE 8   | TRADING PROPERTY (CONT.)

|   |                                                                              
|-- | -----------------------------------------------------------------------------
|B. | Additional information                                                       
|   |                                                                              
|   | The following table summarises general information regarding PCs
  projects:

|                         |  |                |  |                                 |  |                                  |  |                                                       |  |                                      |  |                                   |  |                                       |    
|------------------------ |  | -------------- |  | ------------------------------- |  | -------------------------------- |  | ----------------------------------------------------- |  | ------------------------------------ |  | --------------------------------- |  | ------------------------------------- | ---
|                         |  |                |  |                                 |  |                                  |  |                                                       |  |                                      |  | General information              
|                         |  |                |  |                                 |  |                                  |  |                                                       |  |                                      |  |                                  
|Project                  |  | Location       |  | Purchase /
  transaction
  date |  | Rate of 
  ownership by
  PC (%) |  | Nature of rights                                      |  | Status of 
  registration 
  of land |  | Status of permit                  |  | Gross Lettable
  Area (GLA)
  (sqm)
|                         |  |                |  |                                 |  |                                  |  |                                                       |  |                                      |  |                                   |  |                                      
|                         |  |                |  |                                 |  |                                  |  |                                                       |  |                                      |  |                                   |  |                                       |    
|Suwalki Plaza            |  | Poland         |  | Jun-06                          |  | 100                              |  | Ownership                                             |  | Completed                            |  | Building permit pending           |  | 20,000                                |    
|Zgorzelec Plaza          |  | Poland         |  | Dec-06                          |  | 100                              |  | Leasing for 25 years                                  |  | Completed                            |  | Building permit pending           |  | 15,000                                |    
|Torun Plaza              |  | Poland         |  | Feb-07                          |  | 100                              |  | Perpetual leasehold                                   |  | In procees                           |  | Building permit pending           |  | 45,000                                |    
|Lodz                     |  | Poland         |  | Sep-01                          |  | 100                              |  | Ownership/ Perpetual
  usufruct                       |  | Completed                            |  | Building permit in process        |  | 130,000                               | (*)
|Plzen Plaza (9)          |  | Czech Republic |  | Jun-03                          |  | 100                              |  | Leasing for 99 years                                  |  | Completed                            |  | Operational permit valid          |  | 20,000                                |    
|Liberec Plaza            |  | Czech Republic |  | Jun-06                          |  | 100                              |  | Construction lease period
  with subsequent ownership |  | N/A                                  |  | Building permit valid             |  | 17,000                                |    
|Opava Plaza              |  | Czech Republic |  | Jun-06                          |  | 100                              |  | Construction lease period
  with subsequent ownership |  | N/A                                  |  | Planning permit pending           |  | 14,000                                |    
|Roztoky                  |  | Czech Republic |  | May-07                          |  | 100                              |  | ownership                                             |  | N/A                                  |  | Planning permit valid             |  | 14,000                                | (*)
|Riga Plaza               |  | Latvia         |  | Feb-04                          |  | 50                               |  | Ownership                                             |  | Completed                            |  | Building permit valid             |  | 49,000                                |    
|Koregaon Park (1)        |  | India          |  | Oct-06                          |  | 50                               |  | Ownership                                             |  | Completed                            |  | Building permit valid             |  | 107,000                               | (*)
|Kharadi (2)              |  | India          |  | Feb-07                          |  | 50                               |  | Ownership                                             |  | Completed                            |  | Excavation permit valid           |  | 225,000                               | (*)
|Trivandrum (3)           |  | India          |  | Jun-07                          |  | 50                               |  | Ownership                                             |  | Completed                            |  | Under negotiation                 |  | 195,000                               | (*)
|Casa Radio (4)           |  | Romania        |  | Feb-07                          |  | 75                               |  | Leasing for 49 years                                  |  |                                      |  | Planning permit pending           |  | 360,000                               | (*)
|Timisoara Plaza          |  | Romania        |  | Mar-07                          |  | 100                              |  | Ownership                                             |  | Completed                            |  | Planning permit pending           |  | 71,000                                |    
|Miercurea Ciuc Plaza     |  | Romania        |  | Jul-07                          |  | 100                              |  | Ownership                                             |  | Completed                            |  | Planning permit valid             |  | 14,000                                |    
|Iasi Plaza               |  | Romania        |  | Jul-07                          |  | 100                              |  | Ownership                                             |  | In
  Process                         |  | Planning permit to be
  submitted |  | 92,000                                | (*)
|Slatina Plaza            |  | Romania        |  | Aug-07                          |  | 100                              |  | Ownership                                             |  | Completed                            |  | Planning permit valid             |  | 21,000                                |    
|Belgrade Plaza (5)       |  | Serbia         |  | Aug-07                          |  | 85                               |  | Leasing for 99 years                                  |  | In
  Process                         |  | Under negotiation                 |  | 90,000                                |    
|Kragujevac Plaza         |  | Serbia         |  | Oct-07                          |  | 100                              |  | Leasing for 99 years                                  |  | In
  Process                         |  | Building permit valid             |  | 24,500                                |    
|Visnjicka Plaza          |  | Serbia         |  | Dec-07                          |  | 100                              |  | Leasing for 99 years                                  |  | In
  Process                         |  | Under negotiation                 |  | 40,000                                |    
|Shumen Plaza             |  | Bulgaria       |  | Nov-07                          |  | 100                              |  | Ownership                                             |  | In
  Process                         |  | Planning permit to be
  submitted |  | 18,000                                |    
|Arena Plaza Extension    |  | Hungary        |  | Nov-05                          |  | 100                              |  | Land use rights                                       |  | N/A                                  |  | Under negotiation                 |  | 32,500                                |    
|Duna Plaza Extension (6) |  | Hungary        |  | May-07                          |  | Building
  rights                |  | Building rights                                       |  | N/A                                  |  | Under negotiation                 |  | 15,000                                |    
|Uj Udvar (7)             |  | Hungary        |  | Sep-07                          |  | 35                               |  | Ownership                                             |  | N/A                                  |  | Permit under process              |  | 16,000                                |    
|Helios Plaza (8)         |  | Greece         |  | May-02                          |  | 100                              |  | Ownership                                             |  | Completed                            |  | Building permit expired           |  | 35,000                                |    

(*)      Gross Built Area (sqm).

F - 41

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|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|                                              

|          |                         
|--------- | ------------------------
|NOTE 8   | TRADING PROPERTY (CONT.)

|   |                               
|-- | ------------------------------
|B. | Additional information (cont.)

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | In
   October 2006 the Company entered into a joint venture and shareholders
   agreement with an unrelated a third party pertaining to the development of a
   shopping and entertainment center at Koregaon Park, Pune, India. As of the
   balance sheet date the freehold site and the development rights are held by
   the JV Company (either by itself or by its wholly owned subsidiaries). Under
   the agreement, the Company has subscribed for shares and convertible
   securities representing 50% of the JV Company. The cash consideration
   payable by the JV Company is INR 440 million (NIS42.3 million), payable in
   installments of which INR 310 million (NIS 29.8 million) were paid and INR
   130 million (NIS12.5 million) are due and payable subject to fulfillment of
   certain conditions stipulated in the agreement.                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (2) | In
    February 2007, PC acquired 50% of the shareholding and voting right in an
    Indian company(JV1) which owns a freehold land of approximately 14 acres
    situated in the Kharadi district of Pune, India for total consideration of
    17.0 million (NIS 96.2 million). The remaining 50% is held by a leading
    property developer in Pune. The JV intends to develop its plot of land
    through the construction of a project totaling approximately 225,000 square
    meters gross lettable area which will include a shopping center, an office
    complex and a services apartment facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (3) | In June
    2007 JV1 (see (2) above) acquired a plot of land with an area of
    approximately 43,600 sqm, situated in Trivandrum, the capital city of the
    State of Kerala, India. The total cost of the land amounted to 1,060
    million Rupees (NIS101.7 million). PC and its partner intend to use the
    plot to develop a project totalling approximately 195,000 sqm, which is
    currently intended to comprise a shopping and entertainment center with
    a total area of approximately 67,000 sqm, an office complex with a total area
    approximately 90,500 sqm and a hotel
    and apartment hotel with a total area of approximately 37,500 sqm.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (4) | On October
    11, 2006, PC has entered into an agreement, according to which it acquired
    a 75% interest in a company (Project Company) which under public-private
    partnership agreement with the Government of Romania is to develop the Casa
    Radio site in central Bucharest. The consummation of the transaction was
    subject to the fulfillment of certain conditions, including obtaining the
    approval of the government of Romania to an amendment to the public-private
    partnership agreement. The costs of the acquisition of the rights in the
    Project Company amounted to approximately $40.0 million (NIS 153.8
    million). As of December 31, 2006, an amount of NIS107.9 million was
    deposited by PC into an escrow account and it was released to the seller
    following the fulfillment of the condition presented included in the
    agreement. The other investors include the government of Romania, which
    will procure that the development company is granted the necessary
    development and exploitation rights in relation to the site for a 49-year
    period in consideration for a 15% interest in the Project Company and the
    seller who will retain 10% interest in the Project Company.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | In
    November 2006 the public-private partnership agreement was approved by the
    government of Romania. The transaction and the nomination of directors in
    the Project Company by PC were approved by the general shareholders meeting
    of the Project Company in February, 2007. PC could not have exercises
    control over the Project Company operations prior to such approval and
    accordingly, the financial statements of the Project Company were not
    consolidated in the Groups financial statements as of December 31, 2006
    but rather the investment in the Project Company was presented in the
    consolidated balance sheet as of that date as restricted bank deposits
    designated for acquisition of trading property within prepayment and other
    assets (see note 6A).                                                                                                                                                                                                                                                                                                                                                                                                                                          

F - 42

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|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
|                                              

|          |                         
|--------- | ------------------------
|NOTE 8   | TRADING PROPERTY (CONT.)

|   |                               
|-- | ------------------------------
|B. | Additional information (cont.)

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (4) | (Cont.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | The
    Project, which is planned to consist of an estimated constructed area of
    approximately 360,000 square meters, will include shopping and
    entertainment center, five star hotel, residential units and offices. In
    accordance with the terms of the agreement, the purchasers (including PC)
    have undertaken to cause the Project Company to construct an office
    building measuring approximately 13,000 square meters for the government of
    Romania at the Project Companys own costs. Accordingly, the Project
    Company has recorded a liability in the amount of 17.1 million (NIS 96.8
    million) in respect of such undertaking (see note 16B). The Project Company
    intends to finance the construction of the project through bank loan.
    Additional finance of the Project (if needed) will be borne by PC and the
    seller pro-rata to their shareholding. The Company guarantees PCs
    obligations under the agreement.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | As for
    lawsuit filed by a third party in respect of this project and a settlement
    agreement signed - see note 21B(10).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (5) | In August
    2007 PC won a competitive tender from the Government of Serbia for the
    development of a new shopping, entertainment and business center on a total
    built up area of approximately 100,000sqm in the center of Belgrade,
    Serbia. PC will partner with a local Serbian developer for the project
    which will be entitled to participate in up to 10% of the project, subject
    to certain conditions while the project management will be rendered solely
    by PC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (6) | PC entered
    into an agreement with Klépierre to build, subject to certain condition and
    execution of turn key agreement, an extention to the Duna Plaza shopping
    and entertainment center owned by Klépierre.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | The Duna
    Plaza Extension will be constructed either on an adjacent area of land
    under a propose land swap, or on an area currently owned by Klépierre.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (7) | In September
    2007 PC, through its 70% held company in Hungary, Plasi Invest 2007 Kft
    (Plasi), signed a joint venture agreement with Solel Bone Israel (SBI),
    according to which Plasi has acquired 50% of a company (SBI Hungary Kft)
    holding a shopping center project in Hungary. Plasi and SBI intend to
    refurnish and renovate the existing shopping center in order to appreciate
    its value. The assets value according to which the transaction was executed
    was 11 million (NIS 62.2 million). The shopping center is currently
    operational and has approximately 12,000 square meter GLA.                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | PC entered
    into an agreement with Klépierre to build, subject to certain conditions,
    an extention to the Duna Plaza shopping and entertainment center owned by
    Klépierre.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (8) | PC
    currently owns a plot of land measuring approximately 14,900 square meters
    in Greek (Helios Plaza Project). Following the issuance of ministerial
    decision which changed the land uses along the National Highway (which
    includes the land owned by PC) the permitted land uses applicable to this
    site do not allow the construction of commercial centers. PC together with
    its legal counsels and professional advisers examining alternative
    development opportunities for this site including the construction of offices
    and the sale of the land.                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (9) | Pilzen
    Plaza has been pre-sold to the Klepierre Group,. With a gross lettable area
    of 20,000 sqm, the commercial center was 100% let on opening in December
    2007. The formal handover to Klepierre is expected to take place in the
    course of 2008. See also note 8C(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

F - 43

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|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
|                                              

|          |                         
|--------- | ------------------------
|NOTE 8   | TRADING PROPERTY (CONT.)

|   |                             
|-- | ----------------------------
|C. | Disposal of trading property

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | On July
    10, 2007, PC has executed a binding agreement for the sale of its entire
    interest (100%) in a company which holds the rights in and to the Arena
    Plaza shopping and entertainment center in Budapest (Arena) to UK based
    Active Asset Investment Management (aAIM).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | Within the
    framework of the transaction, aAIM has furnished PC with a bank guaranty at
    the amount of
     390 million as a security for the fulfillment of its
    undertaking to execute the payment of the purchase price at closing. The
    consummation of the transaction was subject to certain conditions precedent
    (CP) which as of the balance sheet date has been fulfilled by PC and/or
    waived by aAIM.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | On
     December 18, 2007 PC and aAIM executed an addendum to the transaction
     agreement according to which aAIM represented that all CP for the
     consummation of the transaction have been fulfilled by PC and/or waived by
     aAIM. Accordingly, the parities executed an amicable closing of the
     transaction which is effective as from November 30, 2007(Closing
     Effective Date). The parties further agreed, that aAIM would be entitled
     to receive all rental income of the Arena as and from the Closing
     Effective Date. PC undertook to complete the agreed upon construction
     works for the completion of the Arena at an agreed amount which was
     deducted from the purchase price and was deposit into an escrow account.                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The value
     of the Arena at the Closing Effective Date was determined to 381 million
     (NIS 2,122 million) which was calculated based on gross rentals prevailing
     at the Closing Effective Date, capitalized at agreed yields. Purchase
     price adjustment will be conducted in respect of additional leases during
     the two consecutive earn-out periods, which end three months and twelve
     months respectively following the Effective Closing Date. Notwithstanding
     the above, the value of the Arena (including price adjustment) is capped
     to the amount of  400 million (NIS 2,264 million). The cash consideration,
     which was paid to PC on January 21, 2008, amounted to 254.8 million (NIS
     1,419 million) and was determined according to the value of the Arena
     together with monetary assets and other debit balances, after deduction of
     bank and other monetary liabilities pertaining thereto.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | As a
     result of this transaction, the Group recorded in these financial
     statements revenues from sale of trading property in the amount of NIS
     2,091 million and recognized a gain of NIS 1,145 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | Part of the proceed in the amount of
8.5 million (NIS 48.1 million) was subject to certain conditions which, as of the
balance sheet date, were not fulfilled and accordingly was deferred for recognition in
these financial statements. As for indemnifications provided by PC to aAim , see note 21
C.(6).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

F - 44

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|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
|                                              

|          |                         
|--------- | ------------------------
|NOTE 8   | TRADING PROPERTY (CONT.)

|   |                                     
|-- | ------------------------------------
|C. | Disposal of trading property (cont.)

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | On July
     29, 2005 PC and Klépierre signed a preliminary share purchase agreement
     for the future acquisition by Klepierre of all equity and voting rights
     (100%) in the companies developing 2 shopping centers in Poland (Rybnik
     Plaza and Sosnoweic Plaza), 2 companies developing shopping centers in the
     Czech Republic (Novo Plaza and Pilzen Plaza) and an option under certain
     conditions, to acquire all equity and voting rights of a third company
     developing a shopping center in Poland, upon the fulfillment of certain
     conditions, on same terms and conditions applicable to the remaining
     centers (the Lublin Plaza - see item (3) below) (Stage B). The purchase
     price of each specific center is to be calculated based on gross rentals
     prevailing at a date close to delivery, capitalized at agreed yields. A
     final purchase price adjustment for each of these development centers will
     be conducted not later than 10 months following delivery, on the basis of
     actual gross rentals prevailing on their respective adjustment dates,
     discounted at the agreed yields. In addition, a net asset value adjustment
     will be carried out on the basis of audited financial statements as at the
     delivery date.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | In June
     2006 PC completed the construction of the Novo Plaza commercial center and
     in accordance with the terms of the agreement it was delivered to
     Klepierre. The value of the Novo Plaza amounted to 43.9 million
     (following purchase price adjustments agreed upon in the agreement signed
     in November 2006) and the cash consideration paid to PC amounted to 5.0
     million. As a result the Group recorded in its 2006 financial statement
     revenue from sale of trading property in the amount of NIS 286.7 million
     and recognized a gain of NIS 32.8 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | In
     addition, the Group recorded in 2007 financial statements an additional
     revenues in respect of the Novo Plaza of
     1.7 million (NIS 9.6 million) resulting from purchase price
     adjustment concluded between PC and Klepierre in the course of 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | In May 2007 PC has formally completed the hand over of the Rybnik
      Plaza and the Sosnowiec Plaza commercial centers to Klepierre in
      accordance with the terms of the Stage B agreement. The Value of the sold
      centers amounted to 89.3 million (NIS 505 million) and the cash
      consideration paid to PC amounted to 48.2 million (NIS 273 million). As
      a result the Group recorded in these financial statements revenues from
      sale of trading property in the amount of NIS 495 million and recognized
      a gain of NIS 116 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

F - 45

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|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
|                                              

|          |                         
|--------- | ------------------------
|NOTE 8   | TRADING PROPERTY (CONT.)

|   |                                     
|-- | ------------------------------------
|C. | Disposal of trading property (cont.)



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (3) | PC was a party to JV agreement for the ownership(indirectly) of
        a company registered in Lublin, Poland (MPSA). MPSA holds a 99-year
        perpetual usufruct lease of a land, being the subject matter of a
        project located in Lublin, Poland, which have been leased from the
        local municipality. In accordance with an agreement signed in November
        2004, MPSA agreed to divide the project into two stages, subject to the
        first (construction of the convention center and commercial area) being
        completed by August 31, 2006 (Stage A Project). The second stage
        (construction of the hotel and office area) shall commence by no later
        than September 30, 2009 and conclude by the end of 2011(Stage B
        Project). Should MPSA fail to comply with the timetable of the second
        stage a penalty shall be imposed thereon in the amount of PLN 2.5
        million (NIS 3.6 million). MPSA has a right to acquire the land from
        the local municipality, upon completion of construction, at an agreed upon
        price of PLN 8.5 million (NIS 12.2 million), net (after deduction) of
        accumulated lease fees paid through the exercise of such right.
        The
        local municipality is entitled to terminate the perpetual usufruct if
        the use of the land does not correspond to the approved usage and/or in
        the event unauthorized delays or schedule deviations occur.                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | In April 2007, PC and the JV Partner
have executed an agreement according to which the parties agreed: (i) to cause Spin-Off of
MPSAs obligation in terms of the Stage B Projects, to a subsidiary of the JV Partner
(Project B Company),in consideration of 3.5 million (NIS 19.8 million).
Such Spin-Off has been executed by means of a Tenancy Agreement, within the framework of
which MPSA undertook to consent and fully cooperate, so as to allow Project B Company the
development of the Stage B Project. MPSA and Project B Company had also executed a
preliminary agreement for the future transfer, to the latter, of all rights in the Stage B
Projects upon completion of same; (ii) to grant PC an option to subscribe to 50% interest
in Project B Company, in consideration for the amount equivalent to 50% of the share
capital and shareholders loans invested by the JV Partner in Project B Company as at the
date of consummation of the transaction. On September 30, 2007 PC has notified the JV
partner of its intention to exercise the option, and the consummation of the transaction
was carried out in April 2008.; and (iii) to sell their respective holdings in MPSA to
Klepierre, in accordance with the Stage B agreement with Klepierre (see paragraph (2)
below).The parties has agreed that within the framework of the transaction with Klepierre,
PC and the JV partner will be entitled to receive all the equity loans invested by each of
them in MPSA prior to distribution of the remaining proceed between the parties.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | In July 2007 PC and the JV partner, through their jointly
            controlled company (Vendor), executed an agreement with Klepierre
            for the sale of their respective interest in MPSA to Klepierre in
            accordance with the terms of the Stage B agreement. The asset value
            (100%) as at closing amounted to 78 million (NIS 441.4 million)
            and the cash consideration paid to PC amounted to  27.3 million
            (NIS 154.5 million). As a result of this transaction the Group
            recorded in these financial statements revenues from sale of
            trading property in the amount of NIS 223.6 million and recognized
            a gain of NIS 56.7 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | The transaction with Klepierre specifically excluded Stage
              B Project and Stage B Company. The Vendor covenants that MPSA
              shall not bear any liability in respect of the construction of
              Stage B Project. In addition, the Vendor will indemnify Klepierre
              for any damage in relation to the construction of Stage B Project
              and will cause Stage B project to assume full liability for the
              full and timely performance of all the obligations (other than
              payment of usufruct fee) of MPSA in favor of the municipality of
              Lublin including for damages for the failure of Project B Company
              to construct the Stage B Project in accordance with the usufruct
              agreement. PC and the JV partner are jointly and severally
              guarantee to the Vendors obligations under the agreement. The JV
              partner guarantees to PCs obligation under the agreement related
              to Stage B Company and/or Stage B Project including any
              liabilities to indemnify Klepierre for non- performance of Stage
              B Companys obligations under the usufruct agreement with the
              Municipality of Lublin.                                                                                                                                                                                                                                                                

F
             - 46

---

---

|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
|                                              

|          |                                                            
|--------- | -----------------------------------------------------------
|NOTE 9   | DEPOSITS, LOANS AND OTHER
               LONG-TERM BALANCES

|   |             
|-- | ------------
|A. | Composition:

|                                                                   |  |                                  |         |      |  |         |  
|------------------------------------------------------------------ |  | -------------------------------- | ------- | ---- |  | ------- | -
|                                                                   |  | December
               31       |        
|                                                                   |  |                                  |        
|                                                                   |  | 2007                             |         | 2006 | 
|                                                                   |  |                                  |         |      | 
|                                                                   |  | (in
               thousand NIS) |        
|                                                                   |  |                                  |        
|                                                                   |  |                                  |         |      |  |         |  
|Deposits at banks and
               financial institutions (1)    |  |                                  | 66,086  |      |  | 39,874  |  
|Loans to interest holders in
               investee companies (2) |  |                                  | 17,665  |      |  | 44,547  |  
|A loan to a former associate
               (3)                    |  |                                  | 7,692   |      |  | 20,534  |  
|Derivative designated as
               hedging instruments (4)    |  |                                  | 16,632  |      |  | 25,867  |  
|Derivative measured at FVTPL
               (5)                    |  |                                  | 12,609  |      |  |        |  
|Loans to anchor tenants                                            |  |                                  |        |      |  | 3,472   |  
|Loans to associates (6)                                            |  |                                  | 14,343  |      |  | 16,261  |  
|Others                                                             |  |                                  | 2,963   |      |  | 1,079   |  
|                                                                   |  |                                  |         |      |  |         |  
|                                                                   |  |                                  | 137,990 |      |  | 151,634 |  
|Less - allowance for doubtful
               debts                 |  |                                  | (22,028 | )    |  | (30,080 | )
|                                                                   |  |                                  |         |      |  |         |  
|                                                                   |  |                                  | 115,962 |      |  | 121,554 |  
|Less - current maturities                                          |  |                                  | (6,848  | )    |  | (15,770 | )
|                                                                   |  |                                  |         |      |  |         |  
|                                                                   |  |                                  | 109,114 |      |  | 105,784 |  
|                                                                   |  |                                  |         |      |  |         |  

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Include
               NIS 56.1 million linked to the Euro and bearing annual interest
               rate of 1.75%-4.4% per annum and NIS 10.0 million bearing
               interest of 3.5%-4.2% per annum. The deposits are mainly pledged
               as security for the repayment of borrowing and other liabilities
               obtained by Group companies, which have been included as due and
               payable concurrently with the borrowing repayment dates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (2) | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | Loans
               to the Management Company or to its controlled companies. A loan
               of NIS 6.5 million which is linked to the US dollar, bears
               annual interest at a rate of Libor+1%, was due and payable on
               December 31, 2006 and accordingly was fully provided for
               doubtful debts as of December 31, 2006. A loan of NIS 6.7
               million is linked to the US dollar, bears annual interest at the
               rate of Libor+1% due and payable through June 30, 2008.
               According to the agreement, the amounts to be received by the
               Management Company from the Group companies in respect of the
               formers interest in hotels owned by the latter (other than
               hotel management fees (see note 21A(1)a&b) will be used as
               security for the repayment of the loans.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | A
               loan of NIS 2.4 million, which is linked to the Euro and bears
               annual interest at a rate of 4.9%. the Group received no
               security for these loans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | December
               31, 2006 - Include NIS 21.2 million - loans to shareholders of a
               jointly held company (50%) within the PC group. The loan was
               repaid within the framework of a transaction for the sale of the
               jointly held company in July 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (3) | A
               loan linked to the US dollar and bearing annual interest of 5%
               provided to former associated company of Elscint (Gilbridge
               Ltd.) in October 2001. As of the Balance sheet date an allowance
               for all outstanding balance of the loan is recorded since the
               original maturity date of the loan has expired in October 2005.
               In accordance with the term of the agreement executed in January
               2007, Elscint, Gilbridge and the controlling shareholder agreed
               that the outstanding amount of the loan would set to $4.5
               million, out of which an amount of $1.0 million was paid by
               Gilbridge in January 2007 and an amount of $1.5 million was paid
               by Gilbridge in March 2007. An additional amount of $2.0 million
               (including interest) will be paid by June 30, 2008. Gilbridge
               had also consented to transfer to Elscint any proceeds received
               thereby from the sale of its portfolio companies, less certain
               Gilbridge expenses not exceeding a maximum amount as stipulated
               in the agreement.

F
             - 47

---

---

|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
|                                              

|          |                                                                    
|--------- | -------------------------------------------------------------------
|NOTE 9   | DEPOSITS, LOANS AND OTHER
               LONG-TERM BALANCES (CONT.)

|   |                     
|-- | --------------------
|A. | Composition (cont.):

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (4) | Several
               Groups companies have entered into an interest rate swap
               transaction with a foreign financial institution (which granted
               thereto a variable-interest bearing loan) according to which the
               interest on the loans will be fixed through the loans terms. The
               swap transactions were designated as hedging instruments in a
               cash flow hedge.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (5) | On
               July, 9 2007, subsequent to the issuance of series A debentures
               of NIS 305.0 million (see note 17H), PC entered, consistent with
               its risk management policies, into cross currency interest rate
               swap with par value of NIS 305.0 million. In accordance with the
               terms of the agreement, PC will pay six month Euribor + 2.19%
               interest and receive 5% interest linked to the Israeli CPI with
               the same amortization schedule as the debentures. In addition,
               at each payment date of the annual instalments of the debentures
               PC will receive principle amount in NIS and will pay the
               principle amount in Euro (subject to the amortization schedule).
               The derivative was designated to be measured at fair value at
               each balance sheet date with changes in the fair value charged
               to the profit and loss. Accordingly a gain of NIS 12.5 million was
               recorded in these financial statements as part of financing
               income. The debentures were also designated to be measured at
               FVTPL.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | For
               commitments regarding the derivative see note 21D(11).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|   |                       |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | --------------------- | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | (6)                   | (i)  | Through
               December 31, 2007, the Company granted its associate, Easy Run
               Ltd. (E.R.) a dollar linked loans amounted to NIS 5.6 million
               ($1.5 million) (including accrued interest), convertible, at any
               time into E.R. preferred shares having anti-dilution rights and
               liquidation preferences. As for impairment loss recorded in 2007
               in respect of the Companys interest in E.R., see note
               10A(B)(4).
|   |                       |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                       | (ii) | PCs
               investments in its associate, Alom Sziget 2004 kft (Alom
               Sziget) (see note 10A(B)(6)) include a loan in the amount of
               1.5 million (NIS 8.5 million) which bears interst rate of 6.7%
               per annum.                                                                                                                                                                                                                                                
|   |                       |     
|B. | Liens
- see note 21D.

|            |                          
|----------- | -------------------------
|NOTE 10A   | INVESTMENTS IN ASSOCIATES

|   |             
|-- | ------------
|A. | Composition:

|                                                                                                |  |                                  |         |      |  |         |  
|----------------------------------------------------------------------------------------------- |  | -------------------------------- | ------- | ---- |  | ------- | -
|                                                                                                |  | December
               31       |        
|                                                                                                |  |                                  |        
|                                                                                                |  | 2007                             |         | 2006 | 
|                                                                                                |  |                                  |         |      | 
|                                                                                                |  | (in
               thousand NIS) |        
|                                                                                                |  |                                  |        
|                                                                                                |  |                                  |         |      |  |         |  
|Cost (*)                                                                                        |  |                                  | 96,865  |      |  | 91,879  |  
|Accumulated losses, net                                                                         |  |                                  | (36,681 | )    |  | (38,171 | )
|Foreign currency translation
               adjustments                                         |  |                                  | (2,122  | )    |  | 1,752   |  
|                                                                                                |  |                                  |         |      |  |         |  
|                                                                                                |  |                                  | 58,062  |      |  | 55,460  |  
|                                                                                                |  |                                  |         |      |  |         |  
|                                                                                                |  |                                  |         |      |  |         |  
|(*)     Including goodwill and
               allocation to research and development in process |  |                                  | 33,964  |      |  | 29,505  |  
|                                                                                                |  |                                  |         |      |  |         |  

F
             - 48

---

---

|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
|                                              

|            |                                                 
|----------- | ------------------------------------------------
|NOTE 10A   | INVESTMENTS IN ASSOCIATES
               (CONT.)

|   |                        
|-- | -----------------------
|B. | Additional information:

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | General                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |     | The
               Group invests in hi-tech associated companies (Invested
               Companies). The Invested Companies engage in research and
               development operations and are yet to attain financial
               stability. The value of these investments is thus contingent
               upon the continued operation of the Invested Companies, which
               entails certain risks stemming from the nature of their
               operations including the uncertainty as to the success of
               development and marketing potential of the product. It is
               therefore, difficult to objectively assess the fair value of
               these investments due to the lack of a verifiable market value.
               Nevertheless, the Groups management is of the opinion that the
               recoverable amount of the investments is not lower than their
               cost (net of provisions for impairment, to the extent
               applicable).                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | As
               to a law-suit filed by an employee of the EIL group - see note
               21B(7).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (2) | Gamida Cell Ltd. (Gamida)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | Gamida is engaged in the expansion of hematopoietic
               (blood) stem cells therapeutics in clinical development for
               cancer and autoimmune diseases, as well as future regenerative
               cell-based medicines including cardiac and pancreatic repair.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | In July 2007 the Company entered into a share purchase
                 agreement with a third party for the acquisition of Gamidas
                 series B and series C preferred shares for a total
                 consideration of approximately $1.9 million representing
                 approximately 2.8% of Gamida shareholders equity(on a fully
                 diluted basis).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | In September 2006 Gamida entered into an investment
                   agreement in terms of which a third party investor
                   (Investor) and some of Gamidas existing shareholders
                   (including the Group) have invested therein $10.0 million
                   and $6.0 million, in consideration for the allotment to such
                   investors of preferred securities (series D) representing
                   approximately 13.2% and 7.9% of Gamida shareholders equity
                   (on a fully diluted basis), respectively. In addition,
                   Gamida granted the investors 30% warrants coverage to
                   purchase Gamidas D1 preferred shares at an exercise price
                   of $15.09 per share. The warrants will expire on the earlier
                   of (i) four years from the closing date; (ii) Initial Public
                   Offering of Gamidas shares; or (iii) Merger or Acquisition
                   transaction. The Groups share in this investment totaled approximately
                   $2.5 million.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | The Groups preferred shares have anti-dilution
                   rights and liquidation preference (US Dollar linked return
                   of its investment in Gamida bearing 8% annual interest,
                   prior to any distribution to ordinary share holders or holders
                   of preferred shares with subordinated rights). Subsequent to
                   the aforementioned financing rounds and as of December 31,
                   2007, the Group holds 32.4% of the equity and voting rights
                   in Gamida and the right to appoint 20% of its directors.
                   Should all the convertible securities of Gamida be so
                   converted or exercised, then and in such an event, the Group
                   shall be diluted to 27.5%.                                                                                                                                                                                                                                                                                                               

F
                 - 49

---

---

|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
|                                              

|            |                                                     
|----------- | ----------------------------------------------------
|NOTE 10A   | INVESTMENTS IN ASSOCIATES
                   (CONT.)

|   |                                                  
|-- | -------------------------------------------------
|B. | Additional information
                   (cont.)

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Gamida Cell Ltd.
                   (Gamida) (cont.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | On February 16, 2005, Teva Pharmaceutical Industries
                   Ltd. (Teva) - one of Gamidas shareholders, decided to
                   exercise its option to enter into a joint venture (JV)
                   with Gamida to develop and commercialize certain products
                   being the subject matter of Gamidas developing technology
                   (StemEx®). On February 12, 2006 Gamida, Teva
                   and the JV signed a founders agreement which set forth the
                   establishment, funding and management of the JV. The sole
                   purpose of the JV shall be commercialization of StemEx®
                   and obtaining all required registrations and marketing
                   approvals. Teva shall make an equity investment in the JV of
                   up to $25.0 million in consideration for up to 50% of the JV
                   shares.                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | In the framework of the agreement Gamida and the JV
                   signed on a license agreement according to which Gamida
                   granted the JV a royalty free, worldwide license to exploit
                   StemEx® and Gamidas IP necessary for developing,
                   manufacturing sale and distribution of StemEx®
                   and a royalty free, illimitable, worldwide exclusive license
                   to manufacture, develop, market, offer for sale, distribute
                   and sell StemEx®and the right to sublicense.                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | As of the balance sheet date Teva has invested an
                   amount of $15.8 million in the JV.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (3) | Olive Software Inc.
                   (Olive)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | Olive is engaged in the development and marketing of
                   products enabling a transparent link between traditional
                   newspaper printing systems and the world of e-publishing, as
                   well as digital archiving services for newspapers and
                   libraries. The Groups shares entitle it to anti-dilution
                   rights as well as liquidation preference (return of its
                   investment in Olive plus interest at LIBOR + 2% per annum,
                   prior to any distribution to holders of ordinary shares or
                   subordinated preferred shares). As of December 31, 2007, the
                   Group holds 22.3% of the equity and voting rights in Olive.
                   Assuming all of Olives convertible securities be so
                   converted into shares, the Groups interest in Olive would
                   then be diluted to 18.3%.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (4) | Easy Run Ltd. (E.R.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | E.R. is engaged in the development and marketing of
                   call center solutions, which support under a single
                   platform, diversified infrastructure ranging from historical
                   telephonia through to futuristic telecom equipment (IP
                   switchboards) and modern e-commerce applications.As
                   of December 31, 2007, the Group holds 49.4% of the equity
                   and voting rights in E.R. as well as the right to appoint
                   40% of its directors. The shares held by the Group entitle
                   it to anti-dilution rights as well as liquidation preference
                   (as defined in the investment agreements). Assuming all
                   loans be converted and warrants be exercised, the Groups
                   interest in E.R. would then dilute to 47.8%.                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | As of December 31, 2007 the Group has included in
                   its consolidated financial statements a provision for
                   impairment for its total investment in E.R (shares and
                   convertible loan granted-see note 9A(7)(i)) in the total
                   amount of NIS 2.8 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

F
                 - 50

---

---

|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
|                                              

|            |                                                     
|----------- | ----------------------------------------------------
|NOTE 10A   | INVESTMENTS IN ASSOCIATES
                   (CONT.)

|   |                                                  
|-- | -------------------------------------------------
|B. | Additional information
                   (cont.)

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (5) | Varcode Ltd. (Varcode)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | In September 2006 the Company signed an agreement
                   with an unrelated third party to establish a company
                   (Varcode) in which the Company will invest an amount of
                   $3.0 million (subject to fulfillment of certain milestones
                   in accordance with the terms of the agreement) in
                   consideration for approximately 46% of Varcode equity
                   rights. Through the balance sheet date the Company invested
                   an amount of $2.2 million in consideration of approximately
                   33.8% interest in Varcode and the remaining shares are held
                   by a trustee and will be transferred to the Company upon
                   execution of the additional investments in Varcode. The
                   Company is entitled to 50% of the voting rights in the
                   general assembly and the right to appoint 50% of Varcode
                   directors subject to certain time limitation and provisions
                   as stipulated in the agreement. One of Varcode founders and
                   shareholder has a casting vote in case of dead lock in
                   Varcode board. In addition, the Company has an option to
                   purchase additional 4% in Varcode share capital in
                   consideration for $0.5 million for a period of 18 months
                   following the date of the agreement. Following the exercise
                   of such option the Company will hold 50% of the voting and
                   equity rights in Varcode.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | Varcode is engaged in developing labels for
                   improving shelf life of perishables.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (6) | Alom Sziget 2004 kft (Alom Sziget)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | PCs jointly controlled (50%) subsidiary
                   (ErCorner), owns 60.0% of the ownership and voting rights
                   of Alom Sziget, which owns approximately 320,000 sq.m., of
                   land on the island of Obuda in the Danube River, located in
                   the heart of Budapest. The remaining 50% of the equity and
                   voting rights in ErCorner is held by a Hungarian commercial
                   bank (the Bank). As of the balance sheet date, Alom Sziget
                   has been provided with a loan of 23.0 million (NIS 130.1
                   million) by the Bank. PC has committed to repay 30% of the
                   outstanding loans in case Alom Sziget fails to do so.
                   Resolutions of Alom Sziget are to be approved by a 75%
                   majority of votes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | Financial statements of ErCorner and Alom Sziget are
                   included in the consolidated financial statements of the
                   Company by the equity method. In September 2006, Alom Sziget
                   has received from the Municipality of Budapest final formal
                   approval for the zoning plan of the project, which allows Alom
                   Sziget to apply for the receipt of a building permit. As
                   part of the above approval Alom Sziget has undertaken to
                   ensure the traffic connections to, from and within the
                   island and to develop certain landscape works. The
                   additional investment required in consideration of the
                   aforementioned projects is estimated in approximately 55
                   million. The proposed plan includes development of the site
                   as a tourism oriented area including hotels and
                   apartment-hotels complemented by, sport centers, yacht
                   harbours, casino, shops and conference and conventions
                   centers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | As for loans granted to Alom Sziget, see note
                   9A(7)(ii).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

F
                 - 51

---

---

|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
|                                              

|            |                                                     
|----------- | ----------------------------------------------------
|NOTE 10A   | INVESTMENTS IN ASSOCIATES
                   (CONT.)

|   |                                                  
|-- | -------------------------------------------------
|B. | Additional information
                   (cont.)

| |     |                                                                                                          
| | --- | ---------------------------------------------------------------------------------------------------------
| | (7) | The following is summarized data outlining the
Groups share in items of associates financial statements:

|            |  |                                                                                      |          |   |  |          |  
|----------- |  | ------------------------------------------------------------------------------------ | -------- | - |  | -------- | -
|            |  | As
                   at December 31 and 
                   for the year then ended |         
|            |  |                                                                                      |         
|            |  |                                                                                      | 2007     |   |  | 2006     |  
|            |  |                                                                                      |          |   | 
|            |  | (in
                   thousand NIS)                                                 |         
|            |  |                                                                                      |         
|            |  |                                                                                      |          |   |  |          |  
|Assets      |  |                                                                                      | 245,222  |   |  | 256,985  |  
|Liabilities |  |                                                                                      | (161,890 | ) |  | (132,378 | )
|            |  |                                                                                      |          |   |  |          |  
|Net assets  |  |                                                                                      | 83,332   |   |  | 124,607  |  
|            |  |                                                                                      |          |   |  |          |  
|            |  |                                                                                      |          |   |  |          |  
|Revenues    |  |                                                                                      | 42,800   |   |  | 31,306   |  
|            |  |                                                                                      |          |   |  |          |  
|            |  |                                                                                      |          |   |  |          |  
|Loss        |  |                                                                                      | (42,780  | ) |  | (40,245  | )
|            |  |                                                                                      |          |   |  |          |  

|            |                                                                                                
|----------- | -----------------------------------------------------------------------------------------------
|NOTE 10B   | ADDITIONAL INFORMATION AS
                   TO INVESTMENTS IN SUBSIDIARIES AND CHANGES THEREOF

|    |                                                
|--- | -----------------------------------------------
|(1) | Insightec Ltd.
                   (Insightec)

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | Insightec Ltd. is engaged in the development,
                   production and marketing of magnetic resonance imaging
                   guided focused ultrasound treatment equipment shortly
                   thereafter. The industry in which Insightec operates is
                   characterized by rapid technological development.
                   Substantially all of the Insightecs current sales are
                   derived from a few applications of Insightecs product line.
                   Many of Insightecs development applications are in the
                   early stages and there can be no assurance that these
                   applications will be successful. Insightec is continuing
                   research and development for additional applications for
                   such products.                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | b. | As of the balance sheet date, General Electric
                   Health Care (GE) holds approximately 23.6% of Insightecs
                   shares. The agreement with GE for the acquisition of the
                   shares (in December 2001) stipulates several limitations on
                   the execution of certain material transactions or activities
                   not in the ordinary course of business, without obtaining
                   GEs prior approval.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | c. | Within the framework of an agreement signed in March
                   2004, the Company was granted warrants, convertible through
                   a 3 year period, into 977,552 ordinary shares of Insightec,
                   at an aggregate conversion amount of $7.1 million,
                   concurrently with extension of the loans and guarantees
                   provided by the Company to Insightec through March 2007. In
                   February 2007, the Company and Insightec agreed to extend
                   the loan, the guarantee and the warrants through December
                   31, 2007. In December 2007 the Company has exercised the
                   warrants into 977,552 Insightecs ordinary shares in
                   consideration of (i) a cash payment of $5.0 million; and
                   (ii) a conversion of the loan granted by it to Insightec at
                   the amount of $2.1 million. The excess cost paid over the
                   minority interest acquired in the amount of NIS 12.0 million
                   was recognized as a goodwill in the consolidated financial
                   statements.

F
                 - 52

---

---

|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
|                                              

|            |                                                                                                        
|----------- | -------------------------------------------------------------------------------------------------------
|NOTE 10B   | ADDITIONAL INFORMATION AS
                   TO INVESTMENTS IN SUBSIDIARIES AND CHANGES THEREOF (CONT.)

|    |                                                        
|--- | -------------------------------------------------------
|(1) | Insightec Ltd.
                   (Insightec) (cont.)

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | d. | Within the framework of an agreement signed in
                   August 2006 for the issuance of convertible debentures (see
                   note 17F), the Company was granted 111,310 warrants
                   convertible into Insightecs ordinary shares at an exercise
                   price of NIS 0.01 per share. The warrants will expire on
                   August 9, 2011 and will be exercisable, in whole or in part,
                   at any time after the earlier of August 9, 2009 or
                   occurrence of a liquidity event (IPO or sale) provided that
                   if the liquidity event provides at least a 20% IRR (as
                   defined in the agreement) to the holders of the convertible
                   note, then the warrants will expire and not be exercisable.
                   If in connection with qualified IPO or change in control (as
                   defined in the agreement) Insightec is not entitled to
                   require conversion of the Notes held by the warrantholders,
                   then the warrant-holders shall exercise the warrants, in
                   whole but not in part. The warrants shall be transferable in
                   whole or in part solely in tandem within the 2006 Notes held
                   by the warrant-holders.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | e. | On November 27, 2007 Insightec signed Series A
                   Preferred Share Purchase Agreement (Agreement), with its
                   three main existing shareholders (including the Company) and
                   with new private investors for the consideration of $30.0
                   million in the price of $12 per Preferred A
                   Share.(Preferred Shares). The Companys share in this investment
                   round totaled to $20.0 million. The Preferred Shares holders
                   have the same rights with respect to the Ordinary Shares
                   including similar registration rights. The Preferred Shares
                   are senior to all other ordinary shares and subordinated to
                   all creditors. No dividend or other payment will be made
                   with regard to other shares at any time when dividends or
                   other payments with regard to the Preferred Shares are in
                   arrears, except as agreed.                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | The Shares are entitled to accrue semi-annually
                   dividend at the rate of Libor plus 3% per annum, as and when
                   declared by the Insightec. Unpaid dividends will accrue and
                   compound at the same interest rate and will be added to the
                   stated value of the Preferred Shares. The dividend rate will
                   increase on the anniversaries date of issuance (November 27,
                   2007) as follows: on the third and fourth anniversaries, by
                   1% each year; on the fifth and each subsequent anniversary,
                   by 2% each year; but in no event will the interest rate
                   exceed 18%. At Insightecs option, dividends may be paid in
                   cash or in kind (i.e., in additional Preferred Shares).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | In the event Insightec is sold, liquidated or wound
                   up for any reason, the holders of the Preferred Shares shall
                   receive, prior to any payments to any other equity holders,
                   the higher of (i) the stated value of the Preferred Shares
                   (including any accrued and unpaid dividends) or (ii) the
                   pro-rata distribution that would be made with regard to the
                   Preferred Shares if the stated value thereof (including any
                   accrued and unpaid dividends) were converted to ordinary
                   shares. Each Preferred Share may be converted at any time at
                   the holders option into the number of ordinary shares equal
                   to the stated value of the Preferred Shares (including any
                   accrued and unpaid dividends) divided by the lesser of
                   $12.00 and 85% of the price per share reflected in
                   Insightecs next round of financing. Upon a Qualified IPO
                   the Preferred Shares will be automatically converted.                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | The Preferred Shares will have the right to vote
                   with the ordinary shares on all matters submitted to a vote
                   of shareholders. In addition, a vote of 75% of the Preferred
                   Shares holders will be required to approve the followings:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

| |   |                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Issuance of any new securities of Insightec
                   (including additional Preferred Shares), other than ordinary
                   Shares or warrants or options to purchase ordinary shares
| |   |                                                                                                                                                                                                         
| |  | Restricted payments with regard to shares of the
                   Insightec such as dividends, repurchases of Insightecs
                   shares.                                                  
| |   |                                                                                                                                                                                                         
| |  | Any merger, consolidation, recapitalization, or sale
                   of all or substantially all of Insightecs assets.                                                                              
| |   |                                                                                                                                                                                                         
| |  | Any change in the terms of the Preferred Shares.                                                                                                                                                        

F
                 - 53

---

---

|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
|                                              

|            |                                                                                                        
|----------- | -------------------------------------------------------------------------------------------------------
|NOTE 10B   | ADDITIONAL INFORMATION AS
                   TO INVESTMENTS IN SUBSIDIARIES AND CHANGES THEREOF (CONT.)

|    |                                                        
|--- | -------------------------------------------------------
|(1) | Insightec Ltd.
                   (Insightec) (cont.)

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | e. | (Cont.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |    | Upon certain adjustment events (Adjustment
                   Events), such as breach of representation, warranty or
                   covenant; invalidation of documents relating to the Preferred
                   Shares; change of control; and bankruptcy or insolvency and
                   failure to cure within 30 days, the holders may increase
                   their dividend rate by up to 5% and reduce their conversion
                   price by up to 44%. In such event, Insightec may elect to
                   repurchase, or find a new holder for the Preferred Shares
                   from any holder who gives such notice following an
                   Adjustment Event, provided it gives prior notice to the
                   other holders of Preferred Shares and no more than 25% of
                   such other holders object. The purchase price for any
                   Preferred Shares so purchased will be the stated value
                   thereof plus any accrued and unpaid dividends.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | The Preferred Shares will not be redeemable by its
                   terms, except that if there is an Adjustment Event that
                   results from an act or omission by Insightec that is
                   intentional and willful or is within the Insightecs
                   reasonable control, then the holders of at least 25% of the
                   Preferred Shares may require Insightec to repurchase, or
                   find a new holder for their Preferred Shares, and the
                   Holders of at least 75% of the Preferred Shares may require
                   Insightec to repurchase, or find a new holder for all the
                   Preferred Shares. The purchase price for any Preferred Share
                   so purchased will be the stated value thereof plus any
                   accrued and unpaid dividends.                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | In addition, the Agreement has amended 2004
                   Agreement and 2006 Agreement as described in note 17F.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | As a result of the said transaction, the Group has
                   recorded in these financial statements a gain from decrease
                   in shareholding in Insightec of NIS 5.3 million ($1.4
                   million).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | f. | Convertible securities - option plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | On January 30, 2006 Insightecs Board of directors
                   approved and adopted a new options plan to employees,
                   officers, directors and consultants (2006 Plan). The
                   number of options under the 2006 Plan was 400,000. In
                   addition, all options available for grant under 2003 Stock
                   Option Plans (2003 Plans), inclusive of options, which
                   were returned to the option pool, were transferred to 2006
                   Plan in addition to the 400,000 options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | The vesting period of options granted under the 2006
                   plan to be 50% after 24 months from the date of grant, 25%
                   after 36 months from the date of grant, and another 25%
                   after 48 months form the date of grant. The exercise price
                   of each option will be determined based on the value of
                   Insightecs ordinary shares close to the date of grant. The
                   options under this plan expire after seven years from the
                   date of grant. On October 24, 2006 the Companys Board of
                   directors approved an increase in 2006 Plan by 300,000
                   options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | 2. | On May 1, 2007 Insightecs Board
of Directors approved and adopted a new options plan (2007 Plan.) The total
number of options under the 2007 Plan shall be 1,000,000 options. 2007 Plan is
substantially similar to 2006 Plan (see above), with additional one provision; vesting
would start at the earlier of Insightecs IPO or Material Change of Insightec such
as, or liquidation or merger (the Commencement Date) and would be two year
from the Commencement Date for 50% of the options granted, three years from Commencement
Date for additional 25% of the options granted and four years from Commencement Date for
the remaining 25% of the options granted. The exercise price of each option will be
determined based on the value of Insightecs ordinary shares close to the date of
grant. On October 31, 2007 Insightecs Board of Directors approved that all the
options which will be granted commencing October 30, 2007 under 2007 Plan, shall become
fully vested and exercisable on the second anniversary of the Commencement Date and shall
remain exercisable until the end of the term of the options. On February 13,2008 Insightec
Borad approved an increase of 1,000,000 options in the 2007 Plan.

F - 54

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING LTD.                              
|                                                
|NOTES TO THE CONSOLIDATED FINANCIAL
  STATEMENTS
|                                                

|            |                                                                                       
|----------- | --------------------------------------------------------------------------------------
|NOTE 10B   | ADDITIONAL INFORMATION AS TO INVESTMENTS IN SUBSIDIARIES AND CHANGES
  THEREOF (CONT.)

|    |                                      |                                               |                                                                                                                                                                                                                                                          
|--- | ------------------------------------ | --------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Insightec Ltd. (Insightec) (cont.)
|    |                                      |                                              
|    | f.                                   | Convertible securities  option plans (cont.)
|    |                                      |                                               |                                                                                                                                                                                                                                                          
|    |                                      | 3.                                            | On February 13, 2008 the
Insightecs Board of directors decided to extend the Exercise Period under 1999
Option Plan (1999 Plan), so that the exercise period will be extended for 2
additional years, (12 years from the Effective Date of 1999 Plan).
|    |                                      |                                               |                                                                                                                                                                                                                                                          
|    |                                      | 4.                                            | As of
  December 31, 2007 Insightec granted 3,928,065 options and 969,300 outstanding
  options available for future grants.                                                                                                                             
|    |                                      |                                               |                                                                                                                                                                                                                                                          
|    |                                      |                                               | A summary of
  the status of the Insightecs share option plans as of December 31, 2007 and 2006, as well as changes during each of the years than
  ended, is presented below:                                                                          

|                                    |  |                         |           |                                     |  |                  |  |                                    |           |           |   |  |        |  | 
|----------------------------------- |  | ----------------------- | --------- | ----------------------------------- |  | ---------------- |  | ---------------------------------- | --------- | --------- | - |  | ------ |  | 
|                                    |  | Number of options       |          
|                                    |  |                         |          
|                                    |  | Year ended December 31, |          
|                                    |  |                         |          
|                                    |  | 2 0 0 7                 |           | 2 0 0 6                             | 
|                                    |  |                         |           |                                     | 
|                                    |  | Share 
  options        |           | Weighted
  average
  exercise price |  | Share 
  options |  | Weighted average exercise 
  price |          
|                                    |  |                         |           |                                     |  |                  |  |                                    |          
|                                    |  |                         |           | (US dollars)                        |  |                  |  | (US dollars)                       |          
|                                    |  |                         |           |                                     |  |                  |  |                                    |          
|                                    |  |                         |           |                                     |  |                  |  |                                    |           |           |   |  |        |  | 
|Outstanding - beginning of year     |  |                         | 3,474,565 |                                     |  | 2.98             |  |                                    |           | 3,165,200 |   |  | 1.62   |  | 
|Granted                             |  |                         | 516,250   |                                     |  | 11.42            |  |                                    |           | 511,000   |   |  | 12.00  |  | 
|Cancelled                           |  |                         | (36,500   | )                                   |  | 11.93            |  |                                    |           | (81,125   | ) |  | 11.35  |  | 
|Exercised                           |  |                         | (26,250   | )                                   |  | 0.0025           |  |                                    |           | (120,510  | ) |  | 0.0025 |  | 
|                                    |  |                         |           |                                     |  |                  |  |                                    |           |           |   |  |        |  | 
|Outstanding - year end              |  |                         | 3,928,065 |                                     |  |                  |  |                                    | 3,474,565 |           |   |  |       
|                                    |  |                         |           |                                     |  |                  |  |                                    |           |           |   |  |       
|                                    |  |                         |           |                                     |  |                  |  |                                    |           |           |   |  |       
|Options exercisable at the year end |  |                         | 2,926,815 |                                     |  |                  |  |                                    | 2,768,965 |           |   |  |       
|                                    |  |                         |           |                                     |  |                  |  |                                    |           |           |   |  |       

| |  |  |                                                                                                        
| |  |  | -------------------------------------------------------------------------------------------------------
| |  |  | The
  following table summarizes information about share options outstanding as of
  December 31, 2007:

| |  |                                       |           |                    |  |                                             |  |                                 |  |      |  |  |        |  | 
| |  | ------------------------------------- | --------- | ------------------ |  | ------------------------------------------- |  | ------------------------------- |  | ---- |  |  | ------ |  | 
| |  | Outstanding
  as of December 31, 2007 |          
| |  |                                       |          
| |  | Range of exercise prices              |           | Number outstanding |  | Weighted average remaining contractual life |  | Weighted average exercise price | 
| |  |                                       |           |                    |  |                                             |  |                                 | 
| |  | (US dollars)                          |           |                    |  | (in years)                                  |  | (US dollars)                    | 
| |  |                                       |           |                    |  |                                             |  |                                 | 
| |  |                                       |           |                    |  |                                             |  |                                 |  |      |  |  |        |  | 
| |  |                                       | 0.0025    |                    |  | 2,265,440                                   |  |                                 |  | 1.22 |  |  | 0.0025 |  | 
| |  |                                       | 3.33-5.85 |                    |  | 603,875                                     |  |                                 |  | 2.78 |  |  | 4.58   |  | 
| |  |                                       | 12.0      |                    |  | 975,250                                     |  |                                 |  | 5.77 |  |  | 12.00  |  | 
| |  |                                       | 16.0      |                    |  | 83,500                                      |  |                                 |  | 4.50 |  |  | 16.00  |  | 
| |  |                                       |           |                    |  |                                             |  |                                 |  |      |  |  |        |  | 
| |  |                                       |           |                    |  | 3,928,065                                   |  |                                 |  |      |  |  |        |  | 
| |  |                                       |           |                    |  |                                             |  |                                 |  |      |  |  |        |  | 

F - 55

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING LTD.                              
|                                                
|NOTES TO THE CONSOLIDATED FINANCIAL
  STATEMENTS
|                                                

|            |                                                                                       
|----------- | --------------------------------------------------------------------------------------
|NOTE 10B   | ADDITIONAL INFORMATION AS TO INVESTMENTS IN SUBSIDIARIES AND CHANGES
  THEREOF (CONT.)

|    |                                      |                                               |                                                                                                      
|--- | ------------------------------------ | --------------------------------------------- | -----------------------------------------------------------------------------------------------------
|(1) | Insightec Ltd. (Insightec) (cont.)
|    |                                     
|    | f.                                   | Convertible securities  option plans (cont.)
|    |                                      |                                              
|    |                                      | 4.                                            | (Cont.)                                                                                              
|    |                                      |                                               |                                                                                                      
|    |                                      |                                               | The following table summarizes information about share options
  exercisable as of December 31, 2007:

| |  |                                       |           |                                 |              |  | 
| |  | ------------------------------------- | --------- | ------------------------------- | ------------ |  | 
| |  | Excersiable
  as of December 31, 2007 |          
| |  |                                       |          
| |  | Number exercisable                    |           | Weighted average exercise price |             
| |  |                                       |           |                                 |             
| |  |                                       |           |                                 | (US dollars) | 
| |  |                                       |           |                                 |              | 
| |  |                                       |           |                                 |              |  | 
| |  |                                       | 2,265,440 |                                 | 0.0025       |  | 
| |  |                                       | 567,625   |                                 | 4.58         |  | 
| |  |                                       | 52,000    |                                 | 12.00        |  | 
| |  |                                       | 41,750    |                                 | 16.00        |  | 
| |  |                                       |           |                                 |              |  | 
| |  |                                       | 2,926,815 |                                 |              |  | 
| |  |                                       |           |                                 |              |  | 

| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 5. | As of
  December 31, 2007 Insightecs option plan include 100,000 options to the
  Companys CEO at an exercise of $3.3 per share which as of the balance sheet
  date are fully vested. Insightecs options available for grant include
  250,000 options designated for grant, for no consideration, to the Companys
  Chairman of the Board (its controlling shareholder), at an exercise price of
  $5.5 each. The issuance was approved by the Companys Board of Directors and
  Audit Committee and it is subject to approval of the Companys shareholders
  meeting.
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | 6. | For the
  purpose of estimating the fair value of the options, Insightec utilize the
  Black-Scholes option-pricing model, using the following assumptions:                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|                                        |  |                         |   |      |        |   | 
|--------------------------------------- |  | ----------------------- | - | ---- | ------ | - | 
|                                        |  | Year ended December 31, |  
|                                        |  |                         |  
|                                        |  | 2007                    |   | 2006 |       
|                                        |  |                         |   |      |       
|                                        |  |                         |   |      |        |   | 
|Risk free
  interest rate (%)           |  | 4                       | % |      | 4      | % | 
|Expected
  life of options (years)      |  | 7                       |   |      | 7      |   | 
|Expected
  volatility (%)               |  | 60                      | % |      | 60     | % | 
|Expected
  dividend yield               |  | None                    |   |      | None   |   | 
|Forfeited
  (%)                         |  | 3.5                     | % |      | 3.5    | % | 
|Total cost
  of benefit (NIS thousands) |  | 4,731                   |   |      | 16,658 |   | 
|Expenses
  recognized (NIS thousands)   |  | 10,875                  |   |      | 12,246 |   | 

| |  |  |                                                                                                                                                                                                                                                                                                                  
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | Fair value
  of Insightec stock price was determined based on private placement of
  Insightecs equity securities close to the grant date. The share price
  volatility was computed based on public companies volatility, which are in
  comparable stage to Insightec and are operating in the same industry.

F - 56

---

---

|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|                                              

|            |                                                                                       
|----------- | --------------------------------------------------------------------------------------
|NOTE 10B   | ADDITIONAL INFORMATION AS TO INVESTMENTS IN SUBSIDIARIES AND CHANGES
  THEREOF (CONT.)

|    |                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | 
|--- | --------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|(1) | Insightec Ltd. (Insightec) (cont.)               
|    |                                                    
|    | g.                                                  | As to
  Groups investment in Insightec convertible debentures - see note 17F.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | h.                                                  | Assuming
  conversion of all of Insightecs outstanding convertible securities, on
  December 31, 2007 the Groups interest would have been diluted to 52.95%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | i.                                                  | At year-end
  of 2002, the operations of Insightec and its wholly owned subsidiary
  (TxSonics) were merged. In 2005, Insightec and its shareholders on one hand,
  and the Israeli Tax Authorities on the other, have concluded the principles,
  subject to which the merger of Insightec and TxSonics was approved under
  Section 103 of the Income Tax Ordinance, retroactively from December 31,
  2002. As per law and approval, taxable consolidated loss of Insightec and
  TxSonics may be offset against future taxable income, over a 7 year period
  (16% each year), however not exceeding 50% of annual taxable net income per
  each year. Said approval provides, inter alia, that profit generated by the
  Company from the sale of its holdings in Insightec shall be considered as
  C.F.C. profits and shall be taxable at a rate of 25%, or any lower rate as
  determined by tax authorities. The Company undertook, among other things, to
  deposit its shares in Insightec with a trustee, as security for the tax
  payment to the Israeli Tax Authorities, upon realization of the shares.
|    |                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                     | Should the
  companies fail to fulfill the terms of the approval and provisions of the
  law, validity of the approval shall be terminated retroactively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(2) | Companies within the Plaza Center N.V. Group (PC)
|    |                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | a.                                                  | On October
  27, 2006 PC announced the successful pricing of the Initial Public Offering
  of its ordinary shares (IPO or Offer) on the Official List of the London
  Stock Exchange (LSE). The Offers price was set at £1.8 per ordinary share
  (Offer Price) which reflected market capitalization of PC at the
  commencement of conditional dealing on the LSE of £514.3 million. The Offer
  consisted of 85,714,286 ordinary shares than constituting 30% of PC share
  capital excluding over allotment options granted to the underwriters which
  was exercised in November 2006 in respect of 6,631,801 ordinary shares.
  Following the Offer and the exercise of the over allotment options by UBS,
  the Groups shareholding in PC were diluted to 68.4%.The total amount raised
  by PC (including the exercised over allotment options and net of the IPOs
  related expenses) amounted to 234.5 million. As a result, the Group recorded
  in its 2006 financial statements gain from decrease in shareholding in PC in
  the amount of NIS 667 million.                                  

F - 57

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING LTD.                              
|                                                
|NOTES TO THE CONSOLIDATED FINANCIAL
  STATEMENTS
|                                                

|            |                                                                                       
|----------- | --------------------------------------------------------------------------------------
|NOTE 10B   | ADDITIONAL INFORMATION AS TO INVESTMENTS IN SUBSIDIARIES AND CHANGES
  THEREOF (CONT.)

|    |                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Companies within the Plaza Center N.V. Group (PC) (cont.)
|    |                                                            
|    | b.                                                          | On October
  26, 2006 PCs Board of Directors approved the grant of up to 33,834,586
  non-negotiable options over PCs ordinary shares to PCs board members,
  employees in PCs group and other persons who provide services to PC
  including employees of the Group (Offerees). The options were granted to
  the Offerees for no consideration. The exercise price of each option shall be
  the average price of PCs shares in the LSE during the 5- day period before
  the date of grant. Notwithstanding the foregoing the exercise price of the
  options granted on October 26, 2006 is £1.8 per option (Exercise Price).
|    |                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                             | Exercise of
  the options is subject to the following mechanism:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                             | On exercise
  date PC shall allot, in respect of each option so exercised, shares equal to
  the difference between (A) the opening price of PCs shares on the LSE on the
  exercise date, provided that if the opening price exceeds 180% of the
  Exercise Price the opening price shall be set at 180% of the Exercise Price;
  less (B) the Exercise Price of the Options; and such difference (A minus B)
  will be divided by the opening price of PCs Shares in the LSE on the
  exercise date.                                                                                                                                  
|    |                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                             | The maximum
  number of shares issuable upon exercise of all outstanding options as of the
  balance sheet date is 12,864,757.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                             | The options
  vest over a three year period following grant, in equal parts (the Vesting
  Periods), and will expire after five years following the grant date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                             | Following is
  the activity in PCs option plan:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|                                       |  |                        |            |                                 |  |                       |  |                              |            |  |      |  | 
|-------------------------------------- |  | ---------------------- | ---------- | ------------------------------- |  | --------------------- |  | ---------------------------- | ---------- |  | ---- |  | 
|                                       |  | Number of options      |           
|                                       |  |                        |           
|                                       |  | Year ended December 31 |           
|                                       |  |                        |           
|                                       |  | 2 0 0 7                |            | 2 0 0 6                         | 
|                                       |  |                        |            |                                 | 
|                                       |  | Number of options (*)  |            | Weighted average exercise price |  | Number of options (*) |  | Weightedaverageexerciseprice |           
|                                       |  |                        |            |                                 |  |                       |  |                              |           
|                                       |  |                        |            | (GBP)                           |  |                       |  | (GBP)                        |           
|                                       |  |                        |            |                                 |  |                       |  |                              |           
|                                       |  |                        |            |                                 |  |                       |  |                              |            |  |      |  | 
|Balance at
  the beginning of the year |  |                        | 26,108,602 |                                 |  | 1.80                  |  |                              |           |  |     |  | 
|Granted                                |  |                        | 4,093,572  |                                 |  | 1.88                  |  |                              | 26,108,602 |  | 1.80 |  | 
|Exercised                              |  |                        | (303,471   | )                               |  | 1.80                  |  |                              |           |  |     |  | 
|Forfeited                              |  |                        | (952,999   | )                               |  | 1.81                  |  |                              |           |  |     |  | 
|                                       |  |                        |            |                                 |  |                       |  |                              |            |  |      |  | 
|Balance at
  the end of the year       |  |                        | 28,945,704 |                                 |  |                       |  |                              | 26,108,602 |  |      |  | 
|                                       |  |                        |            |                                 |  |                       |  |                              |            |  |      |  | 
|                                      
|Options
  exercisable at the year end  |  |                        | 8,195,777  |                                 |  |                       |  |                              |           |  |      |  | 
|                                       |  |                        |            |                                 |  |                       |  |                              |            |  |      |  | 

| |  |                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                      
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The options
  outstanding at December 31, 2007 have an exercise price in the range of GBP
  1.79 to GBP 1.80 and a weighted average contractual life of 3.84 years. The
  weighted average share price in respect of options exercised in 2007 was GBP
  2.225 (2006: no shares exercised).
| |  |                                                                                                                                                                                                                                                                                            
| |  | (*)                                                                                                                                                                                                                                                                                         | Include
  3,907,895 options and 1,516,541 options, which were approved for grant on
  November 1, 2007 by the Companys shareholders meeting, to the Companys
  Chairman of the Board and certain Companys directors, respectively.

F - 58

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING LTD.                              
|                                                
|NOTES TO THE CONSOLIDATED FINANCIAL
  STATEMENTS
|                                                

|            |                                                                                       
|----------- | --------------------------------------------------------------------------------------
|NOTE 10B   | ADDITIONAL INFORMATION AS TO INVESTMENTS IN SUBSIDIARIES AND CHANGES
  THEREOF (CONT.)

|    |                                                             |                                                                                                                                                  | 
|--- | ----------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------ | 
|(2) | Companies within the Plaza Center N.V. Group (PC) (cont.)
|    |                                                            
|    | b.                                                          | (Cont.)                                                                                                                                         
|    |                                                             |                                                                                                                                                 
|    |                                                             | The average
  estimated fair value of each option granted was calculated based on the
  binominal-lattice model using the following assumptions:

|                                        |  |                        |             |      |  |             | 
|--------------------------------------- |  | ---------------------- | ----------- | ---- |  | ----------- | 
|                                        |  | Year ended December 31 |            
|                                        |  |                        |            
|                                        |  | 2007                   |             | 2006 | 
|                                        |  |                        |             |      | 
|                                        |  |                        |             |      |  |             | 
|Risk free
  interest rate (%)           |  |                        | 4.62%-5.55% |      |  | 4.58%-4.94% | 
|Expected
  life of options (years)      |  |                        | 5           |      |  | 5           | 
|Expected
  volatility (%)               |  |                        | 25%-35%     |      |  | 25%-30%     | 
|Expected
  dividend yield               |  |                        |            |      |  |            | 
|Forfeited
  (%)                         |  |                        | 2.5%-7.5%   |      |  | 5%-10%      | 
|Suboptimal
  exercise multiple          |  |                        | 1.8         |      |  | 1.8         | 
|Total cost
  of benefit (NIS thousands) |  |                        | 25,215(1)   |      |  | 103,273     | 
|Expenses
  recognized (NIS thousands)   |  |                        | 65,575      |      |  | 11,297      | 

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Include NIS
  8,755 thousand which represent remeasurement of 5,424,436 options granted by
  PC in October 2006 to the Companys Chairman of the Board and certain of the
  Companys directors, which was approved for grant by the Companys general
  shareholders meeting on November 1, 2007.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                   
| |    | The share
  price volatility in respect of grants executed by PC in 2006 was computed
  solely based on public companies volatility, which are in comparable stages
  to PC and are operating in PCs industry, due to the fact that PC was publicly
  traded since the end of October 2006 and therefore has no historical data.
  The volatility in respect of grants executed in 2007 was also computed based
  on the aforementioned companies while considering the historic share price
  volatility of PC since it became public company.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                   
| | c. | PCs shares
  are traded on the LSE and in Warsaw Stock Exchange. The market value of the
  Groups holdings in PC shares as of December 31, 2007 based on the share
  price on the LSE, amounts to NIS 3,547 million, and their book value as of
  that date amount to NIS 2,326 million.                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | d. | Assuming
  exercise of all of PCs outstanding options, on December 31, 2007, the
  Groups interest in PC would have been diluted approximately to 65.08%.                                                                                                                                                                                                                                                                                                                                                                                      

F - 59

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING LTD.                              
|                                                
|NOTES TO THE CONSOLIDATED FINANCIAL
  STATEMENTS
|                                                

|            |                                                                                       
|----------- | --------------------------------------------------------------------------------------
|NOTE 10B   | ADDITIONAL INFORMATION AS TO INVESTMENTS IN SUBSIDIARIES AND CHANGES
  THEREOF (CONT.)

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | Companies in BEA Hotels N.V. (B.H.) Group                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | B.H. holds,
  through a wholly owned and controlled subsidiary approximately 73% of SC
  Bucuresti Turism S.A. (Bucuresti) which owns a complex consisting of a
  hotel, an apartment hotel, commercial areas and a restaurant, situated in the
  heart 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
  acquisition of most of the rights in Bucuresti was carried out within the
  framework of a memorandum of understanding (MOU) for the establishment of a
  joint venture (Desca), 80% of the rights of which were to be held by B.H.
  and 20% of the rights by an unrelated third party (Third Party
  Shareholder).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | As a result
  of a breach of agreements and undertakings by the Third Party Shareholder,
  B.H. announced the termination of all agreements and simultaneously filed,
  together with its subsidiary a law-suit against the Third Party Shareholder
  for all damages incurred by it due to the latters breach of contracts and
  undertakings. B.H. withheld, prior to filing the claim, the Third Party
  Shareholders shares (20%) as security for fulfillment of its undertakings.
  In addition, B.H. filed a monetary claim against the Third Party Shareholder
  for noncompliance with the indemnity conditions, in the framework of which
  liens were imposed on the Third Party Shareholders assets. The Third Party
  Shareholder filed a statement of defense against the suit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | For
  information concerning law-suit filed by the Third Party Shareholder in April
  2006 - see note 21B(5)a.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | On September
  2, 2007 B.H. and its wholly owned subsidiary entered into a settlement
  agreement with the Third Party Shareholder according to which B.H. will acquire
  from the Third Party Shareholder its 20% shareholding in Desca in
  consideration which will be determined by agreed upon evaluator and will be
  limited to a minimum amount and caped by maximum amount as stipulated in the
  agreement. In accordance with the terms of the agreement, B.H. deposited into
  an escrow account the agreed upon minimum amount. Within the framework of the
  settlement agreement, B.H. and the Third Party Shareholder agreed (i) to
  terminate all previous agreements signed between the parties including
  without limitation the MOU;(ii) to dismiss all legal procedures between the
  Third Party Shareholder and/or its affiliates and B.H. and/or its affiliates;
  and (iii) to waive all claims and/or demands for compensation and/or other
  payments of each party against the other party. In February 2008 the
  evaluator submitted its valuation report to the parties and accordingly the
  Group has included in the financial statements as of December 31, 2007 a
  provision for the amounts that should be paid to the Third Party Shareholder
  against investment in Bucuresti shares. The excess cost in the amount of NIS
  35.4 million paid over the minority interest acquired was recognized as
  goodwill in the consolidated financial statements.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | For
  information concerning other legal actions filed in connection with the
  purchase and ownership of Bucuresti shares, and the real estate owned thereby
  - see note 21B(5).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Bucuresti
  shares are traded on the Romanian stock exchange. The value of Group holdings
  in Bucuresti shares, based on the price of a Bucuresti share as of December
  31, 2007, amounts to NIS 357 million, and their book value as of that date
  amount to NIS 232.6 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

F - 60

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING LTD.                              
|                                                
|NOTES TO THE CONSOLIDATED FINANCIAL
  STATEMENTS
|                                                

|            |                                                                                       
|----------- | --------------------------------------------------------------------------------------
|NOTE 10B   | ADDITIONAL INFORMATION AS TO INVESTMENTS IN SUBSIDIARIES AND CHANGES
  THEREOF (CONT.)

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | As
   of the balance sheet date the Group holds five joint venture(50%) companies
   which hold and operate five hotels in the UK and in the Netherland; four
   joint ventures companies(50%) which are in various stage of development and
   construction of trading property in eastern Europe and India and one joint
   venture company (50%) which hold a plot in India. The
   following is summarized data outlining the Groups share in items of the
   proportionately consolidated companies financial statements:

|                        |  |                                                      |          |                                                      |     |   |       |  |          |   |       |            |     |  |        |       |     |   |  |  |            |  
|----------------------- |  | ---------------------------------------------------- | -------- | ---------------------------------------------------- | --- | - | ----- |  | -------- | - | ----- | ---------- | --- |  | ------ | ----- | --- | - |  |  | ---------- | -
|                        |  | At December 31, 2007
    and for the year then ended |          | At December 31, 2006
    and for the year then ended |    
|                        |  |                                                      |          |                                                      |    
|                        |  | (in thousand NIS)                                    |         
|                        |  |                                                      |         
|                        |  | Proportionately consolidated companies               |         
|                        |  |                                                      |         
|Shareholding            |  | 50%                                                  |          | 30%                                                  |     |   | Total |  | 50%      |   | 33.3% |            | 30% |  |        | Total |    
|                        |  |                                                      |          |                                                      |     |   |       |  |          |   |       |            |     |  |        |       |    
|                        |  |                                                      |          |                                                      |     |   |       |  |          |   |       |            |     |  |        |       |     |   |  |  |            |  
|Current assets          |  |                                                      | 285,385  |                                                      | 46  |   |       |  | 285,431  |   |       | 211,554    |     |  |       |       | 40  |   |  |  | 211,594    |  
|Non-current assets      |  |                                                      | 897,945  |                                                      |    |   |       |  | 897,945  |   |       | 964,322    |     |  |       |       |    |   |  |  | 964,322    |  
|Current liabilities     |  |                                                      | (141,032 | )                                                    | (2  | ) |       |  | (141,034 | ) |       | (215,403   | )   |  |       |       | (3  | ) |  |  | (215,406   | )
|Non-current liabilities |  |                                                      | (968,095 | )                                                    |    |   |       |  | (968,095 | ) |       | (1,036,610 | )   |  |       |       |    |   |  |  | (1,036,610 | )
|                        |  |                                                      |          |                                                      |     |   |       |  |          |   |       |            |     |  |        |       |     |   |  |  |            |  
|Net assets              |  |                                                      | 74,203   |                                                      | 44  |   |       |  | 74,247   |   |       | (76,137    | )   |  |       |       | 37  |   |  |  | (76,100    | )
|                        |  |                                                      |          |                                                      |     |   |       |  |          |   |       |            |     |  |        |       |     |   |  |  |            |  
|                        |  |                                                      |          |                                                      |     |   |       |  |          |   |       |            |     |  |        |       |     |   |  |  |            |  
|Revenues                |  |                                                      | 488,947  |                                                      |    |   |       |  | 488,947  |   |       | 251,876    |     |  | 1,557  |       |    |   |  |  | 253,433    |  
|Expenses                |  |                                                      | (477,489 | )                                                    | (30 | ) |       |  | (477,519 | ) |       | (287,012   | )   |  | (4,114 | )     | (29 | ) |  |  | (291,155   | )
|                        |  |                                                      |          |                                                      |     |   |       |  |          |   |       |            |     |  |        |       |     |   |  |  |            |  
|Net profit (loss)       |  |                                                      | 11,458   |                                                      | (30 | ) |       |  | 11,428   |   |       | (35,136    | )   |  | (2,557 | )     | (29 | ) |  |  | (37,722    | )
|                        |  |                                                      |          |                                                      |     |   |       |  |          |   |       |            |     |  |        |       |     |   |  |  |            |  

F - 61

---

---

|                                                             
|-------------------------------------------------------------
|ELBIT
               IMAGING LTD.                            
|                                                             
|NOTES
               TO THE CONSOLIDATED FINANCIAL STATEMENTS
|                                                             

|           |                              
|---------- | -----------------------------
|NOTE 11   | PROPERTY, PLANT AND EQUIPMENT

|   |                   
|-- | ------------------
|A. | Composition:      
|   |                   
|   | December 31, 2007:

|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       |  |         |   |  |           |  
|-------------------------------------------------------------------------------------------------- |  | ------------------------------- | --------- | --------------------------------- |  | ------- | - | --------------------------------- | ------ | ----- |  | ------- | - |  | --------- | -
|                                                                                                   |  | Real estate                     |           |                                   |  |         |   |                                   |       
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |       
|                                                                                                   |  | Hotels                          |           |                                   |  |         |   |                                   |        |       |  |        
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       |  |        
|                                                                                                   |  | Operating                       |           | Under
               construction |  | Other   |   | Other
               fixed assets |        | Total | 
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       | 
|                                                                                                   |  | ( i n  t h o u s a n d  N I S ) |          
|                                                                                                   |  |                                 |          
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       |  |         |   |  |           |  
|Cost:                                                                                              |  |                                 |           |                                   |  |         |   |                                   |        |       |  |         |   |  |           |  
|Balance as of January 1                                                                            |  |                                 | 1,281,189 |                                   |  | 327,341 |   |                                   | 18,060 |       |  | 72,855  |   |  | 1,699,445 |  
|Deconsolidated companies (see
               C. below)                                             |  |                                 |          |                                   |  | (38,503 | ) |                                   |       |       |  |        |   |  | (38,503   | )
|Adjustments resulting from translation
               of foreign subsidiaries financial statements |  |                                 | (45,374   | )                                 |  | (14,495 | ) |                                   | 447    |       |  | (2,077  | ) |  | (61,499   | )
|Additions during the year                                                                          |  |                                 | 13,267    |                                   |  | 198,966 |   |                                   | 24,075 |       |  | 55,239  |   |  | 291,547   |  
|Disposals during the year                                                                          |  |                                 | (328      | )                                 |  | (1,411  | ) |                                   |       |       |  | (5,701  | ) |  | (7,440    | )
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       |  |         |   |  |           |  
|Balance as of December 31                                                                          |  |                                 | 1,248,754 |                                   |  | 471,898 |   |                                   | 42,582 |       |  | 120,316 |   |  | 1,883,550 |  
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       |  |         |   |  |           |  
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       |  |         |   |  |           |  
|Accumulated
               depreciation:                                                           |  |                                 |           |                                   |  |         |   |                                   |        |       |  |         |   |  |           |  
|Balance as of January 1                                                                            |  |                                 | 49,537    |                                   |  |        |   |                                   | 345    |       |  | 9,895   |   |  | 59,777    |  
|Deconsolidated companies (see
               C. below)                                             |  |                                 |          |                                   |  |        |   |                                   |       |       |  |        |   |  |          |  
|Adjustments resulting from
               translation of foreign subsidiaries financial statements |  |                                 | (3,472    | )                                 |  |        |   |                                   | 19     |       |  | (1,463  | ) |  | (4,916    | )
|Additions during the year                                                                          |  |                                 | 49,161    |                                   |  |        |   |                                   | 2,064  |       |  | 12,561  |   |  | 63,786    |  
|Disposals during the year                                                                          |  |                                 |          |                                   |  | (1,293  | ) |                                   |       |       |  | (4,256  | ) |  | (5,549    | )
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       |  |         |   |  |           |  
|Balance as of December 31                                                                          |  |                                 | 95,226    |                                   |  | (1,293  | ) |                                   | 2,428  |       |  | 16,737  |   |  | 113,098   |  
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       |  |         |   |  |           |  
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       |  |         |   |  |           |  
|Provision
               for impairment:                                                           |  |                                 |           |                                   |  |         |   |                                   |        |       |  |         |   |  |           |  
|Balance as of January 1                                                                            |  |                                 | 16,693    |                                   |  |        |   |                                   |       |       |  |        |   |  | 16,693    |  
|Adjustments resulting from
               translation of foreign subsidiaries financial statements |  |                                 | 285       |                                   |  |        |   |                                   |       |       |  |        |   |  | 285       |  
|Impairment loss recognized                                                                         |  |                                 | 14,148    |                                   |  |        |   |                                   |       |       |  |        |   |  | 14,148    |  
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       |  |         |   |  |           |  
|Balance as of December 31                                                                          |  |                                 | 31,126    |                                   |  |        |   |                                   |       |       |  |        |   |  | 31,126    |  
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       |  |         |   |  |           |  
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       |  |         |   |  |           |  
|Payment
               on account of fixed assets                                                  |  |                                 | 2,309     |                                   |  |        |   |                                   |       |       |  | 19,715  |   |  | 22,024    |  
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       |  |         |   |  |           |  
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       |  |         |   |  |           |  
|Depreciated
               balance net book value                                                  |  |                                 | 1,124,711 |                                   |  | 473,191 |   |                                   | 40,154 |       |  | 123,294 |   |  | 1,761,350 |  
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       |  |         |   |  |           |  

F - 62

---

---

|                                                             
|-------------------------------------------------------------
|ELBIT
               IMAGING LTD.                            
|                                                             
|NOTES
               TO THE CONSOLIDATED FINANCIAL STATEMENTS
|                                                             

|           |                                                      | 
|---------- | ---------------------------------------------------- | 
|NOTE 11   | PROPERTY, PLANT AND EQUIPMENT
               (CONT.) | 

|   |                     
|-- | --------------------
|A. | Composition (cont.):
|   |                     
|   | December 31, 2006:  

|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       |  |        |   |  |           |  
|-------------------------------------------------------------------------------------------------- |  | ------------------------------- | --------- | --------------------------------- |  | ------- | - | --------------------------------- | ------ | ----- |  | ------ | - |  | --------- | -
|                                                                                                   |  | Real estate                     |           |                                   |  |         |   |                                   |       
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |       
|                                                                                                   |  | Hotels                          |           |                                   |  |         |   |                                   |        |       |  |       
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       |  |       
|                                                                                                   |  | Operating                       |           | Under
               construction |  | Other   |   | Other
               fixed assets |        | Total | 
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       | 
|                                                                                                   |  | ( i n  t h o u s a n d  N I S ) |          
|                                                                                                   |  |                                 |          
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       |  |        |   |  |           |  
|Cost:                                                                                              |  |                                 |           |                                   |  |         |   |                                   |        |       |  |        |   |  |           |  
|Balance as of January 1 (1)                                                                        |  |                                 | 1,159,864 |                                   |  | 206,764 |   |                                   | 17,679 |       |  | 66,755 |   |  | 1,451,062 |  
|Deconsolidated companies (see
               C. below)                                             |  |                                 | (2,123    | )                                 |  |        |   |                                   |       |       |  |       |   |  | (2,123    | )
|Adjustments resulting from
               translation of foreign subsidiaries financial statements |  |                                 | 50,765    |                                   |  | 19,628  |   |                                   | 364    |       |  | (2,674 | ) |  | 68,083    |  
|Additions during the year                                                                          |  |                                 | 74,981    |                                   |  | 101,026 |   |                                   | 17     |       |  | 18,670 |   |  | 194,694   |  
|Disposals during the year                                                                          |  |                                 | (2,298    | )                                 |  | (77     | ) |                                   |       |       |  | (9,896 | ) |  | (12,271   | )
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       |  |        |   |  |           |  
|Balance as of December 31                                                                          |  |                                 | 1,281,189 |                                   |  | 327,341 |   |                                   | 18,060 |       |  | 72,855 |   |  | 1,699,445 |  
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       |  |        |   |  |           |  
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       |  |        |   |  |           |  
|Accumulated
               depreciation:                                                           |  |                                 |           |                                   |  |         |   |                                   |        |       |  |        |   |  |           |  
|Balance as of January 1 (1)                                                                        |  |                                 |          |                                   |  |        |   |                                   |       |       |  |       |   |  |          |  
|Deconsolidated companies (see
               C. below)                                             |  |                                 | (71       | )                                 |  |        |   |                                   |       |       |  |       |   |  | (71       | )
|Adjustments resulting from
               translation of foreign subsidiaries financial statements |  |                                 | 149       |                                   |  |        |   |                                   | (2     | )     |  | (28    | ) |  | 119       |  
|Additions during the year                                                                          |  |                                 | 49,459    |                                   |  |        |   |                                   | 347    |       |  | 9,968  |   |  | 59,774    |  
|Disposals during the year                                                                          |  |                                 |          |                                   |  |        |   |                                   |       |       |  | (45    | ) |  | (45       | )
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       |  |        |   |  |           |  
|Balance as of December 31                                                                          |  |                                 | 49,537    |                                   |  |        |   |                                   | 345    |       |  | 9,895  |   |  | 59,777    |  
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       |  |        |   |  |           |  
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       |  |        |   |  |           |  
|Provision
               for impairment:                                                           |  |                                 |           |                                   |  |         |   |                                   |        |       |  |        |   |  |           |  
|Balance as of January 1 (1)                                                                        |  |                                 |          |                                   |  |        |   |                                   |       |       |  |       |   |  |          |  
|Adjustments resulting from
               translation of foreign subsidiaries financial statements |  |                                 | 143       |                                   |  |        |   |                                   |       |       |  |       |   |  | 143       |  
|Impairment loss recognized                                                                         |  |                                 | 16,550    |                                   |  |        |   |                                   |       |       |  |       |   |  | 16,550    |  
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       |  |        |   |  |           |  
|Balance as of December 31                                                                          |  |                                 | 16,693    |                                   |  |        |   |                                   |       |       |  |       |   |  | 16,693    |  
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       |  |        |   |  |           |  
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       |  |        |   |  |           |  
|Depreciated
               balance net book value                                                  |  |                                 | 1,214,959 |                                   |  | 327,341 |   |                                   | 17,715 |       |  | 62,960 |   |  | 1,622,975 |  
|                                                                                                   |  |                                 |           |                                   |  |         |   |                                   |        |       |  |        |   |  |           |  

| |     |                                                                                                                                     
| | --- | ------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Net of accumulated depreciation and impairment as of
               January 1, 2006 (the date of transition to IFRSs)  see note 28.

F - 63

---

---

|                                                             
|-------------------------------------------------------------
|ELBIT
               IMAGING LTD.                            
|                                                             
|NOTES
               TO THE CONSOLIDATED FINANCIAL STATEMENTS
|                                                             

|           |                                                     
|---------- | ----------------------------------------------------
|NOTE 11   | PROPERTY, PLANT AND EQUIPMENT
               (CONT.)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|B. | Significant acquisitions of
property plant and equipment                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                     | In
               September 2007, the Groups wholly owned subsidiary (AP)
               entered into an agreement for the purchase of a hotel situated
               in Antwerp, Belgium for a total consideration (including
               transaction costs) of 4.7 million (NIS 26.6 million). As of the
               balance sheet date AP has paid an advance on account of the
               acquisition of the property in the amount of 0.4 million (NIS
               2.2 million) which was recorded as payment on account of
               property plant and equipment. The consummation of the
               transaction and the delivery of the property to AP were executed
               in January 2008.                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                     | In
               December 2006, the Groups jointly controlled subsidiary (50%)
               purchased a freehold office building measuring a gross built
               area of approximately 6,500 square meters and situated near the
               Victoria Amsterdam hotel for a purchase price of 14.0 million.
               The property is listed as a monument and historic building
               within the meaning of the Dutch law. The Jointly controlled
               subsidiary intends to renovate the building and to convert it to
               a hotel containing approximately 100 rooms. Building permits for
               such renovation have not yet been issued.                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|C. | Disposal of property plant and
equipment                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                     | On
               June 13, 2007, the Group consummated a transaction for the sale
               of its 50% interest in a company (Andrassy) which owns the
               building known as the Ballet Institute Building located at
               Budapest, Hungary. The transaction reflects an asset value of
               30 million (NIS 169.7 million) of which the Groups share is
               15.0 million (NIS 84.9 million). As a result of this
               transaction, the Group recorded a pre-tax gain of NIS 44.9
               million in these financial statements. Upon consummation of the
               transaction all existing agreements relating to the asset have
               been cancelled by mutual agreement and without prejudice.                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                     | Within
               the framework of an agreement, executed in October 2006, for the
               sale of the entire (100%) equity and voting rights in a company
               (Sandton Park Plaza) which owns a hotel located in South
               Africa (the Sold Hotel), the Group has sold all the shares and
               rights held by it in Sandton Park Plaza (33.3%) to an unrelated
               third party. The transaction reflects an asset value of South Africa
               Rand (SAR) 54.0 million (NIS 5.4 million) in which the Groups
               share is SAR 18.0 million (NIS 1.8 million). The cash
               consideration was determined based on an agreed upon value of
               the Sold Hotel net of a bank loan and other net monetary assets
               of Sandton Park Plaza as well as transaction costs. As a result
               of this transaction, the Group recorded pre-tax gain of NIS 7.0
               million in the 2006 financial statements.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|D. | Impairment of property plant
and equipment                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | A
significant decrease in the number of visitors in the Aquatopia
(an attraction within the Astrid Plaza hotel in Antwerp,
Belgium), during 2007 as compared to the Groups forecasts for
this year, have lead the Group to reexamine its investment in
the project. As a result, the Group included in these financial
statements a provision for impairment loss for its investment in
the Aquatopia in the amount of NIS 14 million.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|E. | Annual depreciation rates see note 2P.                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|F. | As
of December 31, 2007 the Group pledged property plant and equipment
in the amount of NIS 1,598 million in order to secure borrowings
provided to the Group by financial instruments. See also note
21D.                                                                                                                                                                                                                             

F - 64

---

---

|                                                             
|-------------------------------------------------------------
|ELBIT
               IMAGING LTD.                            
|                                                             
|NOTES
               TO THE CONSOLIDATED FINANCIAL STATEMENTS
|                                                             

|           |                                                                                 
|---------- | --------------------------------------------------------------------------------
|NOTE 12   | INVESTMENT PROPERTY AND
               PAYMENT ON ACCOUNT OF INVESTMENT PROPERTY

|   |             
|-- | ------------
|A. | Composition:

|                                                                                                   |  |                   |          |      |  |         |  
|-------------------------------------------------------------------------------------------------- |  | ----------------- | -------- | ---- |  | ------- | -
|                                                                                                   |  | December 31       |         
|                                                                                                   |  |                   |         
|                                                                                                   |  | 2007              |          | 2006 | 
|                                                                                                   |  |                   |          |      | 
|                                                                                                   |  | (in thousand NIS) |         
|                                                                                                   |  |                   |         
|                                                                                                   |  |                   |          |      |  |         |  
|Cost                                                                                               |  |                   |          |      |  |         |  
|Balance as of January 1                                                                            |  |                   | 706,693  |      |  | 695,573 |  
|Initially consolidated
               companies (i)                                                |  |                   | 163,670  |      |  |        |  
|Deconsolidated companies (see
               B. below)                                             |  |                   | (667,248 | )    |  |        |  
|Additions during the period                                                                        |  |                   | 69,318   |      |  | 18,218  |  
|Disposals during the period                                                                        |  |                   |         |      |  | (10,123 | )
|Adjustments resulting from
               translation of foreign subsidiaries financial statements |  |                   | 424      |      |  | 3,025   |  
|                                                                                                   |  |                   |          |      |  |         |  
|Balance as of December 31                                                                          |  |                   | 272,857  |      |  | 706,693 |  
|                                                                                                   |  |                   |          |      |  |         |  
|                                                                                                   |  |                   |          |      |  |         |  
|Accumulated
               depreciation                                                            |  |                   |          |      |  |         |  
|Balance as of January 1                                                                            |  |                   | 168,485  |      |  | 112,253 |  
|Deconsolidated companies (see
               B. below)                                             |  |                   | (182,915 | )    |  |        |  
|Depreciation and impairment
               recognized                                              |  |                   | 27,079   |      |  | 59,543  |  
|Disposals during the period                                                                        |  |                   |         |      |  | (3,749  | )
|Adjustments resulting from
               translation of foreign subsidiaries financial statements |  |                   | 328      |      |  | 438     |  
|                                                                                                   |  |                   |          |      |  |         |  
|Balance as of December 31                                                                          |  |                   | 12,977   |      |  | 168,485 |  
|                                                                                                   |  |                   |          |      |  |         |  
|                                                                                                   |  |                   |          |      |  |         |  
|Investment
               property, net(*)                                                         |  |                   | 259,880  |      |  | 538,208 |  
|                                                                                                   |  |                   |          |      |  |         |  
|Payment
               on account of investment property (ii)                                      |  |                   | 194,743  |      |  | 24,742  |  
|                                                                                                   |  |                   |          |      |  |         |  
|                                                                                                   |  |                   |          |      |  |         |  
|                                                                                                   |  |                   | 454,623  |      |  | 562,950 |  
|                                                                                                   |  |                   |          |      |  |         |  
|                                                                                                   |  |                   |          |      |  |         |  
|(*)
               Fair value of investment property (iii)                                         |  |                   | 287,278  |      |  | 562,875 |  
|                                                                                                   |  |                   |          |      |  |         |  

| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | See
               note 12B(1).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (ii)  | December
               31, 2006 - see note 12B(2), December 31, 2007 - see note 12B(3).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (iii) | The
               valuations of investment property held by PC are prepared by
               considering the aggregate of the net annual rents receivable
               from the properties and where relevant, associated costs. Such
               incomes are capitalized at a yield which reflects the specific
               risks inherent in the net cash flows. The annual yields used to
               evaluate PCs investment property as of December 31, 2007 and
               2006 were at the range of 8.5% to 8.8%.                                                                                         
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |       | Plots designated as investment
property with no final and designate use, are generally valued based on market values,
being the estimated amount for which a property could be exchanged on the date of
valuation between a willing buyer and a willing seller in an arms length
transaction.The Group makes valuations to its investment property by an external, independent valuation company,
having an appropriate recognized professional qualification and recent experience in the location and
category of property being valued. In the absence of an external valuation, the Group's management makes
its own estimate.

F - 65

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING
  LTD.                            
|                                                
|NOTES TO THE
  CONSOLIDATED FINANCIAL STATEMENTS
|                                                
|                                                

|           |                                                                            
|---------- | ---------------------------------------------------------------------------
|NOTE 12   | INVESTMENT PROPERTY AND PAYMENT ON ACCOUNT
  OF INVESTMENT PROPERTY (CONT.)

|   |                                    
|-- | -----------------------------------
|B. | Acquisitions of investment property

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | On December
  16, 2007, the Companys subsidiary Elbit India Real Estate Holdings Limited
  ( Elbit India), entered into a framework agreement, (Framework
  Agreement), with a third party to acquire, through a Joint Venture
  Company(JV), up to 135 acres of land in the Siruseri District of Chennai,
  India. Under the Framework Agreement, the JV will develop on the project land
  an integrated multi-use project comprising exclusive residential projects to
  be comprised of villas (bungalows), high-rise buildings, related amenities,
  commercial and office areas and retail areas.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | Under the
  Framework Agreement, Elbit India is to hold 80% of the JV. Investments by
  Elbit India in the JV will be a combination of investment in shares and
  convertible debentures. The total investment that Elbit India is anticipated
  to pay under the Framework Agreement in consideration for its 80% holding
  (through the JV) in the project land is up to INR 4,276.8 million (NIS 410.6
  million), (Purchase Price) assuming purchase of all 135 acres. Such sum is
  calculated on the basis that Elbit India will pay INR 31.7 million (NIS 3.1
  million) for each acre of the project land purchased by the JV.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | The project
  land is to be acquired by the JV in batches during 2008, subject to such land
  complying with certain regulatory requirements and the due diligence
  requirements of Elbit India On December
  6, 2007, the initial closing of the transaction was held in which the first
  batch of approximately 44.2 acres of the project land was acquired by the JV
  and a total of INR1,397.7 (NIS 136.4 million) of the Purchase Price, was paid
  by Elbit India. Since such date an additional approximate 9.7 acres of the
  project land has been acquired by the JV.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | The parties
  have entered into a shareholders agreement in respect of the management of
  the JV, which provides, among other matters, for a five member board of
  directors, one member appointed by the third party shareholder for so long as
  it maintains a 10% holding in the JV and four members appointed by Elbit
  India. The shareholders agreement also includes certain restrictions and
  pre-emptive rights pertaining to transferring of securities in the JV
  Company. Profits from the Joint Venture Company will be distributed in
  accordance with the parties proportionate shareholdings, subject to Elbit
  India being entitled to certain preferences out of the JVs cash flow, as
  determined in the agreements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (2) | In September 2006 the Company together with an Indian corporation
  (Project SPV) wholly  owned by an
  unrelated third party (the Third Party Shareholder) entered into an
  agreement (as amended in January 2007) for the purchase of a land measuring
  41 acres located in Cochi, India. In accordance with the terms of the
  agreement the Company and Project SPV will acquire 13 acres (Property A)
  for a total consideration of INR 1,495 million (NIS 143.5 million) payable
  subject to fulfillment of certain obligation by the seller in respect of the
  land including obtaining all permissions required for construction thereon
  and making good and marketable title with regard to Property A and others
  (Conditions precedent). The additional 28 acres (Property B) would be
  transferred by the seller to the Project SPV without any consideration and
  the seller will be entitled to receive 40% of the constructed area which will
  be built by the Project SPVs. It was further agreed that all fess costs and
  expenses with regards to construction on Property B will be borne by the
  Project SPV and that the Project SPV will have the entire control over the
  construction as well as the marketing of the entire project. The agreement
  also provides that if the seller fails to comply with the aforementioned
  Conditions Precedent, the Project SPV and the Company shall have the right to
  terminate the agreement and the seller will then refund all amounts paid
  under this agreement plus an interest of Libor +1%.

F - 66

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING
  LTD.                            
|                                                
|NOTES TO THE
  CONSOLIDATED FINANCIAL STATEMENTS
|                                                

|           |                                                                            
|---------- | ---------------------------------------------------------------------------
|NOTE 12   | INVESTMENT PROPERTY AND PAYMENT ON ACCOUNT
  OF INVESTMENT PROPERTY (CONT.)

|   |                                            
|-- | -------------------------------------------
|B. | Acquisitions of investment property (cont.)

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | (Cont.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | In
   September 2006 the Company, the Third Party Shareholder and the Project SPV
   entered into a share subscription agreement according to which the Company
   transferred to the Project SPV its respective rights in and to the land in
   consideration of 50% shareholding and voting rights in the Project SPV. The
   allotment of shares is subject to certain regulatory permissions in respect
   of the land and the securing of sanctioned plans. As of December 31, 2006,
   the allotment of the shares to the Company was not yet executed and the
   Company did not have any representative in the Project SPVs board.
   Accordingly, the total amount invested by the Company as of December 31,
   2006, of NIS 24.7 million was presented as payment on account of acquisition
   of investment property. As of December 31, 2007 the allotment of the shares
   by the Project SPV to the Company has not yet been executed, however, in
   June 2007two representative of the Company were appointed as directors in the
   Project SPVs board which constitutes 50% of the voting rights in the
   Project SPV. As a result, the Project SPVs financial statements were
   proportionally consolidated (50%) in the Groups consolidated financial
   statements as of December 31, 2007 and for the year then ended. The Project
   SPV intends to develop the property as a mixed used project which will
   include residential units, offices, hotels and commercial areas.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (3) | On March
    13, 2008 Elbit India, entered into an amended and restated share
    subscription and framework agreement, (Framework Agreement), with a third
    party, and a wholly owned Indian subsidiary of Elbit India (Joint
    Venture Company), to acquire, through the Joint Venture Company, up to 440
    acres of land in Bangalore, India( the Project Land). Under the
    Framework Agreement, following the consummation of the closing of the final
    stage of the transaction, the Joint Venture Company will develop on the
    Project Land, an integrated multi-use project comprising exclusive
    residential projects to be comprised of villas (bungalows) and hi-rise
    buildings, hotels, service apartments and hospital along with services and
    amenities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | The
    Framework Agreement (together with the ancillary agreements thereto) fully
    amend and restate all of the agreements previously executed by the parties
    in October 2007. Under the Framework Agreement, the Joint Venture Company
    is to acquire ownership and development rights in respect of up to an
    approximate 230 acres of the entire Project Land for a fixed amount of cash
    consideration. In consideration of Elbit Indias 50% share (through the
    Joint Venture Company) in such lands, Elbit India will pay an aggregate of
    up to INR10,500 million (NIS 1,008
    million).Upon the
    closing of the first stage of the transaction, which occurred on March 24,
    2008, the Joint Venture Company has secured rights over approximately 54
    acres of such 230 acres and Elbit India has paid the aggregate sum of
    approximately INR 2,840 million (NIS 277.2 million) in consideration of its
    50% share (through the Joint Venture Company) in such land. Part of the
    proceed in the amount of NIS 194.7 million was paid as an advance payment
    to the third party shareholder
    within the framework of MOU executed between the parties in June
    2007 and was offset from the above-mentioned payments executed by Elbit
    India as at the closing. Such advance payment is presented in the balance
    sheet as advance on account of acquisitions of investment property.                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | In addition
    Elbit India has paid to the third party an interest bearing advance of
    approximately INR 1,861.5 (NIS 178 million) on account of the future
    acquisition by the Joint Venture Company of a further 35.6 acres, which
    land is currently controlled by the third party.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

F - 67

---

---

|                                                  
|--------------------------------------------------
|ELBIT
    IMAGING LTD.                            
|                                                  
|NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
|                                                  

|           |                                                                              
|---------- | -----------------------------------------------------------------------------
|NOTE 12   | INVESTMENT PROPERTY AND PAYMENT ON
    ACCOUNT OF INVESTMENT PROPERTY (CONT.)

|   |                                                
|-- | -----------------------------------------------
|B. | Acquisitions of investment property
    (cont.)

|   |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | -------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | (3)                              | (Cont.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                  | In respect
    of up to the other approximately 210 acres of the entire project land
    framework agreement, provided that the Joint Venture Company will enter
    into joint development agreements under which the Joint Venture Company
    will be entitled to develop the entire area of such lands. In
    consideration, the Joint Venture Company will pay between 38% and 53% of
    the built up area of such lands and in some cases, refundable deposits on
    account of such future consideration will also be paid. Elbit Indias 50%
    share (through the Joint Venture Company) in rights under the development
    agreements, will require it to invest INR 750 million (NIS 72 million) in
    order to funds its proportial share in such deposits.                                                                                                                                                                                                                                                                                                                                         
|   |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                  | Under the
    Framework Agreement, between the closing of the first stage and the closing
    of the final stage of the transaction, additional portions of the Project
    Land will be acquired in stages through the third partys business partners
    on behalf of the Joint Venture Company and subject to certain conditions
    Elbit India will make advances (in addition to sums already transferred in
    connection with the closing of the first stage) on account of such
    acquisitions. To date no such advances have been made.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                  | Under the
    Framework Agreement the closing of the final stage of the transaction is to
    be held no later than March 13, 2009. At such stage, subject to certain
    conditions, the ownership and/or development rights in respect of all
    additional portions of the Project Land, that have been acquired by the
    third part  and/or its business
    partners and that comply with certain regulatory requirements and the due
    diligence requirements of Elbit India, will be transferred to the Joint
    Venture Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                  | Further,
    upon the closing of the final stage, the third party will be issued,
    subject to certain conditions, up to 50% holdings in the Joint Venture
    Company, which prior to such date shall be wholly owned by Elbit India.
    Investments by Elbit India in the Joint Venture Company will be a
    combination of investment in shares and convertible debentures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                  | The
    parties have also entered into a shareholders agreement in respect of the
    future management of the Joint Venture Company following the closing of the
    final stage. The shareholders agreement also includes certain restrictions
    and pre-emptive rights pertaining to transferring of securities in the
    Joint Venture Company. Profits from the Joint Venture Company will be
    distributed in accordance with the parties proportionate shareholdings,
    subject to Elbit India being entitled to preferential payment of profit
    distribution in the amounts and on the terms specified in the Framework
    Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|C. | Disposals of investment property
|   |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | (1)                              | On June 14, 2007, the Group has executed an agreement for the sale
    of the entire interest in its wholly owned Israeli subsidiary, which owns
    and operates the Arena shopping and entertainment center (Arena), located
    at the Herzlia Marina in Israel. Pursuant to terms of the agreement, Israel
    Financial Levers Ltd. (Purchaser) acquired the entire rights in and to
    Arena in consideration for an assets value of NIS 538.0 million. A price
    adjustment of up to an additional NIS 10.5 million will be paid based
    on the adjusted rent revenues (as defined in the agreement) of the Arena on
    June 30, 2009. The transaction was consummated on July 1, 2007 and the cash
    consideration amounted to NIS 331.5 million which was determined according
    to the agreed upon value of Arena with the addition of monetary balances
    and net of bank loan and other monetary liabilities as at the closing. As a
    result of this transaction the Group has recorded in these financial
    statements loss from the disposal of Arena amounted to NIS 19.6 million.
|   |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                  | The book
    value of Arenas assets, its liabilities as at the date of the disposal,
    totals NIS 542.3 million and NIS 204.7 million, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

F - 68

---

---

|                                                  
|--------------------------------------------------
|ELBIT
    IMAGING LTD.                            
|                                                  
|NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
|                                                  

|           |                                                                              
|---------- | -----------------------------------------------------------------------------
|NOTE 12   | INVESTMENT PROPERTY AND PAYMENT ON
    ACCOUNT OF INVESTMENT PROPERTY (CONT.)

|   |                                         
|-- | ----------------------------------------
|C. | Disposals of investment property (cont.)

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | In May
    2007 PC executed a transaction for the sale of the Duna Plaza offices
    (DPO) in Budapest, Hungary, to Klepierre for a consideration of 14.2
    million (NIS 80.4 million). As a result of this transaction, the Group
    recorded a gain of NIS 22.2 million. The book value of  DPOs assets, its liabilities, as at the
    date of the disposal, totals NIS 86.1 million and NIS 38.0 million,
    respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (3) | On July
     29, 2005, a transaction was consummated by and between PC and Klépierre
     for the sale by PC of all equity and voting rights (100%) of the companies
     owning 4 operational shopping centers in Poland (Stage A).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | Part of
      the proceed in the amount of 5.4 million was subject to obtaining
      utilities license by PC in respect of the Sold Centers and accordingly
      has been deferred for recognition in the financial statement for the year
      ended December 31, 2005. Within the framework of a settlement agreement
      signed between PC and Klepierre on November 16, 2006 it was agreed that
      PC shall be unconditionally and irrecoverably released from its
      obligations to obtain such utilities license and that Klepierre will
      assume  full and sole
      responsibility thereof. As a result of this agreement, the Group recorded
      in its financial statements for the year ended December 31, 2006 an
      additional pre-tax gain of NIS 30.4 million. Furthermore, PC and
      Klepierre agreed to conclude a final purchase price adjustment in respect
      of the sold centers in accordance with the provisions set forth in the
      sale agreement and accordingly the Group recorded in its financial
      statement for the year ended December 31, 2006 an additional pre tax gain
      of NIS 49.3 million.

|           |                                   
|---------- | ----------------------------------
|NOTE 13   | OTHER ASSETS AND DEFERRED EXPENSES

|   |             
|-- | ------------
|A. | Composition:

|                                              |  |                         |         |      |  |         | 
|--------------------------------------------- |  | ----------------------- | ------- | ---- |  | ------- | 
|                                              |  | December
      31       |        
|                                              |  |                         |        
|                                              |  | 2007                    |         | 2006 | 
|                                              |  |                         |         |      | 
|                                              |  | (in
      thousand NIS) |        
|                                              |  |                         |        
|                                              |  |                         |         |      |  |         | 
|Cost                                          |  |                         |         |      |  |         | 
|Prepaid leasehold rights
      (see B. below) |  |                         | 154,505 |      |  | 256,374 | 
|Project initiation costs                      |  |                         | 4,808   |      |  | 12,793  | 
|Cost of long-term service
      contract      |  |                         | 4,020   |      |  | 10,699  | 
|                                              |  |                         |         |      |  |         | 
|                                              |  |                         | 163,333 |      |  | 279,866 | 
|                                              |  |                         |         |      |  |         | 
|                                              |  |                         |         |      |  |         | 
|Accumulated
      amortization and impairment |  |                         |         |      |  |         | 
|Prepaid leasehold rights
      (see B. below) |  |                         | 12,275  |      |  | 16,782  | 
|Cost of long-term service
      contract      |  |                         | 2,921   |      |  | 8,874   | 
|                                              |  |                         |         |      |  |         | 
|                                              |  |                         | 15,196  |      |  | 25,656  | 
|                                              |  |                         |         |      |  |         | 
|                                              |  |                         |         |      |  |         | 
|Amortized
      cost                          |  |                         | 148,137 |      |  | 254,210 | 
|                                              |  |                         |         |      |  |         | 

F - 69

---

---

|                                                    
|----------------------------------------------------
|ELBIT
      IMAGING LTD.                            
|                                                    
|NOTES TO
      THE CONSOLIDATED FINANCIAL STATEMENTS
|                                                    

|           |                                                 
|---------- | ------------------------------------------------
|NOTE 13   | OTHER ASSETS AND DEFERRED EXPENSES
      (CONT.)

|   |                        
|-- | -----------------------
|B. | Additional information:

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Leasehold rights (capitalized for a
      50-year period until 2036), of the land area on which the Utrecht Park
      Plaza Hotel is situated, were acquired from the municipality of Utrecht.
      The execution of any change in the use of the land or the demolition of a
      build constructed thereon requires the consent of the municipality. The
      lessee has no rights of leasehold termination. The municipality has the
      right to terminate the leasehold should it determine that the land is
      required for public use or in the event a court determines that the
      lessee failed to fulfill its undertakings under the terms of the lease.                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (2) | The sub-lease rights of the Sherlock
      Holmes Park Plaza Hotel were granted for a period of 99 years (ending in
      2095), in consideration of an annual rent payment of £0.6 million (NIS
      4.6 million). Rent payments are adjusted every five years on the basis of
      open market value. The company holding the property has an option to
      terminate the lease in 2059 with an advance notice of 2.5 years.
      The lessee and the land lord are currently under dispute regarding
      the rent adjustment (which was initially initiated in October 2006)
      whereby the land lord claim an increase of the rent to £1.6 million (NIS
      12.3 million) per annum. The Group is of the opinion, based on a
      professional advice, that the rent review should be calculated on the
      basis of the value of the hotel prior to the refurbishment and
      improvement works executed by the lessee and that the Group will not bear
      any material costs in respect of this dispute.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | The Groups JVs partner in the hotel
       guaranteed fulfillment of all undertakings of the lessee (Guarantor)
       as if it were a principal party to the agreement. The guarantee contains
       a provision, by which, in the event the guarantee is exercised, the
       land-owners may require the Guarantor to assume the lessees position as
       a lessee. Two documents were executed between the Guarantor and the
       Group, which establish the indemnification procedures amongst them, in
       relation to said guarantee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (3) | The leasehold rights to a land area on
       which the Riverbank Park Plaza Hotel is located, are for a period of 125
       years, in consideration for annual payment of £ 0.6 million (NIS 4.6
       million), adjusted every five years based on the CPI in England, with
       the next adjustment to be carried out in May 2010. The leasehold is
       subject to various rights and easements granted to certain authorities.
       The lessee may not assign its rights to a third party without the
       lessors consent; A breach by the lessee of any of its undertakings
       under the agreement may, under certain circumstances allow the lessor to
       forfeit the property.                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (4) | In July
       2007 the Company entered into an agreement with the Israel Land
       Administration (ILA), according to which the Company leased a plot of
       approximately 44,600 square meters in Tiberius, Israel  for a term of 49 years (through 2056)
       with an option to extend the lease term
       with an additional 49 years. The total consideration paid
       amounted to NIS 30.6 million. The Company intends to construct on the
       site a hotel. In accordance with the term of the agreement, the Company
       undertaken to finalize the construction work of the hotel within a
       period not exceeding 36 months (July 2010). As for bank guarantees
       provided by the Company in favor of the ILA, see note 21D(8).                                                                                                                                                                                                                                                            

F - 70

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|                                                     
|-----------------------------------------------------
|ELBIT
       IMAGING LTD.                            
|                                                     
|NOTES TO
       THE CONSOLIDATED FINANCIAL STATEMENTS
|                                                     

|           |                  
|---------- | -----------------
|NOTE 14   | INTANGIBLE ASSETS

|   |             
|-- | ------------
|A. | Composition:

|                                                                                  |  |                          |        |      |  |        | 
|--------------------------------------------------------------------------------- |  | ------------------------ | ------ | ---- |  | ------ | 
|                                                                                  |  | December
       31       |       
|                                                                                  |  |                          |       
|                                                                                  |  | 2007                     |        | 2006 | 
|                                                                                  |  |                          |        |      | 
|                                                                                  |  | (in
       thousand NIS) |       
|                                                                                  |  |                          |       
|                                                                                  |  |                          |        |      |  |        | 
|Cost                                                                              |  |                          |        |      |  |        | 
|Acquired patent rights,
       technical know-how and other intellectual property |  |                          | 24,006 |      |  | 26,369 | 
|Distribution rights                                                               |  |                          | 2,763  |      |  | 2,388  | 
|Goodwill                                                                          |  |                          | 47,283 |      |  |       | 
|                                                                                  |  |                          |        |      |  |        | 
|                                                                                  |  |                          | 74,052 |      |  | 28,757 | 
|                                                                                  |  |                          |        |      |  |        | 
|                                                                                  |  |                          |        |      |  |        | 
|Accumulated
       amortization and impairment                                    |  |                          |        |      |  |        | 
|Acquired patent rights,
       technical know-how and other intellectual property |  |                          | 21,602 |      |  | 21,094 | 
|Distribution rights                                                               |  |                          | 630    |      |  | 391    | 
|                                                                                  |  |                          |        |      |  |        | 
|                                                                                  |  |                          |        |      |  |        | 
|                                                                                  |  |                          | 22,232 |      |  | 21,485 | 
|                                                                                  |  |                          |        |      |  |        | 
|                                                                                  |  |                          |        |      |  |        | 
|Amortized
       cost                                                             |  |                          | 51,820 |      |  | 7,272  | 
|                                                                                  |  |                          |        |      |  |        | 

|   |                                  
|-- | ---------------------------------
|B. | Amortization rates  see note 2S.

|           |                   
|---------- | ------------------
|NOTE 15   | SHORT-TERM CREDITS

|   |             
|-- | ------------
|A. | Composition:

|                       |  |                      |              |                    |  |         |  |  |         | 
|---------------------- |  | -------------------- | ------------ | ------------------ |  | ------- |  |  | ------- | 
|                       |  | December
       31   |             
|                       |  |                      |             
|                       |  | 2007                 |              | 2006               | 
|                       |  |                      |              |                    | 
|                       |  | Interest
       rate |              |                    |  |         |  |  |        
|                       |  |                      |              |                    |  |         |  |  |        
|                       |  | %                    |              | (in  thousand NIS) | 
|                       |  |                      |              |                    | 
|                       |  |                      |              |                    |  |         |  |  |         | 
|Short-term bank loans: |  |                      |              |                    |  |         |  |  |         | 
|US dollars             |  |                      | Libor+ 1.7   |                    |  | 93,294  |  |  | 124,713 | 
|Euro                   |  |                      | Euribor+ 1.5 |                    |  | 41,290  |  |  | 302,695 | 
|Hungarian Forint       |  |                      |              |                    |  |        |  |  | 18,737  | 
|NIS                    |  |                      | Prime+ 1.1   |                    |  | 28      |  |  | 223,063 | 
|                       |  |                      |              |                    |  |         |  |  |         | 
|                       |  |                      |              |                    |  | 134,612 |  |  | 669,208 | 
|Current maturities     |  |                      |              |                    |  | 31,857  |  |  | 19,345  | 
|                       |  |                      |              |                    |  |         |  |  |         | 
|                       |  |                      |              |                    |  | 166,469 |  |  | 688,553 | 
|                       |  |                      |              |                    |  |         |  |  |         | 

|   |                      
|-- | ---------------------
|B. | Liens  see note 21D.

F - 71

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---

|                                                     
|-----------------------------------------------------
|ELBIT
       IMAGING LTD.                            
|                                                     
|NOTES TO
       THE CONSOLIDATED FINANCIAL STATEMENTS
|                                                     

|            |                                   
|----------- | ----------------------------------
|NOTE 16A   | PAYABLES AND OTHER CREDIT BALANCES

|                                                                               |  |                          |         |      |  |         | 
|------------------------------------------------------------------------------ |  | ------------------------ | ------- | ---- |  | ------- | 
|                                                                               |  | December
       31       |        
|                                                                               |  |                          |        
|                                                                               |  | 2007                     |         | 2006 | 
|                                                                               |  |                          |         |      | 
|                                                                               |  | (in
       thousand NIS) |        
|                                                                               |  |                          |        
|                                                                               |  |                          |         |      |  |         | 
|Income taxes                                                                   |  |                          | 24,603  |      |  | 17,372  | 
|Other government institutions                                                  |  |                          | 7,507   |      |  | 8,507   | 
|Wages and fringe benefits                                                      |  |                          | 86,328  |      |  | 46,714  | 
|Accrued interest payable                                                       |  |                          | 49,211  |      |  | 37,055  | 
|Related parties                                                                |  |                          | 19,672  |      |  | 7,614   | 
|Liability in respect of acquisition of
       trading property                 |  |                          | 106,594 |      |  | 6,722   | 
|Expenses accrued in connection with
       the realization of trading property |  |                          | 36,703  |      |  | 7,053   | 
|Liability in respect of settled claims
       (i)                              |  |                          | 37,339  |      |  |        | 
|Accrued expenses, commissions and
       others                                |  |                          | 69,856  |      |  | 73,564  | 
|                                                                               |  |                          |         |      |  |         | 
|                                                                               |  |                          | 437,813 |      |  | 204,601 | 
|                                                                               |  |                          |         |      |  |         | 

|    |                                
|--- | -------------------------------
|(i) | See notes 21B(5)a. and 21B(10))

|            |                  
|----------- | -----------------
|NOTE 16B   | OTHER LIABILITIES

|                                               |  |                          |         |      |  |        | 
|---------------------------------------------- |  | ------------------------ | ------- | ---- |  | ------ | 
|                                               |  | December
       31       |        
|                                               |  |                          |        
|                                               |  | 2007                     |         | 2006 | 
|                                               |  |                          |         |      | 
|                                               |  | (in
       thousand NIS) |        
|                                               |  |                          |        
|                                               |  |                          |         |      |  |        | 
|Liability for construction services
       (i) |  |                          | 96,772  |      |  |       | 
|Income in advance                              |  |                          | 22,908  |      |  | 13,008 | 
|                                               |  |                          |         |      |  |        | 
|                                               |  |                          | 119,680 |      |  | 13,008 | 
|                                               |  |                          |         |      |  |        | 

|    |                
|--- | ---------------
|(i) | See note 8B(4).

F - 72

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---

|                                                     
|-----------------------------------------------------
|ELBIT
       IMAGING LTD.                            
|                                                     
|NOTES TO
       THE CONSOLIDATED FINANCIAL STATEMENTS
|                                                     

|           |           
|---------- | ----------
|NOTE 17   | BORROWINGS

|   |             
|-- | ------------
|A. | Composition:

|                                                   |  |                          |           |      |  |           |  
|-------------------------------------------------- |  | ------------------------ | --------- | ---- |  | --------- | -
|                                                   |  | December
       31       |          
|                                                   |  |                          |          
|                                                   |  | 2007                     |           | 2006 | 
|                                                   |  |                          |           |      | 
|                                                   |  | (in
       thousand NIS) |          
|                                                   |  |                          |          
|                                                   |  |                          |           |      |  |           |  
|At
       amortized cost:                          |  |                          |           |      |  |           |  
|Loans from banks and
       financial institutions |  |                          | 1,639,446 |      |  | 1,546,840 |  
|Debentures (see G. below)                          |  |                          | 2,140,640 |      |  | 1,078,072 |  
|Convertible debentures
       (see F. below)       |  |                          | 71,091    |      |  | 78,028    |  
|                                                   |  |                          |           |      |  |           |  
|                                                   |  |                          | 3,851,177 |      |  | 2,702,940 |  
|At
       FVTPL:                                   |  |                          |           |      |  |           |  
|Debentures (see H. below)                          |  |                          | 304,584   |      |  |          |  
|                                                   |  |                          |           |      |  |           |  
|                                                   |  |                          | 4,155,761 |      |  | 2,702,940 |  
|                                                   |  |                          |           |      |  |           |  
|Less - current maturities                          |  |                          | (31,857   | )    |  | (19,345   | )
|                                                   |  |                          |           |      |  |           |  
|                                                   |  |                          | 4,123,904 |      |  | 2,683,595 |  
|                                                   |  |                          |           |      |  |           |  

|   |                                  
|-- | ---------------------------------
|B. | Linkage basis and interest rates:

|                   |  |  |                       |  |                   |           | 
|------------------ |  |  | --------------------- |  | ----------------- | --------- | 
|                   |  |  | December 31, 2007     | 
|                   |  |  |                       | 
|                   |  |  | Interest rates        |  |                   |           | 
|                   |  |  |                       |  |                   |           | 
|                   |  |  | %                     |  | (in thousand NIS) |          
|                   |  |  |                       |  |                   |          
|                   |  |  |                       |  |                   |           | 
|NIS                |  |  | Israeli CPI + 5.0-6.3 |  |                   | 2,084,401 | 
|NIS                |  |  | Prime+ 0.85           |  |                   | 6,365     | 
|Pound sterling (*) |  |  | 7.7                   |  |                   | 696,193   | 
|Euro               |  |  | Euribor+ 1.7          |  |                   | 666,292   | 
|Euro (*)           |  |  | 5.1                   |  |                   | 193,678   | 
|NIS (**)           |  |  | Israeli CPI + 4.5     |  |                   | 304,582   | 
|US dollar          |  |  | Libor+ 1.7-3.0        |  |                   | 204,250   | 
|                   |  |  |                       |  |                   |           | 
|                   |  |  |                       |  |                   | 4,155,761 | 
|                   |  |  |                       |  |                   |           | 

| |      |                                                                                         
| | ---- | ----------------------------------------------------------------------------------------
| | (*)  | The interest on these loans is hedged
       by a swap transaction - see note 9A(4).    
| | (**) | As for swap transaction executed in
       respect of these debentures - See note 9A(5).

|   |                    
|-- | -------------------
|C. | Repayment schedule:

|                          |  |                   |           | 
|------------------------- |  | ----------------- | --------- | 
|                          |  | December 31, 2007 |          
|                          |  |                   |          
|                          |  | (in thousand NIS) |          
|                          |  |                   |          
|                          |  |                   |           | 
|2008 - current maturities |  |                   | 31,857    | 
|2009                      |  |                   | 675,393   | 
|2010                      |  |                   | 236,003   | 
|2011                      |  |                   | 989,026   | 
|2012                      |  |                   | 308,633   | 
|2013 and thereafter       |  |                   | 1,914,852 | 
|                          |  |                   |           | 
|                          |  |                   | 4,155,761 | 
|                          |  |                   |           | 

F - 73

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|                                                     
|-----------------------------------------------------
|ELBIT IMAGING LTD.                                   
|                                                     
|NOTES TO
       THE CONSOLIDATED FINANCIAL STATEMENTS
|                                                     

|           |                   
|---------- | ------------------
|NOTE 17   | BORROWINGS (CONT.)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|D. | Loans
       obtained by the Company from an Israeli bank, which as of December 31,
       2007 totaling NIS 265.7 million, will be repaid (principal and interest)
       in equal semi-annual installments, through December 31, 2012. As part of
       the agreement, an arrangement to accelerate repayment was established as
       follows: (i) net amounts received by the Company, from public or private
       offerings of securities of the Company (and/or of its subsidiaries which
       were financed by the loan funds), as part of a business merger, as a
       result of the realization of assets and/or investments, or as a result
       of refinancing or any other receipt of capital by the Company (and/or
       its subsidiaries, as above), will be used first to repay the loans; (ii)
       net amounts so received from realization of the shares of PC or shares
       of a Project Company, by means of sale or issuance to a third party or
       the sale of a project owned thereby
       (in full or part), will serve to repay part of the loans
       (relative to the portion sold) that were received to finance the
       investment in shares or projects realized, as the case may be; (iii)
       part of the net amounts to be received from refinancing will be used
       initially to repay the loans, as long as the total balance of the loans
       exceeds $40.0 million.                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Upon
       consummation of the transaction for the sale of the commercial and
       entertainment centers (see note 8C), the issuance of non convertible
       debentures by the Company (see item G below) and the Initial Public
       Offer (IPO) of PCs shares in the LSE (see note 10B(2)b.), the Company
       is conducting negotiations with the bank with the view of mutually
       rescheduling the rate and scope of repayments and the other terms of
       credit. In the framework of re-examining various  terms contained in the loan
       agreements, the bank and the Company have reached to written
       understanding according to which (i) repayment of the loans which the
       Company was obliged to repay as a result of such sales of the commercial
       centers, issuance of the debenture and the IPO of PCs shares, as
       stipulated in the loan agreements, is not yet required prior to January
       1, 2009; (ii) principal repayment of loans, which the bank had provided
       the Company with and which repayment dates had fallen prior to December
       31, 2007, is not yet required prior to January 1, 2009, subject to
       payment by the Company of all interest payments in respect of the loans;
       (iii) as of December 31, 2007, the bank did not demand that the Company
       will comply with the covenants stipulated in the loan agreement except
       for maintaining a minimum rate of adjusted shareholders equity of the
       Company to its adjusted balance sheet. As of the balance sheet date
       the Company is in compliance with this covenant and accordingly, the
       balance of the bank credits was classified as long-term loans.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|E. | Loans
       obtained by Elscint from an Israeli bank, which as of December 31, 2007
       totaling NIS 54.4 million. As part of the agreement, an arrangement to
       accelerate repayment was established as follows: (i) net amounts
       received by Elscint, and/or by its subsidiaries which were financed by
       the loan funds (Funded Subsidiaries), from any public offering or
       private placement of its securities, as part of a business merger, as a
       result of the realization (in whole or in part) of assets and/or
       investments, or as a result of refinancing or any other receipt of any
       distribution by Elscint (and/or by its Funded Subsidiaries), will be
       used first to repay the loans; (ii) net amounts so received from
       realization of the shares of B.H. or shares of a Target Company, by
       means of sale or issuance of shares to a third party or the sale of a
       project owned thereby (in full or part), will serve to repay the part of
       the loans attributed to the project sold as the case may be.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | In the
       framework of re-examining various terms contained in the loan agreement,
       the bank has informed Elscint that:(i) repayment of a principal amount
       of 9.6 million (NIS 54.4 million) is not yet required till January 1,
       2009 subject to repayment by Elscint of all interest payments; (ii) as
       of December 31, 2007 the bank did not demand that Elscint will comply
       with the covenants stipulated in the loan agreement except for the
       maintaining of a minimum rate of shareholders equity to total balance
       sheet. As of the balance sheet date, Elscint is in compliance with this
       covenant and accordingly, the balance of the bank credit was classified
       as long-term loans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

F - 74

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|                                                     
|-----------------------------------------------------
|ELBIT
       IMAGING LTD.                            
|                                                     
|NOTES TO
       THE CONSOLIDATED FINANCIAL STATEMENTS
|                                                     

|           |                   
|---------- | ------------------
|NOTE 17   | BORROWINGS (CONT.)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|F. | Convertible debentures issued by
       Insightec in August 2006 (as amended in preferred A shares purchase
       agreement - see note 10B(1)e.) and in September 2004 (as amended in the
       2006 agreement and in in preferred A shares purchase agreement) to its
       existing shareholders in the total amount of $36.0 million (NIS 138.5
       million) (2004 Notes and 2006 Notes respectively, or collectively
       the Notes).The Notes bear interest, payable on a semi-annual basis, at
       the rate of LIBOR + 3% (to be increased by an additional 2% upon the
       first event of default as defined in the agreement and by an additional
       3% upon the occurrence of any additional event of default as defined in
       the agreement). To the extent not previously converted or prepaid,
       Insightec is required to repay the 2006 Notes and the 2004 Notes
       (principal and interest, if relevant) on August 9, 2011 and on September
       27, 2009, respectively. As amended in preferred A shares purchase
       agreement, all interest payments due to the Notes holders will be paid
       in cash. The holders can convert the Notes (or any part thereof) into
       ordinary shares of Insightec at any time on or after the date of their
       respective issuance. The full outstanding and unpaid amounts of the
       Notes (principal and interest) shall be automatically converted into
       ordinary shares of Insightec in the event Insightec completes a
       qualified initial public offering (as defined in the agreement) (IPO)
       after August 9, 2009. Immediately prior to completion of a qualified IPO
       or a change in control, as defined in the Agreement, in either case
       prior to August 9, 2009 (Liquidity Date), Insightec
       shall be entitled to require the holders to convert the full outstanding
       and unpaid amount of the Notes (principal and interest) into ordinary
       shares of Insightec, provided however that Insightec shall only be
       entitled to require such conversion if (i) the annualized Internal Rate
       of Return (IRR) on the principal amount of the 2006 Notes to the
       Liquidity Date would be at least 20% and (ii) in the case of a change in
       control (as defined in the agreement), the holders are provided an
       opportunity to sell or transfer all of the shares (or securities
       convertible into shares), including ordinary shares into which the Notes
       are convertible, that they own immediately prior to completion of such
       change in control. The conversion rate of 2006 Note, (which is subject
       to adjustments in certain instances) is the lesser of $12 or 85% of the
       price per share (2006 Ratchet) sold in Insightecs next equity
       financing (as defined in 2006 Agreement). Following the execution of
       Preferred A share purchase agreement in November 2007 for $12 per
       Preferred Share (see note 10B(1)e.), the conversion rate of 2006 Notes
       was reduced to $10.2 per share, representing 85% of $12 per share. The
       conversion rate of 2004 Notes (which is subject to adjustments in
       certain instances) is the lesser of $7.30 or 85% of the price per share
       (2004 Ratchet) sold in Insightecs next equity financing (as defined
       in 2004 Agreement). Under the 2006 and 2004 Note and Warrant Amendment
       dated November 27, 2007, the conversion rate of 2004 Notes was revised
       to $7.30 (subject to adjustments in certain instances). As of December
       31, 2007 both 2004 and 2006 Ratchets are no longer valid. In addition,
       at any time, in the event that Insightec will issue shares for a
       consideration that is less than the conversion rate, the conversion rate
       of the Notes will be reduced on a weighted average basis. The Groups
       share in the 2006 and 2004 convertible note amount to $17.3 million (NIS
       66.5 million).

F - 75

---

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|                                                     
|-----------------------------------------------------
|ELBIT
       IMAGING LTD.                            
|                                                     
|NOTES TO
       THE CONSOLIDATED FINANCIAL STATEMENTS
|                                                     

|           |                   
|---------- | ------------------
|NOTE 17   | BORROWINGS (CONT.)

|   |                                                                                                   
|-- | --------------------------------------------------------------------------------------------------
|G. | Following
       the significant terms of the Companys debentures as of December 31,
       2007:

|       |  |                       |  |                      |  |                                                                 |  |                                                       | 
|------ |  | --------------------- |  | -------------------- |  | --------------------------------------------------------------- |  | ----------------------------------------------------- | 
|Series |  | Linkage 
       basis |  | Interest
       rate |  | Repayment terms                                                 |  | Amortized cost
       as at December 31, 
       2007
|       |  |                       |  |                      |  |                                                                 |  |                                                      
|       |  |                       |  | %                    |  |                                                                 |  | (in thousand NIS)                                    
|       |  |                       |  |                      |  |                                                                 |  |                                                      
|       |  |                       |  |                      |  |                                                                 |  |                                                       | 
|A      |  | Israeli CPI (*)       |  | 6.0                  |  | 10 semi-annual equal installments
       commencing August 2009 |  | 583,021                                               | 
|B      |  | US dollar             |  | Libor+2.65           |  | 10 semi-annual equal installments
       commencing August 2009 |  | 56,238                                                | 
|C      |  | Israeli CPI (*)       |  | 5.3                  |  | 10 annual installments commencing
       September 2009         |  | 455,603                                               | 
|D      |  | Israeli CPI (*)       |  | 5.0                  |  | 8 annual installments commencing
       April 2013              |  | 645,552                                               | 
|E      |  | Israeli CPI (*)       |  | 6.3                  |  | 10 annual installments commencing
       July 2012              |  | 65,950                                                | 
|F      |  | Israeli CPI (*)       |  | 5.7                  |  | 6 annual installments commencing
       October 2010            |  | 334,276                                               | 
|       |  |                       |  |                      |  |                                                                 |  |                                                       | 
|       |  |                       |  |                      |  |                                                                 |  | 2,140,640                                             | 
|       |  |                       |  |                      |  |                                                                 |  |                                                       | 

| |     |                                                                                                                
| | --- | ---------------------------------------------------------------------------------------------------------------
| | (*) | Linked to the increase in the Israeli
       CPI over the base index as of the date the debentures were issued.



|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | The debentures are un-secured and non-convertible and are
        registered for trade in Tel Aviv Stock Exchange (TASE). The
        debentures terms provide that the debentures will be prepaid by the
        Company at the option of the trustee or the holders of the debentures,
        if the Companys securities are de-listed from trade on the TASE and on
        the Nasdaq National Market jointly.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The debentures were rated By Midroog Ltd. an affiliate of
          Moodys Investors Servicses (Midroog) at an A1 rating and by Maalot, the Israel Securities Rating Company Ltd.an affiliate of  Standard and Poors(Maalot)
          at an A +/ Stable rating, on a local scales.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|H. | In May 2007, Maalot has approved a
            rating of A+/positive for PC to raise debentures up to an amount of
            $400 million (NIS 1,538.4 million). In July 2007, PC issued to
            Israeli institutional investors an aggregate principal amount of
            approximately NIS 305 million series one of unsecured
            non-convertible debentures.The debentures are payable in eight
              equal annual installments, commencing December 2010. The
              debentures bear an annual interest rate of 4.5%, payable in
              semi-annual installments. The debentures are linked (principal
              and interest) to the increase Israeli CPI over the base index at
              the date of the debentures issuance. The debentures also provide
              that the debentures will be repaid by PC, inter alia, at the
              option of the trustee or the holders of the debentures if PC
              delays the publication of its financial reports for more than 60
              days from the dates provided by applicable law or if the
              debentures cease to be rated for a period of more than 60
              days.

F - 76

---

---

|                                                             
|-------------------------------------------------------------
|ELBIT
               IMAGING LTD.                            
|                                                             
|NOTES TO THE
               CONSOLIDATED FINANCIAL STATEMENTS
|                                                             

|           |                   
|---------- | ------------------
|NOTE 17   | BORROWINGS (CONT.)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|H. | (Cont.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | As of the balance sheet date the
                  debentures are listed for trade on the Institutional Retzef
                  System, which is a trading system for institutional investors
                  in Israel. PC may also, at its sole discretion, register the
                  debentures for trade on the TASE. So long as the debentures
                  are not registered for trade on the TASE, PC has undertaken
                  (i) to pay an additional interest at an annual rate of 0.5%
                  (namely 5%) until a prospectus is published for the
                  registration of the debentures for trade on the TASE; (ii) to
                  pay an additional interest rate at an annual rate of 0.25% in
                  the event the rating of the debentures decreases to BBB+
                  rating on a local scale by Maalot, or an equivalent rating by
                  another rating company and (iii) to repay the debentures at
                  the option of the trustee or the holders of the debentures
                  upon the occurrence of each of the following events: (A) Should
                  the rating of the debentures in Israel decrease below the
                  BBB+ investment level rating of Maalot or other equivalent
                  rating by another rating company; (B) if PC is required to
                  prepay another series of debentures issued by it; or (C) if
                  the holdings of the Group in PC, drop below 25%.Such
                  undertakings would be terminated upon the registration for
                  trade of the debentures on the TASE.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | As for registration of the
                    debentures to trade and the issuance of series B debentures
                    subsequent to the balance sheet date - see note 29A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | AS for swap transaction
                      executed by PC in respect of these debentures- see note
                      9A(5).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|I. | Liens  see note 21D.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

|             |                                      
|------------ | -------------------------------------
|NOTE 18     | OTHER LONG-TERM FINANCIAL LIABILITIES
|             |                                      
|Composition:

|                                                                                                          |  |                   |        |      |  |         | 
|--------------------------------------------------------------------------------------------------------- |  | ----------------- | ------ | ---- |  | ------- | 
|                                                                                                          |  | December 31       |       
|                                                                                                          |  |                   |       
|                                                                                                          |  | 2007              |        | 2006 | 
|                                                                                                          |  |                   |        |      | 
|                                                                                                          |  | (in thousand NIS) |       
|                                                                                                          |  |                   |       
|                                                                                                          |  |                   |        |      |  |         | 
|Loans from the Office of Chief Science (OCS)
                         (1)                               |  |                   | 35,891 |      |  | 37,487  | 
|Derivative financial liability carried at fair
                         value through profit and loss (2) |  |                   | 55,794 |      |  | 65,336  | 
|Suppliers                                                                                                 |  |                   |       |      |  | 8,018   | 
|                                                                                                          |  |                   |        |      |  |         | 
|                                                                                                          |  |                   | 91,685 |      |  | 110,841 | 
|                                                                                                          |  |                   |        |      |  |         | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The liability to the OCS reflect the total  grants received
                         from the OCS by Insightec net of royalties paid up to
                         each balance sheet date discounted at the applicable
                         interest rate for similar loans having the same terms
                         and conditions. Insightec is obliged to pay royalties
                         to the OCS -in respect of products, the development of
                         which was funded by grants provided by the OCS - at a
                         rate of 3% of revenues, for the initial three years
                         through the end of 2006 and 3.5% of revenues as and
                         from 2007 and up to the amount of the grants received.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(2) | Represent the fair
                          value of the Exit Fee payable by the Group to
                          financial institution (see note 21A(13)). The
                          estimated fair value of the Exit Fee was calculated
                          based on the Black-Scholes model.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

F - 77

---

---

|                                                                         
|-------------------------------------------------------------------------
|ELBIT IMAGING LTD.                                                       
|                                                                         
|NOTES TO THE CONSOLIDATED
                           FINANCIAL STATEMENTS
|                                                                         

|           |                  
|---------- | -----------------
|NOTE 19   | OTHER LIABILITIES

|   |             
|-- | ------------
|A. | Composition:

|                                                                                |  |                   |        |      |  |        | 
|------------------------------------------------------------------------------- |  | ----------------- | ------ | ---- |  | ------ | 
|                                                                                |  | December 31       |       
|                                                                                |  |                   |       
|                                                                                |  | 2007              |        | 2006 | 
|                                                                                |  |                   |        |      | 
|                                                                                |  | (in thousand NIS) |       
|                                                                                |  |                   |       
|                                                                                |  |                   |        |      |  |        | 
|Pre-paid rent income                                                            |  |                   | 2,035  |      |  | 7,043  | 
|Deferred gain from realization of commercial
                           centers |  |                   |       |      |  | 5,626  | 
|Provisions (1)                                                                  |  |                   | 7,007  |      |  | 7,273  | 
|Retirement benefit obligation (2)                                               |  |                   | 3,565  |      |  | 2,960  | 
|Other                                                                           |  |                   |       |      |  | 227    | 
|                                                                                |  |                   |        |      |  |        | 
|                                                                                |  |                   | 12,607 |      |  | 23,129 | 
|                                                                                |  |                   |        |      |  |        | 

| |     |                                                              
| | --- | -------------------------------------------------------------
| | (1) | Mainly in
                            respect of litigations.
| |     |                                                              
| | (2) | See B. below.                                                

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|B. | The Group companies liability to
                               employees upon their retirement includes,
                               primarily, voluntary and/or involuntary
                               termination severance payments as well as
                               adaptation grants. The liabilities are partially
                               covered by ordinary deposits to employees
                               accounts at accredited pension and severance-pay
                               funds and/or by acquiring insurance policies.
                               Such deposits are not under the custody or
                               management of the Group companies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Insightec reached an agreement with its
                               employees, according to which they would accept
                               the provisions of Section No.14 of the Israeli
                               Severance Compensation Act, 1963 (Section 14).
                               Section 14 allows Insightec to make deposits in
                               the severance pay funds according to the
                               employees current salary. Such deposits release
                               Insightec from any further obligation with this
                               regard. The deposits made are available to the
                               employee at the time when the employer-employee
                               relationship comes to end, regardless of cause
                               of termination. The balance of such payment
                               obligations not covered by the above-mentioned
                               deposits and/or insurance policies is stated at
                               the balance sheet as a liability for employment
                               termination. An amount equal to such obligation
                               is deposited on behalf of the respective
                               companies in an accredited severance-pay fund.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The Companys Chairmans term of
                               employment by EIL shall be taken into
                               consideration in calculating the period of his
                               employment by the Company, for all purposes. EIL
                               undertook in terms of the agreement to transfer
                               to the Companys ownership all amounts deposited
                               in severance-pay funds, in order to cover all
                               rights accumulated throughout the period of the
                               Chairmans employment with EIL. As of the
                               balance sheet date, balances of NIS 0.9 million
                               have not yet been transferred to the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The obligations of foreign subsidiaries
                               in respect of severance-pay to their respective
                               employees, in terms of the laws of their
                               respective countries of residence, and various
                               valid labor agreements are generally covered by
                               ordinary payments executed to that end to
                               governmental institutions, as well as by current
                               payments to insurance companies for pension
                               benefits and by the balance-sheet accrual.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

F - 78

---

---

|                                                                             
|-----------------------------------------------------------------------------
|ELBIT IMAGING LTD.                                                           
|                                                                             
|NOTES TO THE CONSOLIDATED FINANCIAL
                               STATEMENTS
|                                                                             

|           |                          
|---------- | -------------------------
|NOTE 19   | OTHER LIABILITIES (CONT.)

|   |                                                                                                                                                                                                  
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|B. | (Cont.)                                                                                                                                                                                          
|   |                                                                                                                                                                                                  
|   | The amount included in the balance sheet
                               arising from the Groups obligation in respect
                               of its defined benefit plans is as follows:

|                                                                                  |  |                   |         |      |  |         |  
|--------------------------------------------------------------------------------- |  | ----------------- | ------- | ---- |  | ------- | -
|                                                                                  |  | December 31       |        
|                                                                                  |  |                   |        
|                                                                                  |  | 2007              |         | 2006 | 
|                                                                                  |  |                   |         |      | 
|                                                                                  |  | (in thousand NIS) |        
|                                                                                  |  |                   |        
|                                                                                  |  |                   |         |      |  |         |  
|Present value of funded defined benefit
                               obligation |  |                   | 17,324  |      |  | 14,003  |  
|Fair value of plan assets                                                         |  |                   | (13,759 | )    |  | (11,043 | )
|                                                                                  |  |                   |         |      |  |         |  
|                                                                                  |  |                   |         |      |  |         |  
|Net liability arising from defined obligation                                     |  |                   | 3,565   |      |  | 2,960   |  
|                                                                                  |  |                   |         |      |  |         |  

| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | The principal assumptions used for the
                               purposes of the actruial valuations were as
                               follows:

|                                   |  |                                            |           |      |  |           | 
|---------------------------------- |  | ------------------------------------------ | --------- | ---- |  | --------- | 
|                                   |  | December
                               31 |          
|                                   |  |                                            |          
|                                   |  | 2007                                       |           | 2006 | 
|                                   |  |                                            |           |      | 
|                                   |  | %                                          |           | %    | 
|                                   |  |                                            |           |      | 
|                                   |  |                                            |           |      |  |           | 
|Discount rates                     |  |                                            | 2.1-3.97  |      |  | 3.44-4.09 | 
|Expected return on plan assets     |  |                                            | 6.17      |      |  | 5.84      | 
|Expected nominal salaries increase |  |                                            | 5.06-5.83 |      |  | 4.55-5.06 | 

|           |             
|---------- | ------------
|NOTE 20   | INCOME TAXES

|   |             
|-- | ------------
|A. | Composition:

|                          |  |                                                                                      |        |      |  |        |  
|------------------------- |  | ------------------------------------------------------------------------------------ | ------ | ---- |  | ------ | -
|                          |  | Year
                               ended
                               December 31 |       
|                          |  |                                                                                      |       
|                          |  | 2007                                                                                 |        | 2006 | 
|                          |  |                                                                                      |        |      | 
|                          |  | (in
                               thousand NIS)                                     |       
|                          |  |                                                                                      |       
|                          |  |                                                                                      |        |      |  |        |  
|Current                   |  |                                                                                      | 11,072 |      |  | 1,049  |  
|Deferred                  |  |                                                                                      | 5,090  |      |  | (7,310 | )
|In respect of prior years |  |                                                                                      | 126    |      |  | 4,474  |  
|                          |  |                                                                                      |        |      |  |        |  
|                          |  |                                                                                      | 16,288 |      |  | (1,787 | )
|                          |  |                                                                                      |        |      |  |        |  

|   |                                                                                                                         
|-- | ------------------------------------------------------------------------------------------------------------------------
|B. | Principle tax laws applicable to the major
                               Group companies in their country of residence:

| |     |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --- | ------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Israel
| |     |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | a.     | The provision for current
                               taxes of the Company and its  Israeli
                               subsidiaries
                               was determined in accordance  of the
                               provisions of the Income Tax Ordinance and the
                               Income Tax Law (Adjustments for Inflation)-1985,
                               which established the measurement of the results
                               for tax purposes on a real basis pursuant to
                               changes in the CPI.                                                                                                                                                                                                                                                                                                                                                               
| |     |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |        | In February an amendment to
                               the Israeli tax was approved by the Israeli
                               parliament
                               which
                               determined that the validity of the
                               Adjustments for Inflation Law would end in 2007,
                               and, commencing from the 2008, the provisions of
                               the law would no longer apply, except for
                               transitional provisions intended to avoid
                               distortions in the tax computations. In
                               accordance with the amendment, from the tax year
                               of 2008 and thereafter, the adjustment of income
                               for tax purposes to a real measurement basis
                               will no longer be calculated.
| |     |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |        | Corporate tax rate applicable to
                               companies in Israel in 2007 is 29% which will
                               gradually decrease from 27% in 2008
                               through 25% in 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

F - 79

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING
  LTD.                            
|NOTES TO THE
  CONSOLIDATED FINANCIAL STATEMENTS
|                                                

|           |                     
|---------- | --------------------
|NOTE 20   | INCOME TAXES (CONT.)

|   |                                                                                                    
|-- | ---------------------------------------------------------------------------------------------------
|B. | Principle tax laws applicable to the major Group companies in their
  country of residence (Cont.):

| |     |               
| | --- | --------------
| | (1) | Israel (cont.)

| |  |    |                                                                                                                                                                            
| |  | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | b. | As from January 1, 2003, certain statutory provisions came into force
  and effect, concerning, among other things, the tax reform in Israel in
  respect of the following:

| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |    | 1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Taxation of
  profits of foreign companies considered as Controlled Foreign Companies
  (CFC), if all the following conditions are met: (i) its shares or its
  rights on it are not listed in a stock exchange, however if they are partly
  listed, then less than 30% of the shares or of the rights of the company were
  offered to the public (ii) majority of revenues thereof are passive, as same
  is defined by law, or majority of profits thereof derive from passive
  revenues; (iii) the tax rate applying to the passive profits thereof in their
  country of residence does not exceed 20%; and (iv) over 50% of the means of
  control therein are held, directly or indirectly, by Israeli residents. In
  accordance with the statutory provisions, a controlling shareholder in those
  companies having unpaid profits, as defined by law, is deemed to have been distributed
  with a dividend representing its respective share in such profits (Deemed
  Dividend).
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Taxation of a dividend received in Israel, out of profits generated
  or accrued abroad, as well as a dividend originating abroad.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | A Deemed
  Dividend and/or the distribution of dividends, as stated, will be subject to
  a tax rate of 25%, less withholding taxes which would have been paid abroad
  in respect of such dividend, had it in fact been distributed. Each Israeli
  assessee has the right to elect, at its sole discretion, to be assessed
  according to the Israeli corporate tax rate less taxes payable abroad in
  respect of these profits (including under certain circumstances taxes payable
  by a company held by the distributing company), as the case may be.
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |    | 2.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Capital gain tax from the realization of assets at a reduced rate of
  25%. The reduced rate is to apply to realization of assets, which were
  acquired after January 1, 2003 and thereafter, and will be calculated for the
  portion of the gain relating to the period subsequent to this date up to the
  realization date.                                                                                                                                                                                                                             
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |    | 3.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Method of loss offsetting - regarding business losses, capital
  losses, passive losses, marketable securities losses and CFC losses.                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | c. | During 2004,
  the Company, EIL and Elscint have finalized an arrangement with the Israeli
  Tax Authorities, with effect from December 31, 2002, whereby a new tax basis
  has been determined for the Companys investments (on a consolidated basis)
  in foreign subsidiaries (Regulated Revaluation and Regulated Assets). The
  arrangement provides for no additional tax to be imposed in Israel on gains
  generated from the realization of Regulated Assets, and on dividends
  distributed therefrom, and all up to the amount of the Regulated Revaluation.

F - 80

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING
  LTD.                            
|NOTES TO THE
  CONSOLIDATED FINANCIAL STATEMENTS
|                                                

|           |                     
|---------- | --------------------
|NOTE 20   | INCOME TAXES (CONT.)

|   |                                                                                                    
|-- | ---------------------------------------------------------------------------------------------------
|B. | Principle tax laws applicable to the major Group companies in their
  country of residence (Cont.):

| |     |               
| | --- | --------------
| | (1) | Israel (cont.)

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     | d.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | Insightec has been awarded the status of approved enterprise (AE)
  pursuant to the Law for the Encouragement of Capital Investments - 1959 (the
  Law), in respect of an investment (which has been completed, through the
  balance sheet date), of $0.5 million (NIS 2.1 million). This law provides for
  tax-exemption on undistributed income generated from the AE for a period of
  two years commencing the first year in which the AE has taxable income, and
  provides also for a reduced tax rate (25%) for the remaining five-year
  period. As at December 31, 2007, the benefit period had not yet commenced.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Insightecs benefit period is eligible for an increase from 7 to a
  10-year period, in the event the investment therein, of foreign residents (as
  defined by Law) exceeds 25%. In the event such foreign residents investment
  exceeds 49%, then the tax rate may decrease from a 25% rate to 10%-20%,
  depending on the level of ownership by non-Israeli investors, in each
  relevant taxable year.                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | The period of benefits to these AE are limited to the earlier of 12
  years from the commencement of production or 14 years following receipt of
  the approval document. Scope of benefit is determined by the ratio of the
  additional sales revenues during each benefited period over the sales revenue
  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 sales revenues in each of the tax-benefit
  years.                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | The benefits as abovementioned are subject to fulfillment of the
  conditions stipulated in the Law, the regulations promulgated thereunder and
  the criteria set forth in the certificates of approval. Failure to meet those
  conditions may lead to the termination of the benefits and trigger a demand
  for reimbursement of the amounts received (in whole or in part), with the
  addition of interest and linkage difference.                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | In the event of a dividend distribution from tax-exempt earnings, 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 an additional rate of 15% (for a period of 12 years from the end
  of the benefit period).                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (2) | USA                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | US tax laws set limitations on the utilization of carry-forward tax
  losses in companies that have undergone a material change in ownership.
  Accordingly, should the transfer of the Companys shares to EIL (in 1999) be
  defined as a material change in ownership of Elscint, then the ability to
  utilize the accumulated tax-losses of a US subsidiary against future income
  will be considerably limited. Management is of the opinion that there will be
  no limitation to the utilization of the carry - forward losses. As of
  December 31, 2007 the accumulated carry-forward losses utilized against
  current profits amount to approximately $13.8 million (NIS 53.0 million). No
  deferred income tax assets have been recorded in respect of the unutilized
  balance of the carry-forward losses.

F - 81

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING
  LTD.                            
|NOTES TO THE
  CONSOLIDATED FINANCIAL STATEMENTS
|                                                

|           |                     
|---------- | --------------------
|NOTE 20   | INCOME TAXES (CONT.)

|   |                                                                                                    
|-- | ---------------------------------------------------------------------------------------------------
|B. | Principle tax laws applicable to the major Group companies in their
  country of residence (Cont.):

| |     |                
| | --- | ---------------
| | (3) | The Netherlands

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     | a.                                                                                                                                                                                                                                                                                                                                                                                                                               | Companies
  resident in the Netherlands are subject to corporate income tax at the
  general rate of 29.6% for the fiscal year of 2006. Commencing 2007 the
  general corporate income tax rate has been reduced to 25.5%. Under the amended
  rules effective January 1 2007 tax losses may be carried forward and set of
  against income of the immediately preceding tax year and the 9 subsequent tax
  years. Transitional rules apply for tax losses on account of tax years up
  through 2002 which may be carried forward and set of against income up
  through 2011.                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | b.                                                                                                                                                                                                                                                                                                                                                                                                                               | Under the
  participation exemption rules, income including dividends and capital gains
  derived by Netherlands companies in respect of qualifying investments in the
  nominal paid up share capital of resident or non resident investee companies,
  are exempt from Netherlands corporate income tax provided the conditions as
  set under these rules have been satisfied. The participation exemption rules
  and more particularly the statutory conditions thereunder have been amended
  with effect of January 1, 2007. Such amended conditions require, among
  others, a minimum percentage ownership interest in the investee company and
  require the investee company to satisfy either of, or both the newly introduced
  assets - test and the amended subject to tax - test.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | c.                                                                                                                                                                                                                                                                                                                                                                                                                               | Dividend
  distributions from a Netherlands company to qualifying Israeli corporate
  shareholders holding at least 25% of the shares of such Netherlands company
  is subject to withholding tax at a rate of 5% provided certain compliance
  related formalities have been satisfied. In other situations, dividend
  distributions from Netherlands companies to Israeli shareholders are subject
  to withholding tax at a rate of 15%.                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (4) | England                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | a.                                                                                                                                                                                                                                                                                                                                                                                                                               | Operating income and capital gains generated by the British resident
  group companies are subject to a 30% tax rate(28% since April 2008).
  Dividends received from a U.K. resident company are taxed in accordance with
  the jurisdiction of the company receiving the dividend (in the Netherlands -
  tax exempt); No tax credits are allowed for distributed dividends.                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | b.                                                                                                                                                                                                                                                                                                                                                                                                                               | Net rental income from real estate held as an investment and let in
  the U.K. by companies not resident in the U.K., are charged to U.K. income
  tax at 22%. Any gains on disposal are not taxable in the U.K.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (5) | Romania                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | Corporate
  income tax rate for resident companies and non-resident entities with a
  permanent establishment in Romania is 16% (including capital gains).
  Dividends paid to resident and non-resident corporations are subject to a
  final withholding tax of 16%, unless lower double taxation treaty rates
  apply. Losses may be offset against taxable income for a period of five years
  from the incurrence year-end.

F - 82

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING
  LTD.                            
|NOTES TO THE
  CONSOLIDATED FINANCIAL STATEMENTS
|                                                

|           |                     
|---------- | --------------------
|NOTE 20   | INCOME TAXES (CONT.)

|   |                                                                                                    
|-- | ---------------------------------------------------------------------------------------------------
|B. | Principle tax laws applicable to the major Group companies in their
  country of residence (Cont.):

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (6) | Hungary                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | The
  corporate income tax rate imposed on the income of the subsidiaries
  incorporated in Hungary is 16%. Commencing 2007, capital gains are exempted
  from corporate income tax provided that certain criteria are fulfilled. A
  special solidarity tax is levied on companies as from September 1, 2006,
  being 4% of the modified accounting profit as determined by law. Dividends,
  interest, royalty paid out to companies are not subject to withholding tax.
  Losses in the first three years of operation can be carried forward without
  limitation. Losses incurred until 2004 can be carried forward for the period
  of five years, subject to certain limitations. Losses incurred in 2005 and
  thereafter, may be carried forward indefinitely, subject to certain
  limitations.                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (7) | Poland                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | The corporate
  tax applicable to income of Polish subsidiaries (including capital gains) is
  19%. Dividends paid out of these profits are subject to an additional (final)
  tax rate of 19%, subject to the relevant double taxation treaty. Distribution
  of dividend of Polish subsidiary to Dutch parent company, holding at least
  15% (commencing 2009 - 10%) of shares for a period of at least 2 years, is
  exempt from withholding tax. Losses may be offset against taxable income over
  a 5 year period, subject to a maximum annual utilization of up to 50% of the
  accumulated loss from each particular tax year.                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (8) | Serbia                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | Corporate
  income tax (CIT) rate applicable to income of Serbian subsidiaries is 10%.
  Losses stated in the tax balance (i.e. losses adjusted according to the CIT
  Law rules) may be carried forward for the period of ten years and offset
  against taxable income from the tax balance. Withholding tax at the rate of
  20% is due on the payment by residents companies to non-resident companies of
  dividends and share in the profit of a legal entity, and on royalties,
  interest, capital gains and proceeds from leasing real estate. Withholding
  tax may be reduced if such possibility is provided by the respective double
  taxation avoidance treaty.                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (9) | India                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     | The
  corporate income tax applicable to the income of Indian subsidiaries is
  33.99%. Minimum alternate tax (MAT) of 11.33% is applying to the book profits
  (i.e. profits shown in the financial statements), if the companys corporate
  tax liability is less than 10% of its book profits. The paid amount will be
  credited if the company has taxable profits in the following five years.
  Capital gains on sale of fixed assets and real estate assets are taxed at the
  rate of 22.66% provided that they were held at least 36 month immediately
  preceding the date of the transfer or 33.99% if they were held for not more
  than 36 month. Dividends paid out of the profits are subject to Dividend
  Distribution Tax at the rate of 16.99%. There is no withholding tax on
  dividends distributed by Indian company. Losses can be offset against taxable
  income for a period of eight years from the incurrence years end.

F - 83

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING
  LTD.                            
|NOTES TO THE
  CONSOLIDATED FINANCIAL STATEMENTS
|                                                

|           |                     
|---------- | --------------------
|NOTE 20   | INCOME TAXES (CONT.)

|   |                                                                                                    
|-- | ---------------------------------------------------------------------------------------------------
|B. | Principle tax laws applicable to the major Group companies in their
  country of residence (Cont.):

| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (10) | Cyprus                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |      | The taxation
  of companies incorporated in Cyprus is based on tax residence and all
  companies are taxed at the rate of 10%. A special levy of 10% is imposed on
  interest received and deemed interest income in certain cases. Dividend
  income and profits from the sale of shares and other titles of companies are
  tax exempt. There is no withholding tax on payments of dividends to non-resident
  shareholders or shareholders that are companies resident in Cyprus.
  Companies, which do not distribute 70% of their profits after tax, as defined
  by the relevant tax law within two years after the end of the relevant tax
  year, will be deemed to have distributed as dividends 70% of these profits. A
  special levy at 15% will be payable on such deemed dividends to the extent
  that the shareholders (companies and individuals) are Cyprus tax residents.
  The amount of deemed distribution is reduced by any actual dividends paid out
  of the profits of the relevant year during the following two years. This
  special levy is payable for the account of the shareholders.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (11) | Bulgaria                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |      | Corporate
  income tax rate for resident companies and non-resident entities with a
  permanent establishment in Bulgaria is 10% (including capital gains).
  Dividends paid to resident individuals and non-resident corporations and
  individuals are subject to a final withholding tax of 5%, unless lower
  double taxation treaty rates apply. Such final tax is not levied on dividends
  payable to EU-member entity, provided that certain criteria are met. Losses
  may be offset against taxable income for a period of five years from the
  incurrence year-end                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (12) | Czech Republic                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |      | Corporate income
  tax rate imposed on the income of the subsidiaries
  incorporated in the Czech Republic (including capital gains) in 2007 is 24%
  which will gradually decreased from 21% in 2008 to 19% in 2010. 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 15%,
  subject to the relevant double taxation treaty. The Czech Republic exempts
  domestic dividends paid to EU parent companies that hold a participation of
  20% or more for at least two years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |      | Tax losses
  incurred in taxable periods that commenced in 2004 or later may be carried
  forward for up to 5 years. Tax losses incurred earlier may be carried forward
  for up to 7 years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (13) | Latvia                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |      | Corporate
  income tax rate imposed
  on the income of the subsidiaries incorporated in Latvia (including capital
  gains) is currently 15% (2006 - 15%). Tax losses can be carried forward and
  be offset against taxable income of the five years following the accounting
  year in which they were incurred. Dividends paid out of net income to
  non-resident are subject to a withholding tax of 10%, subject to the relevant
  double taxation treaty or 0% tax could be applied if the recipient is
  resident in another EU country or resident in country included in European
  Economic region.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

F - 84

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING
  LTD.                            
|NOTES TO THE
  CONSOLIDATED FINANCIAL STATEMENTS
|                                                

|           |                     
|---------- | --------------------
|NOTE 20   | INCOME TAXES (CONT.)

|   |                                                                                                    
|-- | ---------------------------------------------------------------------------------------------------
|B. | Principle tax laws applicable to the major Group companies in their
  country of residence (Cont.):

|   |                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                              
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | (14)                                                                                                                                                                                                                            | Greece                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                 | Corporate
  income tax rate imposed on the income of the subsidiary incorporated in
  Greece (including capital gains) is currently 25%. Tax losses can be carried
  forward and offset against taxable income of the five years following the
  accounting year in which they were incurred.
|   |                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                              
|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:

|                                                                                                                                                                    |  |                          |          |      |  |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | -------- | ---- |  | -------- | -
|                                                                                                                                                                    |  | Year ended
  December 31 |         
|                                                                                                                                                                    |  |                          |         
|                                                                                                                                                                    |  | 2007                     |          | 2006 | 
|                                                                                                                                                                    |  |                          |          |      | 
|                                                                                                                                                                    |  | (in thousand NIS)        |         
|                                                                                                                                                                    |  |                          |         
|                                                                                                                                                                    |  |                          |          |      |  |          |  
|Companys statutory tax rate
  (%)                                                                                                                                  |  |                          | 29       |      |  | 31       |  
|                                                                                                                                                                    |  |                          |          |      |  |          |  
|                                                                                                                                                                    |  |                          |          |      |  |          |  
|Profit before income taxes                                                                                                                                          |  |                          | 925,607  |      |  | 462,043  |  
|                                                                                                                                                                    |  |                          |          |      |  |          |  
|                                                                                                                                                                    |  |                          |          |      |  |          |  
|The theoretical tax                                                                                                                                                 |  |                          | 268,426  |      |  | 143,233  |  
|                                                                                                                                                                    |  |                          |          |      |  |          |  
|Differences in tax burden in
  respect of:                                                                                                                          |  |                          |          |      |  |          |  
|                                                                                                                                                                    |  |                          |          |      |  |          |  
|Exempt income, net of
  unrecognized expenses                                                                                                                       |  |                          | (327,482 | )    |  | (227,867 | )
|Utilization of prior-year losses
  for which deferred taxes had not previously been recorded                                                                        |  |                          | (18,899  | )    |  | (13,001  | )
|Losses and other timing
  differences for which deferred taxes had not been created                                                                                 |  |                          | 125,213  |      |  | 66,207   |  
|Variances from different
  measurement principles applied for the financial statements and those applied
  for income tax purposes (including exchange differences) |  |                          | 6,068    |      |  | 16,123   |  
|Differences in tax rates on
  income of foreign subsidiaries                                                                                                        |  |                          | (44,812  | )    |  | 3,197    |  
|Adjustment due to changes in
  tax rate                                                                                                                             |  |                          | 208      |      |  | (1,531   | )
|The Groups share in results
  of associated companies                                                                                                              |  |                          | 3,466    |      |  | (248     | )
|Taxes for prior years                                                                                                                                               |  |                          | 126      |      |  | 4,474    |  
|Other differences, net                                                                                                                                              |  |                          | 3,974    |      |  | 7,626    |  
|                                                                                                                                                                    |  |                          |          |      |  |          |  
|                                                                                                                                                                    |  |                          | 16,288   |      |  | (1,787   | )
|                                                                                                                                                                    |  |                          |          |      |  |          |  

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|D. | Carryforward losses and deductions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | As of December 31, 2007 the Group companies had accumulated tax
  losses and deductions amounting to NIS 1,587 million, which may be utilized
  in the coming years against taxable income at rates ranging from 16% to 29% depending
  on the country of residence. The realization of the carry-forward losses is
  subject to taxable income available in those periods when these losses are
  deductible.                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Computation of said carry-forward taxable losses includes Insightecs
  losses in an aggregate amount of NIS 304 million. Insightecs management
  estimates that its income, throughout the utilization period of said losses,
  will be tax-exempt, hence no tax benefits are expected in respect of these
  losses, in the foreseeable future. As to the limitation on utilizing
  Insightecs losses as a result of a merger pursuant to section 103 of the
  Income Tax Ordinance, at the amount of NIS 88.5 million - see note 10B(1)i.

F - 85

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING
  LTD.                            
|NOTES TO THE
  CONSOLIDATED FINANCIAL STATEMENTS
|                                                

|           |                     
|---------- | --------------------
|NOTE 20   | INCOME TAXES (CONT.)

|   |                                                                                                                                                                                                                                                                                                       
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|D. | Carryforward losses and deductions (cont.):                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                       
|   | Tax laws in respect of certain Group subsidiaries operating aboroad,
  have set a time limitation on the utilization of losses. Accordingly, the
  right to utilize carry-forward losses in the amount of NIS 171.5 million,
  against taxable income, will gradually expire over the following years:

|                    |  |                     |         | 
|------------------- |  | ------------------- | ------- | 
|                    |  | December 31,
  2007 |        
|                    |  |                     |        
|                    |  | (in thousand NIS)   |        
|                    |  |                     |        
|                    |  |                     |         | 
|2008                |  |                     | 6,565   | 
|2009                |  |                     | 1,862   | 
|2010                |  |                     | 29,147  | 
|2011                |  |                     | 6,372   | 
|2012 and thereafter |  |                     | 127,597 | 
|                    |  |                     |         | 
|                    |  |                     | 171,543 | 
|                    |  |                     |         | 

|   |                       
|-- | ----------------------
|E. | Deferred income taxes:

|                                                                                                          |  |                   |         |      |  |         |  
|--------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | ---- |  | ------- | -
|                                                                                                          |  | December 31       |        
|                                                                                                          |  |                   |        
|                                                                                                          |  | 2007              |         | 2006 | 
|                                                                                                          |  |                   |         |      | 
|                                                                                                          |  | (in thousand NIS) |        
|                                                                                                          |  |                   |        
|                                                                                                          |  |                   |         |      |  |         |  
|Accelerated depreciation differences in
  respect of property plant and equipment and investment property |  |                   | (27,846 | )    |  | (35,336 | )
|Difference between fair value of real
  estate at acquisition and related cost for income tax purposes    |  |                   | (31,728 | )    |  | (40,222 | )
|Timing differences - income and expenses                                                                  |  |                   | (1,070  | )    |  | (1,422  | )
|Carryforward tax losses and deductions                                                                    |  |                   | 5,505   |      |  | 9,832   |  
|                                                                                                          |  |                   |         |      |  |         |  
|Net deferred
  taxes (*)                                                                                  |  |                   | (55,139 | )    |  | (67,148 | )
|                                                                                                          |  |                   |         |      |  |         |  
|                                                                                                          |  |                   |         |      |  |         |  
|(*)          Presented
  among:                                                                           |  |                   |         |      |  |         |  
|Long-term liabilities                                                                                     |  |                   | (55,139 | )    |  | (72,145 | )
|Long-term receivables                                                                                     |  |                   |        |      |  | 4,997   |  
|                                                                                                          |  |                   |         |      |  |         |  
|                                                                                                          |  |                   | (55,139 | )    |  | (67,148 | )
|                                                                                                          |  |                   |         |      |  |         |  

Net of deferred tax assets, which were not included in respect of the
following items:

|                                                                                                          |  |                   |         |      |  |         | 
|--------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | ---- |  | ------- | 
|                                                                                                          |  | December 31       |        
|                                                                                                          |  |                   |        
|                                                                                                          |  | 2007              |         | 2006 | 
|                                                                                                          |  |                   |         |      | 
|                                                                                                          |  | (in thousand NIS) |        
|                                                                                                          |  |                   |        
|                                                                                                          |  |                   |         |      |  |         | 
|Accelerated depreciation differences in
  respect of property plant and equipment and investment property |  |                   | 36,169  |      |  | 44,394  | 
|Timing differences - income and expenses                                                                  |  |                   | 14,284  |      |  | 496     | 
|Carryforward tax losses and deductions                                                                    |  |                   | 402,239 |      |  | 258,001 | 
|                                                                                                          |  |                   |         |      |  |         | 
|                                                                                                          |  |                   | 452,692 |      |  | 302,891 | 
|                                                                                                          |  |                   |         |      |  |         | 

|   |                                                                                                                                                                                                                                                                    
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|F. | Final tax assessments:                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                    
|   | The Company, Elscint and certain Israeli subsidiaries have received
  final tax assessments, some through 2002 and others by 2003. Certain foreign
  group companies have received final tax assessments while others have not
  been assessed since incorporation.

F - 86

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING
  LTD.                            
|NOTES TO THE
  CONSOLIDATED FINANCIAL STATEMENTS
|                                                

|           |                     
|---------- | --------------------
|NOTE 20   | INCOME TAXES (CONT.)

|   |                                                                                                                                                                                                                                                 
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|G. | Deferred taxes in respect of investment in invstee companies                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                 
|   | As of
  December 31, 2007, the Group did not recorded deferred tax liability, in
  respect of gains from realization of certain investee companies or upon
  receiving their retained earning as dividend, in the amount of NIS 390.3
  million.
|   |                                                                                                                                                                                                                                                 
|H. | The total
  accumulated current and deferred taxes expenses, which were charged directly
  to the shareholders equity as of December 31, 2007 is NIS 9,756 thousands.                                                                          

|           |                                                    
|---------- | ---------------------------------------------------
|NOTE 21   | COMMITMENTS, CONTINGENCIES, LIENS AND
  COLLATERALS

|   |            
|-- | -----------
|A. | Commitments

| |     |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --- | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | a. | The Groups hotels (located in the Netherlands, Belgium and England)
  are managed by Park Plaza Hotel Europe B.V. (Management Company), in
  consideration for an annual fee of 2% of the room revenue (Base fee) as
  well as 7% of the gross operating profit (Incentive fee) as defined in the
  agreements. The companies owning the hotels also participate in certain
  portions of the expenses incurred by the Management Company in the course of
  performance of its due obligations, up to 3% of the gross operating profit.
  Upon a sale of any hotel or the transfer of control therein to a third party,
  the companies owning the respective hotel are obliged to pay to the
  Management Company an amount equal to the Base fee, the Incentive fee and the
  Franchise fee (see sub-section b. below) paid to the Management Company in
  the 12 months period preceding such sale or transfer. In the specific event
  of a sale of the Victoria Hotel in Amsterdam, the Management Company shall also be entitled to receive 2.5% of any profit
  generated from such a sale.
| |     |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |    | The Management Company is vested with ownership rights at a rate of
  5% or 10% (excluding voting rights), as the case may be, in several
  corporations owning hotels which are held by B.H. jointly with Red Sea Hotels
  Group (RSG).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | b. | Within the terms of the management
  agreements, B.H. Group companies (the Companies) were granted a
  sub-franchise by the Management Company allowing them the utilization,
  throughout the term of the management agreements, of the Park Plaza name,
  in relation to the hotels owned and operated thereby, in consideration for
  royalties not exceeding 1.5% of the room revenues (Franchise fee).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | c. | Bucuresti has agreed with the Rezidor group
  (Operator), on the future management of its hotel, currently under
  renovation under the
  brand name Radisson SAS. The 20 year management period shall commence once
  renovation is completed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |    | Under the
  agreement the Bucuresti undertook to pay the Operator an annual base fee of
  3.5% of the total revenue and an annual management fee of 10% of the gross
  operating profit. Both fees payable to the Operator shall be no less than
  certain agreed minimum amounts depending on the relevant year. In addition,
  Bucuresti will pay the Operator 2.5% of gross room revenue for marketing and
  advertising services as well as an agreed fee per room for reservations of
  rooms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |    | The managing company undertook within the framework of the management
  agreements, to guarantee that the adjusted operating income will not decrease
  below a fixed annual amount, as stipulated in the agreement. The total
  aggregate amount of the guarantee will not, however, exceed, cumulatively
  during the term of the agreement, those amounts as stipulated in the
  agreement. Bucuresti has undertaken to ensure that the aggregate fees payable
  to the Operator (base fees and incentive fees) shall not be less than certain
  agreed amounts as specified in the management agreement, provided that
  Bucurestis obligation in this regard is capped at a total agreed amount.                                                                                                                                                                                                                                                                                                                                                                                                    

F - 87

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING
  LTD.                            
|NOTES TO THE
  CONSOLIDATED FINANCIAL STATEMENTS
|                                                

|           |                                                            
|---------- | -----------------------------------------------------------
|NOTE 21   | COMMITMENTS, CONTINGENCIES, LIENS AND
  COLLATERALS (CONT.)

|   |                    
|-- | -------------------
|A. | Commitments (Cont.)

| |     |                                                                                                                                                     
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | The Company and/or its subsidiaries are bound by the following
  agreements, with Control Centers Ltd. (CC) and/or companies controlled
  thereby:

| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a. | A framework agreement to provide coordination, planning and
  supervision services over projects for the construction of commercial
  centers, the initiation of which began during the term of the agreement
  (through December 31, 2002), in consideration of 5% of the actual execution
  costs of each project (excluding land acquisition costs, general and
  administrative expenses and financing costs), payable according to milestones
  stipulated in the specific agreement for each project. Additionally, CC will
  be entitled to reimbursement of reasonable expenses directly incurred thereby
  for fees of external consultants required for the provision of the services
  and the like, at an amount not to exceed $50,000 per project.                                                                                                                                                                                                                                                                                                                                                                             
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | b. | A framework
  agreement according to which the Company will receive from CC (either
  directly or through its subsidiaries or affiliates) coordination, planning,
  execution and supervision services (the Services) over real estate projects
  of the Company and/or its subsidiaries and/or affiliates in consideration for
  a fee equal to 5% of the actual execution costs (excluding land acquisition
  costs, financing cost and the consideration for CC under the agreement)of
  each such project (Supervision Fees). The agreement applies to real estate
  projects whose initiation began following the approval of the agreement by
  the Companys shareholders meeting (May 31, 2006) and to three other real
  estate projects which were under early stage of development as of May 31,
  2006 (Real Estate Projects). Supervision Fees are to be paid in
  installments upon the attainment of certain milestones. In addition, the
  Company will reimburse CC for all reasonable costs incurred in connection
  with the services rendered thereby, not to exceed a total of 75,000 per Real
  Estate Project.
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  |    | If the
  purpose of a Real Estate Project is changed for any reason prior to the
  completion of the project or if the development of the Real Estate Project is
  terminated for any reason (including the sale of the Real Estate Project),
  the payment to CC will be calculated as a percentage of the budget for the
  project and provided that such percentage shall not exceed the percentage
  determined for the next milestone of the project had it had been continued as
  planned. The calculation of such payments to CC will be subject to the
  approval of an external accountant and the Companys Audit Committee and
  Board of Directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  |    | In addition,
  the Company and/or its subsidiaries and/or affiliates may also purchase from
  CC through Jet Link Ltd. (a company controlled by CC) up to 125 flight hours
  per calendar year in consideration for payments to Jet Link Ltd. in
  accordance with its price list deducted by a 5% discount. This agreement does
  not derogate from a previous agreement entered into between the Company and
  Jet Link Ltd. for the purchase by the Company of aviation services (see Item
  c. below).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  |    | These
  agreements entered into effect upon their approval by the Companys
  shareholders meeting and shall remain in effect for a five year term (through
  May 2010).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | c. | An agreement with Jet Link Ltd., for the provision of aviation
  services, up to 150 flight hours per annum, for the operations and in
  connection with project abroad, in consideration for payment calculated on
  the basis of the price list of Jet Link Ltd., deducted by a 5% discount. Due to Group increasing business needs, the Group purchased during 2007 and 2006 certain
  additional flight hours from Jet Link under the same terms stipulated in the
  agreement. The purchase of the additional flight hours was approved by the
  Audit Committee and the Board of Directors as a non-extraordinary transaction
  within the meaning of the Israeli Companies Law.                                                                                                                                                                                                                                                                                                                                                                                                                                                      

F - 88

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING
  LTD.                            
|NOTES TO THE
  CONSOLIDATED FINANCIAL STATEMENTS
|                                                

|           |                                                            
|---------- | -----------------------------------------------------------
|NOTE 21   | COMMITMENTS, CONTINGENCIES, LIENS AND
  COLLATERALS (CONT.)

|   |                    
|-- | -------------------
|A. | Commitments (Cont.)

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (3) | In accordance with an engagement between Bucuresti and Control
  Centers wholly owned subsidiary, which was approved at the shareholders
  meeting of Elscint., CCS provides coordination, planning and supervision
  services with respect to the renovation works of the Bucuresti Hotel complex,
  for a fee equal to the lower of (i) 5% of total actual costs of the
  renovation works (excluding general and administrative as well as financing
  costs); and (ii) 5% of $30 million. A definitive agreement has not been
  executed in respect of such engagement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (4) | In 2005 Insightec entered into a worldwide distribution and sale
  representation agreement with GE Healthcare (a part of GE group), granting GE
  Healthcare the exclusive worldwide distribution rights to market and promote
  Insightecs product subject to the achievement of minimum sales targets,
  except in territories where Insightec already has existing distributors and
  representatives. In accordance with the terms of the agreement, Insightec
  shall pay to GE Healthcare a commission calculated as percentage of the net
  sales and actual payments received by Insightec for each order for the sale
  of products from an end-user in the Territory, attributed to GE Healthcares
  activities. Insightec retains the right to promote, market and sell its
  products to end-users directly, through its employees. The agreement is for
  five years, unless earlier terminated in accordance with the terms of the
  agreement. Thereafter the agreement shall automatically extended for one
  additional year, unless either party provides a written notice of its intent
  to terminate the agreement. Insightec is currently negotiating with GE
  Healthcare the renewal of the distribution agreement on a non-exclusive
  basis.                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (5) | In 2001, the Elezra Group won the right to purchase, through
  privatization, the shares of the state owned Afridar - Ashkelon Housing and
  Development Ltd. (Afridar). The Elezra Group consists of Elezra
  Developments and Investments Ltd. (Elezra) and Elbit Medical Holdings Ltd.
  - a subsidiary of the Company (Elbit Holdings), as well as the Company and
  Mr. Eli Elezra as an interested party (altogether: the Group). Immediately
  following the win of the right, the members of the Group signed a
  principle-agreement so as to regulate and govern the relations thereof,
  according to which Elezra would bear the entire acquisition costs of the
  Afridar shares (NIS 80 million), while the Company and/or Elbit Holdings
  would hold the Afridar shares, which would be registered in their name, in
  trust for Elezra.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | Transfer of the shares among the members of the Group is subject to
  the approval of the Israeli Governmental Companies Authority (IGCA). In the
  absence of such approval, the Company and/or Elbit Holdings will remain the
  owners of the Afridar shares until such time that the restriction on transfer
  thereof is lifted. Elbit Holdings and Elezra would remain, under such
  circumstance, jointly and severally, liable to IGCA as well as to the State
  of Israel for all undertakings applicable to purchasers of Afridar shares.
  The sale of control in and to Afridar (directly or indirectly) is contingent
  on the assignment to the purchaser of all sellers obligations in favor of
  IGCA, all 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 payment demand and/or any other expense incurred by the Company
  and/or Elbit Holdings in connection with the acquisition of the Afridar
  shares, the holding of same in trust, transfer thereof by and between the
  parties and the abovementioned principle-agreement. As of the date of
  approval of these financial statements, the rights in and to Afridar, had not
  been assigned. Companys management estimates that it is not exposed to any
  costs and/or damage in respect of these holdings.

F - 89

---

---

|                                                
|------------------------------------------------
|ELBIT IMAGING
  LTD.                            
|NOTES TO THE
  CONSOLIDATED FINANCIAL STATEMENTS
|                                                

|           |                                                            
|---------- | -----------------------------------------------------------
|NOTE 21   | COMMITMENTS, CONTINGENCIES, LIENS AND
  COLLATERALS (CONT.)

|   |                    
|-- | -------------------
|A. | Commitments (Cont.)

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (6) | On December
  11, 2006 the Company entered into an agreement with a third party for the
  establishment of a joint venture company (JV) which will be engaged in
  development, construction and operations of multi-specialty tertiary
  hospitals in India. The first hospital in the chain will be located in
  Kolkata and it will include a 1,000 beds as well as ancillary services such
  as bio-tech research center, serviced apartment for patients families, a
  medical mall, an alternative medicine center and nursing training institute.
  The total built up area of the project is anticipated to approximately
  250,000 square meters.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (7) | Minimum future rental payments due under the Groups current
  operating leases as of December 31, 2007 are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|                        |  |                     |         | 
|----------------------- |  | ------------------- | ------- | 
|Year ended December 31, |  | (in thousand
  NIS) |        
|                        |  |                     |        
|                        |  |                     |         | 
|2008                    |  |                     | 27,001  | 
|2009                    |  |                     | 29,072  | 
|2010                    |  |                     | 28,404  | 
|2011                    |  |                     | 25,677  | 
|2012                    |  |                     | 25,372  | 
|Thereafter              |  |                     | 709,059 | 
|                        |  |                     |         | 
|                        |  |                     | 844,585 | 
|                        |  |                     |         | 

| |      |                                                                                                                                                                                                                                                                                                                                
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (8)  | Aggregate amount of the Groups commitments in respect of
  construction services totaled, as of December 31, 2007, approximately NIS 852
  million.                                                                                                                                                                           
| |      |                                                                                                                                                                                                                                                                                                                                
| | (9)  | Elbit Trade
  and Retail Ltd. (formerly Mango) (Elbit Trade) is a party to a
  distribution, support and service agreements signed in May 2005 with a third
  party for a 10-year period, subject to fulfillment of certain conditions,
  which entitled it to market the brand name MANGO-MNGTMin the
  territory of Israel.
| |      |                                                                                                                                                                                                                                                                                                                                
| | (10) | Elbit
  Trade is a party to franchise agreement executed in October 2007 with a third
  party for a term of 5 years (with an automatic renewal for additional 5
  years) which entitled it, subject to certain conditions, to market the brand
  name G-Star in the territory of Israel.                                       

| |      |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ---- | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (11) | (a) | In October
   2006 the Company and PC entered into services agreement, pursuant to which
   the Company will provide PC with legal and accounting services. The services
   are to be provided by the Company for a period of 24 months (through October
   2008), unless terminated earlier by PC, at a cost to be agreed between the
   parties from time to time.                                                                                         
| |      |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |      | (b) | In October
   2006, the Company and PC enterd into an agreement, pursuant to which - with
   effect from 1 January 2006 - PC will pay a commission to the Company in
   respect of all and any outstanding corporate and first demand guarantees
   which have been issued by the Company in favour of PC up to 0.5% of the
   amount or value of the guarantee, per annum. As of the balance sheet date,
   no guarantees were provided to PC by the Company

F - 90

---

---

|                                                 
|-------------------------------------------------
|ELBIT
   IMAGING LTD.                            
|NOTES TO THE
   CONSOLIDATED FINANCIAL STATEMENTS
|                                                 

|           |                                                             
|---------- | ------------------------------------------------------------
|NOTE 21   | COMMITMENTS, CONTINGENCIES, LIENS AND
   COLLATERALS (CONT.)

|   |                    
|-- | -------------------
|A. | Commitments (Cont.)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | (12)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | In October
   2006, the Company entered into an agreement with PC, under which the Company
   obliged to offer to PC potential real estate development sites sourced by it
   in India. These sites will be suitable for shopping and entertainment
   centers development projects as well as mixed use projects (comprising
   offices, residential units, congress centers and leisure facilities). The
   projects may also involve the acquisition and renovation of existing
   shopping and entertainment centers. In Integrated Shopping Center Projects,
   the shopping and entertainment center may not be the key element of the
   project. Under the agreement, the Company is obliged to offer PC the
   exclusive right to develop all of the shopping center projects which the
   Company acquires during the 15-year term of the agreement. PC must, within
   30 days of receiving the Companys offer, indicate to the Company whether it
   wishes to accept or decline the offer. In respect of sites acquired by PC,
   it has agreed to pay the Company the cost of the site paid by the Company as
   well as direct costs, subject to a cap of 5% of the cost of the site.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | (13)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Within the
   framework of a credit facility agreement executed in March 2006, B.H.
   jointly controlled subsidiaries that hold 3 hotels in the U.K. (Project
   Companies) are committed to pay the financing bank additional exit fee in
   the event of cash distributions deriving from the sale, disposal,
   refinancing of the hotels which were financed by the refinancing loan funds
   or repayment of the loan (Transactions). The exit fee will be calculated
   as the amount equivalent to 15% of the difference between the market value
   of the hotels as determined in such Transactions and the current agreed
   value of the hotels.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|B. | Claims                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Legal
   claims have been filed against Group companies, in respect of some of those
   claims applications have been filed to certify the claims as class actions.                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | In the
   opinion of the managements of the Groups, which is based, inter alia, on
   legal opinions as to the chances of the claims, including the applications
   for their approval as class actions, adequate provisions have been included
   in the financial statements (including provisions in respect of discontinued
   operation and including accrued liabilities for claims which have been
   settled and as of the balance sheet date have not been paid), where
   provisions were necessary in order to cover the exposure which resulted from
   such claims.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | In the
   opinion of the managements of the Groups companies, the amount of the
   additional exposure as of December 31, 2007, in respect of claims that
   chances of them being realized is probable amounts to approximately NIS 636
   million. These amounts do not include interest.                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | In respect
   to requests to certify certain claims as class action, for which the Group
   has additional exposure in excess of the aforesaid (due to the fact that the
   exact amount of the claim was not stated in the claim), see items B1, B2 and
   B3 below.                                                                                                                                                                                                                                                                                                            

F - 91

---

---

|                                                 
|-------------------------------------------------
|ELBIT
   IMAGING LTD.                            
|NOTES TO THE
   CONSOLIDATED FINANCIAL STATEMENTS
|                                                 

|           |                                                             
|---------- | ------------------------------------------------------------
|NOTE 21   | COMMITMENTS, CONTINGENCIES, LIENS AND
   COLLATERALS (CONT.)

|   |               
|-- | --------------
|B. | Claims (cont.)

| |                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Following
   are the details of the Groups material contingent liabilities as of December
   31, 2007:
| |                                                                                                        
| | (1)                                                                                                     | On November
   2, 1999 a number of institutional and other investors, holding shares in
   Elscint, instituted a claim against the Company Elscint, EIL, Control
   Centers Ltd, past and present officers in the said companies and others.
   Together with the claim an application was filed to certify the claim as a
   class action on behalf of everyone who was a shareholder in Elscint on
   September 6, 1999 and up until the lodging of the claim, excluding the
   Company and certain other shareholders.                                                                                                                                                                                                                                      
| |                                                                                                        
| |                                                                                                         | The
   Plaintiffs claim continued and systematic oppression of the minority shareholders
   in Elscint, which caused them monetary damages and which started - so they
   allege - in the oppressive agreements Elscint made for the realization of
   the main part of its assets, continued with the sale of the control in
   Elscint to the EIL and with the breach of a tender offer made by the Company
   to purchase of the minority shares of Elscint and ended with the agreements
   between executed by Elscint for the acquisition of the hotel operations and
   the Arena commercial center in Israel, from EIL and Control Centers,
   respectively (September 99 Transactions) at a lower value than the
   consideration received for them.
| |                                                                                                        
| |                                                                                                         | Due to
   these acts, the Plaintiffs allege that the value of Elscints shares fell
   during the period between February 24, 1999 and up until the date at which
   the claim was instituted from a price of $13.25 per share to a price of
   $7.25 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                        
| |                                                                                                         | The main
   relief which the original claim sought was to order the Company to carry out
   a tender offer for Elscints shares at a price of $14 per share, and
   alternatively, to purchase Elscints shares held by the Plaintiffs at a
   price to be set by the court. Further alternatively, the Plaintiffs sought,
   in their original claim, that the court grants an order prohibiting the
   execution of the September 99 Transaction and for the restitution of all
   money paid, if paid within the framework of the above mentioned
   transactions. Some of the relief sought was also sought as a derivative
   action on behalf of Elscint.                                                                                                
| |                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                         | On August
   16, 2000 the District Court dismissed the application of the Plaintiffs to
   certify their claim as a class action. On October 2, 2000 some of the
   Plaintiffs lodged an application for leave to appeal on the decision of the
   District Court.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                        
| |                                                                                                         | On December
   14, 2006 the Supreme Court upheld the appeal and ordered the return of the
   hearing on the application to recognize the claim as a class action suit to
   the District Court, which will be required to rule on it in accordance with
   the provisions of the Class Actions Act, 5766 - 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                         | Further to
   the decision of the Supreme Court, the District Court ordered that the
   Plaintiffs to submit an updated statement of claim and an updated
   application for the certification of the claim as a class action. On June
   10, 2007 the Plaintiffs submitted an updated statement of claim and an
   updated application for the certification of the claim as a class action.
   Material changes were made to the pleadings both with respect of the relief
   sought and with respect of the alleged causes of action and also with
   respect of the identity of the applicant. Some of the relief sought in the
   updated claim was also sought as a derivative claim on behalf of Elscint.                                             
| |                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                         | The Company
   and Elscint submitted their responses to the application for the
   certification of the claim as a class action, as well as their statements of
   defense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                        
| |                                                                                                         | The
   companies claim that both the application to certify the claim as a class
   action and the claim itself must be dismissed - in limine - and materially.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                        
| |                                                                                                         | In their
   pleadings the companies denied the Plaintiffs claims in the matter of the
   existence of the purported tender offer for the minority shares of Elscint
   and also denied the claims in the matter of the existence of the oppressive
   transactions or in the matter of the alleged illegal approval of the
   transactions.                                                                                                                                                                                                                                                                                                                                                                                                                 

F - 92

---

---

|                                                 
|-------------------------------------------------
|ELBIT
   IMAGING LTD.                            
|NOTES TO THE
   CONSOLIDATED FINANCIAL STATEMENTS
|                                                 

|           |                                                             
|---------- | ------------------------------------------------------------
|NOTE 21   | COMMITMENTS, CONTINGENCIES, LIENS AND
   COLLATERALS (CONT.)

|   |               
|-- | --------------
|B. | Claims (cont.)

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | (Cont.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | The
   companies further argued that the claim and the application to certify the
   claim as a class action should be dismissed as a matter of law, inter alia,
   because some of the claim was barred by the statute of limitations and
   because the amending of the pleadings on behalf of the plaintiffs was done
   illegally. The companies also referred to the inappropriateness of the
   proceedings instituted to be certified as a class action or as a derivative
   action. The completion of oral summations in the matter of the application
   to certify the class action was heard by the court and now the court is
   expected to hand down its decision in this matter.                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | In
   addition, the abovementioned proceeding, on December 16, 2007 Elscint lodged
   an application for leave to appeal on a decision of the Registrar of the
   District Court in respect of Court fees that Elscint alleges should be paid
   by the Plaintiffs for the main claim made in the updated statement of
   claim which amounts to a sum of at least NIS 2.4 million. No decision has
   yet to be handed down in the application for leave to appeal.                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | The
   companies legal counsels believe that - to the best of their understanding,
   and based on the information and the documents delivered to them and as far
   as they know at this stage, (and also considering, inter alia, the early
   stages at which the clarification of these proceedings are situated, before
   any hearing has been held on the claim itself, and before the evidence stage
   of the case has begun, and also considering the fact that the Class Action
   Act is relatively new legislation),- it may be said that the probability of
   the claim being upheld is not greater than 50%.                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (2) | On
   September 6,2006 a third party instituted two claims before the Haifa
   District Court in which he sued the Company,Elscint, EIL, Control Centers
   Ltd. and others.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    
| |     | These
   statements of claim constitute an almost identical copy of the claim
   detailed in section (1) above and the Plaintiff asked to combine the
   hearings with those in the above said matter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    
| |     | In the
   statements of claim the Plaintiff asked to approve the claims he had
   instituted as class actions, however up to the date of the approval of this
   financial statements no separate applications have been served to the
   companies for the certification of the claims as class actions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    
| |     | In the
   first claim, the Plaintiff alleges acts of oppression towards the Companys
   shareholders and in the second claim the Plaintiff alleges acts of
   oppression towards Elscints shareholders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    
| |     | The
   Plaintiff alleges continued and systematic oppression of the minority
   shareholders in Elscint and the Company, which caused him monetary damages
   and which started - so he claims- in the oppressive agreements Elscint made
   for the realization of the main part of its assets, continued with the withholding
   of information from the stock exchange and from the public, with the sale of
   the control in Elscint to the Companys controlling shareholder and with the
   breach of a tender offer made by the Company to purchase of the minority
   shares of Elscint and ended with the agreements executed by Elscint for the
   acquisition of the hotel operations and the Arena commercial center in
   Israel, from EIL and Control Centers, respectively(September 99
   Transactions) at a lower value than the consideration received for them.

F - 93

---

---

|                                                 
|-------------------------------------------------
|ELBIT
   IMAGING LTD.                            
|NOTES TO THE
   CONSOLIDATED FINANCIAL STATEMENTS
|                                                 

|           |                                                             
|---------- | ------------------------------------------------------------
|NOTE 21   | COMMITMENTS, CONTINGENCIES, LIENS AND
   COLLATERALS (CONT.)

|   |               
|-- | --------------
|B. | Claims (cont.)

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | (Cont.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | The main
   relief sought in the claim is compensation consist of (i) punitive damages
   for the acts of the defendants; and (ii) damages for mental anguish to the
   plaintiff and to the proffered class. In addition, the plaintiff is also
   suing for compensation for the difference between the price at which Elscint
   shares were actually sold by the Plaintiff and the proffered class members
   and in the sum of $14, plus interest and linkage differences since 1999.
   Furthermore, the Plaintiff is also claiming for harm caused to the value of
   his holdings in the Companys shares.                                                                                                                                                                                                                                                                                           
| |    
| |     | It will be
   noted that the statements of claim in both proceedings require certain
   clarifications, due to the wording of the claims.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    
| |     | In the
   preliminary hearing held at the District Court on February 22, 2007 the
   Court asked the parties to refer to the question of the appropriateness of
   the claimant to serve as a class representative and on the issue of the
   overlap between the claims lodged by the plaintiff and the claim detailed in
   section (1) above. The parties were given the opportunity to complete their
   arguments in this matter, and in this framework the Plaintiff asked, inter
   alia, that he be allowed to take legal representation for the proceedings.
   All the parties have submitted the completion of their arguments in writing.
   No decision has yet been handed down in this matter.                                                                                                                                                                                                  
| |    
| |     | The
   companies legal counsels believe that-In light of the early stages of these
   proceedings, before the lodging of statements of defense or responses to the
   applications to certify the claims as class actions, and even before any
   substantive hearing has been held on the application for approval and/or of
   the claim, and considering also the fact that the Class Action Act is
   relatively new legislation, it is difficult to evaluate the chances of the
   proceedings. Nevertheless, amongst other things, also because of the great
   similarity with the claim mentioned in item (1) as detailed above, as these
   proceedings were instituted without legal representation for the plaintiff,
   at this stage, and so long as the plaintiff is not represented in the
   proceedings, it can also be said that the chances of the claims being upheld
   do not exceed 50%.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (3) | In September 1999 the Company Elscint, Elscints past directors and
   others were served with a copy of a claim instituted by a shareholder in
   Elscint. Together with the claim an application was filed to certify the
   claim as a class action on behalf of everyone who was a minority shareholder
   in Elscint on the date of instituting the claim and was such a shareholder
   on February 18,1999. The scope of the class action claim(as amended in
   October 1999) is estimated by the plaintiff at approximately $158.3 million
   and its personal damages(as amended in October 1999) are estimated by him at
   approximately $0.6 million.                                                                                                                                                                                                                                              
| |    
| |     | The plaintiff claim that the Company acted, through Elscints
   directors, systemically with the aim of emptying and diluting Elscint of its
   business, assets, capital and value, whilst enriching other companies in the
   group at the expense of Elscint and at the expense of the minority
   shareholders of Elscint. The Plaintiff also alleges that the several
   transaction executed by the Company and Elscint in 1998 for the sale of
   substantially all of their assets and business in the CT, MRI and Focused
   Ultrasound business as well as other transactions, were all done whilst
   oppressing the minority shareholders of Elscint and in contravention of
   Section 235 of the Companies Ordinance.                                                                                                                                                                           
| |    
| |     | The relief sought in the claim is to order the Company, and
   alternatively the other defendants, to purchase from the Plaintiff and from
   the other members of the proffered class, Elscint shares they hold at a
   price of $27.46 per share, and as interim relief, in order to limit the
   Plaintiffs damages, to obliged the Company to realise its undertakings
   dated February 18, 1999 to acquire the above said shares at a price of $14
   per share.                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    
| |     | According to an agreement reached between the parties in the case,
   the hearing in this case was postponed until after the Supreme Court rules
   on Leave for Civil Appeal as detailed in section (1) above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

F - 94

---

---

|                                                 
|-------------------------------------------------
|ELBIT
   IMAGING LTD.                            
|NOTES TO THE
   CONSOLIDATED FINANCIAL STATEMENTS
|                                                 

|           |                                                             
|---------- | ------------------------------------------------------------
|NOTE 21   | COMMITMENTS, CONTINGENCIES, LIENS AND
   COLLATERALS (CONT.)

|   |               
|-- | --------------
|B. | Claims (cont.)

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (3) | (Cont.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | Following the Supreme Court decision dated December 16,2006 in the
   case detailed in section (1) above, on September 25,2007 the legal counsel
   of the Plaintiff turned to the court asking to renew the hearings in the
   proceedings. Following this application, a pre-trial session was set in the
   case for July 1, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | The companies legal counsels believe that-to their best
   understanding (and also considering, inter alia, that the clarification of
   this matter is in its preliminary stages, and that responses have not yet
   been submitted to the application to certify the claim as a class action,
   nor have statements of defence been lodged, nor has any hearing been held on
   material matters on the application for the certifying of the claim as a
   class action and/or on the claim itself, and also considering the fact that
   the Class Actions Act is a relatively new legislation), and also considering
   the fact that they have not yet received all the information and documents
   in connection with this claim, and they have not yet interviewed all the
   relevant entities) - it may be said that the probability of the claim being
   upheld is not greater than 50%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (4) | Elscint
and its subsidiaries are parties to several court claims as well as certain other written
demands, filed against them by third parties (including governmental institutions), some
without any specified amount, and others in the aggregate principal amount of $56.3
million (NIS 216.6 million), as royalties or compensation for damages allegedly caused as
a result of the companies actions and/or products, which mainly relate to the
medical imaging business sold by Elscint in 1998 and 1999. In respect of certain claims,
totaling approximately $5.6 million (NIS 21.5 million), managements of the companies
estimate, based on legal opinion and/or on past experience, that no significant costs will
incurre thereof as a result of said claims exceeding the provisions included in respect
thereof in the financial statements, and that such provisions are adequate for covering
the costs and resources required to settle the liabilities arising therefrom.
Elscints legal advisers cannot presently determine the outcome of other written
demands, totaling $50.8 million (NIS 195.4 million). Elscints management believes
that the prospects for realization of most such written demands are remote, based on the
time that has elapsed since serving said demand and on the nature thereof. The companies
have included in their financial statements provisions that are, as per their
managements discretion based inter alia on specific counsels advice and past
experience, adequate to cover the costs and resources required to settle the liabilities
under these written claims.

F - 95

---

---

|                                                 
|-------------------------------------------------
|ELBIT
   IMAGING LTD.                            
|NOTES TO THE
   CONSOLIDATED FINANCIAL STATEMENTS
|                                                 

|           |                                                             
|---------- | ------------------------------------------------------------
|NOTE 21   | COMMITMENTS, CONTINGENCIES, LIENS AND
   COLLATERALS (CONT.)

|   |               
|-- | --------------
|B. | Claims (Cont.)

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (5) | a.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | On April
   11, 2006, a claim was filed against Elscint, the Chairman of the Board of
   Directors of Elscint, Elscints office holders and against companies
   controlled by Elscint. The plaintiff requested the court to declare the
   former as the legal owner of 20% of S.C. Domino International S.R.L
   (Domino)  the former controlling shareholder of Bucuresti - shares, to
   enforce the MOU signed by the parties (see note 10B(3)a.) and to order the
   defendants to pay damages in the amount of NIS 25.0 million.                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | In
   addition, the Court was requested to enforce the loan agreement between
   Domino and the plaintiff, and to rule that Domino is required to pay it an
   amount of NIS 3.2 million ($0.8 million) in respect of this loan.
   Furthermore, the plaintiff asked the court to instruct the defendants to
   take action, in order for the plaintiff to sign an agreement with Bucuresti
   for the management of the apartment hotel and to serve as a party to the
   agreement for the management of the China Restaurant and additional assets
   of Bucuresti.                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Within the
   framework of settlement agreement signed between the parties in September
   2007 (see note 10B(3)a.) the third party shareholder has dismissed the
   claim.                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | b.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | During
   March 2007 the Romanian National Department of Anticorruption resume the
   criminal investigation against number of suspects for certain events
   relating to the period prior to the acquisition of control in Bucuresti by
   the Group. Such criminal indictment was returned-in December 2005- by the
   Romanian court to the prosecution office due to lack of substance. Such
   criminal investigation may have an indirect effect on the validity of the
   privatization and thereby an indirect effect on the Groups rights in
   Bucuresti, notwithstanding Domino is not being investigated.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Considering
   the fact that Domino does not have any quality in this investigation the
   Group estimates, based on a legal advice received, that the final result of
   this investigation will not have a significant impact on its rights in the
   shares of Bucuresti.                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | c.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | A claim and certain other proceedings are pending against Bucuresti,
   which challenge its ownership in and to its properties. Management believes,
   based inter-alia, on legal opinion that Bucuresti has no significant
   financial exposure as a result of this claim.                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | d.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | In addition to the above, certain legal proceedings are being
   conducted from time to time 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 - hence
   not binding. Some were approved by the courts, in respect of which Domino has
   filed appeals, and others were rejected.                                                                                                                                                                                   
|
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Management is of the opinion that the claims are provocative and
   tendentious and will not significantly affect the Groups rights in the
   shares of Bucuresti and in the Bucuresti Complex, owned thereby.                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (6) | Elscint was a formal party to a claim filed by a number of
   employees, holding shares of Algotech (sold to a third party in November
   2003), against the majority shareholder in Algotech, in the framework of
   which the court issued an injunction precluding the transfer of funds from
   Algotech to that shareholder. No remedies were requested against Elscint and
   the injunction does not affect Elscints entitlement to the transfer of
   funds which are to be received as proceeds of the sale. On June 6, 2007 the
   claim was dismissed by the court in light of settlement agreement executed
   between the parties with no costs to Elscint.

F - 96

---

---

|                                                 
|-------------------------------------------------
|ELBIT
   IMAGING LTD.                            
|NOTES TO THE
   CONSOLIDATED FINANCIAL STATEMENTS
|                                                 

|           |                                                             
|---------- | ------------------------------------------------------------
|NOTE 21   | COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS
   (CONT.)

|   |               
|-- | --------------
|B. | Claims (Cont.)

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (7) | A former employee of EIL group filed in October 2005, a lawsuit
   against Vectory Investment Ltd. (a company in EIL group). The plaintiff
   requested the court to issue a mandatory injunction against Vectory ordering
   it to transfer the Plaintiff shares of the companies specified in statement
   of claim - including 2,500 shares of the Company, 1,000 shares of Elscint,
   1,250 shares of Insightec, 1,500 shares of Gamida, 2,000 shares of E.R,
   2,000 shares of Olive and shares of other companies within the EIL Group.
   The Plaintiff evaluated his claim to an ag gregate amount of NIS 285,000. In
   January 2006 Vectory filed a statement of defense in respect of this claim
   and further added and instituted a counterclaim against the plaintiff in the
   sum of NIS 15 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    
| |     | In addition, in January 2008 the plaintiff instituted an additional
   action against the Companys Chairman of the board and Control Centers Ltd.
   In this action the court was asked, inter alia, to issue a mandatory order
   against the defendants instructing them to transfer to the plaintiff 3% of
   their holdings in the shares of Olive and another company within the EIL
   group and furthermore to issue a mandatory order against the defendants
   instructing them to transfer to the plaintiff a further 3% of the said
   holdings, against the price and for the conditions as set out in the
   agreement which is the subject matter of the claim. Alternatively, the court
   was asked to order the defendants to indemnify the plaintiff for the
   economic damages he allegedly sustained due to the non-transfer of the said
   shares and options. The plaintiff evaluated the action in the sum of NIS 5.6
   million. In February 2008, the defendants lodged their application to
   dismiss the action in limine due to the lack of jurisdiction and lodged an
   urgent application for the granting of temporary relief for extending the
   date for submitting the statement of defence. On May 28, 2008 the court
   accepted the defendants request and dismissed the action in limine.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | Although the Company and its subsidiaries are not parties to the
   aforementioned claims, its outcome may nevertheless indirectly affect the
   nature and scope of their rights in their investee companies. No adjustments
   were made in these financial statements in respect of these claims which may
   be required, should it be sustained, in full or in part.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | On May, 25 2006 the plaintiff instituted an action against the
   Company, the Companys Chairman of the board and Control Centers. In the
   action the court was asked to declare the annulment of any resolution
   passed, if any, and/or to be passed, by the Company, by use of the shares
   which are the subject of the rights alleged by the Plaintiff, dealing with
   the grant of any benefits to the Companys Chairman of the board and/or to
   Control Centers and/or members of the board of directors and/or the
   management companies under the control of the Companys Chairman of the
   board and/or Control Centers and all with connection with the Companys
   general meeting to be held on May 31, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | Alternatively, the court was asked to hold that at every meeting to
   be convened as stated, the shares which are the subject of the alleged
   rights of the plaintiff be counted in the part objecting to the passing of the
   said resolutions, whilst maintaining the plaintiffs rights to institute the
   appropriate legal proceedings to prevent harm, to him as a minority
   shareholder in the Company. Further alternatively, the court was asked to
   find that at every meeting to be convened for the passing of such a
   resolutions, the shares which are the subject of the plaintiffs alleged
   rights will not be counted as agreeing with the said resolutions and not as
   part of the objecting votes, whilst maintaining the plaintiffs rights to
   institute the said proceedings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

F - 97

---

---

|                                                 
|-------------------------------------------------
|ELBIT
   IMAGING LTD.                            
|NOTES TO THE
   CONSOLIDATED FINANCIAL STATEMENTS
|                                                 

|           |                                                             
|---------- | ------------------------------------------------------------
|NOTE 21   | COMMITMENTS, CONTINGENCIES, LIENS AND
   COLLATERALS (CONT.)

|   |               
|-- | --------------
|B. | Claims (cont.)

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (7) | (Cont.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    
| |     | Underlying this action is a factual base which is similar to
   additional claims made by the plaintiff against the Companys chairman of
   the board and companies controlled by him as described above. On January 30,
   2008 notice was filed regarding the termination of a mediation process
   between the parties. On February 7,2008 it was held that the defendants must
   submit their statement of defence within 30 days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    
| |     | On February 20, 2008 the defendants lodged their application to
   stay the proceedings due to lis pendens and an urgent application for the
   granting of temporary relief for extending of the date for submitting of the
   statement of defence. This application is based on the allegation that the
   other actions instituted by the plaintiff deal with exactly the same matter
   as this action and that only after the ruling on the other actions can this
   action also be held and ruled upon. On the same day the court handed down
   its decision, extending the date for the submitting of the statement of
   defence.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | Management, based on a legal advice received, is of the opinion that
   it is not possible at this early stage to estimate the outcome of the claim.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (8) | In December
   2005, Elscint was served with a statement of a claim by Elscints former
   employee (in connection with Elscints discontinuing operation) requesting
   that Elscint compensates him for damages resulting from his cancer disease,
   allegedly caused by exposure to radiation in the amount of NIS 315,000 and
   other undefined compensation. The insurance company rejected its liability
   and claimed that such radiation is excluded from the policy. Elscint has
   approached a radiation expert to receive an expert opinion. A statement of
   defense was submitted and a third party notice to the insurance company has
   not yet been filed. The court has ordered to nominate an expert which provided similar
   opinion to Elscint expert, saying that there is no connection between the
   cancer the plaintiff has and the radiation he is claiming to be exposed to. Management
   of the Company believes, based - inter alia - on a legal opinion received,
   that the probability of obtaining a negative outcome in this lawsuit cannot
   be assessed yet due to the preliminary stages in which the lawsuit is but in
   light of the courts experts opinion the chances are in favor of Elscint.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (9) | On April 5,
   2006 the Company and PC were served with a summary procedure claim by a
   third party in term of which, the court was requested to order the Company
   and PC to pay the plaintiff an amount of NIS 10.8 million as an intermediary
   fee for the sale by PC to Klepierre of commercial centers in Poland and the
   Czech Republic.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    
| |     | The Company
   and PC filed a motion to strike out this claim in limine or alternatively to
   strike out the title summary procedure. In a ruling handed down in July
   2006, the heading summary procedure was deleted and accordingly both the
   Company and PC filed their statements of defense. A mediation proceeding
   between the parties ceased in July 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    
| |     | Management
   of the Company believes, based on a legal advice received, that there is a
   good chance that the entire legal action against the Company, or the
   majority thereof, will be denied. PCs management believes, based on legal
   advice received, that there is a fairly good chance that the entire legal
   action against it or the majority thereof, will be denied.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

F - 98

---

---

|                                                 
|-------------------------------------------------
|ELBIT
   IMAGING LTD.                            
|NOTES TO THE
   CONSOLIDATED FINANCIAL STATEMENTS
|                                                 

|           |                                                             
|---------- | ------------------------------------------------------------
|NOTE 21   | COMMITMENTS, CONTINGENCIES, LIENS AND
   COLLATERALS (CONT.)

|   |               
|-- | --------------
|B. | Claims (Cont.)

|   |                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | ---------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | (10)                         | On January
   23, 2008 the Company has been served with a claim submitted against it by a
   third party in the High Court of Justice in London, the United Kingdom (the
   Claim). The Claim seeks damages in the amount of approximately  33.5
   million (NIS 186.6 million) in relation to an alleged option agreement
   between the Company and the plaintiff to acquire 25% of the Companys
   interests in a Casa Radio project in Romania.                                                                                                                                                                                                                                                                              
|  
|   |                              | On February
   20, 2008 the Claim has been settled by agreement between the Parties. The
   settlement agreement provides for the payment of an aggregate amount of $5
   million (NIS 19.2 million), of which $3 million (NIS 11.5 million) has been
   paid directly to the plaintiff, and the remainder of $2 million (NIS 7.7
   million) will be donated to charity. Following the execution of the
   settlement agreement, a Notice of Discontinuance of Claim has been filed
   with the High Court of Justice in London, the United Kingdom.                                                                                                                                                                                
|   |                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | (11)                         | The Company and its subsidiaries are currently involved in various
   legal proceeding relating to their ordinary course of activities. Although
   the final outcome of these claims cannot be estimated at this time, the
   managements of these companies believe based on legal advice, that the
   claims will not materially impact the Group companies.                                                                                                                                                                                                                                                                                                                                                                      
|   |                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|C. | Other contingent liabilities
|   |                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | (1)                          | The General Meeting of the Companys shareholders approved the grant
   of prospective indemnification undertaking to directors and officers
   (including in their capacity as officers of subsidiaries). Total aggregate
   indemnification shall not exceed the lower of 25% of the shareholders
   equity as recorded in the Companys most recent financial statements prior
   to such payment, or $40.0 million, and all in excess of an amount paid (if
   paid) by insurance companies under certain risk policies. The General
   Meeting also approved an exemption of directors and officers (other than
   controlling parties) from liability for any damage caused by breach of a
   duty of towards the Company.    
|   |                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | (2)                          | Elscints shareholders approved in their General Meeting (in October
   2000), the grant of prospective indemnification undertaking to directors and
   officers of Elscint (including in their capacity as officers of
   subsidiaries). Total indemnification shall not exceed the lower of 25% of
   the shareholders equity as recorded in Elscints consolidated financial
   statements as at the indemnification or $50.0 million, and all in addition
   to amounts, if any, which are to be paid by insurance companies under
   certain risk policies. The General Meeting also approved an exemption of
   directors and officers from liability in respect of any damage caused to
   Elscint by breach of duty of care.
|   |                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | (3)                          | PC
   is obliged to indemnify and to hold harmless its directors and officers, to
   the fullest extend permitted by the laws of any relevant jurisdiction,
   against any liability arising out his powers, duties or responsibilities as
   a director or officer of any PC group.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                              | Such indemnification was approved for grant by the Companys
   shareholders meeting to the Companys directors who serve as non- executive
   directors of PC and to the Companys and PCs Executive Chairman of the
   Board and its controlling shareholder, save that the maximum indemnification
   to the Chairman shall not exceed 25% of the shareholders equity of PC based
   on PCs last consolidated financial statements prior to such payment.                                                                                                                                                                                                                                                                       

F - 99

---

---

|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|                                              

|           |                                                          
|---------- | ---------------------------------------------------------
|NOTE 21   | COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (CONT.)

|   |                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | ------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|C. | Other contingent liabilities (cont.)
|   |                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | (4)                                  | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | The Company
  received, in 2003, a letter from a certain insurer (the Insurer) of EIL,
  Elscint and the Company (the Insured Companies), which insured against,
  inter alia, the lawsuit as described in item B(1) above, alleging against the
  Insured Companies, inter alia, that the Insured Companies have 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 (the Insurance Cover) issued by the
  Insurer will be cancelled unless the Insured Companies indicate that
  circumstances as at the issuance of the Insurance Cover differ from those
  stated in the letter. The Companys legal counsel replied on behalf of the
  Insured Companies on March 20, 2003, rejecting all allegations. As of the
  approval of these financial statements the Company has not received any reply
  thereto from the Insurer.
|   |                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                      | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | In January
  2006, the Company and Elscint entered into an agreement with one of the
  insurers of both the Company and Elscint which insured the Company and
  Elscint, inter alia, with respect to the lawsuit described in item B(1)
  above. In accordance with the terms of the agreement the Company, Elscint and
  their former and current directors and officers released the insurer from all
  liabilities that will arise from the abovementioned claim in consideration
  for a one-time payment in the amount of $0.2 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | (5)                                  | Elscint Bio
  Medical Ltd. (Bio) was bound by agreements with a company controlled by its
  former CEO (the CEO), entitling the CEO to shares representing 2% of Bios
  issued and paid-up capital, in consideration for their nominal value. It was
  also provided that venture capital investments of Bio (Target Companies)
  would be carried out such that Bio would invest 92% and the CEO - 8%, and
  that for the purpose of financing the CEOs investment, Bio would grant him a
  dollar-linked non-recourse loan bearing LIBOR+1% interest. It was further
  provided that should this agreement (or another agreement between them for
  the provision of consulting services) be canceled, Bio would be entitled,
  according to the conditions specified in the agreement, to acquire all or any
  of the CEOs holdings in the venture capital investments and in Bio at cost
  and/or at market value, as relevant (depending on the purchase date). In
  2002, Bio and the CEO terminated the employment agreement then existing
  between them. Further to the termination of the agreement, Elscint
  transferred to itself the CEOs rights in Bio and in the venture capital
  investments (mainly in Gamida), as payment for the loans, which it had
  provided to the CEO for acquisition thereof. As of December 31, 2006, a
  dispute was existed between the parties, with the CEO contending that Bio had
  lost its right to acquire his holdings, as aforesaid, since the deadline,
  according to the agreement, for giving notice of its intention in this regard
  had expired. In August 2007 Bio and the CEO signed an agreement, according to which
  the CEO transferred to Bio the ownership and all the rights that were granted
  to him(if so granted) in Bios shares and in the shares of the Target
  Companies in consideration of a one- time payment in the amount of $0.5
  million(NIS 2.3 million).Within the framework of the agreement, the CEO and
  Bio agreed that all the agreements previously executed between the parties
  will be canceled.

F - 100

---

---

|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|                                              

|           |                                                             
|---------- | ------------------------------------------------------------
|NOTE 21   | COMMITMENTS,
   CONTINGENCIES, LIENS AND COLLATERALS (CONT.)

|   |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | --------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|C. | Other
   contingent liabilities (cont.)
|   |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | (6)                                     | In the framework of the
transactions for the sale of the Groups real estate assets, the Group has
undertaken to indemnify the respective purchasers for any losses and costs
incurred in connection with the sale transactions. The indemnifications
usually include: (i)Indemnifications in respect of integrity of title on
the assets and/or the shares sold (i.e: that the assets and/or the shares
are wholly owned and are clean from any encumbrances and/or mortgage and the
like). Such indemnifications generally survived indefinitely and are caped
to the purchase price in each respective transaction; and (ii) Indemnifications in respect other representation and warranties included in
the sales agreements (such as: development of the project, responsibility to
defects in the development project, tax matter and others). Such
indemnifications are limited in time (generally 3 years from closing) and
are generally caped to 25% to 50% of the purchase price. The Groups
management estimates, based  inter alia  on a professional opinion and
past experience that no significant costs will be born thereby, in respect
of these indemnifications
|   |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | (7)                                     | Final approval for
   completion of construction of the Arena commercial center in Israel is
   contingent on the furnishing, to the local municipality, of a bank guarantee
   to secure payment of the land betterment tax, for an amount of approximately
   NIS 4.5 million. Arbitration is currently being held as to such liability
   between Marina Herzliya Limited Partnership Ltd. (of the Control Centers
   Group) and the local municipality. The Companys management estimates, based
   on professional opinion that no significant costs will be borne thereby, in respect
   of this guarantee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | (8)                                     | A
   former subsidiary of PC incorporated in Prague, Czech Rep. (Bestes), which
   was sold in June 2006 (see note 8C(2)) is a party to an agreement with a
   third party (Lessee), for the lease of commercial areas in a center
   constructed on property owned thereby, for a period of 30 years, with an
   option to extend the lease period by additional 30 years, in consideration
   for 6.9 million (NIS 39.0 million), which as of the balance sheet date has
   been fully paid. According to the lease agreement, the Lessee has the right
   to terminate the lease subject to fulfillment of certain conditions as
   stipulated in the agreement. Within the framework of the agreement for the
   sale of Bestes to Klepierre in June 2006, it was agreed that PC will remain
   liable to Klepierre in case the Lessee terminates its contract. PCs
   management is of the opinion that this commitment will not result in any
   material amount due to be paid by it.                                                                                                                                                                                    
|   |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | (9)                                     | Within
   the framework of an agreement signed in April 2005 between PC and Dawnay Day
   for the sale of 4 commercial centers in Hungary, PC undertook to guarantee
   the achievement of certain operational targets of one of the sold commercial
   center, for a period of 3 years ending on March 31, 2008. As of the balance
   sheet date, PCs management estimates that the maximum exposure of the
   guarantee totals 0.8 million (NIS 4.5 million).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

F - 101

---

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|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|                                              

|           |                                                              
|---------- | -------------------------------------------------------------
|NOTE 21   | COMMITMENTS,
    CONTINGENCIES, LIENS AND COLLATERALS (CONT.)

|   |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | ------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|D. | Liens
    and collateral
|   |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | (1)                      | a.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | As security for a loan
    of NIS 265.7 million granted to the Company by an Israeli bank, the Company
    undertook to comply with financial covenants, including, among other, an
    undertaking to maintain throughout the term of credit a minimum ratio of
    adjusted shareholders equity of the Company to its adjusted balance
    sheet, all as defined in the agreement. The Company also committed to a
    minimum net operating profit, before financial expenses and before
    depreciation and amortization deductions. The Company further committed to
    a minimum net asset value of PC (after deduction of loans, including
    shareholders loans) which is to be determined by an external appraiser.
    The covenants will remain in full force and effect for as long as the
    credit provided by the bank to the Company or to EIL exceeds $ 30.0 million
    (NIS 115.4 million).
|   |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | The Company also
    undertook not to pledge, in favor of third parties, any existing and
    prospective assets, without the banks prior consent (excluding pledges of
    new assets and/or projects granted in favor of those who financed or
    refinanced -the acquisition and/or execution of same). The Company further
    undertook to provide under certain circumstances, some additional
    securities as detailed in the agreement, including a secondary lien on
    assets and interests acquired through funds provided by the credit line.                                                                                                                                                                                                                                                                                                                                                             
|   |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | Should the Company fail
    to comply with all or any of said financial covenants, or upon the
    occurrence of an event of default (including failure to provide the
    additional securities), the bank shall then be entitled to demand the
    immediate repayment of the loan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | As for written
    understanding between the Company and the bank - see note 17D.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                          | b.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | As security for loans
    totaling NIS 51.0 million granted to the Company by another Israeli bank,
    the Company undertook, in favor thereof, not to pledge the majority of its
    shares in Elscint, without the banks prior consent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | (2)                      | As security of a long
    term credit facility of approximately NIS 54.4 million received from an
    Israeli bank, Elscint undertook to comply with certain financial covenants,
    namely maintaining, throughout the duration of the credit, a minimum ratio
    of shareholders equity to total balance sheet assets and others. Elscint
    has registered, as a security for the credit, a first-ranking pledge in
    favor of the bank on the B.H. shares and granted certain additional first
    and second ranking pledges on shares of subsidiaries owned thereby. Elscint
    also undertook not to grant any floating or fixed charges of any rank, on
    any existing and prospective assets, in favor of third parties, without the
    banks prior consent (excluding pledges of assets and/or projects, granted
    in favor of those who financed or refinanced -the acquisition and/or
    execution of same). Elscint further undertook to provide additional
    collateral, as detailed in the agreement, including first or second ranking
    pledges on assets and interests acquired by means of the credit line, and
    all as may be required by the bank. Should Elscint fail to comply with the
    financial covenant, or upon the occurrence of certain events of default,
    then and in such events, the bank shall be entitled to demand immediate
    payment of the loans. As for written understanding between Elscint and the
    bank - see note 17E.

F - 102

---

---

|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|                                              

|           |                                                              
|---------- | -------------------------------------------------------------
|NOTE 21   | COMMITMENTS,
    CONTINGENCIES, LIENS AND COLLATERALS (CONT.)

|   |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | -------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|D. | Liens
    and collateral (Cont.)
|   |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | (3)                              | Projects
    under credit facilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                  | a.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | Certain Project
    Companies which engaged in the purchase, construction or operation of
    hotels and/or commercial centers (Project Companies) have secured their
    respective credit facilities awarded by financing banks, in a total amount
    of NIS 1,364 million, by providing the first or second ranking (fixed or
    floating) charges on property owned thereby, including right in and to real
    estate property as well as the financed projects, on goodwill and other
    intangible assets, on rights pertaining to certain contracts (including
    lease, operation and management agreements), on rights arising from
    insurance policies, and the like. Shares of Project Companies were also
    pledged in favor of the financing banks. The Company and Elscint guarantee
    fulfillment of certain project companies obligations under loan agreements
    up to an aggregate amount of NIS 396 million.                          
|   |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Shareholders loans as
    well as any other rights and/or interests of shareholders in and to the
    Project Companies were subordinated to the respective credit facilities.
    Payment is permitted to the shareholders (including the distribution of
    dividends but excluding management fees) subject to fulfilling of certain
    preconditions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Certain loan agreements
    include an undertaking to fulfill certain financial and operational
    covenants throughout the duration of the credit, namely: complying with a
    minimum debt services cover ratio, loan outstanding amount to secured
    assets value ratio; complying with certain restrictions on interest rates;
    maintaining certain cash balances for current operations; maintaining
    equity to project cost ratio and net profit to current banks debt;
    occupancy percentage; average room or rental fee rates, a minimum ratio of
    total room revenue per available rooms and others.                                                                                                                                                                                                                                                                                                                                      
|   |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | The Project Companies
    undertook not to make any disposition in and to the secured assets, not to
    sell, transfer or lease any substantial part of their assets without the
    prior consent of the financing bank. In certain events the Project
    Companies undertook not to allow, without the prior consent of the
    financing bank: (i) any changes in and to the holding structure of the
    Project Companies nor to allow for any change in their incorporation
    documents; (ii) execution of any significant activities, including issuance
    of shares, related party transactions and significant transactions not in
    the ordinary course of business; (iii) certain changes to the scope of the
    project; (iv) the assumption of certain liabilities by the Project Company
    in favor of third parties; (v) receipt of loans by the Project Company
    and/or the provision thereby of a guarantee to third parties; and the like.
|   |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                  | b.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | As to bank deposits made
    to secure loans and debts, by the Group Companies - see notes 27C(7).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | (4)                              | In
    order to secure a bank loan in the amount of NIS 42.3 million received by
    the controlling shareholder in Domino (BHEE), for the financing of
    investment in Bucuresti, BHEE granted a fixed pledge on its Domino shares
    and a floating charge on all Dominos assets as well as a lien on the
    Bucuresti shares. Elscint pledged its BHEE shares and also granted a
    floating charge on BHEEs assets. An undertaking was granted in favor of
    the financing bank, not to allow for any change in the ownership and
    control structure of BHEE throughout the duration of the credit. Elscint
    furthermore provided a guarantee, unlimited in amount, to secure BHEEs
    undertakings to the bank. The bank restricted its right to realize this
    guarantee, by linking it to the realization terms of the Bucuresti shares
    owned by Domino (except for certain instances as stipulated in the
    agreement).

F - 103

---

---

|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|                                              

|           |                                                              
|---------- | -------------------------------------------------------------
|NOTE 21   | COMMITMENTS,
    CONTINGENCIES, LIENS AND COLLATERALS (CONT.)

|   |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | -------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|D. | Liens
    and collateral (Cont.)
|   |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | (5)                              | Within the framework of
    an investment, in which Insightec has raised from its existing shareholders
    through the issuance of convertible notes, $36.0 million (NIS 138.5
    million), Insightec undertook that, so long as any note remains outstanding
    and until a qualified IPO of at least 25% of Insightecs shares or a
    financing of at least $50.0 million (NIS 192.3 million) at a price per share
    not lower than $14.0 Insightec will be obliged to maintain at all times
    available cash and marketable securities plus available committed lines of
    credit from reputable financial institutions in the aggregate amount of at
    least $ 5.0 million (NIS 19.2 million). Failure to maintain the above
    covenants will be considered as an event of default.                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | (6)                              | In order to secure
    credit line of $15.0 million (NIS 57.7 million) which was provided to
    insightec by two commercial banks, Insightec recorded in favor of the
    financing banks floating lien in an unlimited amount on substantially all
    its assets and specific fixed liens on Insightecs rights in certain assets
    and receivable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | (7)                              | Insightecs technology
    developed with OCS funding is subject to transfer restrictions, which may
    impair its ability to sell its technology assets or to outsource
    manufacturing. The restrictions continue to apply even after Insightec has
    paid the full amount of royalties payable for the grants. In addition, the
    restriction may impair Insightecs ability to consummate a merger or
    similar transaction in which the surviving entity is not an Israeli
    company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | (8)                              | Within
     the framework of a lease agreement executed in July 2007 between the
     Company and the Israel Land Administration (ILA) (see note 13B(4)), the
     Company has provided the ILA with two bank guarantees in the aggregate
     amount of NIS 10.0 million in order to secure the Companys undertakings
     included in the lease agreement. As a security for the guarantees, the
     Company pledged deposits in the same amount.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | (9)                              | Within the framework of the franchise and support agreements
       executed by Elbit Trade with third parties(see notes 21A(9)&(10)),
       Elbit Trade has furnished the third parties with letters of credit in the aggregate amount
       of 3.1 million (NIS 17.5 million) in order to secure payments to the
       third parties under the agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | (10)                             | Within the framework
        a cross currency interest rate swap transaction (see note 9A(5)), PC
        agreed with the bank on an Approved Risk Limit of 8.0 million (NIS
        45.3 million). The approved risk limit is the maximum risk exposure (as
        a result of the cross currency interest rate swap) in which the bank
        will not require PC to secure additional funds. As of balance sheet
        date PC has pledged a security deposit in the amount of 5.3 million
        (NIS 30.0 million) in respect of this transaction. In the event that
        the exposure exceeds the Approved Risk Limit, PC undertakes to act
        immediately and without delay, and on its own initiative, to reduce the
        exposure to an amount not in excess of the Approved Risk Limit, by
        means of early termination of transactions. The bank may, but shall not
        be obliged, at any time and at any price and without having to give any
        prior notice, to act immediately and without delay in order to adjust
        the exposure to the Approved Risk Limit and/or to act in accordance
        with its rights as provided in the agreement.

F - 104

---

---

|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|                                              

|                   |                      
|------------------ | ---------------------
|NOTE
        22   | SHARE
        CAPITAL

|   |             
|-- | ------------
|A. | Composition:

|                                   |  |                                                    |            |      |  |            | 
|---------------------------------- |  | -------------------------------------------------- | ---------- | ---- |  | ---------- | 
|                                   |  | Ordinary shares
        of NIS 1.00 par value each |           
|                                   |  |                                                    |           
|                                   |  | December 31                                        |           
|                                   |  |                                                    |           
|                                   |  | 2007                                               |            | 2006 | 
|                                   |  |                                                    |            |      | 
|                                   |  |                                                    |            |      |  |            | 
|Authorized share
        capital   |  |                                                    | 50,000,000 |      |  | 50,000,000 | 
|Issued and
        outstanding (*) |  |                                                    | 28,254,524 |      |  | 28,254,262 | 

|    |                                                                           
|--- | --------------------------------------------------------------------------
|(*) | December 31, 2007
        and 2006 - including 2,800,000 dormant shares.

|   |                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | ------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|B. | Further
        information regarding the share capital
|   |                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | (i)                                                     | The balance of the
        shares as of December 31,2007, includes 82,876 shares (including 47,700
        shares issued by the Company to Elscints employees and directors in
        the framework of the merger with Elscint, within the framework of the
        employees and officers incentive plan (Employees and 2001 Plan).
        The acquisition of the shares by the Employees was financed by a loan
        provided for such purpose by the Company, to be repaid at the end of a
        five-year period. The loan bears an annual interest of 6%. The shares
        are held in escrow, and will be used as sole security for repayment of
        the said loan. The said shares are entitled to dividends distributions
        by the Company. On February 16, 2006 the Companys Board of Directors
        extended the exercise term of the Companys 2001 Plan for 2 additional
        years to Employees other than the Companys directors and office
        holders. All shares held by the Employees, as of December 31, 2007, are
        free of any restriction (Vested).
|   |                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | (ii)                                                    | On May 17, 2006
        Elscint sold trough a private transaction 524,187 dormant shares of the
        Company in consideration of NIS 115.0 for each share. As a result, the
        Companys shareholders equity increased in the amount of NIS 47.4
        million which comprise of the proceeds received by Elscint net of
        transaction costs and provision for income taxes on the gain generated
        by Elscint. Following this transaction, these shares have full equity
        and voting rights.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | (iii)                                                   | Within the framework
        of the merger with Elscint executed in 2005, the Company issued 26,500
        options to directors and officers of Elscint, against 50,000 options
        granted to them by Elscint. The options were exercisable to 26,500
        ordinary shares of the Company in consideration of NIS 38.7 per share.
        In March 2006, the options were exercised into 27,964 ordinary shares
        of the Company (the additional 1,464 shares deriving from an adjustment
        in connection with the distribution of a dividend on January 17, 2006).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

F - 105

---

---

|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|                                              

|                   |                              
|------------------ | -----------------------------
|NOTE
        22   | SHARE
        CAPITAL (CONT.)

|   |                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | --------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|C. | Options
        plans
|   |                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | (i)                   | The Companys Audit
        Committee and Board of Directors adopted option plan for the grant of
        up to 1,000,000 non-marketable options to the employees, directors and
        officers of the Company and companies under its control (2006 Option
        Plan). In accordance with the terms of the plan 353,500 options were
        approved for grant to all the Companys directors except the Chairman
        of the Board, and the remaining shall be granted to the Companys
        employees and officers (the Offerees). The Options will be granted to
        the Offerees for no consideration. The exercise price per Option will
        be the lower of: (i) NIS 100.0, which constitutes the average closing
        price of the Companys shares on the Tel Aviv Stock Exchange (TASE)
        during the 30-trading day period preceding May 31, 2006 (the date of
        the option plan approval by the Companys shareholders meeting); or
        (ii) the average closing price of the shares on the TASE during the
        30-trading days period preceding the date of grant of the options (the
        Exercise Price). The Exercise Price of each option will be reduced
        upon distributions of dividend by the dividend per share net of tax.
|   |                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                       | The exercise
        mechanism of the options into the Companys shares will be as follow:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |                       | At the exercise date
        the Company shall issue to each option exercised shares equal to the
        difference between (A) the opening price of the Companys shares on the
        TASE on the exercise date, provided that if the opening price exceeds
        166% of the Exercise Price, the opening price shall be set as 166% of
        the Exercise Price (Caped Exercise Price); less (B) the Exercise Price
        of the options; and the result (A minus B) will be divided by the Caped
        Exercise Price. On January 31, 2007 the Companys Audit Committee and
        Board of Directors approved an amendment to the 2006 Option Plan
        according to which the Caped Exercises Price of each option will be NIS
        200.0 instead of NIS 166.0. Such amendment terms were applied
        immediately to all Offerees other than the Companys directors, in
        respect of which the amendment terms were applied following the
        approval of the Companys shareholders meeting on November 1, 2007.                                                                                                                                                                                                                                                   

F - 106

---

---

|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|                                              

|                   |                              
|------------------ | -----------------------------
|NOTE
        22   | SHARE
        CAPITAL (CONT.)

|   |                               |                                                                                                                                                                                                                                                                                                                                                                            
|-- | ----------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|C. | Options
        plans (cont.)
|   |                               |                                                                                                                                                                                                                                                                                                                                                                            
|   | (i)                           | (Cont.)                                                                                                                                                                                                                                                                                                                                                                    
|   |                               |                                                                                                                                                                                                                                                                                                                                                                            
|   |                               | The vesting period
        of the options will occur ratably over a three years period (33.33% of
        the Options shall vest on each of the first three anniversaries of the
        date of grant (the Vesting Period). The options will expire five
        years following the date of grant. Following is the activity in the Companys
        2006 option plan:

|                                     |  |                        |         |                                   |       |                       |  |                                   |         |       |       |  | 
|------------------------------------ |  | ---------------------- | ------- | --------------------------------- | ----- | --------------------- |  | --------------------------------- | ------- | ----- | ----- |  | 
|                                     |  | Number of options      |        
|                                     |  |                        |        
|                                     |  | Year ended December 31 |        
|                                     |  |                        |        
|                                     |  | 2 0 0 7                |         | 2 0 0 6                           |      
|                                     |  |                        |         |                                   |      
|                                     |  | Number of options (*)  |         | Weightedaverageexerciseprice (**) |       | Number of options (*) |  | Weightedaverageexerciseprice (**) |        
|                                     |  |                        |         |                                   |       |                       |  |                                   |        
|                                     |  |                        |         |                                   | (NIS) |                       |  |                                   |         | (NIS) |      
|                                     |  |                        |         |                                   |       |                       |  |                                   |         |       |      
|                                     |  |                        |         |                                   |       |                       |  |                                   |         |       |       |  | 
|Balance at the beginning of the year |  |                        | 857,250 |                                   | 100.0 |                       |  |                                   | 857,250 |       | 100.0 |  | 
|Granted                              |  |                        |        |                                   |      |                       |  |                                   |        |       |      |  | 
|Exercised                            |  |                        | (500    | )                                 | 100.0 |                       |  |                                   |        |       |      |  | 
|Forfeited                            |  |                        | (8,667  | )                                 | 100.0 |                       |  |                                   |        |       |      |  | 
|                                     |  |                        |         |                                   |       |                       |  |                                   |         |       |       |  | 
|Balance at the end of the year       |  |                        | 848,083 |                                   |       |                       |  |                                   | 857,250 |       |       |  | 
|                                     |  |                        |         |                                   |       |                       |  |                                   |         |       |       |  | 
|                                     |  |                        |         |                                   |       |                       |  |                                   |         |       |       |  | 
|Options exercisable at the year end  |  |                        | 285,250 |                                   |       |                       |  |                                   |        |       |       |  | 
|                                     |  |                        |         |                                   |       |                       |  |                                   |         |       |       |  | 

| |                                                                                                                                                                             |                                                                                                                                                                                                                        
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (*)                                                                                                                                                                         | Include 353,500
        options which were granted to the Companys directors(excluding the
        Companys Chairman of the Board) following the approval of the
        Companys shareholders meeting in May 2006.
| |                                                                                                                                                                             |                                                                                                                                                                                                                        
| | (**)                                                                                                                                                                        | Before adjustment in
        respect of dividend distribution.                                                                                                                                                         
| |                                                                                                                                                                             |                                                                                                                                                                                                                        
| | The weighted average
        exercise price of the outstanding options as of December 31, 2007 is
        NIS 100.0 and the weighted average contractual life is 3.5 years.
| |                                                                                                                                                                             |                                                                                                                                                                                                                        
| | The average
        estimated fair value of the option was calculated based on the Binomial
        model using the following assumptions:                                 

|                                             |  |                        |     |      |            |   | 
|-------------------------------------------- |  | ---------------------- | --- | ---- | ---------- | - | 
|                                             |  | Year ended December 31 |    
|                                             |  |                        |    
|                                             |  | 2007                   |     | 2006 |           
|                                             |  |                        |     |      |           
|                                             |  |                        |     |      |            |   | 
|Risk free interest
        rate (%)          |  | 4.85                   |     |      | 4.96       |   | 
|Exercise coefficient                         |  | 2.0                    |     |      | 1.66       |   | 
|Contractual term                             |  | 3.67                   |     |      | 5          |   | 
|Expected volatility
        (%)              |  | 37.3-38.3              |     |      | 37.0-37.45 |   | 
|Expected dividend
        yield              |  | None                   |     |      | None       |   | 
|Forfeited (%)                                |  | 2                      | %   |      | 2          | % | 
|Total cost of
        benefit (NIS thousand) |  | 15,564                 | (1) |      | 20,846     |   | 
|Expenses recognized                          |  | 19,427                 |     |      | 6,650      |   | 

| |     |                                                                                                                      
| | --- | ---------------------------------------------------------------------------------------------------------------------
| | (1) | Represent additional
        cost in respect of the amendment of the Option Plan in January 2007
        (see above).

F - 107

---

---

|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|                                              

|                   |                              
|------------------ | -----------------------------
|NOTE
        22   | SHARE
        CAPITAL (CONT.)

|   |                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | ----------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|C. | Options
        plans (cont.)
|   |                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | (ii)                          | On May 31, 2006, the
        Companys shareholders meeting approved the Grant of 350,000
        non-marketable options to the Companys Chairman of the Board who is
        also considered the indirect controlling shareholder of the Company,
        exercisable into 350,000 shares. The exercise price of each option
        shall equal 125% of the average closing price of the Companys shares
        on the TASE during the 30-trading day period preceding the date of
        grant of the options which was equal to NIS 137.4 per share. The
        options are exercisable immediately upon their grant and will remain
        exercisable for a period of three years thereafter.
|   |                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                               | The average estimated
        fair value of the option granted was calculated based on the
        Black-Scholes model using the following assumptions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

|                                         |  |      |   | 
|---------------------------------------- |  | ---- | - | 
|Risk free interest
        rate (%)      |  | 3.8  | % | 
|Expected life of
        options (years) |  | 3    |   | 
|Expected volatility
        (%)          |  | 35.8 | % | 
|Expected dividend
        yield          |  | None |   | 
|Forfieted (%)                            |  | None |   | 

|   |                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | ------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                           | The cost of benefit
        inherent in this option plan base on the fair value on the day of their
        grant amount to NIS 6,832 thousands, which was recorded as an expense
        in 2006 financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|D. | Dividend
        declared
|   |                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | (i)                       | On January 17, 2006,
        the Company distributed to its shareholders a dividend in the amount of
        NIS 130.0 million (which represents NIS 5.1 per share). Out of that
        amount: (i) NIS 3.1 million was paid to employees and was recorded as
        salary expenses in the 2006 financial statements; and (ii) NIS 2.7
        million was paid to Elscint in respect of its shareholding in the
        Companys stock.                                                                                                                                                                                                                                                                                                                                                                                            
|   |                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | (ii)                      | On April 19, 2007,
        the Company has distributed a dividend in the amount of NIS 160.9
        million (which represents NIS 6.3 per share). Out of the said amount,
        NIS 0.7 million was paid to employees and was recorded as salary
        expenses in these financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | (iii)                     | On January 14, 2007,
        the Companys Board of Directors, has adopted a dividend distribution
        policy (the Policy), pursuant to which the Company will distribute a
        cash dividend of at least 50% of its surpluses accrued by the Company
        every year, provided such dividend does not exceed 50% of the cash flow
        accrued by the Company from dividends and repayment of owners loans
        received by the Company from its subsidiaries in that year, all in
        accordance with the Companys audited and consolidated annual financial
        statements. The Company will publish a detailed report with respect to
        any such distribution under the Policy, at a time close to the
        publication date of its annual financial statements for the previous
        year.
|   |                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                           | Any distribution of
        dividends under the Policy is subject to a specific resolution of the
        Companys board of directors determining the Companys compliance with
        the distribution criteria, as prescribed in the Companies Law, as may
        be from time to time, and to any applicable law. In reaching such
        resolution, the Companys board of directors will take into account, inter alia, the Companys
        liabilities and undertakings towards third parties, the Companys
        cash-flow needs and financing resources available to the Company. The
        board of directors is authorized in its sole discretion to change or
        terminate the Policy at any time. The adoption of the Policy does not
        serve to constitute any undertaking towards any third party. 
|   |                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                           | As for dividend
        distribution in 2008 - see note 29D.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

F - 108

---

---

|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|                                              

|                   |                                                       
|------------------ | ------------------------------------------------------
|NOTE
        23   | ADDITIONAL
        DETAILS CONCERNING INCOME STATEMENT

|   |                                                            |                   |  |                        |           |      |         |         | 
|-- | ---------------------------------------------------------- | ----------------- |  | ---------------------- | --------- | ---- | ------- | ------- | 
|   |                                                            |                   |  | Year ended December 31 |          
|   |                                                            |                   |  |                        |          
|   |                                                            |                   |  | 2007                   |           | 2006 |        
|   |                                                            |                   |  |                        |           |      |        
|   |                                                            |                   |  | (in thousand NIS)      |          
|   |                                                            |                   |  |                        |          
|   |                                                            |                   |  |                        |           |      |         |         | 
|A. | Revenues
        from commecial centers                    |                   |  |                        |           |      |         |        
|   |                                                            |                   |  |                        |           |      |         |         | 
|   | Sales of trading
        property (i)                      |                   |  | 2,819,820              |           |      | 286,633 |        
|   | Rental income and
        management fees                  |                   |  | 43,978                 |           |      | 70,135  |        
|   | Others                                                     |                   |  | 53,818                 |           |      | 40,434  |        
|   |                                                            |                   |  |                        |           |      |         |        
|   |                                                            |                   |  |                        | 2,917,616 |      |         | 397,202 | 
|   |                                                            |                   |  |                        |           |      |         |         | 
|  
|   | (i)                                                        | See note 8C.      |  |                        |           |      |         |         | 
|   |                                                            |                   |  |                        |           |      |         |         | 
|B. | Revenues
        from hotel operations and management      |                   |  |                        |           |      |         |        
|   |                                                            |                   |  |                        |           |      |         |         | 
|   | Rooms                                                      |                   |  | 261,397                |           |      | 227,592 |        
|   | Food, beverage and
        other services                  |                   |  | 116,978                |           |      | 111,497 |        
|   | Rental of commercial
        space                         |                   |  | 16,852                 |           |      | 12,521  |        
|   |                                                            |                   |  |                        |           |      |         |        
|   |                                                            |                   |  |                        | 395,227   |      |         | 351,610 | 
|   |                                                            |                   |  |                        |           |      |         |         | 
|   |                                                            |                   |  |                        |           |      |         |         | 
|C. | Gains
        from sale of real estate assets              |                   |  |                        |           |      |         |        
|   |                                                            |                   |  |                        |           |      |         |         | 
|   | Sales of investment
        property (i)                   |                   |  | 17,800                 |           |      | 74,778  |        
|   | Sales of hotels (ii)                                       |                   |  | 44,821                 |           |      | 7,016   |        
|   |                                                            |                   |  |                        |           |      |         |        
|   |                                                            |                   |  |                        | 62,621    |      |         | 81,794  | 
|   |                                                            |                   |  |                        |           |      |         |         | 
|  
|   | (i)                                                        | See note 12C.     |  |                        |           |      |         |         | 
|   | (ii)                                                       | See note 11C.     |  |                        |           |      |         |         | 
|   |                                                            |                   |  |                        |           |      |         |         | 
|D. | Gain
        from decrease in shareholding in subsidiaries |                   |  |                        |           |      |         |        
|   |                                                            |                   |  |                        |           |      |         |         | 
|   | Decrease in
        shareholding of PC (i)                 |                   |  |                       |           |      | 667,014 |        
|   | Decrease in
        shareholding of Insightec (ii)         |                   |  | 5,310                  |           |      |        |        
|   |                                                            |                   |  |                        |           |      |         |        
|   |                                                            |                   |  |                        | 5,310     |      |         | 667,014 | 
|   |                                                            |                   |  |                        |           |      |         |         | 
|  
|   | (i)                                                        | See note 10B(2)b. |  |                        |           |      |         |         | 
|   | (ii)                                                       | See note 10B(1)e. |  |                        |           |      |         |         | 

F - 109

---

---

|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|                                              

|                   |                                                               
|------------------ | --------------------------------------------------------------
|NOTE
        23   | ADDITIONAL
        DETAILS CONCERNING INCOME STATEMENT (CONT.)

|   |                                                      |  |                        |           |      |  |         | 
|-- | ---------------------------------------------------- |  | ---------------------- | --------- | ---- |  | ------- | 
|   |                                                      |  | Year ended December 31 |          
|   |                                                      |  |                        |          
|   |                                                      |  | 2007                   |           | 2006 | 
|   |                                                      |  |                        |           |      | 
|   |                                                      |  | (in thousand NIS)      |          
|   |                                                      |  |                        |          
|   |                                                      |  |                        |           |      |  |         | 
|E. | Cost
        of commercial centers                   |  |                        |           |      |  |         | 
|   |                                                      |  |                        |           |      |  |         | 
|   | Direct
        expenses:                             |  |                        |           |      |  |         | 
|   | Cost of trading
        property sold                |  |                        | 1,492,020 |      |  | 253,941 | 
|   | Wages and fringe
        benefits                    |  |                        | 9,039     |      |  | 9,623   | 
|   | Energy costs                                         |  |                        | 8,901     |      |  | 12,162  | 
|   | Taxes and insurance                                  |  |                        | 3,139     |      |  | 2,814   | 
|   | Maintenance of
        property and other expenses   |  |                        | 34,364    |      |  | 23,401  | 
|   |                                                      |  |                        |           |      |  |         | 
|   |                                                      |  |                        | 1,547,463 |      |  | 301,941 | 
|   |                                                      |  |                        |           |      |  |         | 
|   | Other
        operating expenses:                    |  |                        |           |      |  |         | 
|   | Wages and fringe
        benefits                    |  |                        | 30,289    |      |  | 22,165  | 
|   | Stock-based
        compensation expenses            |  |                        | 44,343    |      |  | 6,647   | 
|   | Advertising                                          |  |                        | 23,757    |      |  | 11,992  | 
|   | Others                                               |  |                        | 47,750    |      |  | 20,991  | 
|   |                                                      |  |                        |           |      |  |         | 
|   |                                                      |  |                        | 146,139   |      |  | 61,795  | 
|   |                                                      |  |                        |           |      |  |         | 
|   |                                                      |  |                        |           |      |  |         | 
|   | Depreciation
        and amortization                |  |                        | 20,651    |      |  | 32,078  | 
|   |                                                      |  |                        |           |      |  |         | 
|   |                                                      |  |                        | 1,714,253 |      |  | 395,814 | 
|   |                                                      |  |                        |           |      |  |         | 
|   |                                                      |  |                        |           |      |  |         | 
|F. | Cost
        of hotel operations and managment       |  |                        |           |      |  |         | 
|   |                                                      |  |                        |           |      |  |         | 
|   | Direct
        expenses:                             |  |                        |           |      |  |         | 
|   | Wages and fringe
        benefits                    |  |                        | 112,821   |      |  | 106,286 | 
|   | Food and beverages                                   |  |                        | 22,622    |      |  | 21,349  | 
|   | Others                                               |  |                        | 86,774    |      |  | 81,672  | 
|   |                                                      |  |                        |           |      |  |         | 
|   |                                                      |  |                        | 222,217   |      |  | 209,307 | 
|   |                                                      |  |                        |           |      |  |         | 
|   | Other
        operating expenses:                    |  |                        |           |      |  |         | 
|   | Wages and fringe
        benefits                    |  |                        | 974       |      |  | 1,106   | 
|   | Management fees and
        reimbursement expenses   |  |                        | 18,864    |      |  | 16,228  | 
|   | Business taxes,
        insurance and lease payments |  |                        | 21,559    |      |  | 22,427  | 
|   | Others                                               |  |                        | 16,182    |      |  | 9,285   | 
|   |                                                      |  |                        |           |      |  |         | 
|   |                                                      |  |                        | 57,579    |      |  | 49,046  | 
|   |                                                      |  |                        |           |      |  |         | 
|   |                                                      |  |                        |           |      |  |         | 
|   | Depreciation
        and amortization                |  |                        | 50,267    |      |  | 50,270  | 
|   |                                                      |  |                        |           |      |  |         | 
|   |                                                      |  |                        | 330,063   |      |  | 308,623 | 
|   |                                                      |  |                        |           |      |  |         | 
|   |                                                      |  |                        |           |      |  |         | 

F - 110

---

---

|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|                                              

|                   |                                                               
|------------------ | --------------------------------------------------------------
|NOTE
        23   | ADDITIONAL
        DETAILS CONCERNING INCOME STATEMENT (CONT.)

|   |                                                         |  |                                |        |      |  |        | 
|-- | ------------------------------------------------------- |  | ------------------------------ | ------ | ---- |  | ------ | 
|   |                                                         |  | Year ended
        December 31 |       
|   |                                                         |  |                                |       
|   |                                                         |  | 2007                           |        | 2006 | 
|   |                                                         |  |                                |        |      | 
|   |                                                         |  | (in thousand NIS)              |       
|   |                                                         |  |                                |       
|   |                                                         |  |                                |        |      |  |        | 
|G. | Costs
        and expenses of medical systems operation |  |                                |        |      |  |        | 
|   |                                                         |  |                                |        |      |  |        | 
|   | Direct
        expenses:                                |  |                                |        |      |  |        | 
|   | Wages and fringe
        benefits                       |  |                                | 4,549  |      |  | 5,603  | 
|   | Stock-based
        compensation expenses               |  |                                | 1,178  |      |  | 1,714  | 
|   | Materials and
        subcontractors                    |  |                                | 9,544  |      |  | 9,738  | 
|   | Changes in work in
        process and finished goods   |  |                                | (94    | )    |  | 670    | 
|   | Others                                                  |  |                                | 9,561  |      |  | 9,891  | 
|   |                                                         |  |                                |        |      |  |        | 
|   |                                                         |  |                                | 24,738 |      |  | 27,616 | 
|   |                                                         |  |                                |        |      |  |        | 
|   | Other
        operating expenses:                       |  |                                |        |      |  |        | 
|   | Wages and fringe
        benefits                       |  |                                | 14,865 |      |  | 14,497 | 
|   | Stock-based
        compensation expenses               |  |                                | 5,135  |      |  | 4,860  | 
|   | Advertising and
        commissions                     |  |                                | 13,433 |      |  | 13,347 | 
|   | Depreciation and
        amortization                   |  |                                | 541    |      |  | 483    | 
|   | Others                                                  |  |                                | 11,241 |      |  | 10,943 | 
|   |                                                         |  |                                |        |      |  |        | 
|   |                                                         |  |                                | 45,215 |      |  | 44,130 | 
|   |                                                         |  |                                |        |      |  |        | 
|   |                                                         |  |                                |        |      |  |        | 
|   |                                                         |  |                                | 69,953 |      |  | 71,746 | 
|   |                                                         |  |                                |        |      |  |        | 
|   |                                                         |  |                                |        |      |  |        | 
|H. | Cost
        of fashion merchandise                     |  |                                |        |      |  |        | 
|   |                                                         |  |                                |        |      |  |        | 
|   | Direct
        expenses:                                |  |                                |        |      |  |        | 
|   | Inventories -
        Opening balance                   |  |                                | 10,290 |      |  | 8,034  | 
|   | Purchases                                               |  |                                | 31,604 |      |  | 28,886 | 
|   | Less - Inventories
        closing balance              |  |                                | 11,429 |      |  | 10,290 | 
|   |                                                         |  |                                |        |      |  |        | 
|   |                                                         |  |                                | 30,465 |      |  | 26,630 | 
|   |                                                         |  |                                |        |      |  |        | 
|   | Other
        operating expenses:                       |  |                                |        |      |  |        | 
|   | Wages and fringe
        expenses                       |  |                                | 16,515 |      |  | 12,874 | 
|   | Rental, management
        fee and shops maintenance   |  |                                | 20,571 |      |  | 16,967 | 
|   | Advertising                                             |  |                                | 6,634  |      |  | 6,146  | 
|   | Depreciation and
        amortization                   |  |                                | 4,215  |      |  | 3,438  | 
|   | Others                                                  |  |                                | 1,908  |      |  | 1,779  | 
|   |                                                         |  |                                |        |      |  |        | 
|   |                                                         |  |                                | 49,843 |      |  | 41,204 | 
|   |                                                         |  |                                |        |      |  |        | 
|   |                                                         |  |                                |        |      |  |        | 
|   |                                                         |  |                                | 80,308 |      |  | 67,834 | 
|   |                                                         |  |                                |        |      |  |        | 
|   |                                                         |  |                                |        |      |  |        | 
|I. | Research
        and development expenses:              |  |                                |        |      |  |        | 
|   |                                                         |  |                                |        |      |  |        | 
|   | Wages and fringe
        benefits                       |  |                                | 34,410 |      |  | 31,675 | 
|   | Stock-based
        compensation expenses               |  |                                | 3,496  |      |  | 5,672  | 
|   | Materials and
        subcontractors                    |  |                                | 16,402 |      |  | 21,542 | 
|   | Depreciation and
        amortization                   |  |                                | 6,578  |      |  | 5,965  | 
|   | Others                                                  |  |                                | 8,673  |      |  | 8,684  | 
|   |                                                         |  |                                |        |      |  |        | 
|   |                                                         |  |                                | 69,559 |      |  | 73,538 | 
|   |                                                         |  |                                |        |      |  |        | 

F - 111

---

---

|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|                                              

|                   |                                                               
|------------------ | --------------------------------------------------------------
|NOTE
        23   | ADDITIONAL
        DETAILS CONCERNING INCOME STATEMENT (CONT.)

|   |                                                                                                                                             |                                                                               |  |                                |         |      |         |         |  
|-- | ------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- |  | ------------------------------ | ------- | ---- | ------- | ------- | -
|   |                                                                                                                                             |                                                                               |  | Year ended
        December 31 |        
|   |                                                                                                                                             |                                                                               |  |                                |        
|   |                                                                                                                                             |                                                                               |  | 2007                           |         | 2006 |        
|   |                                                                                                                                             |                                                                               |  |                                |         |      |        
|   |                                                                                                                                             |                                                                               |  | (in thousand NIS)              |        
|   |                                                                                                                                             |                                                                               |  |                                |        
|   |                                                                                                                                             |                                                                               |  |                                |         |      |         |         |  
|J. | General and administrative expenses                                                                                                         |                                                                               |  |                                |         |      |         |        
|   |                                                                                                                                             |                                                                               |  |                                |         |      |         |         |  
|   | Wages and fringe benefits                                                                                                                   |                                                                               |  | 73,110                         |         |      | 32,931  |        
|   | Stock-based compensation expenses                                                                                                           |                                                                               |  | 18,724                         |         |      | 16,571  |        
|   | Depreciation and amortization                                                                                                               |                                                                               |  | 1,788                          |         |      | 1,171   |        
|   | Others                                                                                                                                      |                                                                               |  | 23,370                         |         |      | 16,310  |        
|   |                                                                                                                                             |                                                                               |  |                                |         |      |         |        
|   |                                                                                                                                             |                                                                               |  |                                | 116,992 |      |         | 66,983  |  
|   |                                                                                                                                             |                                                                               |  |                                |         |      |         |         |  
|K. | Financial expenses                                                                                                                          |                                                                               |  |                                |         |      |         |        
|   |                                                                                                                                             |                                                                               |  |                                |         |      |         |         |  
|   | Interest on borrowings (**)                                                                                                                 |                                                                               |  | 325,298                        |         |      | 211,317 |        
|   | Loss (gain) from foreign currency translation
differences (net
        of exchange results charged to foreign currency translation reserve) |                                                                               |  | 10,659                         |         |      | (41,029 | )      
|   | Loss (gain) from change in fair value of embedded
derivative                                                                                |                                                                               |  | (5,303                         | )       |      | 11,857  |        
|   | Loss from change in fair value of
debentures                                                                                                |                                                                               |  | 17,330                         |         |      |        |        
|   | Gain from change in fair value of swap
derivative                                                                                           |                                                                               |  | (12,531                        | )       |      |        |        
|   | Other financial expenses                                                                                                                    |                                                                               |  | 1,390                          |         |      | 3,736   |        
|   |                                                                                                                                             |                                                                               |  |                                |         |      |         |        
|   | Total financial expenses                                                                                                                    |                                                                               |  | 336,843                        |         |      | 185,881 |        
|   | Financial expenses capitalized to qualified assets
(*)                                                                                      |                                                                               |  | (104,781                       | )       |      | (41,715 | )      
|   |                                                                                                                                             |                                                                               |  |                                |         |      |         |        
|   |                                                                                                                                             |                                                                               |  |                                | 232,062 |      |         | 144,166 |  
|   |                                                                                                                                             |                                                                               |  |                                |         |      |         |         |  
|   |                                                                                                                                             |                                                                               |  |                                |         |      |         |         |  
|   | (*)                                                                                                                                         | The rate applicable to non-specific credit                                    |  |                                | 7.8     | %    |         | 5.3     | %
|   |                                                                                                                                             |                                                                               |  |                                |         |      |         |         |  
|   | (**)                                                                                                                                        | Including results of swap transactions designated as
cash flow
        hedge. |  |                                |         |      |         |         |  
|   |                                                                                                                                             |                                                                               |  |                                |         |      |         |         |  
|L. | Financial income                                                                                                                            |                                                                               |  |                                |         |      |         |        
|   |                                                                                                                                             |                                                                               |  |                                |         |      |         |         |  
|   | Interest on deposits and receivable                                                                                                         |                                                                               |  | 101,844                        |         |      | 51,414  |        
|   | Gain on investments in marketable
securities                                                                                                |                                                                               |  | 17,843                         |         |      | 1,863   |        
|   | Loss from foreign currency translation
differences                                                                                          |                                                                               |  | (28,551                        | )       |      | (32,204 | )      
|   | Gain on currency transactions                                                                                                               |                                                                               |  |                               |         |      | 4,507   |        
|   |                                                                                                                                             |                                                                               |  |                                |         |      |         |        
|   |                                                                                                                                             |                                                                               |  |                                | 91,136  |      |         | 25,580  |  
|   |                                                                                                                                             |                                                                               |  |                                |         |      |         |         |  
|   |                                                                                                                                             |                                                                               |  |                                |         |      |         |         |  
|M. | Other expenses, net                                                                                                                         |                                                                               |  |                                |         |      |         |        
|   |                                                                                                                                             |                                                                               |  |                                |         |      |         |         |  
|   | Loss from disposition of assets and
liabilities                                                                                             |                                                                               |  | 6,270                          |         |      | 11,970  |        
|   | Provision for impairment of investments and assets
(i)                                                                                      |                                                                               |  | 30,286                         |         |      | 59,556  |        
|   | Initiation expenses (ii)                                                                                                                    |                                                                               |  | 7,623                          |         |      | 2,337   |        
|   | Others, net                                                                                                                                 |                                                                               |  | (5,946                         | )       |      | 3,185   |        
|   |                                                                                                                                             |                                                                               |  |                                |         |      |         |        
|   |                                                                                                                                             |                                                                               |  |                                | 38,233  |      |         | 77,048  |  
|   |                                                                                                                                             |                                                                               |  |                                |         |      |         |         |  

| |      |                                                                                                
| | ---- | -----------------------------------------------------------------------------------------------
| | (i)  | See notes 10A(B)(4),
        11D and 12C(1).                                                   
| | (ii) | 2007 - Includes
        mainly cost and expenses in respect of the Groups operations in India.

F - 112

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|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|                                              

|                   |                                                               
|------------------ | --------------------------------------------------------------
|NOTE
        23   | ADDITIONAL
        DETAILS CONCERNING INCOME STATEMENT (CONT.)

|   |                            |                                                                                                                                     |  |                                |         |      |  |         | 
|-- | -------------------------- | ----------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ------- | ---- |  | ------- | 
|   |                            |                                                                                                                                     |  | Year ended
        December 31 |        
|   |                            |                                                                                                                                     |  |                                |        
|   |                            |                                                                                                                                     |  | 2007                           |         | 2006 | 
|   |                            |                                                                                                                                     |  |                                |         |      | 
|   |                            |                                                                                                                                     |  | (in thousand NIS)              |        
|   |                            |                                                                                                                                     |  |                                |        
|   |                            |                                                                                                                                     |  |                                |         |      |  |         | 
|N. | Earnings
        per share |                                                                                                                                     |  |                                |         |      |  |        
|   |                            |                                                                                                                                     |  |                                |         |      |  |         | 
|   | 1.                         | Basic earning per share:                                                                                                            |  |                                |         |      |  |         | 
|   |                            |                                                                                                                                     |  |                                |         |      |  |         | 
|   |                            | The earnings and weighted average number of shares
used in the
        calculation of the basic earning per share are as follows:   |  |                                |         |      |  |         | 
|  
|   |                            | Profit from continuing
operations                                                                                                   |  |                                | 534,319 |      |  | 475,139 | 
|   |                            |                                                                                                                                     |  |                                |         |      |  |         | 
|  
|   |                            | Profit from discontinuing
operations                                                                                                |  |                                | 10,288  |      |  | 35,664  | 
|   |                            |                                                                                                                                     |  |                                |         |      |  |         | 
|  
|   |                            | Weighted average number of shares
used in computing basic
        earnings per share (thousands)                                    |  |                                | 25,454  |      |  | 25,232  | 
|   |                            |                                                                                                                                     |  |                                |         |      |  |         | 
|   |                            |                                                                                                                                     |  |                                |         |      |  |         | 
|   | 2.                         | Diluted earning per share:                                                                                                          |  |                                |         |      |  |         | 
|   |                            |                                                                                                                                     |  |                                |         |      |  |         | 
|   |                            | The earnings and weighted average number of shares
used in the
        calculation of the diluted earning per share are as follows: |  |                                |         |      |  |         | 
|   |                            |                                                                                                                                     |  |                                |         |      |  |         | 
|   |                            | Profit from continuing
operations                                                                                                   |  |                                | 522,876 |      |  | 475,138 | 
|   |                            |                                                                                                                                     |  |                                |         |      |  |         | 
|  
|   |                            | Profit from discontinuing
operations                                                                                                |  |                                | 10,288  |      |  | 35,664  | 
|   |                            |                                                                                                                                     |  |                                |         |      |  |         | 
|  
|   |                            | Weighted average number of shares
used in computing diluted
        earnings per share (thousands)                                  |  |                                | 25,917  |      |  | 25,240  | 
|   |                            |                                                                                                                                     |  |                                |         |      |  |         | 
|  
|   |                            | Effect of diluted options on the
number of shares (thousands)                                                                       |  |                                | 463     |      |  | 8       | 
|   |                            |                                                                                                                                     |  |                                |         |      |  |         | 

| |                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The earnings used in
        the calculation of all diluted earnings per share are same as those for
        the equivalent basic earnings per share measures, as outlined above.

F - 113

---

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|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|                                              

|                   |                        
|------------------ | -----------------------
|NOTE
        24   | RELATED
        PARTIES

|   |                                                                                                                                                                                                    |             |                                             
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | --------------------------------------------
|A. | Transactions                                                                                                                                                                                      
|   |                                                                                                                                                                                                    |             |                                             
|   | Transactions between
        the Company and its subsidiaries, which are related parties of the
        Company, have been eliminated on consideration and are not disclosed in
        this note.
|   |                                                                                                                                                                                                    |             |                                             
|   | (1)                                                                                                                                                                                                | Components:
|   |                                                                                                                                                                                                    |            
|   |                                                                                                                                                                                                    | (I)         | Benefits
        to key management personnel

|     |                                                                                                                                                                       |  |                                |        |      |  |        | 
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ------ | ---- |  | ------ | 
|     |                                                                                                                                                                       |  | Year ended
        December 31 |       
|     |                                                                                                                                                                       |  |                                |       
|     |                                                                                                                                                                       |  | 2007                           |        | 2006 | 
|     |                                                                                                                                                                       |  |                                |        |      | 
|     |                                                                                                                                                                       |  | (in thousand NIS)              |       
|     |                                                                                                                                                                       |  |                                |       
|     |                                                                                                                                                                       |  |                                |        |      |  |        | 
|     | Salaries, management fees, directors fees and
bonuses                                                                                                                |  |                                | 61,770 |      |  | 22,657 | 
|     | Post employment benefits                                                                                                                                              |  |                                | 490    |      |  | 242    | 
|     | Termination benefits                                                                                                                                                  |  |                                | 380    |      |  |       | 
|     | Amortization of stock based compensation
expenses                                                                                                                     |  |                                | 31,665 |      |  | 11,917 | 
|     |                                                                                                                                                                       |  |                                |        |      |  |        | 
|     |                                                                                                                                                                       |  |                                | 94,305 |      |  | 34,816 | 
|     |                                                                                                                                                                       |  |                                |        |      |  |        | 
|     |                                                                                                                                                                       |  |                                |        |      |  |        | 
|(II) | Project expenses (coordination, supervision and
aviation
        services) - charged, mainly to cost of trading property and property
        plant and equipment (*) |  |                                | 73,747 |      |  | 38,691 | 
|     |                                                                                                                                                                       |  |                                |        |      |  |        | 

| |     |                             
| | --- | ----------------------------
| | (*) | See note
        21A(2)&(3).

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | On May 31, 2006 the
        general shareholders meeting approved a service agreement with a
        company controlled (directly or indirectly) by its Executive Chairman
        of the Board (the Management Company and the Chairman respectively)
        according to which, the Management Company will provide the Company with
        executive chairman services (the Services). The Management Company
        may provide the Services to private subsidiaries and/or affiliates of
        the Company. In accordance with the term of the agreement, the Services
        will be provided by the Chairman only, as an employee of the Management
        Company and the Chairman will devote at least 80% of his time, skills
        and efforts to his position as Chairman of the Company. The control
        over the Management Company will not be changed during the term of the
        agreement. In consideration for the Chairmans services the Company
        will pay the Management Company a monthly amount of $50,000 (NIS
        192,000) as well as reimbursement of direct expenses incurred with the
        provision of the Services.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | In accordance with
        the terms of the service agreement, the Management Company will be the
        sole employer of Chairman and no employer-employee relationship will
        exist between the Chairman and the Company. The Management Company has
        agreed to indemnify the Company with respect to any amount, rights or
        benefits the Company would be required to pay the Chairman including
        legal fees, in connection with any determination by the labor court
        and/or any other competent authority that the Chairman was or is an
        employee of the Company during the term of the agreement. The agreement
        is for a five-year term commencing retroactively on August 1, 2005. The
        Chairman has guaranteed all of the Management Companys obligations as
        far as they relate to it and has further guaranteed the Management
        Companys indemnification undertakings and responsibility for damages.                                                                                                                                                                                              

F - 114

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|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|                                              

|           |                        
|---------- | -----------------------
|NOTE 24   | RELATED PARTIES (CONT.)

|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | -------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|A. | Transactions (Cont.)
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | (3)                  | On November 1, 2007, the Companys shareholders meeting approved
        a service agreement between PC and the Chairman, according to which,
        the Chairman will serve as PCs executive chairman in consideration of
        monthly salary of $25,000 (NIS 96,000) as well as reasonable expenses
        incurred by the Chairman in the performance of his duties under the
        service agreement. The salary will be reviewed by PCs board of
        directors each year and may be increased at the discretion of PCs
        board and subject to applicable law. The Chairman has waived his right
        to any entitlement to severance pay under the Israeli Severance Pay law
        and social benefit. The service agreement will commence with
        retroactive effect as of October 27, 2006.Each party may terminate the
        service agreement by a-12 month prior notice.                                                                                                                                                                                 
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | (4)                  | On November 1,2007 the Companys shareholders meeting approved
         bonus payment to the Chairman which will be paid following the
         approval of the Companys annual audited consolidated financial
         statements and will be calculated, as follows: (i) 0% of the first NIS
         100 million of Profits (as defined below); (ii) 2.5% of Profits
         between NIS 100 million and NIS 125 million; (iii) 3% of Profits
         between NIS 125 million and NIS 150 million; and (iv) 3.5% of Profits
         exceeding NIS 150 million. The annual bonus will be paid to the
         Chairman for the fiscal year ended December 31, 2006 and for each
         fiscal year thereafter for so long as the Chairman serves as a
         director or officer of the Company or its subsidiaries.                                                                                                                                                                                                                                                                     
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                      | For the purpose of determining the annual bonus, Profit for
          any year, mean profit of the Company before taxes, as disclosed in
          the Companys annual audited financial statements for that year minus
          such losses before taxes disclosed on the Companys annual audited
          financial statements for all years commencing 2007, that had not
          already been deducted for the propose of calculating of such annual
          bonus for any previous year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                      | Notwithstanding the above, the annual bonus to be granted to
           the Chairman shall not exceed NIS 18.0 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                      | On May 29, 2008  the Companys audit committee has resolved to
             amend the definition of the term Profit for the purpose of the
             annual bonus calculation and define it as profit before tax and
             after deduction of the minority interest, based on the Companys
             audited consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                      | Such definition shall be
              applied, retroactively, to bonuses payable in respect of the
              years 2007 and thereafter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | (5)                  | On May 31, 2006, the general shareholders
               meeting approved bonus payments for the fiscal years commencing
               January 1, 2006 to two of the Companys directors, which will be
               paid following the approval of the Companys annual audited
               consolidated financial statements and will be calculated, as
               follows: (i) 0.75% of the first NIS 125 million of the annual
               consolidated pre-tax profits of the Company (Profits); (ii)
               0.875% of Profits between NIS 125 million and NIS 150 million;
               and (iii) 1% of Profits exceeding NIS 150 million. Within the framework of a
               retirement agreement executed with one of the directors, which
               was approved by the Companys shareholders meeting on November
               1, 2007(see item 11 below), the director will be entitled to
               future bonus payments in respect of the years 2007 and 2008
               which will be calculated in the methodology mentioned above.
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                      | On May 29, 2008  the Companys audit committee has resolved to
                amend the definition of the term Profit for the purpose of
                the annual bonus calculation and define it as profit before tax
                and after deduction of the minority interest, based on the
                Companys audited consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                      | Such definition shall be
                 applied, retroactively, to bonuses payable in respect of the
                 years 2007 and thereafter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | (6)                  | Shares and
                  warrants issued to related parties - see notes 10B(1)f.,
                  10B(2)c., 22B(i) and 22C.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

F - 115

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|                                                                
|----------------------------------------------------------------
|ELBIT IMAGING
                  LTD.                            
|                                                                
|NOTES TO THE
                  CONSOLIDATED FINANCIAL STATEMENTS
|                                                                

|           |                                          
|---------- | -----------------------------------------
|NOTE 24   | RELATED PARTIES
                  (CONT.)

|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | -------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|A. | Transactions (Cont.)
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | (7)                  | The
                  directors and officers of the Company and of companies in
                  which the directors serve on behalf of the Company, are
                  covered through October 2008 by insurance of up to $40.0
                  million per occurance and in the aggregate during the
                  duration of the policy. The first layer of such policy in the
                  amount of $10.0 million shall also cover the liability of
                  directors and officers of EIL and its subsidiaries. The
                  coverage is within the framework of a joint insurance policy
                  for the EIL Group companies. The allocation of the insurance
                  costs between the Company and its subsidiaries (90%) and EIL
                  (10%) was approved by the Companys shareholders meeting. In
                  November 2007 the Companys Audit Committee and Board of
                  Directors approved the coverage of liability of the Chairman
                  under the above insurance policy.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                      | PCs
                  Directors and Officers (including the Companys directors who
                  are non-controlling shareholders of the Company) are covered
                  through September 2012 by Public Offering of Securities
                  Insurance of up to $5.0 million for liabilities arising under
                  the prospectus filed by PC in October 2006 (see note
                  10B(2)b.). Such coverage was approved by the Comopanys
                  shareholders equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | (8)                  | As for
                  directors indemnification - see note 21C(1), (2) & (3).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | (9)                  | On January
                  17, 2008 the Companys shareholder meeting approved an
                  agreement with the Companys Executive Vice Chairman of the
                  Board ( VC) according to which the Company has undertaken
                  to allot the VC 5% (five percent) of the aggregate issued and
                  outstanding share capital in each entity through which the
                  Group (excluding operations of PC and its investees) will
                  conduct its operations in India and other countries (the
                  Investment Vehicle) during the Sourcing Period (as defined
                  below). In the event the Investment Vehicle is not wholly owned
                  by the Group, the VC will be allotted that number of shares
                  equal to 5% of the issued and outstanding share capital in
                  such Investment Vehicle held by the Group (VC Shares).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                      | The VC
                  Shares shall not be entitled to receive any distributions
                  (including, but not limited to, payment of dividends,
                  interest, other expenses and principal repayments of
                  shareholder loans, management fees or other payments made to
                  the VC and any loans provided by the Investment Vehicle to
                  the VC) from the Investment Vehicle until the Groups
                  investments (principal and interest calculated in accordance
                  with a mechanism provided for in the agreement) in such
                  Investment Vehicle have been repaid in full.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                      | The VCs
                  right to receive the shares in each Investment Vehicle will
                  be subject to vesting over a three-year period, whereby as of
                  the date of the approval of the agreement, the right to
                  receive 60% of the VC shares have already vested and the
                  right to receive 20% of the VC Shares will vest on each of
                  the following dates: March 31, 2008 and March 31, 2009. The
                  right to receive the VC Shares in any Investment Vehicle in
                  which the Group or any of its affiliates obtains equity
                  rights after March 31, 2009 shall vest immediately. The VC
                  Shares that are subject to vesting will be held in trust. The
                  VCs right to receive the VC Shares shall continue to vest,
                  according to the above vesting schedule, for so long as the
                  VC devotes, in the aggregate, a substantial part of his time
                  and attention to the sourcing activities. In the event the VC
                  ceases for any reason to devote, in the aggregate, a
                  substantial part of his time and attention to the sourcing
                  activities (the Cut-Off Date), then the VCs vesting rights
                  as discussed above shall cease as and from the Cut-Off Date,
                  provided however, that in such event, the VC Shares that have
                  not yet vested shall vest pro rata from the last vesting date
                  as aforementioned until the Cut-Off Date.

F - 116

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|                                                                
|----------------------------------------------------------------
|ELBIT IMAGING
                  LTD.                            
|                                                                
|NOTES TO THE
                  CONSOLIDATED FINANCIAL STATEMENTS
|                                                                

|           |                                          
|---------- | -----------------------------------------
|NOTE 24   | RELATED PARTIES
                  (CONT.)

|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | -------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|A. | Transactions (Cont.)
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | (9)                  | (Cont.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                      | The
                  Groups obligation to issue the VC Shares shall apply to all
                  the Groups operations(excluding operations of PC and its
                  investees) initiated in the Territory since the Group has
                  commenced its operations in India and shall remain in effect
                  until the date 30 months after the Cut Off Date(the Sourcing
                  Period). The agreement includes tag along and drag along
                  rights. The Group has a right of first refusal to acquire the
                  VC Shares on the same terms as such shares are offered to the
                  third party. Additionally, the VC shall have a right of first
                  refusal to purchase, pro rata, new securities (subject to
                  certain exceptions) that any Investment Vehicle proposes to
                  issue and allot to third parties. In the event the Group
                  shall acquire new securities in any Investment Vehicle, the
                  Investment Vehicle shall issue to the VC on the same date
                  additional equity rights in such Investment Vehicle equal to
                  5% of the new securities issued to the Group. The VC shall
                  not be entitled to assign his rights under the agreement, or
                  to transfer the VC Shares which have vested, to a third party
                  without the prior consent of the Group.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                      | The VC
                  Shares shall be subject to the same rights and obligations as
                  the Groups shares in any Investment Vehicle and rank pari
                  passu in all respects with such Groups shares, except that
                  the holders of the VC Shares shall not be entitled to receive
                  any distributions from the Investment Vehicle including in
                  the event of the winding up of the Investment Vehicle or
                  other return of capital, until such time as the Companys
                  investment has been repaid in full, which will be determined
                  according to the formula set out in the agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | (10)                 | On October
                  27, 2006, PC has entered into an agreement with the Companys
                  Vice-Chairman of the Board (VC) with responsibility for its
                  operations in India, under which the VC will be entitled to
                  receive options (the Options) to acquire up to 5% of the
                  holding company through which PC will carry out its
                  operations in India. However, where considered appropriate
                  and by agreement, the VC will be entitled to take up a 5%
                  interest in specific projects, in which case necessary
                  adjustments will be made at the holding company level. PC and
                  the VC will agree on the form of the Option for each
                  acquisition, taking into account taxation, securities laws
                  and regulations applicable to either party or their
                  respective affiliates, and other considerations of the
                  respective parties. If the VC exercises all of his Options
                  (5%) at the holding company level, his right to take up
                  interests on a project by project basis will lapse. The
                  Options will be subject to vesting over a three-year period,
                  with an initial vesting of 2% on award of the options
                  following commencement of the relevant project with an
                  additional 1% on the following dates: March 31 2007, March 31
                  2008 and March 31 2009. If the VP elects to take up Options
                  in a specific project which commences after any of the
                  vesting dates specified above, an immediate vesting will be
                  allowed in respect of Options which would have vested as of
                  the above dates. The Options may be exercised at any time, at
                  a price equal to PCs net equity investment made in the
                  projects as at the Option exercise date plus interest at the
                  rate of LIBOR plus 2% per annum from the date of the
                  investment until the Options exercise date (Exercise
                  price).
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                      | The VC has
                  cash-in right to require PC to purchase shares held by him
                  following the exercise of the Options, at a price to be determined
                  by an independent valuer. In addition, the VC has the right
                  to pay the Exercise Price on a partial exercise of Options by
                  way of the surrender to PC of Options valued at the Exercise
                  Price of the exercised Options. The agreement includes
                  tag-along rights and a right of first refusal. If PC sells
                  its shares in the holding company to a third party, the VCs
                  Options will not be affected. However, if a new investor is
                  allotted shares in the holding company, the Vcs Options will
                  be diluted pro-rata.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

F - 117

---

---

|                                                                
|----------------------------------------------------------------
|ELBIT IMAGING
                  LTD.                            
|                                                                
|NOTES TO THE
                  CONSOLIDATED FINANCIAL STATEMENTS
|                                                                

|           |                                          
|---------- | -----------------------------------------
|NOTE 24   | RELATED PARTIES
                  (CONT.)

|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | -------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|A. | Transactions (Cont.)
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | (10)                 | (Cont.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                      | The VC and
                  PC have agreed between them to enter into a new agreement in
                  substantially the same terms and conditions as the agreement
                  described in item (9) above between the VC and the Company
                  (the New Agreement) which will replace and supersede the
                  previous agreement. The New Agreement shall enter into effect
                  following the receipt of the approval of the Companys
                  shareholders and the approval of the relevant organs of PC as
                  required under applicable law. However, in the event the New
                  Agreement is not approved by the relevant organs of the
                  Company and PC, as discussed above, the previous agreement
                  shall remain in effect.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                      | The share
                  option arrangement will apply to all projects sourced to PC
                  from the Company (see note 21A(12)). The agreement was
                  approved by the Companys shareholders meeting on January 17,
                  2008. As of the balance sheet date, a liability of NIS 4.5
                  million was recorded in the consolidated financial
                  statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | (11)                 | On November 1, 2007, the Companys shareholders
                  meeting approved two separate agreements entered into between
                  each Elscint and the Company and a former director of the
                  Company who served in various executive positions within the
                  Company and companies under its control regarding the
                  directors resignation from her employment from certain
                  positions within the Group. The agreement with Elscint
                  provide that the director will resign from its positions in
                  Elscint effective February 7, 2007 and will enjoy the same
                  payments and benefits from the date of resignation till March
                  31, 2008, of which part constitutes unexploited vacations
                  days and part an agreed adjustment period. In addition
                  Elscint will pay to the director tuition fee in the amount of
                  $47,000 (NIS 181,000) and shall bear all tax expenses
                  associated with such payment. Furthermore, the director will
                  be entitled to annual bonus in respect of 2007 and 2008 which
                  will be calculated in accordance with the bonus payment
                  methodology described in item 5 above.
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                      | The agreement with the Company
                   provide that the director will be entitled to (i) all of the
                   75,000 options granted to the director within the Companys
                   incentive plan; and (ii) all of 250,000 options granted to the
                   director within the framework of PCs incentive plan; and
                   same regardless of her continuing employment and/or services
                   as a director in the Company,PC or any other companies
                   controlled by it. The Company and Elscint each undertook to
                   continue to purchase directors and officers liability
                   insurance policy to the director for a period of 7 years
                   from the last day upon which the director served as a
                   director or officer of the Company and/or Elscint.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|B. | Balances            

|                                                                   |  |                                            |        |      |  |       | 
|------------------------------------------------------------------ |  | ------------------------------------------ | ------ | ---- |  | ----- | 
|                                                                   |  | Year ended
                    December 31 |       
|                                                                   |  |                                            |       
|                                                                   |  | 2007                                       |        | 2006 | 
|                                                                   |  |                                            |        |      | 
|                                                                   |  | (in thousand
                    NIS)      |       
|                                                                   |  |                                            |       
|                                                                   |  |                                            |        |      |  |       | 
|Assets:                                                            |  |                                            |        |      |  |       | 
|Receivables
                    and other debit accounts           |  |                                            | 8,060  |      |  | 5,993 | 
|                                                                   |  |                                            |        |      |  |       | 
|                                                                   |  |                                           
|Deposit,
                    loans and other long-term receivables |  |                                            | 1,082  |      |  | 1,082 | 
|                                                                   |  |                                            |        |      |  |       | 
|                                                                   |  |                                            |        |      |  |       | 
|Liabilities:                                                       |  |                                            |        |      |  |       | 
|Payables
                    and other credit accounts             |  |                                            | 19,672 |      |  | 7,608 | 
|                                                                   |  |                                            |        |      |  |       | 

|   |                                                                         
|-- | ------------------------------------------------------------------------
|C. | Commitments see note 21A(2) &
                    (3).                 
|   |                                                                         
|D. | Liens and guarantees see notes 21D(1)a. and
                    21C(7).

F - 118

---

---

|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|                                              

|           |                                 
|---------- | --------------------------------
|NOTE 25   | BUSINESS AND GEOGRAPHIC SEGMENTS

As for
decrepation of the Groups segments- see Note 1B.

|   |                                 
|-- | --------------------------------
|A. | Data regarding business segments
|   |                                 
|   | Year ended December 31, 2007    

|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  |           |  
|----------------------------------------------------------- |  | ------------------------------------------ | --------- | ------ |  | ---------------------- |  | ---------------- | ------- | ----- |  | ----------- | - |  | --------- | -
|                                                            |  | Commercial and
  entertainment centers (*) |           | Hotels |  | Image guided treatment |  | Other activities |         | Total | 
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       | 
|                                                            |  | ( I n  t h o u s a n d  N I S )            |          
|                                                            |  |                                            |          
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  |           |  
|Year ended December 31 2007:                                |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  |           |  
|Revenues                                                    |  |                                            | 2,935,417 |        |  | 440,048                |  |                  | 54,958  |       |  | 68,138      |   |  | 3,498,561 |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  |           |  
|Operating income (loss) by segment                          |  |                                            | 1,199,370 |        |  | 92,728                 |  |                  | (84,555 | )     |  | (11,351     | ) |  | 1,196,192 |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  |           |  
|Share in losses of associates, net                          |  |                                            | (107      | )      |  |                        |  |                  |         |       |  | (12,560     | ) |  | (12,667   | )
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  |           |  
|Less - unallocated general and
  administrative expenses    |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  | (116,992  | )
|Financial expenses, net                                     |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  | (140,926  | )
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  |           |  
|Profit before income taxes                                  |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  | 925,607   |  
|Income taxes                                                |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  | 16,288    |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  |           |  
|Profit from continuing operations                           |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  | 909,319   |  
|Profit from discontinued operations                         |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  | 10,289    |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  |           |  
|Profit for the year                                         |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  | 919,608   |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  |           |  
|Purchase cost of segment (tangible and
  intangible) assets |  |                                            | 2,297,113 |        |  | 277,426                |  |                  | 13,275  |       |  | 286,693     |   |  |           |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  |           |  
|Depreciation and amortization of segment
  assets           |  |                                            | 20,685    |        |  | 50,309                 |  |                  | 7,601   |       |  | 4,242       |   |  |           |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  |           |  
|Provision for impairment                                    |  |                                            | 13,419    |        |  | 14,061                 |  |                  |         |       |  | 2,806       |   |  |           |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  |           |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  |           |  
|December 31 2007:                                           |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  |           |  
|Total segment assets                                        |  |                                            | 3,560,460 |        |  | 1,821,722              |  |                  | 30,825  |       |  | (**)453,513 |   |  | 5,866,520 |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  |           |  
|Investment on the equity basis                              |  |                                            | 6,388     |        |  |                        |  |                  |         |       |  | 51,674      |   |  | 58,062    |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  |           |  
|Unallocated assets                                          |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  | 2,523,062 |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  |           |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  | 8,447,648 |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  |           |  
|Segment liabilities                                         |  |                                            | 421,659   |        |  | 114,534                |  |                  | 78,810  |       |  | 21,428      |   |  | 636,431   |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  |           |  
|Unallocated liabilities                                     |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  | 4,582,215 |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  |           |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  | 5,218,646 |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |             |   |  |           |  

| |                                                                   
| | ------------------------------------------------------------------
| | (*)       Including
  sales of trading property.                  
| | (**)     Mainly
  includes plots acquired in India - see note 12B.

F - 119

---

---

|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|                                              

|           |                                         
|---------- | ----------------------------------------
|NOTE 25   | BUSINESS AND GEOGRAPHIC SEGMENTS (CONT.)

|   |                                         
|-- | ----------------------------------------
|A. | Data regarding business segments (cont.)
|   |                                         
|   | Year ended December 31, 2006            

|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  |           |  
|----------------------------------------------------------- |  | ------------------------------------------ | --------- | ------ |  | ---------------------- |  | ---------------- | ------- | ----- |  | ------- | - |  | --------- | -
|                                                            |  | Commercial and
  entertainment centers (*) |           | Hotels |  | Image guided treatment |  | Other activities |         | Total | 
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       | 
|                                                            |  | ( I n  t h o u s a n d  N I S )            |          
|                                                            |  |                                            |          
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  |           |  
|Year ended December 31 2006:                                |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  |           |  
|Revenues                                                    |  |                                            | 1,138,995 |        |  | 358,626                |  |                  | 85,824  |       |  | 58,034  |   |  | 1,641,479 |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  |           |  
|Operating income (loss) by segment                          |  |                                            | 704,276   |        |  | 25,693                 |  |                  | (61,234 | )     |  | (21,860 | ) |  | 646,875   |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  |           |  
|Share in (income) losses of associates, net                 |  |                                            | (828      | )      |  |                        |  |                  |         |       |  | 1,563   |   |  | 735       |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  |           |  
|Less - unallocated general and
  administrative expenses    |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  | (66,982   | )
|Financial expenses, net                                     |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  | (118,585  | )
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  |           |  
|Profit before income taxes                                  |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  | 462,043   |  
|Tax benefit                                                 |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  | (1,787    | )
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  |           |  
|Profit after income taxes                                   |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  | 463,830   |  
|Profit from discontinuing operations                        |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  | 35,665    |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  |           |  
|Profit for the year                                         |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  | 499,495   |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  |           |  
|Purchase cost of segment (tangible and
  intangible) assets |  |                                            | 594,742   |        |  | 176,007                |  |                  | 280     |       |  | 8,921   |   |  |           |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  |           |  
|Depreciation and amortization of segment
  assets           |  |                                            | 27,942    |        |  | 49,519                 |  |                  | 4,737   |       |  | 3,439   |   |  |           |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  |           |  
|Provision for impairment                                    |  |                                            | 31,601    |        |  | 22,057                 |  |                  |         |       |  |         |   |  |           |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  |           |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  |           |  
|December 31 2006:                                           |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  |           |  
|Total segment assets                                        |  |                                            | 1,703,197 |        |  | 1,716,915              |  |                  | 49,986  |       |  | 32,850  |   |  | 3,502,948 |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  |           |  
|Investment on the equity basis                              |  |                                            | 6,388     |        |  |                        |  |                  |         |       |  | 49,072  |   |  | 55,460    |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  |           |  
|Unallocated assets                                          |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  | 2,727,217 |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  |           |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  | 6,285,625 |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  |           |  
|Segment liabilities                                         |  |                                            | 100,301   |        |  | 100,740                |  |                  | 77,059  |       |  | 11,407  |   |  | 289,507   |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  |           |  
|Unallocated liabilities                                     |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  | 3,701,887 |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  |           |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  | 3,991,394 |  
|                                                            |  |                                            |           |        |  |                        |  |                  |         |       |  |         |   |  |           |  

| |                                               
| | ----------------------------------------------
| | (*)     Including
  sales of trading property.

F - 120

---

---

|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|                                              

|           |                                         
|---------- | ----------------------------------------
|NOTE 25   | BUSINESS AND GEOGRAPHIC SEGMENTS (CONT.)

|   |                                             
|-- | --------------------------------------------
|B. | Data regarding geographical segments (cont.)

|                          |  |                                     |           |      |  |           | 
|------------------------- |  | ----------------------------------- | --------- | ---- |  | --------- | 
|                          |  | Revenues by 
  geographical markets |          
|                          |  |                                     |          
|                          |  | Year ended December 31              |          
|                          |  |                                     |          
|                          |  | 2007                                |           | 2006 | 
|                          |  |                                     |           |      | 
|                          |  | (in thousand NIS)                   |          
|                          |  |                                     |          
|                          |  |                                     |           |      |  |           | 
|East and
  central Europe |  |                                     | 3,006,192 |      |  | 1,118,975 | 
|West Europe               |  |                                     | 353,245   |      |  | 342,492   | 
|Israel                    |  |                                     | 96,875    |      |  | 118,558   | 
|Others                    |  |                                     | 42,249    |      |  | 61,454    | 
|                          |  |                                     |           |      |  |           | 
|                          |  |                                     | 3,498,561 |      |  | 1,641,479 | 
|                          |  |                                     |           |      |  |           | 

|                          |  |                                                             |           |      |  |         | 
|------------------------- |  | ----------------------------------------------------------- | --------- | ---- |  | ------- | 
|                          |  | Purchase cost of segment
  (tangible and intangible) assets |          
|                          |  |                                                             |          
|                          |  | Year ended December 31                                      |          
|                          |  |                                                             |          
|                          |  | 2007                                                        |           | 2006 | 
|                          |  |                                                             |           |      | 
|                          |  | (in thousand NIS)                                           |          
|                          |  |                                                             |          
|                          |  |                                                             |           |      |  |         | 
|East and
  central Europe |  |                                                             | 2,352,034 |      |  | 616,670 | 
|West Europe               |  |                                                             | 22,260    |      |  | 98,424  | 
|Israel                    |  |                                                             | 103,331   |      |  | 27,419  | 
|India                     |  |                                                             | 343,449   |      |  | 37,437  | 
|                          |  |                                                             |           |      |  |         | 
|                          |  |                                                             | 2,821,074 |      |  | 779,950 | 
|                          |  |                                                             |           |      |  |         | 

|                          |  |                   |           |      |  |           | 
|------------------------- |  | ----------------- | --------- | ---- |  | --------- | 
|                          |  | Segment assets    |          
|                          |  |                   |          
|                          |  | December 31       |          
|                          |  |                   |          
|                          |  | 2007              |           | 2006 | 
|                          |  |                   |           |      | 
|                          |  | (in thousand NIS) |          
|                          |  |                   |          
|                          |  |                   |           |      |  |           | 
|East and
  central Europe |  |                   | 3,955,535 |      |  | 1,427,077 | 
|West Europe               |  |                   | 1,213,603 |      |  | 1,433,433 | 
|Israel                    |  |                   | 166,103   |      |  | 653,458   | 
|India                     |  |                   | 390,949   |      |  | 37,966    | 
|Others                    |  |                   | 3,650     |      |  | 6,474     | 
|                          |  |                   |           |      |  |           | 
|                          |  |                   | 5,729,840 |      |  | 3,558,408 | 
|                          |  |                   |           |      |  |           | 

F - 121

---

---

|                                              
|----------------------------------------------
|ELBIT IMAGING LTD.                            
|                                              
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|                                              

|           |                        
|---------- | -----------------------
|NOTE 26   | DISCONTINUED OPERATIONS

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|A. | Following
  the sale of the diagnostic ultrasound activity and the sale of Nuclear
  Medicine (NM), Magnetic Resonance Imaging (MRI) and Computerized Tomography
  (CT) activities by Elscint, the Groups core activity in these areas was,
  during 1998, terminated. The results from these operations have therefore
  been presented in the statements of operations, as discontinued operation.
  Balances included in the statement of operations and/or dispositions in
  balance sheet items through the reported years, reflect primarily settlements
  or resolution of disputes and/or lawsuits and/or certain claims relating to
  the ultrasound, CT and MRI businesses and the ultimate sale thereof by
  Elscint. The liabilities included in the discontinued operations include
  mainly provisions for demands and claims of third parties in respect of
  discontinued operation, see note 21B(4).
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|B. | The
  following table states composition of income and expenses relating to the
  discontinued operation in previous years:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

|                                       |  |                        |        |      |  |        | 
|-------------------------------------- |  | ---------------------- | ------ | ---- |  | ------ | 
|                                       |  | Year ended December 31 |       
|                                       |  |                        |       
|                                       |  | 2007                   |        | 2006 | 
|                                       |  |                        |        |      | 
|                                       |  | (in thousand NIS)      |       
|                                       |  |                        |       
|                                       |  |                        |        |      |  |        | 
|Other income, net                      |  |                        | 8,329  |      |  | 31,391 | 
|Financial income, net                  |  |                        | 1,960  |      |  | 4,273  | 
|                                       |  |                        |        |      |  |        | 
|Net income from discontinued operation |  |                        | 10,289 |      |  | 35,664 | 
|                                       |  |                        |        |      |  |        | 

|           |                      
|---------- | ---------------------
|NOTE 27   | FINANCIAL INSTRUMENTS

|   |                                                                                                                                                                                                                                  
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|A. | Principal accounting policies                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                  
|   | The
  principal accounting policies adopted by the Group in respect of financial instruments
  and equity components including recognition criteria, measurement and charges
  to the statement of income are included in note 2.
|   |                                                                                                                                                                                                                                  
|B. | Balances of financial instruments by categories                                                                                                                                                                                  

|                                                                             |  |                   |           |      |  |           | 
|---------------------------------------------------------------------------- |  | ----------------- | --------- | ---- |  | --------- | 
|                                                                             |  | December 31       |          
|                                                                             |  |                   |          
|                                                                             |  | 2007              |           | 2006 | 
|                                                                             |  |                   |           |      | 
|                                                                             |  | (in thousand NIS) |          
|                                                                             |  |                   |          
|                                                                             |  |                   |           |      |  |           | 
|Financial assets                                                             |  |                   |           |      |  |           | 
|Cash and cash equivalent                                                     |  |                   | 1,416,710 |      |  | 2,150,871 | 
|Loans and receivables                                                        |  |                   | 1,835,544 |      |  | 402,247   | 
|Financial assets designated for trading                                      |  |                   | 542,294   |      |  | 124,985   | 
|Derivative financial assets at fair value
  through profit and loss (*)      |  |                   | 12,609    |      |  |          | 
|Derivative financial instruments designated
  for cash flow hedge            |  |                   | 16,632    |      |  | 25,867    | 
|                                                                             |  |                   |           |      |  |           | 
|                                                                             |  |                   | 3,823,789 |      |  | 2,703,970 | 
|                                                                             |  |                   |           |      |  |           | 
|                                                                             |  |                   |           |      |  |           | 
|Financial Liabilities                                                        |  |                   |           |      |  |           | 
|Derivative financial liabilities at fair
  value through profit and loss     |  |                   | 55,794    |      |  | 65,336    | 
|Financial liabilities designated at fair
  value through profit and loss (*) |  |                   | 340,474   |      |  | 37,487    | 
|Financial liabilities at amortized cost                                      |  |                   | 4,634,951 |      |  | 3,780,287 | 
|                                                                             |  |                   |           |      |  |           | 
|                                                                             |  |                   | 5,022,269 |      |  | 3,883,110 | 
|                                                                             |  |                   |           |      |  |           | 

|    |                                                                                        
|--- | ---------------------------------------------------------------------------------------
|(*) | There is no
  material change in fair value attributable to the change in credit risks.

F - 122

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