---

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

# FORM 20-F

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 ended December 31, 2005

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 No.
0-29256

G. WILLI-FOOD
INTERNATIONAL LTD.(Exact name of Registrant as specified in its charter
and translation of Registrants name into English)

Israel(Jurisdiction of incorporation or organization)

3 Nahal Snir St.,
Northern Industrial Zone, Yavne, 81224, Israel(Address of principal executive offices)

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

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

# Ordinary Shares,
NIS 0.10 par value per share(Title of Class)

# 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:

The
registrant had 8,615,000 outstanding ordinary shares, NIS 0.10 nominal value per
share as of December 31, 2005.

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 1934.

Yes o   No  x



---

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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 of the Exchange Act. (Check one):

Large Accelerated filer oAccelerated filer  oNon-accelerated filer  x

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

Item 17 o   Item 18 x

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



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# TABLE OF CONTENTS

|                                                                                      | Page
|------------------------------------------------------------------------------------- | ----
|
|
|
|
|PRESENTATION OF INFORMATION                                                           | 1   
|CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING STATEMENTS                       | 1   
|PART I                                                                                | 2   
|ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS                         | 2   
|ITEM 2. OFFER STATISTICS AND EXPECTED TIME TABLE                                      | 2   
|ITEM 3. KEY INFORMATION                                                               | 2   
|ITEM 4. INFORMATION ON THE COMPANY                                                    | 9   
|ITEM 4A. -- UNRESOLVED STAFF COMMENTS                                                 | 24  
|ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                  | 25  
|ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                    | 36  
|ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                             | 44  
|ITEM 8. FINANCIAL INFORMATION                                                         | 48  
|ITEM 9. THE OFFER AND LISTING                                                         | 50  
|ITEM 10. ADDITIONAL INFORMATION                                                       | 52  
|ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   | 63  
|ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       | 64  
|PART II                                                                               | 65  
|ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              | 65  
|ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 65  
|ITEM 15. CONTROLS AND PROCEDURES                                                      | 65  
|ITEM 16. [RESERVED]                                                                   | 65  
|ITEM 16A. -- AUDIT COMMITTEE FINANCIAL EXPERT                                         | 65  
|ITEM 16B. -- CODE OF ETHICS                                                           | 65  
|ITEM 16C. -- PRINCIPAL ACCOUNTANT FEES AND SERVICES                                   | 66  
|ITEM 16D. -- EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES               | 66  
|ITEM 16E. -- PURCHASES OF EQUITY SECURITIES BY THE COMPANY AND AFFILIATED PURCHASERS  | 66  



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|PART III                      | 67
|----------------------------- | --
|ITEM 17. FINANCIAL STATEMENTS | 67
|ITEM 18. FINANCIAL STATEMENTS | 67
|ITEM 19. EXHIBITS             | 68



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# PRESENTATION OF
INFORMATION

In this  Annual  Report,  references
 to the  Company,  we and us refer to G.  Willi-Food  International  Ltd.  and its
consolidated subsidiaries.

The Company presents its consolidated
financial statements in New Israeli Shekels, the currency of the State of Israel. Unless
otherwise specified or the context otherwise requires, references to $",
US$", Dollars, USD and U.S. Dollars are to
the United States Dollars and references to NIS are to New Israeli Shekels.

Solely for the convenience of the
reader, this Annual Report contains translations of certain NIS amounts into U.S. Dollars
at specified rates. These translations should not be construed as representations that the
translated amounts actually represent such dollar or NIS amounts, as the case may be, or
could be converted into U.S. Dollars or NIS as the case may be, at the rates indicated or
at any other rate. Therefore, unless otherwise stated, the translations of NIS into U.S.
Dollars have been made at the rate of NIS 4.603 = $ 1.00, the representative exchange rate
on December 31, 2005.

# CAUTIONARY STATEMENT
WITH RESPECT TO FORWARD-LOOKING STATEMENTS

Certain of the statements contained
in this Annual Report that are not historical facts, including, without limitation,
certain statements made in the sections hereof entitled Information on the
Company, Dividends, Operating and Financial Review and
Prospects, and Quantitative and Qualitative Disclosures about Market
Risk are statements of future expectations and other forward-looking statements that
are based on managements current views and assumptions and involve known and unknown
risks and uncertainties that could cause actual results, performance or events to differ
materially from those expressed or implied in such statements. Actual results, performance
or events may differ materially from those in such statements due to, without limitation:

| | changes
affecting currency exchange rates, including the NIS/U.S. Dollar exchange rate,
|- | ---------------------------------------------------------------------------------------

| | payment
default by any of our major clients,
|- | --------------------------------------------

| | the
loss of one of more of our key personnel,
|- | ---------------------------------------------

| | changes
in laws and regulations, including those relating to the food distribution industry, and
inability to meet and maintain regulatory qualifications and approvals for our products,
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | termination
of arrangements with our suppliers, in particular Arla Foods amba,
|- | ------------------------------------------------------------------------------

| | loss
of one or more of our principal clients,
|- | ---------------------------------------------

| | increasing
levels of competition in Israel and other markets in which we do business,
|- | -------------------------------------------------------------------------------------

| | changes
in economic conditions in Israel, including in particular economic conditions in the
Company's core markets,
|- | --------------------------------------------------------------------------------------------------------------------

| | our
inability to accurately predict consumption of our products,
|- | ----------------------------------------------------------------

| | product
liability claims,
|- | -------------------------

| | our
inability to continue to meet the Nasdaq listing requirements.
|- | ------------------------------------------------------------------

The Company is under no obligation to
publicly update or revise any forward-looking statements, whether as a result of new
information or for any other reason. See Item 3: Key Information-Risk Factors
and Item 5: Operating and Financial Review and Prospects  Results of
Operations.

Page 1

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# PART I

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

Not
applicable.

|ITEM 2. |  | OFFER STATISTICS AND EXPECTED TIME TABLE
|------- |  | ----------------------------------------

Not
applicable.

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

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

The
following selected consolidated financial data should be read together with Item 5:
Operating and Financial Review and Prospects and our audited consolidated
financial statements and related notes included elsewhere in this annual report. The
selected consolidated balance sheet data as of December 31, 2005 and 2004 and the
selected consolidated statements of operations data for each of the three years in the
period ended December 31, 2005, 2004 and 2003 have been derived from our audited
consolidated financial statements included elsewhere in this Form 20-F, which have been
prepared in accordance with generally accepted accounting principles in Israel
(Israeli GAAP). Israeli GAAP, as applicable to the financial statements are,
in all material respects, substantially identical to generally accepted accounting
principles in the United States (U.S. GAAP), except for the accounting
recognition of the effects of inflation on the financial statements, which was applicable
until December 2003 (see Note 2C of the Notes of the Companys consolidated financial
statements), and except for presentation of cash flows. Reference is made to Notes 2 and
14 of the Notes of the Companys consolidated financial statements for a description
of the significant differences between Israeli GAAP and U.S. GAAP.

The
selected consolidated balance sheet data as of December 31, 2005 and 2004 and the
selected consolidated statements of operations data for each of the three years in the
period ended December 31, 2005, 2004 and 2003 have been audited by Brightman Almagor &
Co., an independent registered public accounting firm, and a Member Firm of Deloitte
Touche Tohmatsu. Their report appears in Item 18 in this Form 20-F. The selected
consolidated balance sheet data as of December 31, 2003, 2002 and 2001 and the
selected consolidated statements of operations data for the years ended December 31, 2002
and 2001 have been derived from our audited consolidated financial statements which are
not included in this Form 20-F. Historical financial results may not be indicative of our
future performance and interim results may not be reflective of the results for the fiscal
year.

The
Company maintains its accounts and presents its financial statements in New Israeli
Shekels, by reported amounts which, until December 31, 2003, were adjusted to the Israeli
Consumer Price Index (CPI) and, based on accounting standard No. 12
(Cessation of Financial Statement Adjustment) which went into effect on
January 1, 2004, the Company ceased to adjust its financial statements based on the
changes in the general purchasing power of the Israeli currency commencing January 1,
2004. As such, starting in 2004 the Companys financial statements are prepared in
reported amounts. The data included in the financial statements relating to
dates and periods up to, and including, December 31, 2003, are stated in adjusted amounts.

The
reported and/or adjusted amounts of non-monetary items reflect their cost in terms of
reported amounts or the cost adjusted to the changes in the CPI up to December 2003 and do
not necessarily reflect their market value or value to the business. The method for
determining reported amounts in the 2005 annual financial statements and in the 2004
annual financial statements for the balance sheet and the statement of operations is
included in the consolidated financial statements (see Note 2 of the Notes of the
Companys consolidated financial statements).

Page 2

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# Recent Exchange Rates of
NIS to one U.S. Dollar

The table shows the high and low
exchange rate of NIS per one U.S. Dollars for the last six months:

|                                | High | Low
|------------------------------- | ---- | ---
|
|
|
|
|December 2005                   |      |    
|January 2006                    |      |    
|February 2006                   |      |    
|March 2006                      |      |    
|April 2006                      |      |    
|May 2006 (through May 30, 2006) |      |    

The
representative exchange rate for NIS on December 31, 2005 was NIS 4.603 = $1.00 and the
representative exchange rate for NIS on May 30, 2006 was NIS 4.517 = $1.00.

The
average exchange rate of NIS 4.489 = USD 1.00 was for the year ended December 31, 2005,
4.482 for the year ended December 31, 2004, 4.548 for the year ended December 31, 2003,
4.738 for the year ended December 31, 2002 and 4.206 for the year ended December 31, 2001.

# CONSOLIDATED STATEMENT
OF OPERATIONS(In thousands except
per share data)(NIS)

|                           | Years ended December 31
|-------------------------- | -----------------------
|
|
|
|
|Sales                      |                        
|Cost of Sales              |                        
|Gross Profit               |                        
|Sales and Marketing        |                        
|General and Administrative |                        
|Bad Debt - Club Market     |                        
|Total Operating Expenses   |                        
|Operating Income           |                        
|Financial Income           |                        
|(Expenses), Net            |                        
|Other Income, Net          |                        
|Pre Tax Income             |                        
|Income Taxes               |                        
|Net Income                 |                        
|Earnings per Share Basic   |                        
|Shares Used in Computing   |                        
|Earnings per Share         |                        

Page 3

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# BALANCE SHEET DATA(In thousands)(NIS)

|                     | As of December 31
|-------------------- | -----------------
|
|
|
|
|Working capital      |                  
|                     |                  
|Total assets         |                  
|                     |                  
|Short-term bank debt |                  
|                     |                  
|Shareholders' equity |                  

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

Not
applicable.

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

Not
applicable.

| | D. | RISK
FACTORS
| | -- | ------------

Our results of operations may be
impacted by monetary risk. Our portfolio of marketable securities is subject to various
market risks.

We
are exposed to fluctuations in the rate of the United States Dollar and Euro versus the
NIS. Most of our income is in NIS, whereas most of our purchases are in United States
Dollars and in Euros. In addition, a significant portion of our short term bank
borrowings, when needed, are in United States Dollars and/or in Euros. A significant
depreciation in the United States Dollar and/or Euro value of the NIS could have a
material adverse effect on our results of operations and financial condition.

We
strive to minimize market risks arising from exchange rate fluctuations and the cost of
imported goods, especially by opening wide documentary credits for suppliers abroad,
holding foreign currency reserves and initiating forward transactions and foreign currency
options.

As
a method of investing cash reserves, we hold from time to time a portfolio of marketable
securities traded on the Tel Aviv Stock Exchange as well as other stock exchanges and
certain bonds traded abroad. This portfolio of marketable securities is subject to various
market risks resulting from fluctuations in interest rates and foreign currency, exchange
rates, price fluctuations and other market risks in Israel and abroad. We do not utilize
derivative securities for trading purposes, enter into swap arrangements or otherwise
hedge our currency in a manner that we believe could expose us to significant market risk

The
financial instruments of the Company consist mainly of cash and cash equivalents, current
accounts receivable, short-term borrowings, accounts payable and accruals. In view of
their nature, the fair value of the financial instruments, included in working capital, is
usually identical or close to their book value.

Page 4

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Our business may be materially
affected if any of our major clients defaults on its payment to us.

Financial
instruments that potentially subject us to concentrations of credit risk consist
principally of trade receivables. Despite our large number of clients (over 1,000 in
Israel), a major and significant part of our sales are made to a limited number of
customers (mainly the organized market). We generally do not require and do not receive
collateral from those customers, although we do require and receive collateral from most
of the remainder of its clients to ensure security of collecting payments. We maintain an
allowance for doubtful debts based upon factors surrounding the credit risk of specific
customers, historical trends and other information which our management believes
adequately covers all anticipated losses in respect of trade receivables. There can be no
assurance that this allowance will be adequate. In the event that any of our major clients
defaults on its payment obligations to us (such as Club Market  see Item 4.
Information on the Company  B. Business Overview  Customers), we will
not possess sufficient security to collect the entire debt.

We are dependent on our key
personnel. The loss of any of our key personnel could have a material effect on our
business.

We
depend on a small number of technical staff, managers and Directors, including managing
services provided to us by interest holders via companies they control, such as Zvi
Williger and Joseph Williger, each of whom holds senior management positions with us. The
loss of one or more of them could have a material adverse effect on our business and
operations.

We are subject to regulations and
other policies of the Israeli government and of other countries into which we import. If
we are unable to obtain and maintain regulatory qualifications or approvals for our
products, our business may be adversely affected.

Regulatory, licensing and quotas: The import, storage, marketing, distribution and
labeling of food products are subject to extensive regulation and licensing by various
Israeli government and municipal agencies, principally the Ministry of Health, the
Ministry of Trade and Industry, the Ministry of Agriculture and the Ministry of Finance.
To the extent that the Company has imported, or will import, food products outside of
Israel, we may be subject to quotas and other import laws and regulations which may limit
our ability to sell certain of our food products into these countries. We are required to
maintain our distribution processes in conformity with all applicable laws and
regulations. In the event that such laws and regulations change, or we fail to comply with
such laws and regulations, we may be prevented from trading within Israel or another part
of the world.

Tariffs:
The Ministry of Finance and the Ministry of Trade and Industry of the State of Israel may
increase the levels of tariffs on importing goods. This would have a direct impact on us
and our financial performance by increasing our costs which we may not be able to pass on
to our customers.

Kosher
Licences: Under kosher regulations, we are required to ascertain that the foodstuffs
which we offer for sale bear kosher certification approved by certain authorities such as
the Chief Rabbinate of Israel. There is a risk that the relevant authorities in Israel or
other areas of the world responsible for issuing kosher licences may change the criteria
for obtaining such licences. In such circumstances, we may be prohibited from obtaining
kosher licences for various products that we sell into the various kosher markets. Failure
to comply with such applicable laws and regulations in relation to kosher licences could
subject us to civil sanctions, including fines, injunctions, recalls or seizures, as well
as potential criminal sanctions, any of which could have a material adverse effect on us
and our financial performance.

Page 5

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We are dependent on Arla Foods
amba, or Arla, and we also work with a limited number of other key suppliers. If these
suppliers raise prices or terminate their engagement with us, our operating results could
be adversely affected.

We are dependent on Arla, which
supplies a high percentage of our dairy and dairy substitute products, although we are not
dependent on any single supplier in respect of a majority of our products. Terminating the
engagement with any supplier, in particular Arla, or a material change in the engagement
terms for purchasing products from those suppliers may have an adverse affect on the
Companys results of operations. We have a distribution agreement with Arla pursuant
to which the Company serves as Arlas sole agent and distributor in Israel of certain
products for a five-year period beginning in March 2005. See Item 4. Information on
the Company  B. Business Overview  Suppliers. We believe that there are
alternative suppliers for purchasing our products; however, we cannot assure that the
products of the alternative suppliers will become immediately available and that the terms
of purchase will be similar to the current ones.

We depend on a small number of
principal clients who have in the past bought our products in large volumes. We cannot
assure that these clients or any other client will continue to buy our products in the
same volumes, on the same terms or at all.

Despite
our wide dispersion of clients, we have two major clients as described in Item 4.
Information on the Company  B. Business Overview  Customers. We do not
have long term purchase contracts with our clients, and our sales arrangements with our
clients do not have minimum purchase requirements. We cannot assure that our major clients
will continue to buy our products at all or in the same volumes or on the same terms as
they have in the past. Their failure to do so may significantly reduce our sales. Losing
one or more of them may adversely affect our business results. In addition, we cannot
assure that we will be able to attract new customers.

We may not be able to successfully
compete with larger competitors who have greater operations, financial, marketing, human
and other resources than we have.

The
food distribution business in Israel is highly competitive. We face competition from
existing competitors in respect of imported as well as locally manufactured food products.
Local producers are not subject to the financial risks of importing food products or to
governmental policies regarding taxation of imported food products to which we are
subject. We believe that we may also face competition from potential newcomers to the food
business as well as from existing importers and/or manufacturers not currently involved in
the same lines of products as us. In addition, in the event we further expand our
activity in the international food markets, we will face also competition from
manufacturers and/or distributors from the locations in which we expand our activity.
Certain of our current and potential competitors are substantially more
established, benefit from substantially greater market recognition and have greater
financial, marketing, human and other resources, than us. If any of our competitors
materially reduces prices, we may be required to reduce our prices in order to remain
competitive. Such reductions, if effected, could have a material adverse effect on our
financial condition and results of operations.

# Economic conditions in
Israel affect our financial performance.

Substantially
all of our sales are made in Israel, and consequently our financial performance is
dependent to a significant extent on the economy of Israel. A deterioration of the
economic situation in Israel may erode the real wages and lower the buying power of our
potential customers. This in turn may adversely affect our activities and business
results.

Page 6

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We may be affected by political,
economic and military conditions in Israel and the Middle East.

Political,
economic and military conditions in Israel have a direct influence on us because our
operations are located there. Any major hostilities involving Israel or the interruption
or curtailment of trade between Israel and its present trading partners could materially
and adversely affect our operations. We cannot assure that ongoing or revived hostilities
related to Israel will not have a material adverse effect on our business and on our share
price. Several Arab countries still restrict business with Israeli companies and these
restrictions may have an adverse impact on our operating results, financial condition or
the expansion of our business. We could be adversely affected by restrictive laws or
policies directed towards Israel and Israeli businesses. Despite the progress towards
peace between Israel and its Arab neighbors prior to 2000, the future of these peace
efforts is uncertain. Since October 2000, there has been a significant deterioration in
Israels relationship with the Palestinian Authority, and a series of armed clashes
between Israel and the armed forces of the Palestinian Authority. These events have at
times caused considerable damage to the Israeli economy. As a result of the political and
military situation, Israels economy has suffered considerably and unemployment was
high. Although we have recently seen encouraging signs of an improved economy, we cannot
guarantee that such improved economic environment will continue.

Generally,
all male adult citizens and permanent residents of Israel under the age of 45 are, unless
exempt, obligated to perform up to 36 days of military reserve duty annually.
Additionally, all Israeli residents of this age are subject to being called to active duty
at any time under emergency circumstances. Many of our officers and employees are
currently obligated to perform annual reserve duty. Although the Company has operated
effectively under these requirements since it began operations, management cannot assess
the full impact of these requirements on its workforce or business if political and
military conditions should change, and management cannot predict the effect on it of any
expansion or reduction of these obligations.

Our results of operations may be
adversely affected if we do not accurately predict the rate of consumption of our
products.

We
hold inventory of basic food stuffs (such as preserved food, oils and rice) and other food
products, and we accumulate inventories of these products based on our prediction of the
consumption of these products. If actual consumption does not meet the prediction, and the
shelf life of such products expire or we cannot otherwise sell such products, this may
materially and adversely affect our financial condition and results of operations. On the
other hand, to the extent we do not have adequate inventory of these critical products
(due, for example, to an emergency situation), we will not be able to meet the needs of
our customers and our revenues may be adversely affected.

We may be adversely affected by
any interruption to our storage facility.

We
store most of our products in a single location, save for products being distributed to
customers. Any interruption to this storage facility whether by power failure, flooding or
other event would have a material impact on our ability to trade in the ordinary course.

Our insurance coverage may not be
sufficient to cover our losses in the event our products are subject to product liability
claims or our products are subject to recall. In such event, it would have a material
adverse effect on us.

Our
products may become the subject of product liability claims, and there can be no assurance
that our property insurance coverage limits will be adequate or that all such claims will
be covered by insurance. A product recall or a successful product liability claim or other
judgment against us in excess of our insurance coverage could have a material adverse
effect on us and our reputation.

Our operating results may be
subject to variations from quarter to quarter.

Our
operating results may be subject to variations from quarter to quarter depending on, among
other things, the timing of sales campaigns and special events initiated by both the
Company and its customers, the major Jewish holidays (such as the Jewish New Year and
Passover), our ability to manage future inventory levels in line with business
opportunities and anticipated customers demand, competitive developments in the
market, changes in the rates of inflation in Israel and fluctuations in NIS/Dollar
exchange rates. There can be no assurance that our sales or net income (if any) in any
particular quarter will not be lower than the preceding and/or comparable quarter or that
its sales or net income (if any) in a particular quarter will be indicative of our results
of operations for the entire year. The trading prices of the Ordinary Shares may fluctuate
significantly in response to variations in our operating results.

Page 7

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If we are unable to protect our
intellectual property rights, our competitive position could be compromised.

We
market certain products under the trademarks Willi-Food, Pizza
Top, Gold Food, Donna Rozza and Gold Frost.
Although we have registered trademarks for these brands, we cannot assure that the degree
of protection these and other trademarks offer will be sufficient to protect our rights in
these marks.

# Initiation and
Enforcement of Legal Action in Israel.

We
are organized under the laws of the State of Israel. All of our executive officers and
Directors and some of the experts named in this annual report are nonresidents of the
United States, and a substantial portion of the Companys assets and the assets of
these persons are located outside the United States. Therefore, it may be difficult to
enforce a judgment obtained in the United States against us or any of those persons. It
may also be difficult to enforce civil liabilities under United States federal securities
laws in actions initiated in Israel.

If our ordinary shares are
de-listed from Nasdaq, the liquidity and price of our ordinary shares and our ability to
issue additional securities may be significantly reduced.

We
may in the future fail to comply with the Nasdaq Capital Market (formerly the Nasdaq Small
Cap Market) regulations and listing requirements as to minimum net income, minimum number
of shareholders and public float and other requirements, Nasdaq may initiate procedures to
de-list the Companys ordinary shares from the Nasdaq Capital Market. Any such
de-listing may severely complicate trading of the Companys shares by its
shareholders, or prevent them from re-selling their shares at/or above the price they
paid. Furthermore, our relatively low trading volumes may make it difficult for
shareholders to trade shares or initiate any other transactions. De-listing may also make
it more difficult for us to issue additional securities or secure additional financing.

In
July 2003 and in November 2004, we received letters from the Nasdaq Stock Market informing
us that we had failed to meet a continued listing requirement, that we have 500,000
publicly held shares, and that our ordinary shares were therefore subject to de-listing
from the Nasdaq Capital Market, unless a proper plan for complying with the requirement
was presented. Following the receipt of the November 2004 letter, Willi Food Investments
Ltd. and Mr. Joseph Williger sold 75,000 of our shares to the public and at the same time
we distributed a one to one stock dividend to our shareholders. As a result of these
actions, we then complied with the abovementioned listing requirements and the threat of
de-listing was removed.

Page 8

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

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

G.
          Willi-Food International Ltd. was incorporated in Israel in January 1994 under
          the name G. Willi-Food Ltd. and commenced operations in February 1994. It
          changed its name to G. Willi-Food International Ltd. in June 1996.

In
May 1997, the Company completed an initial offering to the public in the United States
(hereinafter the Initial Public Offering) of 1,397,500 units, each unit
consisting of one ordinary share and one redeemable ordinary share purchase warrant, under
the NASDAQ ticker symbol WILCF.

In
May 2001, the Company acquired all the shares of Gold Frost Ltd., which we refer to herein
as Gold Frost, for NIS 336 thousand (USD 73 thousand). Gold Frost, which was
registered in 1977 in Israel, is engaged in designing, developing and distributing frozen
and chilled food products.

In
December 2004, the Company declared a stock dividend of 1 ordinary share for each
outstanding ordinary share (an aggregate of 4,307,500 ordinary shares). All shares and per
share amounts set forth in this Annual Report have been retroactively restated to reflect
the aforementioned share dividend for all periods presented.

On
November 21, 2005, the Company declared its first cash dividend of $0.12 per share, or an
aggregate of $1.03 million, which was paid to shareholders on January 25, 2006.

On
March 9, 2006, the Companys subsidiary, Gold Frost, completed an initial issuance to
the public on the London AIM market which yielded gross proceeds of NIS 36.5 million (USD
7.9 million). Following this issuance, as of May 30, 2006, the Company held approximately
75.7% of Gold Frosts share capital. Under a lock-in agreement signed by the Company,
the Company is restricted from selling its shares in Gold Frost for a period of 12 months
commencing March 9, 2006, and after that the Company is subject to controlled selling
restrictions for an additional period of 12 months. See Item 10. Additional
Information  10C. Material Contracts.

On
March 15, 2006 the Company announced that it had changed its NASDAQ ticker symbol for the
Companys ordinary shares to WILC.

The
Companys principal executive offices are situated at 3 Nahal Snir St., Northern
Industrial Zone, Yavne, 81224 Israel. The Companys telephone number is
972-8-9322233, its fax number is 972-8-9322299, its e-mail address for communications is
willi@willi-food.co.il and its Web site is www.willi-food.co.il.

| | B. | BUSINESS
OVERVIEW
| | -- | -----------------

# Overview

The
Company is an Israeli-based company engaged, directly and through subsidiaries, in the
design, import, marketing and distribution in Israel of a wide variety of over 400 food
products. The Company sells products with widespread demand in the Israeli marketplace, as
well as products which cater to more select groups. The Company distributes certain of its
products on an exclusive basis. Some products are currently also sold in insubstantial
volumes in the areas administered by the Palestinian Authority. The Company has
occasionally sold, in insubstantial volumes, to importers in the U.S. and in Europe
(mainly, France). The Company intends to continue its marketing efforts outside of Israel
 mainly in the U.S. and Europe  and is seeking additional distribution
channels and other ways in order to sell products into these markets.

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The
Company purchases food products from over 100 suppliers located around the world,
including from the Far East (China, India, the Philippines and Thailand), Eastern Europe
(Hungary, Poland and Bulgaria), South America (Argentina, Ecuador and Costa Rica), the
United States, Western and Northern Europe (The Netherlands, Belgium, Germany, Sweden,
Denmark and France) and Southern Europe (Spain, Portugal, Italy, Turkey, Greece and
Cyprus).

The
products imported by the Company are marketed and sold to over 1,000 customers, including
supermarket chains, wholesalers and institutional consumers. The Company markets most of
the products under the brand name Willi-Food and some of the chilled and
frozen products under the brand name Gold Frost. Certain products are marketed
under brand names of the manufacturers or under other brand names.

The
Company is re-evaluating its strategic position and considering other business
opportunities, including acquisitions by and mergers of the Company. As part of this
re-evaluation, the Company is also considering forming strategic alliances with or
entering into different lines of business. The Company has not made any definitive plans
or reached any definitive conclusions on these matters. There can be no assurances that
the Company will form any such alliances or enter into any other line of business.

The
Companys principal shareholder, Willi-Food Investments Ltd., which we refer to as
Willi Food, as of May 30, 2006, held approximately 73.98% of the Companys
outstanding share capital. The primary assets of Willi Food are the Companys
ordinary shares. See Item 7. Major Shareholders and Related Party
Transactions. Willi Foods securities are traded on the Tel Aviv Stock
Exchange.

# Business Strategy

The
Company's business strategy is:

| |  | to
promoted the Willi-Food brand name and to increase market penetration of
products that are currently sold by the Company through, among other things, marketing
efforts and advertising campaigns;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | to expand
its current food product lines and diversify into additional product lines, as well as
responding to market demand; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------

| |  | to
expand the Company's activity in the international food markets, mainly in the U.S. and
Europe.
| | - | --------------------------------------------------------------------------------------------------

Utilizing
managements expertise in identifying market demand and preferences, as well as its
sourcing abilities, the Company intends:

| |  | to
 continue  to  locate,  develop  and  distribute  additional  food  products,  some of
which may be new to  Israeli                   consumers;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------

| |  | to
increase its inventory levels from time to time both to achieve economies of scale on its
purchases from suppliers and to more fully meet its customers demands;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | to
expand its logistical capability within Israel;
| | - | --------------------------------------------------

| |  | to
 penetrate  the  international  food  markets,  mainly in the U.S.  and Europe,  by
 purchasing  food  distribution                   companies or/and  increasing
 cooperation with local existing  distributors  or/and exporting  products
                  directly to the customer; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | to
penetrate new markets within the Middle East through the establishment of business
relationships and cooperation with representatives in such markets subject to a positive
political climate.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
Company has developed certain trade relationships locally, as well as in areas
administered by the Palestinian Authority, although current sales volumes to the
Palestinian administered areas are low.

In
addition, the Company has:

| |  | promoted
the value of the Willi-Food brand and introduced additional food products to
the Israeli marketplace under the brand name Willi-Food.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------

| |  | initiated
sales in the U.S. and Europe;
| | - | ---------------------------------------

| |  | entered
into arrangements with recognized manufacturers to market their products under their
respective brand names, in addition to brand names under which the Company currently
markets its products; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On
June 20, 2005, a wholly-owned subsidiary of the Company executed definitive agreement
regarding the acquisition of Vitarroz Corp., a New Jersey-based distributor of food
products for the Hispanic market in the United States (Vitarroz). Consummation
of the Vitarroz transaction was contingent upon, among other things, completion of final
due diligence, Board of Directors approval and approval of regulatory bodies (if
necessary), as well as the satisfactory resolution of any issues that arose during the
acquisition process. On September 27, 2005, the Company announced that it had elected not
to complete the purchase of Vitarroz. See Item 8. Financial Information  Legal
Proceedings.

# Products

The Company imports, markets and
distributes two kinds of line products: preserved products and non-preserved products.

Preserved
Products

The
Company imports, markets and distributes a broad variety of over 160 preserved food
products, most of which enjoy a long shelf life (mostly between two to four years). Sales
of preserved products accounted for approximately 44% of the Companys sales in 2005.
These products are sold principally in tin cans and glass jars in a variety of sizes and
are intended for use by the individual consumer as well as by the institutional consumer
food markets.

The
Company aims at broadening the variety of the preserved products it distributes. Due to
commercial considerations, the Company occasionally stops importing certain preserved
products.

The
main principal products in the preserved product line are as follows:

Canned
Vegetables and Pickles: including okra, mushrooms (whole and sliced) and terfess,
artichoke (hearts and bottoms), beans, asparagus, capers, corn kernels, baby corn, palm
hearts, bamboo shoots, vine leaves (including vine leaves stuffed with rice), sour
pickles, mixed pickled vegetables, pickled peppers, an assortment of black and green
olives, sun dried tomatoes, edamame soybeans and antipasti. These products are primarily
imported from China, Spain, Greece, Thailand, South America, Turkey, France, India,
Poland, Morocco and The Netherlands.

Canned
Fish: including tuna (in oil or in water), sardines, anchovies, smoked and pressed cod
liver, herring, fish paste and salmon. These products are primarily imported from the
Philippines, Thailand, Portugal, Canada, Spain, Greece and Sweden.

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Canned
Fruit: including pineapple (sliced or pieces), peaches, apricot, pears, cherries,
mangos, lychees and fruit cocktail. These products are primarily imported from the
Philippines, Thailand, Greece and Europe.

Non-Preserved
Products

The
Company imports, markets and distributes a broad variety of over 260 non-preserved food
products, most of which enjoy a relatively long shelf life (mostly between ten months and
two years). Sales of non-preserved products accounted for approximately 56% of the
Companys sales in 2005. These products are sold in a variety of sizes and types of
receptacles, such as glass jars, plastic and glass bottles and containers and sealed
plastic vacuum packages, and are intended for use by the individual consumer as well as by
the institutional consumer food markets.

The
Company aims at broadening the variety of the non-preserved products it distributes. Due
to commercial considerations, the Company occasionally stops importing certain
non-preserved products.

The
main principal products in the non-preserved product line are as follows:

Edible
Oils: including olive oil, sunflower oil, soybean oil, corn oil and rapeseed oil.
These products are primarily imported from Belgium, Argentina, Turkey, Italy and Spain.

Dairy
and Dairy Substitute Products: including hard and semi-hard cheeses (parmesan, edam,
kashkaval and emmental), molded cheeses (brie, camembert and danablu) feta, Bulgarian
cheese, butter, butter spreads, margarine, melted cheese, cheese alternatives, condensed
milk, profiteroles and others. These products are primarily imported from Greece, Denmark,
Bulgaria, Italy, The Netherlands and the United States.

Dried
Fruit, Nuts and Beans: including figs, apricots, prunes, papaya, pineapple, raisins,
sunflower seeds, almonds, walnuts, pine nuts, cashew nuts and peanuts. These products are
primarily imported from Greece, Turkey, India, China, Thailand and the United States.

Other
Products: including, among others, instant noodle soups, coffee creamers, fruit
juices, jams, confitures, halva, Turkish delight, tahini, cookies, vinegar, sweet pastry
and crackers, sauces, corn flour, pastes, rice, rice sticks, rice crackers, pasta,
spaghetti and noodles, ketchup, mayonnaise, sugar cubes, breakfast cereals, corn flakes,
instant coffee, white oats, rusks, coconut milk, couscous, ouzo and vodka. These products
are primarily imported from the Netherlands, Germany, Romania, Italy, Greece, Belgium, the
United States, Scandinavia, China, Thailand, Turkey, India, South America and Argentina.

Some
of the preserved and non-preserved products listed above as sold by the Company are
imported by Gold Frost. The Company imported some of these products prior to 2001, but
this was done on a small-scale basis aimed at testing the demand for such products and
their profitability. After the purchase of Gold Frost, the import of these products was
expanded by Gold Frost.

The
products (preserved and non-preserved) that generated the largest sales volume for the
year ended December 31, 2005 were canned vegetables (21% of sales), dairy and dairy
substitute products (20% of sales), canned fish (19% of sales) and edible oils (11% of
sales).

The
products (preserved and non-preserved) that generated the largest sales volume for the
year ended December 31, 2004 were canned vegetables (23% of sales), canned fish (21% of
sales), dairy and dairy substitute products (17% of sales) and edible oils (10% of sales).

The
products (preserved and non-preserved) that generated the largest sales volume for the
year ended December 31, 2003 were canned fish (22% of sales), canned vegetables (19% of
sales), edible oils (16% of sales) and dairy and dairy substitute products (14% of sales).

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Most
of the products that the Company imports and markets are approved as Kosher by, and/or
under the supervision of, various supervisory institutions including the Chief Rabbinate
of Israel, Chug Chatam Sofer, certain Jewish organizations administering Kashrut
procedures and certifications (such as the Union of the Orthodox Jewish Congregation of
America (UO), Badatz Igud Harabanim Manchester, OK, Circle K and Triangle K) and rabbis of
local Jewish congregations abroad. See   Government Regulation.

The
Companys products are packaged by various manufacturers and suppliers abroad and
labeled with Hebrew, English and, in certain cases, Arabic and Russian labels, in
accordance with the Companys instructions and requirements and in accordance with
applicable law. See   Government Regulation.

# Suppliers

The
Company is not a manufacturer of preserved food products or non-preserved food products
and therefore purchases final products only. The Company purchases preserved food products
from over 35 suppliers worldwide, including suppliers located in the Far East (China,
India, the Philippines and Thailand), Eastern Europe (Poland), South America (Ecuador and
Costa Rica), Canada and Western, Northern and Southern Europe (Sweden, Greece, The
Netherlands, Portugal, Spain, France and Turkey). The Company purchases non preserved food
products from over 65 suppliers, including suppliers located in the Far East (China,
India, the Philippines and Thailand), Eastern Europe (Bulgaria and Latvia), South America
(Argentina), the United States and Western, Northern and Southern Europe (Sweden, Denmark,
Greece, The Netherlands, Italy, Portugal, Spain, Belgium, Germany, France, Turkey and
Cyprus).

In
addition, the Company actively maintains contact with approximately 150 suppliers
worldwide through which it assesses on an on-going basis world market trends, fluctuations
in prices and terms internationally available and other issues relevant to its business.
The Companys management and personnel visit food trade fairs worldwide on a regular
basis and endeavor to create new business relationships with potential suppliers on an
ongoing basis.

The
following table represents the percentage of purchases of preserved products by the
Company from suppliers who accounted for more than 10% of the total purchases in the years
2005, 2004 and 2003:

|Supplier   | 2005 | 2004 | 2003
|---------- | ---- | ---- | ----
|
|
|
|
|Supplier A |      |      |     
|Supplier B |      |      |     

| | * | less
than 10%
| | - | -------------

The
following table represents the percentage of purchases of non-preserved products by the
Company from suppliers who accounted for more than 10% of the total purchases in the years
2005, 2004 and 2003:

|Supplier | 2005 | 2004 | 2003
|-------- | ---- | ---- | ----
|
|
|
|
|Arla     |      |      |     

| | * | less
than 10%
| | - | -------------

The Company is not dependent on any
given supplier for the supply of a majority of its products. We purchase most of our
products from several suppliers. We are dependent on one source of supply  Arla from
Denmark  in respect of a large part of our dairy and dairy substitute products. A
distribution agreement between the Company and Arla grants the Company exclusive and
non-transferable right to market and distribute cheese and butter products manufactured by
Arla and its affiliated companies in Israel. The exclusivity for the Company is subject to
the purchase by the Company of certain minimum quotas of products. The agreement is for a
five year term commencing in March 2005 and is renewable automatically for a further
period of five years, unless notice of termination is provided by either party. Arla has
the right to terminate the agreement on three months notice in certain circumstances,
including in the case of the death or permanent incapacity of Zvi Williger or his ceasing
to be involved in the Companys business or if the Company fails to satisfy its
minimum purchase requirements under the agreement. It should be noted that the Company has
obtained key man insurance in respect of Zvi Williger for the sum of NIS 6 million. Up
until March 2005, Arla was a supplier of the Company and no such agreement existed.

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Although
the Company is not dependent on any one supplier with respect to most of its products,
termination of the Companys business relationships with certain suppliers and/or a
material adverse change in the terms at which the Company purchases such products from
such suppliers could have a material adverse effect on the Companys financial
results. There can be no assurance that alternative sources for such products, if
required, will be readily available nor can we assure the terms of purchase of such
products from such alternative sources.

The
Company does not generally enter into written agency or other agreements with its
suppliers. However, the Company has written agreements with two foreign suppliers of
preserved products and six foreign suppliers of non preserved products that confirm the
exclusive appointment of the Company as the sole agent and/or distributor of such
suppliers either with respect to a specific product or with respect to a line of products,
within the State of Israel. These exclusivity rights have generally been granted for a
period of 12-24 months and are automatically extendable unless terminated by either party
upon notice, and in certain cases are conditioned upon the Companys compliance with
certain minimum purchase requirements.The suppliers from which the Company
received such letters of confirmation accounted for approximately 25%, 23%, and 23% of the
Companys purchases in 2005, 2004 and 2003, respectively. In a few instances, the
Company did not fulfill its commitment to the minimum purchase requirements, but since the
onset of its activities no supplier has terminated its agreement with the Company due to
the Companys failure to comply with the minimum purchase requirements. The
Companys purchases are not motivated by a desire to meet minimum purchase
requirements, and the considerations in purchasing products from these suppliers are
identical to those for purchasing from other suppliers.

Certain
of the preserved products imported by the Company are seasonal agricultural products, such
as artichokes, cherries, mushrooms and peaches. In order to assure itself a continued
supply of these seasonal items, the Company generally makes arrangements with the
producers of such products at the beginning of the season for the terms of purchase of
such items for the upcoming year.

A
substantial portion of the Companys purchases from suppliers is made in USD (such as
purchases from the Far East, the United States, South America and certain European
countries) with the remaining purchases usually made in Euros and other foreign currencies
(e.g., Swedish Kronas). Supply is generally made to the Company against letters of credit
for a period of up to 90 days. See Item 5: Operating And Financial Review and
Prospects  B. Liquidity and Capital Resources  Impact of Inflation and
Devaluation on Results of Operations, Liabilities and Assets.

The
average volume of Companys credit balance with its suppliers amounted in 2005 to NIS
17.8 million (USD 3.9 million) consisting 52 days of suppliers credit on average, in 2004
to NIS 17.5 million (USD 3.8 million) consisting of 49 days of suppliers credit on
average, and in 2003 to NIS 14.3 million (USD 3.1 million) consisting of 56 days of
suppliers credit on average.

# Customers

The
Companys products (preserved and non-preserved) are marketed and sold to over 1,000
customers throughout Israel (including customers in the areas administered by the
Palestinian Authority). The Company has occasionally sold to importers from Europe and the
U.S. During 2001-2005, the Company sold a variety of its products to importers from
France, UK and the U.S. (mainly tuna fish, baby corn, corn, asparagus, sugar cubes,
noodles, rice and pickles).

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Customers
of the Company typically purchase both preserved and non preserved products from the
Company. The number of clients who purchase products from only one of these categories is
not material.

The
Companys customers generally fall within one of the following two groups:

| |  | large
retail supermarket chains in the organized market, and
| | - | ------------------------------------------------------------

| |  | private
supermarket chains, mini-markets, wholesalers, manufactures, institutional customers and
the customers in the Palestinian Authority (private sector).
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

The
first major group includes the largest Israeli supermarket chains in the organized market
in Israel, including: (i) Supersol Ltd. (including the chains: Supersol Deal, Supersol
Big, Supersol Sheli, Supersol, the Hyperneto, Cosmos, Mahsanei Mazon, Zol Lemehadrin,
Birkat Rachel and Hutzot Lahav, and also includes, from 2006, Club Market Marketing Chains
Ltd. (including the chains: Club Market, Hatzi Kupa, Zol Po and Imperia)); (ii) the Co-op
Blue Square Cooperative Society Ltd. (which also includes the SuperCenter, SuperCenter
City, Mega and Shefa Shuk); and (iii) Co-Op Jerusalem (Co-Op Jerusalem, Mister Zol, Pasut
Zol, Ish Efrat and Metro Market). The Company contracts with the supermarket chains in the
organized market through the buyers in the head office of the supermarket chain, and then
the Company receives orders from the logistic center or directly from their stores.
Merchandise is then delivered directly to each branch or to the supermarkets chain
distribution center.

The
second major group includes private supermarket chains, mini-markets, wholesalers, food
manufacturers, institutional consumers, such as catering halls, hotels, hospitals and food
service companies and food producers, and customers in the Palestinian Authority.

The
Companys sales, by customer group, for the years ended December 31, 2005, 2004, 2003
and 2002 are as follows:

|                                               | Percentage of Total Sales
Year Ended December 31
|---------------------------------------------- | ------------------------------------------------
|
|
|
|
|Supermarket Chains in the organized market     |                                                 
|Private Supermarket Chains, mini-markets,      |                                                 
|wholesalers, manufacturers, institutional      |                                                 
|consumers and the customers in the Palestinian |                                                 
|Authority                                      |                                                 
|                                               |                                                 

For
the years ended December 31, 2005, 2004 and 2003, sales to each of the Companys
three largest customers (all of which are supermarket chains in the organized market)
generated in excess of 10% of the Companys sales, and together aggregated
approximately 39% of the Companys sales during each of such periods. The largest
customer accounted for 19% of the Companys sales in 2005, compared with 22% of the
Companys sales in 2004 and 18% of the Companys sales in 2003. The second
largest customer accounted for 12% of the Companys sales in 2005, compared with 14%
of the Companys sales in 2003 (in 2004 sales to this client were less than 10%). The
third largest customer accounted for 11% of the Companys sales in 2004 (in 2003 and
2005 sales to this client were less than 10%).

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The
loss of any of these major customers would have a material adverse effect on the
Companys financial condition and results of operations. The Company is seeking to
expand its operations in other areas so as to reduce its dependence on any single
significant customer.

The
Company has agreed to pay the large supermarket retail chains in the organized market
incentives based on the increase in volume of sales to such customers in excess of a
certain agreed amount, or an incentives calculated as a fixed percentage of the annual
sales to such customer. Other incentives include penetration discounts for sales of new
Company products, limited discounts for opening of new branches that sell Company products
and payments for participation in Companys product advertisements. The above
mentioned incentives vary among customers and are usually awarded as part of a written
annual framework agreement.

These
incentives typically range from 5% to 7.5% of the annual sales of the Company to such
customers and are generally paid at the beginning of each year with respect to the
previous years sales. These arrangements also generally include specific exclusions,
such as direct or joint importing of products that are not considered for purposes of such
incentives. Certain of these commitments are not evidenced in written agreements. For the
years ended December 31, 2005, 2004 and 2003, the Company paid and/or is obligated to pay
approximately NIS 3,080 thousand (USD 669 thousand), NIS 3,870 thousand (USD 841 thousand)
and NIS 3,380 thousand (USD 734 thousand), respectively, in respect of such incentives.

Our
engagement with private sector customers is not subject to any exclusivity provisions or
framework agreement, and they have no specific term. Prior to any engagement with a
potential customer, the Company examines the financial stability of the potential customer
and determines the extent of the credit and period for which credit would be granted. Most
of the customers are required to deposit securities as collateral (personal and/or bank
guarantees as well as post-dated checks). Some of the customers of this sector (mainly
private supermarket chains and wholesalers) are also awarded incentives, as mentioned
above. The extent of such incentives varies between 1%-3% of the annual sales turnover of
each relevant customer.

The
average volume of the customers of the Company debit balance with the Company amounted in
2005 to NIS 41.6 million (USD 9.0 million) and the average time period within which our
accounts receivable were paid was 93 days, in 2004 the average customer debit balance was
NIS 41.1 million (USD 8.9 million) and the average time period within which our accounts
receivable were paid was 85 days and in 2003 the average customer debit balance was NIS
32.6 million (USD 7.1 million) and the average time period within which our accounts
receivable were paid was 84 days. The increase in 2005 to the average time period within
which our accounts receivable were paid was mainly due to the collapse of the Club Market
supermarket chain and insolvency of a number of major wholesalers in the Israeli food
industry.

In
the event that a client does not respect its financial commitments, the Company may elect
to foreclose on the collateral or the promissory note given by customers in the private
sector. In 2003-2005, no significant use of this means was implemented.

The
Company strives to minimize its credit risks by constantly reviewing the credit it extends
to customers versus the security it receives. As a result, the Company has ceased selling
products to certain customers and considerably reduced sales to other customers, and may
continue to do so.

Page 16

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In
July 13, 2005, Club Market Marketing Chains Ltd., one of the three largest food chains in
Israel, owner of 114 stores and a major customer of the Company, encountered major
financial difficulties, announcing that it could not pay its debts to its creditors. The
District Court of Tel Aviv accepted Club Markets petition for a stay of procedures
against it and appointed receivers for Club Market. On August 28, 2005, the court allowed
the Club Market court-appointed receivers to sell Club Market to Supersol, subject to
several conditions. The court also ratified the creditors arrangement presented by
the receivers. As of September 1, 2005, Club Markets activities were substantially
transferred to Supersol. This merger of two of the three largest food chains in Israel is
expected to strengthen Supersols buying power with local food suppliers (such as the
Company) and it is expected that the dependency of local food suppliers on Supersol will
grow.

The
Company submitted a claim of debt with the receivers with respect to Club Markets
debt to the Company, amounting to NIS 6.5 million (USD 1.4 million), including VAT (NIS
5.5 million net of VAT (USD 1.2 million)), as of July 13, 2005. In view of this claim and
the ratification of the creditors arrangement by the court on December 12, 2005, the
Company is expected to receive a proportional share of its claim of debt. The Club Market
receivers estimate the rate of payment to be approximately 51% of the total debts,
although this is subject to the examination by the receivers and their approval of the
Companys claim of debt. There is no assurance as to the portion of the debt owed by
Club Market that will actually be paid to the Company. During 2005, the Company wrote off
the sum of NIS 3.5 million (USD 0.76 million) as a bad debt due to the abovementioned Club
Market debt.

The
volume of customer bad debt of the Company in the years ended December 31, 2005, 2004, and
2003 amounted to NIS 3,826 thousand (USD 837 thousand), which includes Club Markets
bad debt, NIS 167 thousand (USD 39 thousand), and NIS 0 thousand, respectively.

# Distribution, Marketing
and Sales

The
Company principally distributes and markets its products on its own. The Company markets
its products via internal sales agents, apart from sales of certain products to clients
situated in Beer Sheva and elsewhere in the South of Israel, where it distributes products
through an external distributor, with whom the Company does not have an exclusivity
agreement. The sales of this distributor are not significant.

The
Company generally has no written agreements with its customers, nor are its arrangements
with its customers on an exclusive or binding basis. The Company generally extends its
customers approximately 60-90 days credit beginning at the end of the month in which the
sale took place. The supermarket chains in the organized market generally effect payment
by wire transfers or cash payments on the due date, while other customers are generally
required to provide post-dated promissory notes at least one month prior to the date of
the expected payment. The Company generally does not require the supermarket chains in the
organized market to provide any kind of security for payments; however, other customers
may be required to provide security, including personal guarantees.

Sales
are made by the placement of customers orders (except for part of the dairy and
dairy substitute products), which are directed to the Companys regional office and
placed by the sales personnel or directly by the customers. Orders are transferred to the
Companys logistic center in Yavne for preparation and delivery by the Companys
transport network (including 14 refrigeration trucks and seven regular trucks) and by
independent transporters. In certain cases, the Company transports products directly from
port to customers, utilizing the services of independent transporters. In some instances,
the Company transfers the merchandise to the logistic centers of the supermarket chains,
and the supermarket chains themselves are responsible for the distribution of the
merchandise to their chain stores for a commission charged to the Company.

The
sale of part of the dairy and dairy substitute products is performed by van
sale sales agents using small terminals. The sales agents supply these products
immediately from the stock of products in the refrigeration trucks in which they travel.

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Some
of the marketing and distribution to institutional clients in the private sector (such as
hotels, police, prisons, the Ministry of Defense and Kibbutz collective
settlements) is done by winning tenders or direct distribution or by wholesalers.

The
Company generally holds an inventory of products which the Company believes to be
sufficient to meet market requirements for a period of up to 80 days. Occasionally, the
Company may take advantage of low priced merchandise and purchase larger amounts than
usual of a product with long shelf life. In those cases, the inventory quantities may be
even higher then 80 days. Products ordered by customers in full container loads are
generally forwarded directly to the customers facilities without being stored in the
Companys facilities. The Company does not regularly maintain significant backlog of
orders from customers; orders received by customers are generally filled within one week.

The
Companys inventory as of December 31, 2005 amounted to NIS 30.8 million (USD 6.7
million), compared with NIS 27.1 million (USD 5.9 million) as of December 31, 2004 and NIS
18.8 million (USD 4.1 million) as of December 31, 2003.

The
Company undertakes advertising campaigns. In 2004 and the first quarter of 2006, it
initiated an extensive advertising campaign in the electronic media and in the newspapers
under the brand name Willi-Food in order to promote the awareness to the
Willi-Food brand name.

The
Company also participates in various sales campaigns within the supermarket chains that
are intended to stimulate sales volume. Among such campaigns are food festivals initiated
by the supermarket chains and certain importers, including the Company, in which the
import and marketing of products from a specific country or region are celebrated and
promoted. Since 2002, the Company has participated in various festivals for certain
products imported from Italy, The Netherlands, Turkey and Greece, including the Ethnic
Festival and the Mediterranean Festival. Such festivals typically involve increased
display space as well as enhanced promotional activities, both with respect to the
festival itself and the products. Such activities are sponsored by the supermarkets in
collaboration with the importers participating in the festival. Within the framework of
these festivals, the Company imports a wide variety of products which include pastries,
vegetables, jams, cheese, fish, and dairy products, as well as certain articles typical to
the culture and/or cuisine of each specific festival.

The
Company maintains close contact with its consumer markets in an effort to be attentive to
market needs, market trends, demand for certain products and their value to the market.
The Company also regularly gathers information on new products manufactured worldwide,
including by attending food exhibitions and maintaining close relations with manufacturers
and suppliers worldwide.

The
Company is responsible for the products it markets under the Israeli Law of Defective
Products, 1980, and it has also purchased an insurance policy for product liability.

# Seasonality

Each
year as the Passover and Rosh Hashana festivals approach, the Company usually increases
its inventories in order to provide a fast response to the markets demand. Usually
there is an increase in the Companys sales prior to the Rosh Hashanah holiday
(celebrated in September-October) and the Pesach (Passover) holiday (celebrated in
March-April). Despite the impact of the holiday season on the Companys activities,
the Companys quarterly sales are not materially affected as result of these holiday
seasons.

# Competition

The
food distribution business in Israel is highly competitive with respect to imported, as
well as locally manufactured, food products. The Company believes that it presently faces
direct competition from both local manufacturers, as well as from a number of importers of
food products. The food market in Israel is very price sensitive.

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For
each of the categories of products distributed by the Company, there exists competition by
dozens of local manufacturers as well as from other importers. The barriers to entry in
the food market are low, and new potential competitors are constantly joining the market.
The Company believes that it may also face competition from potential new-comers to the
food business, as well as from existing importers and/or manufacturers currently not
involved in the same lines of products as the Company.

For
example, certain of the products imported by the Company such as canned fish, corn, edible
oils, certain pickles, olives, pasta, cereal, sweet pastry and crackers and certain dairy
products are also produced by local manufacturers in Israel. Local producers are not
subject to the financial risks of importing food products or to governmental policies
regarding taxation of imported food products to which the Company is subject.

To
the Companys knowledge, several of its competitors (Shemen, Tet-Bet and Solbar with
respect to edible oils, Fodor (Starkist and Yona), Posidon and Williger of the Neto Group,
Filtuna and Shastowits with respect to fish products, Pri HaGalil-Vita, Yachin-Zan laKol,
Williger of the Neto Group, Alaska and Johnson with respect to canned vegetable and canned
fruits products, Osem, Barila, Pri HaGalil-Vita, Williger of the Neto Group and Tomer with
respect to pasta products, Tnuva, Tara, Strauss, Siman, Machlvot Gad and Meshek Zuriel
with respect to dairy and dairy substitute products, for example) are substantially more
established, have greater market recognition and have greater financial, marketing, human
and other resources than those of the Company. If any of the Companys major
competitors materially reduces prices, the Company would experience significantly more
competitive pressure and a decrease in profitability. The Company cannot predict whether
it could successfully compete with these pressures and, if it were unable to do so, the
Companys business would suffer.

The
Companys management does not have precise information regarding the extent of the
import of food products to Israel. However, it believes it is one of the leading companies
in Israel in its line of products.

The
Company endeavors to compete by following the availability of products, their prices,
offers for performing transactions and business opportunities while diversifying sources
of supply as well as following the selling prices of competing products and setting
product prices according to changing market prices.

# Intellectual Property
Rights

The
Company markets certain products under the trademark Willi-Food, which was
approved for registration in Israel in May 1997 for certain uses relating to the food
industry. In 2001, the trademarks validity was extended for an additional fourteen
years (until 2015). The Company also markets certain products under the trademark
Gold-Frost, which was registered in Israel in February 2002.

The
Company also markets cheeses and cheese substitute for pizza under the trademark
Pizza Top which was registered in Israel in September 2002. On February 16,
2006, the Company entered an agreement with Gold Frost under which the Company assigned to
Gold Frost all its rights, title and interest in and to the trademark Pizza
Top.

The
Company also markets certain products under the trademark Gold Food which was
registered in Israel in November 2002 for different uses in the food industry.

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The
Company also markets pasta and sauces under the trademark Donna Rozza which
was registered in Israel in August 2005 for different uses in the food industry. Other
products marketed by the Company under their original brand name are Completa,
Raskas, Puck, Nobeleza Gaucha, Hazer Baba,
Arla and Lurpak. The Company imports several products for the
Supersol chain under the brand name Superclass, which is the chains
brand name. This brand name has recently been changed to Supersol.

There
can be no assurances as to the degree of protection registration of the Companys
trademarks will afford. In 2004 and 2005 the Company petitioned for six new trademarks.
There is no certainty that these trademarks will be registered as the Company requested.
Regarding one of these names, objections on behalf of third parties have been submitted.

The
Company also owns three trademarks which are not currently used. The Companys
investment in registering these trademarks was insignificant.

# Employees

As
of December 31, 2005, the Company, including its subsidiaries, employed a total of 80
persons, six of whom were in management, 11 of whom were in accounting and importing
positions, 28 of whom were involved in the Companys sales and marketing departments,
and 35 of whom were employed in logistics networks (warehousing and transportation). This
compares with 70 employees as of December 31, 2004, six of whom were in management, 11 of
whom were in accounting and importing positions, 23 of whom were involved in the
Companys sales and marketing departments, 30 of whom were employed in logistics
networks (warehousing and transportation). As of December 31, 2003, the Company, including
its subsidiaries, employed a total of 60 persons, five of whom were in management, 12 in
accounting and importing positions, 20 involved in the Companys sales and marketing
departments and 23 in logistics networks (warehousing and transportation).

As
of December 31, 2005, 28 additional employees (stewards and sales people) were engaged on
an hourly basis. On December 31, 2004 the number was 36 and on December 31, 2003 the
number was 18. Other employees were supplied by temporary manpower companies.

During
the past two years, there has been an increase in the number of employees in the sales and
marketing departments as well as in the logistics department due to the increase in sales
and due to the Companys anticipation for further revenue growth and customer
diversification.

The
Companys employees are party to written employment contracts. Regarding the
Companys management services agreements with companies controlled by Messrs. Joseph
and Zvi Williger, see Item 6. Directors, Senior Management and Employees-
Compensation.

The
Company believes that its working relations with its employees are satisfactory. Israeli
labor laws are applicable to all of the Companys employees, as are certain
provisions of the collective bargaining agreements between the Histadrut (General
Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations
(including the Industrialists Association), by order of the Israeli Ministry of Labor.
These provisions principally concern the length of the work day, minimum daily wages for
professional workers, paid annual sick leave, discrimination, insurance for work-related
accidents, social security, procedures for dismissing employees, determination of
severance pay and other conditions of employment.

In
addition, Israeli employers, including the Company, are required to provide certain
escalations in wages in relation to the increase in the Israeli consumer Price Index
(CPI). The specific formula for such escalation varies according to agreements
between the Government of Israel, the Manufacturers Association and the Histadrut.

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A
general practice in Israel followed by the Company, although not legally required, is the
contribution of funds on behalf of its senior employees to a fund known as
Managers Insurance. This fund provides a combination of savings plan,
insurance and severance pay benefits to participating employees, giving these employees a
lump sum payment upon retirement and securing their right to receive severance pay, if
legally entitled, upon termination of employment. The employee contributes an amount equal
to 5%-5.5% of his wages and the Company contributes an additional 13.3%-15.8%. In
addition, Israeli law generally requires severance pay upon the retirement or death of an
employee or termination of employment without due cause. Furthermore, Israeli employees
and employers are required to pay predetermined sums to the National Insurance Institute
(which is similar, to some extent, to the United States Social Security Administration).
The payments thereto amount to approximately 11% of wages; the employees share being
4.5-9% (depending on the marginal level of wages) and the employers share is
approximately 5%.

On
February 16, 2006, the Company entered an agreement (Transfer Agreement) with
Gold Frost, pursuant to which 16 of the Companys employees became employees of Gold
Frost as of January 1, 2006. The Transfer Agreement specifies that the employees
rights (including pension funds and insurance policies, tenure, etc.) will be fully
maintained by Gold Frost despite the change in the employers identity. It was
further agreed that the Company would pay to Gold Frost the sum of NIS 47,972 (USD 10,422)
which covers the Companys obligations for unused vacation time and convalescence pay
owing to those employees who were transferred. See Item 7. Major Shareholders and
Related Party Transactions  10B. Related Party Transactions  Transfer
Agreement.

The
abovementioned transfer was implemented in order to allow Gold Frost to market its
products on its own accord.

# Government Regulation

The
import, storage, distribution, marketing and labeling of food products is subject to
extensive regulation and licensing by various Israeli government and municipal agencies,
principally the Ministry of Health, the Ministry of Finance and the Ministry of Trade and
Industry. We are required to maintain our distribution processes, as well as the products
imported by us, in conformity with all applicable laws and regulations. Failure to comply
with these applicable laws and regulations could subject us to civil sanctions, including
fines, injunctions, recalls or seizures, as well as potential criminal sanctions, any of
which could have a material adverse effect on us. We believe that we comply in all
material respects with the above-mentioned requirements. To the extent that the Company
has imported, or will import, food products outside of Israel, we may be subject to quotas
and other import laws and regulations which may limit our ability to sell certain of our
food products into these countries.

In
1978, the Israeli government issued the free import decree, which exempts the import of
most food products from the requirement to acquire a license. However, preliminary permits
from the Ministry of Health or the Ministry of Agriculture are still required. These
preliminary permits are granted based on laboratory analysis reports and other data.

Customs
duties and charges are levied on a portion of the Companys products. Israeli
government policy in favor of exposing the local market to certain imported products has
directly impacted the Companys operations since September 1991, when certain customs
duties levied by category, formerly levied on products, including those imported by the
Company, were canceled.

The
Company is required to obtain import licenses for the import of certain food products from
the Ministry of Trade and Industry of the State of Israel. The Company has obtained the
necessary import licenses for the products imported by it as required by the import
authorities. The Company has also obtained the necessary authorization required by the
Ministry of Health (Food Authority) for the import of all of its food products to Israel.
The Companys products are packaged by various manufacturers and suppliers abroad and
labeled in Hebrew, English and, in certain cases, Arabic and Russian, according to the
Companys instructions and the requirements of the Israeli authorities. Since the
beginning of the Companys activities, the Company has been found to have mislabeled
packages four times, as a result of which the Company was required to pay an immaterial
amount of fines.

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On
January 5, 2005, the Israeli Antitrust Authority announced its policy regarding commercial
practices between suppliers and retail chains. It determined that several existing
arrangements of this sort were indeed tying arrangements (an agreement
requiring that as a precondition of purchasing or obtaining services, that other services
must be purchased through the seller) which are prohibited. This opinion is applicable to
dominant suppliers, which for purposes of this policy was defined as suppliers
who control a very significant portion of the market in which they operate i.e., over 50%, such that they are a monopoly, or control close to 50% of the market
in which they operate and is not a monopoly. The Company, however, is of the opinion that
it is not one of the dominant suppliers and that the implementation of this
policy may weaken the power of the Companys larger competitors and reduce their
ability to compete with smaller competitors, such as the Company.

Most
of the products which the Company imports and markets are approved as Kosher by and/or
under the supervision of various supervisory institutions including, the Chief Rabbinate
of Israel, Chug Chatam Sofer, certain Jewish organizations administering Kashrut
procedures and certifications (such as the Union of the Orthodox Jewish Congregation of
America (UO), Badatz Igud Harabanim Manchester, OK, Circle K, Triangle K, etc.) and rabbis
of local Jewish congregations abroad. Such procedures include, in certain cases, personal
supervision by a Kashrut supervisor sent by such institutions to the manufacturing
facilities from which the Company purchases products, who is present at the plant during
the processing of the product. Under Israeli law, the Company is required to ascertain
that the kosher foodstuffs which it offers for sale bear kosher certification approved by
certain authorities, such as the Chief Rabbinate of Israel, and also bear the name of the
individual authorized to certify such product. Not all products marketed by the Company
have been so certified, although they do bear certain kosher certification from other
certification bodies. The expenses for obtaining the Kashrut approval are relatively low.

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

The
Companys principal shareholder, Willi Food, as of May 30, 2006, held approximately
73.98% of the Companys outstanding share capital. The primary assets of Willi Food
are the Companys ordinary shares. Willi Food was established on November 27, 1992
and its securities have been traded on the Tel Aviv Stock Exchange since January 1993.

The
Company, as on December 31, 2005, had two active wholly owned subsidiaries organized in
Israel, Gold Frost and W.F.D. (Import, Marketing and Trading) Ltd., which we refer to
herein as W.F.D. The offices of the Companys subsidiaries are located in the Yavne,
Israel, at the office of the Company.

The
Company has one inactive subsidiary in the United States  Willi USA Holdings, Inc.,
a Delaware corporation.

Gold
Frost

In
May 2001, the Company acquired all the shares of Gold Frost for NIS 336 thousand (USD
73 thousand). Gold Frost, which was registered in 1977 in Israel, is engaged in designing,
developing and distributing frozen and chilled food products. The Company purchased Gold
Frost in order to take advantage of Gold Frosts know-how in importing frozen and
chilled products as well as of its well known brand name in the Israeli market. Gold Frost
distributes over 60 products, usually packed for private consumers (in cans, jars,
containers and plastic sealed and vacuumed packages), but also for institutional consumers
and labeled in Hebrew, English, and in certain cases, Arabic and Russian. Gold Frost
markets certain products under the trademarks Gold Frost and Willi
Food which are registered in Israel. Gold Frost is working towards broadening the
variety of products that it develops and distributes. The mission of Gold Frost is to
develop low fat, low cholesterol dairy chilled and frozen products aimed at the kosher and
health conscious consumer market.

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On
March 9, 2006, Gold Frost completed an initial issuance to the public on the London AIM
market which yielded gross proceeds of NIS 36.5 million (USD 7.9 million). Following the
issuance, as of May 30, 2006, the Company held approximately 75.7% of Gold Frosts
share capital.

On
February 28, 2006, a relationship agreement between Gold Frost, the Company and others was
signed, defining the relationship between the two companies. See Item 10.
Additional Information  10C. Material Contracts.

W.F.D.

In
November 1995, the Company also incorporated a wholly-owned subsidiary, W.F.D. The Company
occasionally imports certain products through this subsidiary, which then sells these
products to the Company. W.F.D. has no assets, facilities or obligations, other than those
amounts owed to suppliers overseas with respect to products purchased from them. W.F.D.
had no sales for each of the last five years.

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

The
Companys principal executive offices are situated at a leased facility in the
northern industrial zone of Yavne, at 3 Nahal Snir St., Israel, 35 km south of Tel-Aviv.
These premises serve as the Companys logistic center for warehousing and
distribution of food products as well. The Yavne facility is leased by the Company from
Titanic Food Ltd. (Titanic), a private Israeli company controlled by Messrs.
Joseph Williger, the Companys Chief Executive Officer and a director, and Zvi
Williger, the Companys Chief Operating Officer and Chairman of the Board. The lease,
which was signed on November 29, 1998, was for an initial term of two years with an option
for three additional terms of two years each. The lease will expire on January 14, 2007.

This
facility consists of approximately 5,387 square meters (approximately 48,500 square feet)
(a four-story building plus a basement). The monthly rental fee (excluding VAT) for this
facility is USD 35,886 starting January 2005, the last option period. The rent is payable
in advance on a quarterly basis. The Company believes that the terms of the
above-mentioned lease are no less favorable to it than could be obtained from an
unaffiliated third party. The amounts paid by the Company as rental fees in the years
ended December 31, 2005, 2004 and 2003 were NIS 1,918 thousand (USD 417 thousand), NIS
1,833 thousand (USD 398 thousand) and NIS 1,837 thousand (USD 399 thousand), respectively.
Since March 27, 2000, the Company has been operating the Yavne facility under a municipal
business license as required under Israeli law. The license has been granted permanently.

The
Company also utilizes free warehouse services in the area of the Ashdod seaport. The
Company is charged only for storage per container (i.e., there is no charge for
rental while the Company does not use the free warehouse services). The payment for these
services for the years ended December 31, 2005, 2004 and 2003 was NIS 1,361 thousand (USD
296 thousand), NIS 1,400 thousand (USD 304 thousand) and NIS 822 thousand (USD 179
thousand), respectively.

As
of December 31, 2005, the Company owned fourteen refrigeration trucks (each with capacity
of 6.5 to 19 tons) and seven regular trucks (each with capacity of 15-27 tons). Pursuant
to the Transfer Agreement with Gold Frost 11 of the abovementioned trucks and a private
car were sold as of January 1, 2006 from the Company to Gold Frost. See Item 7.
Major Shareholders and Related party transactions  10B. Related Party
Transactions  Transfer Agreement. The abovementioned transfer was implemented
in order to allow Gold Frost to market its products on its own accord.

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In
August 2005, the Company purchased from Titanic a plot of 19,000 square meters
(approximately 171,000 square feet) for the construction of a new logistic center of 8,600
square meters (approximately 77,400 square feet). This transaction was approved by the
Companys Board of Directors, Audit Committee of the Board of Directors and
shareholders. The plot is situated in the northern industrial zone of Yavne. The new
logistic center will replace the Companys current logistic center (which the Company
leases from Titanic), and will spare the Company the expense of using storage services in
warehouses at the Ashdod seaport far from the current logistic center. The new logistic
center is expected to become operational in November 2006, and the Company is expected to
evacuate the current logistic center and return it to Titanic when the new logistics
center becomes operational.

The
lease for the present logistics center (the Current Lease) ends in January
2007. If the new logistics center becomes operational before the expiration of the Current
Lease, Titanic has agreed to shorten the term of the Current Lease accordingly, without
receiving any additional compensation for shortening the Current Lease term.
Alternatively, if the new logistics center becomes operational after the expiration of the
Current Lease, Titanic has agreed that the Current Lease will be extended until completion
of the construction of the new logistics center under the same terms that the present
logistics center is being rented today (USD 35,886 a month).

The
total investment in the new logistics center until December 31, 2005 amounted to NIS
12,886 thousand (USD 2,799 thousand).

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

Not
applicable.

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

# Overview

The
following discussion and analysis should be read in conjunction with the consolidated
financial statements of the Company and the related Notes thereto which appear in this
Annual Report. The consolidated financial statements have been prepared in accordance with
Israeli GAAP, which differs in certain significant respects from U.S. GAAP. Reference is
made to Notes 2 and 14 of Notes to the consolidated financial statements for a description
of the significant differences between Israeli GAAP and U.S. GAAP. Unless otherwise
indicated, financial information for the Company included herein is presented on a
consolidated basis under Israeli GAAP.

The
Company is engaged in the design, import, marketing and distribution of a broad range of
food products purchased from over 100 suppliers worldwide and marketed throughout Israel,
and to a much lesser extent, the areas administered by the Palestinian Authority. The
products imported by the Company are marketed in Israel and sold to over 1,000 customers,
including supermarket chains in the organized market, private supermarket chains,
mini-markets, wholesalers, manufacturers and institutional consumers. The Company was
incorporated in Israel in January 1994 and commenced operations in February 1994.

During
recent years, there has been an increase in the number of small private supermarket stores
that have opened in Israel, which has resulted in greater price competition in the stores
and in our business. The increased price competition resulted in an increase in our cost
of sales as a percentage of total sales and a decrease in our gross profit in 2005 from
2004. In an effort to reduce our operating costs and increase our logistical efficiency,
we are constructing a new logistics center to replace the numerous external warehouse
facilities that we currently use. This new logistics center, which is expected to be
operational in November 2006, will also include a dedicated automatic packing line. We
believe the new facility will enable us to take fuller advantage of the sales channels
available to us. The new facility will also allow us to consider adding new sources of
products in Israel to provide further products to meet consumer demand.

We
also intend to continue to seek to grow our market share in Israel through the
introduction of additional innovative niche products to give the customer more choice,
healthier and/or less expensive products and, where permitted, by expanding our
relationships with our suppliers. We also intend to increase expenditures on marketing and
sales activities to increase the market penetration of the products that we currently sell
in Israel.

Currently,
almost all of our sales are in Israel. We believe that there is potential for significant
expansion of the business outside of Israel, and in particular, in the U.S. and Europe. We
have a number of different opportunities in these regions, but we believe it important to
secure control of distribution of our products in these regions as well. Currently, we are
considering different approaches to secure these means of distribution, although we cannot
guarantee that we will be successful. These approaches include:

| |  | Entering
into joint venture arrangements with, or acquiring a controlling stake or absolute
control of a distributor in a region outside of Israel; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Selling
kosher product direct to supermarket chains outside of Israel.
| | - | ----------------------------------------------------------------------

For
convenience purposes, the financial data for the years ended December 31, 2005, 2004,
2003, 2002 and 2001 has been translated into U.S. Dollars using the representative
exchange rate. This rate as of December 31, 2005 was NIS 4.603 = USD 1.00.

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The
Company is not involved in any off balance sheet transactions or long-term contractual
obligations.

# Critical Accounting
Policies

Managements
discussion and analysis is based upon the consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in Israel and
adapted to the generally accepted accounting principles accepted in the United States. The
use of these generally accepted accounting principles requires the management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting accounting periods
presented. These estimates include, among other things, assessing the collectibility of
accounts receivable and the use of recoverability of inventory. Actual results could
differ from those estimates. The markets of the Companys products are characterized
by intense competition and a rapid turnover of products and frequent new introductions of
products, all of which may impact future ability to value the Companys assets.

The
following critical accounting policies may affect significant judgments and estimates used
in the preparation of the consolidated financial statements.

|1. | Revenue
Recognition  revenue from product sales is recognized upon the           shipment
to the consumers, when the title and risk of loss have been transferred           to the
consumer, price and terms are agreed and when no significant vendor           obligations
exist and collection of the resulting receivable is reasonably           assured.
Incentive to certain customers  the Company is obligated to pay
          incentives to certain customers in relation to the volume of sales. The
          incentive is calculated as a percentage of the annual sales to the customer. In
          accordance with EITF 01/9 the Company presents revenue net of such incentives.
          The Company grants to certain customers the right to return the products. A
          provision for customers return is recorded for the estimated future
          products return, based on the Companys experience. This policy is
          significant because the revenue is a key component of the Companys
          operations, as well as the fact that the revenue recognition determines the
          timing of certain expenses. Revenue results are difficult to predict and any
          shortfall in revenue or delay in recognizing revenue could cause the operating
          results to vary from quarter to quarter and may result in operating losses.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | Inventories
 are stated at the lower of cost or market value. Cost is           determined by
the FIFO (first in first out) method. Inventorys values and           quantities
review cause the Company to write down the difference between the           cost and the
estimated market value upon assumption about future demand and           market
conditions. If the inventory is determined to be undervalued, the Company           may
have to recognize additional operating income at the time of sale. Any
          significant unanticipated change in demand or expiration of product life could
          have a significant impact on the value of the inventory.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Recently Issued
Accounting Pronouncements

U.S. GAAP:

In
December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123(R).
SFAS No. 123(R) requires employee share-based equity awards to be accounted for under the
fair value method and eliminates the ability to account for these instruments under the
intrinsic value method prescribed by APB Opinion No. 25 and allowed under the original
provisions of SFAS No. 123. SFAS No. 123(R) requires the use of an option pricing model
for estimating fair value, which is then amortized to expense over the service periods.
Had the Company adopted SFAS 123(R) in prior periods, the impact of that standard would
have approximated the impact of SFAS 123 as described in the disclosure of pro forma net
income and income per share in Note 2 (O) of the Notes to the consolidated financial
statements. SFAS No. 123(R) allows for either prospective recognition of compensation
expense or retrospective recognition. In January 2005, the SEC issued SAB No. 107, which
provides supplemental implementation guidance for SFAS No. 123(R). In the first quarter of
2006, the Company began to apply the prospective recognition method and implemented the
provisions of SFAS No. 123(R). The Company does not expect the adoption of SFAS No. 123(R)
to have a material impact on its consolidated financial statements.

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In
May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections. SFAS No. 154 replaces APB Opinion No. 20, Accounting
Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial
Statements. SFAS No. 154 requires retrospective application to prior periods
financial statements of changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the change. The
Company does not expect the adoption of SFAS No. 154 will have a material impact on its
consolidated financial statements.

Israeli GAAP:

Accounting
Standard No. 24 Stock-Based Compensation

In
September 2005, the Israeli Accounting Standards Board published Accounting Standard No.
24 Share-Based Payment (the Standard), which calls for the
recognition in the financial statements of share-based payment transactions. Such
transactions include transactions with employees and related parties to be settled by
cash, by other assets, or by equity instruments. Consequently, amongst other matters,
costs associated with grants of shares and options to employees will be expensed over the
vesting period of each grant. These costs will be determined based on the fair value of
the awards at each grant date. The Standard establishes guidelines for measuring each
award based on the settlement terms (either by cash or equity instrument). The Standard
also establishes certain disclosure requirements relating to share-based payment.

The
Standard is effective for financial statements for periods commencing January 1, 2006 or
thereafter (initial adoption is recommended). The application of the Standard is not
expected to materially affect the Companys financial position and results of
operations.

Accounting
Standard No. 21 Earnings Per Share

In
February 2006, the Israeli Accounting Standards Board approved for publication Accounting
Standard No. 21, Earnings Per Share (the Standard). With the
initial adoption of the Standard, Opinion No. 55 of the Institute of Certified Public
Accountants in Israel  Earnings per share will be cancelled. The Standard prescribes
that an entity shall calculate basic earnings per share amounts for profit or loss
attributable to ordinary equity holders of the parent entity and, if presented, profit or
loss from continuing operations attributable to those equity holders. The basic earnings
per share shall be calculated by dividing profit or loss attributable to ordinary equity
holders of the parent entity (the numerator) by the weighted average number of ordinary
shares outstanding (the denominator) during the reported period. For the purpose of
calculating diluted earnings per share, an entity shall adjust profit or loss attributable
to ordinary equity holders of the parent entity, and the weighted average number of shares
outstanding, for the effects of all dilutive potential ordinary shares.

The
Standard is effective for financial statements for periods commencing January 1, 2006 or
thereafter. The initial adoption of the Standard will be accounted for retrospectively and
comparative Earnings per share data for prior periods shall be adjusted. The application
of the Standard is not expected to materially affect the Companys Earnings per share
data.

Page 27

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Accounting
Standard No. 25 Revenues

In
February 2006,  the Israeli  Accounting  Standards  Board approved for  publication
 Accounting  Standard No. 25, "Revenues" (the "Standard").

This
Standard establishes the requirements for recognition criteria, measurement, disclosure
and presentation of revenues arising from sale of goods, rendering of services and from
the use by others of entity assets yielding interest, royalties and dividends. This
Standard prescribes that revenue shall be measured at the fair value of the consideration
received or receivable. The Standard is effective for financial statements for periods
commencing January 1, 2006 or thereafter.

Assets
and liabilities included in the financial statements as of December 31, 2005 in different
amounts from those that would have been presented if the standards requirements were
applied will be adjusted on January 1, 2006 to the amounts to be recognized in accordance
with the Standards guidelines. The results of the initial adoption of the Standard
as at January 1, 2006 shall be accounted for by the cumulative effect of a change in
accounting method. The application of the Standard is not expected to materially affect
the Companys financial position and results of operations.

| | A. | RESULTS
OF OPERATIONS
| | -- | ---------------------

The
following table sets forth for the periods indicated, the correlation (in percentages)
between items from the Companys statements of operations to its total sales for such
periods:

|                                    | Year Ended
December 31, 2005 | Year Ended
December 31, 2004 | Year Ended
December 31, 2003
|----------------------------------- | ---------------------------- | ---------------------------- | ----------------------------
|
|
|
|
|Sales                               |                              |                              |                             
|Cost of Sales                       |                              |                              |                             
|Gross Profit                        |                              |                              |                             
|Sales and Marketing Expenses        |                              |                              |                             
|General and Administrative Expenses |                              |                              |                             
|Bad Debt - Club Market              |                              |                              |                             
|Operating Income                    |                              |                              |                             
|Financial Income, Net               |                              |                              |                             
|Pre Tax Income                      |                              |                              |                             
|Income Taxes                        |                              |                              |                             
|Net Income                          |                              |                              |                             
|                                    |                              |                              |                             

# Year Ended
December 31, 2005 Compared With Year Ended December 31, 2004

Sales.           Sales
for the year ended December 31, 2005 decreased by approximately           NIS 4,700
thousand (USD 1,021 thousand), or 2.75%, to approximately NIS           166,282 thousand
(USD 36,125 thousand) from NIS 170,982 thousand (USD 37,146           thousand) for the
year ended December 31, 2004. This decrease in sales was           mainly due to
Companys policy in the first half of the year 2005,           following the
insolvency of a number of major wholesalers in the Israeli food           industry, to
stop selling to some customers and/or to reduce its sales to other           customers
due to credit review. Our emphasis on credit review of customers in           2006 is
expected to continue.

Page 28

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Cost
of Sales. Cost of sales for the year ended December 31, 2005 decreased to
approximately NIS 128,215 thousand (USD 27,855 thousand), or 77.1% of sales, from
approximately NIS 130,292 thousand (USD 28,306 thousand), or 76.2% of sales, for the
year ended December 31, 2004. This decrease in cost of sales reflected our reduced
sales in 2005 as compared to 2004. As a percentage of sales, our cost of sales slightly
increased due to increased price competition.

Gross
Profit. The results of sales and cost of sales, as mentioned above, created a gross
profit of approximately NIS 38,067 thousand (USD 8,270 thousand), equal to 22.9 % of the
sales in the year ended December 31, 2005, reflecting a decrease of 6.4% as compared to a
gross profit of approximately NIS 40,690 thousand (USD 8,840 thousand), equal to 23.8% of
the sales in the year ended December 31, 2004.

Sales
and Marketing Expenses. Sales and marketing expenses for the year ended
December 31, 2005 increased to approximately NIS 15,771 thousand (USD 3,426
thousand), or 9.5% of sales, from approximately NIS 15,632 thousand (USD 3,396
thousand), or 9.1% of sales, for the year ended December 31, 2004. This increase in
sales and marketing expenses was mainly attributable to increased payroll expenses
(recruitment of additional sales agents and logistics network employees) and increased
transportation costs to customers offset by a decline in advertising and sales promotion
expenses. The increase of payroll expenses in 2005 in the amount of NIS 534 thousand (USD
116 thousand), as compared to 2004, was due to the employment of an average of ten
additional employees in 2005 (a 20% increase as compared to 2004) in anticipation of
further revenue growth and customer diversification, and the increase in the cost of
maintaining vehicles, transport and maintenance of NIS 657 thousand (USD 143 thousand) in
2005 corresponded to the increase in the number of employees and the increase in the
vehicle and truck fleet. However, there was a decline of NIS 1,142 thousand (USD 248
thousand) in advertising expenses due to the absence of massive advertising campaign held
by the Company.

General
and Administrative Expenses. General and administrative expenses for the year ended
December 31, 2005 increased to approximately NIS 10,044 thousand (USD 2,182
thousand), or 6.0% of sales, from approximately NIS 9,134 thousand (USD 1,984
thousand), or 5.3% of sales, for the year ended December 31, 2004.In 2005
there was an increase in professional service expenses of NIS 1,320 thousand (USD 287
thousand) deriving from an increase of legal, audit and IR costs, offset by a decline of
NIS 436 thousand (USD 95 thousand) in the payroll and accompanying expenses, primarily as
a result of a decline in the management bonus due to the Management Services Agreements
that is calculated as a percentage of the consolidated profit before tax.

Bad
Debt  Club Market. On July 13, 2005, Club Market Marketing Chains Ltd. one of
the three largest food chains in Israel, announced that it could not pay its debts to the
creditors. The District Court of Tel Aviv accepted Club Markets petition for a stay
of proceedings. Club Markets debt to the Company as of July 13, 2005 was NIS 6,500
thousand (USD 1,412 thousand), including VAT (approximately NIS 5,550 thousand net of VAT
(USD 1,207 thousand)). The Company submitted a claim of debt. During 2005, the Company
wrote off as a bad debt the sum of NIS 3,500 thousand (USD 760 thousand), or 2.1% of
sales, due to the abovementioned debt.

Operating
Income. Operating income for the year ended December 31, 2005 decreased by
approximately NIS 7,172 thousand (USD 1,558 thousand), or by 45%, to approximately
NIS 8,752 thousand (USD 1,901 thousand), or 5.3% of sales, from approximately
NIS 15,924 thousand (USD 3,459 thousand), or 9.32% of sales, for the year ended
December 31, 2004.

PAge 29

---

---

Financial
Income, Net. Financial income, net, for the year ended December 31, 2005 was
approximately NIS 2,501 thousand (USD 543 thousand) compared with approximately
NIS 1,121 thousand (USD 243 thousand) for the year ended December 31, 2004. The
increase in financial income was due to an increase in the profit from marketable
securities of NIS 315 thousand (USD 68 thousand), an increase in the interest income on
short term deposits of NIS 197 thousand (USD 43 thousand), income from future transactions
of NIS 184 thousand (USD 40 thousand), and a decline, compare to 2004, in bank
commissions, and a difference in exchange rates and interest on short term credit of NIS
380 thousand (USD 83 thousand).

Pre-tax
Income. Income before taxes for the year ended December 31, 2005 decreased by
approximately NIS 5,791 thousand (USD 1,258 thousand), or by 34%, to approximately
NIS 11,288 thousand (USD 2,452 thousand) from NIS 17,079 thousand (USD 3,710
thousand) for the year ended December 31, 2004.

Taxes
on Income. Taxes on income for the year ended December 31, 2005 decreased to
approximately NIS 3,563 thousand (USD 774 thousand) from approximately NIS 5,886
thousand (USD 1,279 thousand) in the year ended December 31, 2004. The decrease in
taxes on income in 2005 in compare to 2004 was attributable to the decrease in Income
before taxes.

Net
Income. Net income for the year ended December 31, 2005 decreased by
approximately NIS 3,468 thousand (USD 753 thousand), or 31%, to approximately NIS 7,725
thousand (USD 1,678 thousand), or 4.65% of sales, from approximately NIS 11,193
thousand (USD 2,432 thousand), equal to 6.55 % of sales for the year ended
December 31, 2004.

# Year Ended
December 31, 2004 Compared With Year Ended December 31, 2003

Sales.           Sales
for the year ended December 31, 2004, increased by approximately           NIS 33,597
thousand (USD 7,299 thousand), or 24.5%, to approximately NIS           170,982 thousand
(USD 37,146 thousand) from NIS 137,385 thousand (USD 29,847           thousand) for the
year ended December 31, 2003. The growth of sales for the           year ended
December 31, 2004 compared with the year ended December 31, 2003 is a           result of
marketing efforts taken by the Company including an extensive           advertising
campaign in the electronic media under the brand name           Willi-Food followed
by increased sales of new products. The Company           continued to expand its
activities and its penetration into new fields, mainly           frozen and chilled
products.

Cost
of Sales. Cost of sales for the year ended December 31, 2004, increased, to
approximately NIS 130,292 thousand (USD 28,306 thousand) or 76.20% of sales, from
approximately NIS 110,160 thousand (USD 23,932 thousand) or 80.17% of sales, for the
year ended December 31, 2003. The sharp decrease in cost of sales as a percentage
from the total sales for the year ended December 31, 2004 compared to the same period in
2003 derives from a change in Companys products mix, as well as an improvement of
trade terms mainly by achieving lower purchasing prices from Companys suppliers.

Gross
Profit. The results of sales and cost of sales, as mentioned above, created a gross
profit of approximately NIS 40,690 thousand (USD 8,840 thousand), equal to 23.80% of the
sales in the year ended December 31, 2004, increase of 49.5% in compare to approximately
NIS 27,225 thousand (USD 5,915 thousand), equal to 19.83% in the year ended December 31,
2003. These results are due to increased sales and the efficiency in the ratio between
sales and cost of sales.

Sales
and Marketing Expenses. Sales and marketing expenses for the year ended
December 31, 2004 increased to approximately NIS 15,632 thousand (USD 3,396
thousand) or 9.14 % of sales, from approximately NIS 11,662 thousand (USD 2,534
thousand), or 8.49 % of sales, for the year ended December 31, 2003. This increase in
sales and marketing expenses was mainly attributable to improving the selling
infrastructure, including an advertising campaign carried out in 2004 at the cost of
approximately NIS 2,000 thousand (USD 434 thousand), resulting an increase in advertising
expenses of NIS 1,578 thousand (USD 343 thousand) in compared to 2003, recruiting 10
additional experienced employees and management in the sales and marketing department and
to the logistics networks, resulting in increased payroll expenses of approximately NIS
1,233 thousand (USD 268 thousand) as compared to 2003, and an increase of NIS 1,180
thousand (USD 256 thousand) in the cost of maintaining vehicles, transport and
maintenance.

Page 30

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General
and Administrative Expenses. General and administrative expenses for the year ended
December 31, 2004 increased to approximately NIS 9,134 thousand (USD 1,984
thousand), or 5.34% of sales, from approximately NIS 8,335 thousand (USD 1,811
thousand), or 6.07% of sales, for the year ended December 31, 2003. This increase was
primarily the result of a increase of NIS 678 thousand (USD 147 thousand) in the
management bonus due to the Management Services Agreements, that is calculated as a
percentage of the consolidated profit before tax.

Operating
Income. Operating income for the year ended December 31, 2004 increased by
approximately NIS 8,696 thousand (USD 1,889 thousand), or 120%, to approximately
NIS 15,924 thousand (USD 3,459 thousand), or 9.32% of sales, from approximately
NIS 7,228 thousand (USD 1,570 thousand), or 5.27% of sales, for the year ended
December 31, 2003.

Financial
Income, Net. The financial income, net, for the year ended December 31, 2004 was
approximately NIS 1,121 thousand (USD 244 thousand) compared with approximately
NIS 4,336 thousand (USD 942 thousand) for the year ended December 31, 2003. The
results in 2004 were affected by an increase in value of securities and shares for trade
in 2004 in the amount of NIS 440 thousand (USD 96 thousand) that was NIS 3,106 thousand
(USD 675 thousand) lower than in 2003.

Income
before Taxes. Income before taxes for the year ended December 31, 2004 increased
by approximately NIS 5,414 thousand (USD 1,177 thousand), or 46.5%, to approximately
NIS 17,079 thousand (USD 3,710 thousand) from NIS 11,665 thousand (USD 2,534
thousand) for the year ended December 31, 2003.

Taxes
on Income. Taxes on income for the year ended December 31, 2004 increased to
approximately NIS 5,886 thousand (USD 1,279 thousand) from approximately
NIS 2,889 thousand (USD 628 thousand) in the year ended December 31, 2003. The
increase in taxes on income in 2004 as compared to 2003 was attributable to the increase
in income before taxes.

Net
Income. Net income for the year ended December 31, 2004 increased by
approximately NIS 2,417 thousand (USD 525 thousand) or 27.5% to approximately NIS 11,193
thousand (USD 2,432 thousand), or 6.55% of sales, from approximately NIS 8,776
thousand (USD 1,907 thousand), equal to 6.39% of sales for the year ended
December 31, 2003.

| | B. | LIQUIDITY
AND CAPITAL RESOURCES
| | -- | -------------------------------

Since
its inception, the Companys operations have been funded mainly through equity and
cash flows from operating activities, as well as by short-term indebtedness provided by
Israeli banks and loans from Willi Food, its controlling shareholder. The Companys
bank indebtedness is secured by certain liens on its share capital, goodwill and certain
other assets.

For
the year ended December 31, 2005, cash and cash equivalents decreased from
approximately NIS 55.8 million (USD 12.1 million) at December 31, 2004 to
approximately NIS 30.4 million (USD 6.6 million) at December 31, 2005. For the year
ended December 31, 2004, cash and cash equivalents increased from approximately
NIS 12.5 million (USD 2.7 million) at December 31, 2003 to approximately
NIS 55.8 million (USD 12.1 million) at December 31, 2004.

During
that year ended December 31, 2005, marketable securities increased to NIS 3.2 million (USD
0.7 million) from NIS 1.7 million (USD 0.4 million). For the year ended December 31, 2004,
marketable securities decreased from approximately NIS 42.3 million (USD 9.2 million) at
December 31, 2003 to approximately NIS 1.7 million (USD 0.4 million) at December 31, 2004.

Page 31

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For
the year ended December 31, 2005, the Company utilized a cash flow for operating
activities of approximately NIS 7.3 thousand (USD 1.6 thousand), primarily
as a result of net income of approximately NIS 7.7 million (USD
1.7 million), offset by an increase of trade accounts receivables of approximately
NIS 7.5 million (USD 1.6 million). Our trade accounts receivable increased primarily due
to (i) the increase of sales in the fourth quarter of 2005 of approximately NIS 5.4
million (USD 1.2 million) as compared to the fourth quarter of 2004 and (ii) the increase
in the average time period within which our accounts receivable were paid. We also
increased inventory during 2005 in the amount of approximately NIS 3.7 million (USD 0.8
million) due to the Companys anticipation for further revenue growth in 2006, and we
increased our other receivables and other current assets by NIS 6.5 million (USD 1.4
million) during 2005 primarily as a result to an increase in advances to suppliers of NIS
5,833 thousands (USD 1,267 thousand).

For
the year ended December 31, 2004, the Company utilized a cash flow from operating
activities of approximately NIS 18 thousand (USD 4 thousand), primarily as
a result of net income of approximately NIS 11.1 million (USD 2.4 million)
and an increase in trade accounts payable of approximately NIS 3.0 million (USD 0.6
million). This increase in trade accounts payable resulted primarily from an increase in
the inventory. Our increase in payables and other current liabilities in 2004 in the
amount of NIS 3.7 million (USD 0.8 million) was mainly due to debt to the tax authorities
as offset by an increase of trade accounts receivables of approximately NIS 11.2 million
(USD 2.4 million) that was primarily as a result of the increase of sales in the third and
fourth quarter of 2004 in the amount of approximately NIS 15.2 million (USD 3.3 million)
as compared to the same period in 2003 and an increase in inventory of approximately NIS
8.3 million (USD 1.8 million).

During
the year ended December 31, 2005, the Company generated a cash flow of
NIS 15.6 million (USD 3.4 million) from investing activities, mainly for
additions to fixed assets of NIS 14.9 million (USD 3.2 million), consisting mostly of the
investments in the Companys new logistic center.

During
the year ended December 31, 2004, the Company generated a cash flow of
NIS 40.4 million (USD 8.8 million) from investing activities, mainly by the
realization of marketable securities amounting to NIS 41.0 million (USD 8.9 million).

During
the year ended December 31, 2005, the Company utilized cash flow from financing activities
of NIS 2.5 million (USD 0.54 million) to repay short-term bank credit. During the year
ended December 31, 2004, the Company generated cash flow from financing activities of NIS
3.0 million (USD 0.65 million) as a result of receipt of short-term bank borrowing and
from the exercise of stock option.

The
Companys cash requirements, net, during the years ended December 31, 2005, 2004
and 2003 were met primarily through its working capital. As of December 31, 2005, the
Company had working capital of approximately NIS 85.4 million (USD 18.5 million) compared
with NIS 96.0 million (USD 20.9 million) as of December 31, 2004, and working capital of
approximately NIS 83.9 million (USD 18.2 million) as of December 31, 2003.

The
Companys trade receivables increased to NIS 48.4 million (USD
10.5 million) as of December 31, 2005 from NIS 40.9 million (USD
8.9 million) as of December 31, 2004 and NIS 29.7 million (USD
6.4 million) as of December 31, 2003. The average time period within which our
accounts receivable were paid was 93 days for 2005, compared with 85 days for 2004 and 84
days for 2003.

# Impact of Inflation and
Devaluation on Results of Operations, Liabilities and Assets

The
rate of inflation in Israel during the last six years has been significantly reduced as
compared to previous years. The rate of devaluation, which was low until 2002, has
increased and the representative rate of the U.S. Dollar reached NIS 4.603 on December 31,
2005, compared with NIS 4.308 on December 31, 2004, 4.379 on December 31, 2003, NIS 4.737
on December 31, 2002, and 4.416 on December 31, 2001. The representative rate of the U.S.
Dollar on May 30, 2006 was NIS 4.517.

Page 32

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The
annual rates of inflation in Israel during the years ended December 31, 2000, 2001,
2002, 2003, 2004 and 2005 were approximately 0%, 1.4%, 6.5%, (1.9%), 1.6% and 2.4%,
respectively, while during such periods the devaluation of the NIS against the U.S.
Dollar was approximately (2.7%), 9.3% 7.3%, (7.6%), (1.6%) and 6.8%, respectively. During
each of the years ended December 31, 2000, 2003 and 2004, the rate of inflation in
Israel exceeded the rate of devaluation of the NIS against the U.S. Dollar, while
during each of the years ended December 31, 2001, 2002 and 2005 the rate of
devaluation of the NIS against the U.S. Dollar exceeded the rate of inflation in
Israel.

The
representative rate on December 31, 2005 was NIS 4.603 per USD 1.00, equal to a
devaluation of 6.8% from the representative rate on December 31, 2004, which was
NIS 4.308 per USD 1.00. The representative rate on December 31, 2004 was NIS 4.308
per USD 1.00, equal to a revaluation of 1.6% from the representative rate on
December 31, 2003, which was NIS 4.379 per USD 1.00. The representative rate on
December 31, 2003 was NIS 4.379 per USD 1.00, equal to a revaluation of 7.6% from the
representative rate on December 31, 2002, which was NIS 4.737 per USD 1.00. The
representative rate on December 31, 2002 was NIS 4.737 per USD 1.00, equal to a
devaluation of 7.3% from the representative rate at December 31, 2001, which was
4.416 per USD 1.00.

A
devaluation of the NIS in relation to the U.S. Dollar will have the effect of
decreasing the U.S. Dollar value of any assets of the Company which consist of NIS or
receivables payable in NIS. Such a devaluation would also have the effect of reducing the
U.S. Dollar amount of any liabilities of the Company which are payable in NIS (unless
such payables are linked to the Dollar). Conversely, any increase in the value of the
NIS in relation to the U.S. Dollar will have the effect of increasing the U.S. Dollar
value of any linked assets of the Company and the U.S. Dollar amount of any linked
NIS liabilities of the Company.

The
dollar cost of the Companys operations in Israel is influenced by the extent to
which any increase in the rate of inflation in Israel over the rate of inflation in the
United States is offset by the devaluation of the NIS in relation to the U.S. Dollar.

The
Companys assets are not linked to the Israeli CPI or the U.S. Dollar. However, some
of the Companys liabilities are linked to the Israeli CPI and various foreign
currencies. Consequently, inflation in Israel and currency fluctuations will have a
negative effect on the value to the Company of payments the Company receives in
NIS and on the Companys liabilities linked to foreign currencies.

# Guarantees and Pledges

Principally
in connection with letters of credit issued to the Company, the Company has issued a
debenture to each of Bank Leumi LeIsrael, Bank Mizrahi Ltd. and Bank Hapoalim Ltd.,
pursuant to which it has pledged all of its assets (including its outstanding share
capital and good will of the Company) in favor of such banks to secure its obligations or
those obligations incurred by the Company jointly with third parties, including
obligations with respect to letters of credit with the Companys suppliers. Bank
Leumi LeIsrael, Bank Mizrahi Ltd. and Bank Hapoalim Ltd. have agreed among them that
the pledges subject to such debentures shall rank pari passu. The
outstanding amount of such letters of credit as of December 31, 2005 was approximately NIS
15,904 thousand (USD 3,455 thousand)

The
Company also guarantees, without limitation as to amount and for an unlimited period of
time, the obligations of its wholly-owned subsidiary, W.F.D., to the United Mizrahi Bank
Ltd. As of December 31, 2005, W.F.D. had no obligations to United Mizrahi Bank Ltd.

Page 33

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The
Company also guarantees, without limitation as to amount and for an unlimited period of
time, the obligations of its subsidiary, Gold Frost, both to Bank Leumi LeIsrael
Ltd. and to the United Mizrahi Bank Ltd. As of December 31, 2005, Gold Frost had no
obligations to such banks.

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

Not
applicable.

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

During
recent years, there has been an increase in the number of small private supermarket stores
that have opened in Israel, which has resulted in greater price competition in the stores
and in our business. The increased price competition resulted in an increase in our cost
of sales as a percentage of total sales and a decrease in our gross profit in 2005 from
2004. During 2005 and 2004, the Company initiated promotion activities and advertising
campaigns to promote its brand name Willi-Food resulting increasing its sales,
expand the variety of customers and as a result, increasing the gross margins.

The
Company is currently constructing a new logistic center near its headquarters with the aim
of increasing the efficiency of its logistic process and reducing its operating expenses.
The Company will also work towards increasing its sales to customers outside of Israel.

In
July 2005, Club Market Marketing Chains Ltd., one of the three largest food chains in
Israel, owner of 114 stores and a major customer of the Company, encountered major
financial difficulties, announcing that it could not pay its debts to its creditors. On
August 28, 2005, the court allowed the Club Market court-appointed receivers to sell Club
Market to Supersol, subject to several conditions. Among the conditions imposed was
prohibiting the conditioning of the purchase from a supplier on that suppliers
purchase terms with their chains, prohibiting interfering with the commercial terms
awarded to other chains and prohibiting sales by Supersol at less than cost. As of
September 1, 2005, Club Markets activities were substantially transferred to
Supersol. This merger of two of the three largest food chains in Israel is expected to
strengthen Supersols buying power against local food suppliers, such as the Company,
and it is expected that the dependency of local food suppliers on Supersol is expected to
grow.

The
Companys management is evaluating the financial stability of its customers by
entering into agreements with companies for providing business data, examining bank
accounts, investigations, and following negative publications regarding those customers or
other signs indicating financial difficulties.

According
to a recent published report, the annual Israeli kosher food market is approximately USD
13 billion, of which approximately 50% consists of sales by supermarket chains in the
organized market, 23% of sales by private supermarket chains and mini-markets and 27% is
attributable to others. Over 60% of the Israeli Jewish population maintains some degree of
kosher observance in the home. However, all products sold in the major supermarket chains
in Israel must be kosher, irrespective of the customer base.

In
the U.S., despite the declining Jewish population (due to intermarriage and lower birth
rates), a published report from 2005 concluded that global demand for kosher products is
growing because of demand for kosher products is not limited to just the Jewish
population. Kosher food now commands attention from a new crop of consumers and not just
those who follow traditional Jewish dietary laws. In a survey referred to in this report,
more than 55% of respondents who buy kosher foods felt that kosher products are safer and
healthier than non-kosher items. As increasing number of mainstream consumers are becoming
concerned about the integrity of the food they eat for ethical or health reasons, and we
believe this will provide a growth opportunity for the kosher market. The clearer labeling
practices entailed in kosher food mean that consumers who are vegetarian, food sensitive
or allergic to certain ingredients can more easily monitor their diets. According to this
published report, the increased interest in food ingredients will continue to contribute
significantly to the growth of the kosher food industry in the U.S. The report cites that
one in 25 Americans suffer from a true food allergy, but that a larger percentage of the
population is sensitive or intolerant of specific ingredients. In addition to the increase
in health-conscious consumers, other ethnic or religious groups contribute to the increase
in the kosher food market since the dietary restrictions for certain other religious
groups are met by kosher food.

Page 34

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

Not
applicable

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

The
following tables of the Companys material contractual obligations as of
December 31, 2005 summarize the aggregate effect that these obligations are expected
to have on our cash flows in the periods indicated:

2005

|                     | Payments due by period
|-------------------- | ----------------------
|
|
|
|
|Property Leases      |                       
|                     |                       
|Open purchase orders |                       
|                     |                       
|Operating Leases     |                       
|Total                |                       
|                     |                       

| | G. | SAFE
HARBOR
| | -- | -----------

This
annual report contains certain forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995). When used in this report, the words
anticipate, believe, estimate, expect,
intend and similar expressions, as they relate to the Company or the
management of the Company, identify forward-looking statements. Such statements reflect
the current views of the Company with respect to future events, based on certain
assumptions and information currently available to management, all of which are subject to
certain risks and uncertainties including, among others, the Companys ability to
develop and introduce new products, any significant deterioration in the Companys
relationship with its key customers and suppliers, the Companys ability to
successfully integrate the operations of the Companys subsidiaries with those of the
Company, fluctuations in key currency exchange rates, changes in the political and
economic conditions in Israel, and other factors which may be beyond the Companys
control. Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results of operations may vary materially
from those described herein as anticipated, believed, estimated, expected or intended.

Page 35

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

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

The
Directors, executive officers and key employees of the Company are as follows:

|Name                | Age | Position with the Company                        
|------------------- | --- | -------------------------------------------------
|
|
|
|
|Joseph Williger     | 49  | Chief Executive Officer and Director             
|Zvi Williger        | 51  | Chief Operating Officer and Chairman of the Board
|Rachel Bar-Ilan (1) | 48  | Director                                         
|David Weiss (1)     | 59  | External Director                                
|Shai Bazak (1)      | 38  | External Director                                
|Gil Hochboim        | 36  | Chief Financial Officer                          

---

| | (1) | Members
of the Companys Audit Committee.
| | --- | -----------------------------------------

The
Directors are elected at the annual general meeting of shareholders and hold office until
the next annual general meeting of shareholders and until their successors have been
elected. Officers serve at the discretion of the Board, subject to the terms of any
agreement between officers and the Company.

The
business experience of each of the Directors, executive officers and key employees of the
Company is set forth below:

Joseph
Willigerhas served as the Chief Executive Officer (or general manager) and a Director
of the Company since its inception in January 1994. He has also served as a Chairman of
the Companys subsidiaries, W.F.D. and Gold Frost, since November 1996 and April
2001, respectively. Mr. Williger has also served as a director and as chairman of the
Board of Willi Food, the controlling shareholder of the Company, since December 1992
and June 1994, respectively. Mr. Williger has served as Director of Titanic, a company he
owns together with Mr. Zvi Williger, since April 1990. Mr. Williger received his academic
education in economics from Bar-Ilan University in Israel and in Business Management from
Nortrige University in Los Angeles. Mr. Williger is the brother of Zvi Williger, Chief
Operating Officer and Chairman of the Board of Directors of the Company.

Zvi
Willigerhas served as the Chief Operating Officer and Chairman of the Company since
January 1997, and from inception of the Company to January 1997 as a Director and Manager
of Marketing Development of the Company. Mr. Williger has also served as a director of the
Companys subsidiaries, W.F.D. and Gold Frost, since November 1996 and April 2001,
respectively. Mr. Williger has also served as a director of Willi Food since
December 1992. Mr. Williger served as Director of Titanic since April 1990. Mr.
Williger attended Fresno University in California. Zvi Williger is the brother of Joseph
Williger, Chief Executive Officer and a director of the Company.

Rachel
Bar-Ilanhas served as Director of the Company since May 2001. Since 2005, she has
been the general manager of ORTHOBAR Company, a privately owned company established in
2002, which provides medical services and orthopedic equipment to hospitals, institutes,
emergency medical care center and private clinics and patients. From 1999 to 2004, Ms.
Bar-Ilan managed the marketing and application of medical laboratory instrumentation in
medical laboratories of Medtechnica Ltd., a company publicly traded on the Tel Aviv Stock
Exchange. From 1994 to 1999, Ms. Bar-Ilan worked for Agentec Ltd., where she has been in
charge of the marketing and application of medical instrumentation in the chemical field.
Ms. Bar-Ilan received her degree in Medical Science (M.Sc.) from the Technion 
Israel Institute of Technology in Haifa, Israel.

Page 36

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David
Weiss is a Certified Internal Auditor from the Institute of Internal Auditors (New
York) and has served as the General Manager of Retail Initiation Forum Ltd. a company
involved in real estate project initiation, since 2002. From 1989 through 2002, he served
as vice president of administration for Club Market Marketing Chains Ltd., a large Israeli
supermarket chain. Between 1981 and 1989 he served as deputy internal auditor at Solel
Bone Ltd., an Israeli construction company, and between 1970 and 1981 he served in the
Israeli port authorities as an internal auditor. Mr. Weiss has also served in the past as
a director of Co-Op Tzafon, New-Farm Ltd., Hamashbir Mazon Ltd., Hamashbir Latcharcan Ltd.
and April Ltd., Israeli companies engaged in selling food, cloths and pharmaceuticals to
the end-user. Between 1999-2004 he served as an external director and chairman of the
Audit Committee of Kish Air Conditioning Ltd  an Israeli Company traded on the Tel
Aviv Stock Exchange. Mr. Weiss received his BA in Accounting from Haifa University,
Israel.

Shai
Bazakhas served as an external director since August 2003 and has received an MA in
Public Administration. He is a director manager of C.P.M. Israel Investment Company Ltd.,
an investment company. From 1998 through 2000, he served as the Consul General of Israel
to Florida and Puerto Rico. From 1996 through 1998, he was spokesperson and media affairs
advisor to the Prime Minister of Israel, Mr. Benjamin Netanyahu. From 1994 through 1996,
he was the spokesperson and media advisor to the Likud party chairman.

Gil
Hochboim has served as Chief Financial Officer of the Company since August 2000.
Mr. Hochboim also provides the Companys principal shareholder, Willi Food, with
certain financial services. Between April 1995 and February 1998, Mr. Hochboim served as
Deputy Comptroller of Dan Hotels Corp. Ltd. and between March 1998 and August 2000, he
served as deputy manager of Hamenia Goods Transport Corp. Ltd. Mr. Hochboim is a
certified public accountant (Israel). He received his BA in Accounting and Business
Management from the College of Management, Tel-Aviv, Israel.

| | B. | COMPENSATION
| | -- | ------------

# Compensation of
Directors and Officers

The
aggregate compensation paid by the Company to its directors and officers mentioned above
as a group for the fiscal year 2005 was approximately NIS 3.1 million (USD
0.68 million), excluding bonuses in an aggregate amount of approximately
NIS 1.25 million (USD 0.27 million) paid to Messrs. Joseph and Zvi
Williger. These amounts include all contingent or deferred compensation payable to
directors or officers during 2005. These amounts also include payments to non-executive
directors in the aggregate amount of approximately NIS 70 thousand (USD 15
thousand) during 2005.

The
foregoing does not include amounts expended by the Company for motor vehicles made
available to its officers, expenses (including business travel, professional and business
association dues and expenses) reimbursed to officers and other benefits commonly
reimbursed and paid for by companies in Israel. The Company provides motor vehicles to key
employees and certain officers, at the Companys expense.

See
also Item 7. Major Shareholders and Related Party Transactions  Related Party
Transactions.

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# Management Service
Agreements

As
of June 1, 1998, the Company entered into management services agreements with companies
controlled by each of Messrs. Joseph and Zvi Williger, respectively (collectively, the
Williger Management Companies), pursuant to which Messrs. Joseph and Zvi
Williger are to provide management services on behalf of the Williger Management Companies
to the Company (the Management Services Agreements).

The
Management Services Agreements were for a period of four years commencing on June 1,
1998 (the Management Services Period), were automatically renewed on June 1,
2002 for two years and were automatically renewed for an additional period of two years in
June 1, 2004. Under these agreements, the Company has the ability to terminate the
Management Services Agreements only upon six months notice prior to the end of the
Management Services Period or any extension thereof as the case may be. In the event the
Company terminates any of the Management Services Agreements prior to the expiration of
the Management Services Period or any extension thereof, for any reason whatsoever, it
would have been obligated to pay all amounts due under the respective Management Services
Agreements through the expiration of the Management Services Period or any extension
thereof, as the case may be

Each
of the Management Services Agreements provides for monthly service fees equal to USD
24,500 (excluding VAT) and an annual bonus at a rate of 3% of the Companys pre-tax
consolidated annual profits, if such profits are equal to or less than
NIS 3.0 million (approximately USD 0.7 million), or at a rate of 5% if such
profits exceed such level. In the year ended December 31, 2005, the Company paid an
aggregate amount of NIS 3.9 million (approximately USD 0.85 million) pursuant to
the Management Services Agreements. The Management Services Agreements further provide
that benefits in general, including the social benefits of Messrs. Joseph or Zvi Williger,
and income tax payments, national insurance payments and other payments due by employees
in respect of their employment, are to be paid for at the sole expense of the Williger
Management Companies. The Williger Management Companies have undertaken to indemnify the
Company with respect to any claims against the Company with respect to employer/employee
relations. In addition, each of the Management Services Agreements includes
non-competition provisions for the duration of the Management Services Period as well as
confidentiality provisions.

On
May 4, 2005, the Audit Committee and the Board of Directors of the Company decided to
amend the Management Services Agreements as follows:

|(1) | The
term of the Management Services Agreements were extended indefinitely,           subject
to clauses (2), (5) and (6) below.
|--- | -------------------------------------------------------------------------------------------------------------------------------

|(2) | Each
of the parties to the Management Services Agreements may terminate the
          agreement at any time, and for any reason, by prior written notice, which will
          be delivered to the other party as follows:
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
Company may terminate the agreement at any time, and for any reason, by prior written
notice of at least 18 months.
| | - | -----------------------------------------------------------------------------------------------------------------------

| |  | Each
Williger Management Company may terminate its agreement at any time, by prior written
notice of at least 180 days.
| | - | -----------------------------------------------------------------------------------------------------------------------

|(3) | The
Company may waive receiving actual management services from the Williger
          Management Company during the prior notice period, but this will not eliminate
          its obligation to continue paying the Williger Management Company the
management           fees owed to the Williger Management Company until the termination
of the prior           notice period.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | If
a Williger Management Company terminates the Management Services Agreement,           the
Williger Management Company will be entitled to receive the management fees           for
a period of six (6) months, which shall begin after the prior notice period,
          whether or not it provides the Company with any management services during such
          six-month period.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | In
the event the Williger Management Company provides the management services to
          the Company without the presence of Messrs. Zvi Williger or Joseph Williger, as
          the case may be, and/or in the case of the death and/or permanent disability of
          Messrs. Zvi Williger or Joseph Williger, the Company will be entitled to
          terminate the Management Services Agreement immediately.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|(6) | Both
Messrs. Zvi Williger and Joseph Williger have agreed with the Company that           if a
liquidation order or receivership order is issued against a Williger           Management
Company which prevents the Williger Management Company from           continuing to
provide the management services according to the Management           Services Agreement,
they will immediately commence working for the Company in           return for pay and
social benefits costing the Company the same amount as the           monthly management
fees that the Company paid the Williger Management Company to           that date, or
alternatively, at their sole discretion, shall begin providing the           Company with
management services via another company owned and controlled by           them under the
conditions of the Management Services Agreement.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | In
addition, the Management Services Agreements contain provisions regarding the
          Company providing vehicles for the use of Messrs. Zvi Williger and Joseph
          Williger, and regarding full reimbursement of expenses incurred by Messrs. Zvi
          Williger and Joseph Williger while providing the management services to the
          Company, including reasonable lodging and travel expenses in Israel and abroad,
          phone expenses in their home and mobile phone expenses, including calls abroad
          related to providing the management services to the Company, subject to
          providing receipts.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
amendments were approved unanimously by the Audit Committee and the Board of Directors on
May 4, 2005, and Messrs. Zvi Williger and Joseph Williger did not participate in the
meetings of the Audit Committee and the Board of Directors. These amendments were approved
by the Companys shareholders on July 20, 2005.

On
February 15, 2006, in light of the decision of the Israeli Securities Authorities to limit
the duration of the aforesaid Management Services Agreements to a period of five (5)
years, the Board of Directors of the Company decided to limit the duration of the
Management Services Agreements to a period of five (5) years each, both ending five years
after the date of their approval by the General Meeting of Shareholders (i.e. July
19, 2010).

Under
the Transfer Agreement described in Item 7. Major Shareholders and Related Party
Transactions  B. Related Party Transactions, 50% of the Companys rights
and obligations stipulated in the management agreement with Mr. Zvi Williger were
transferred to Gold Frost and 20% of the Companys rights and obligations stipulated
in the management agreement with Mr. Joseph Williger were transferred to Gold Frost.

In
August 2000, the Company entered into an employment agreement with Mr. Gil Hochboim,
pursuant to which Mr. Hochboim agreed to serve as the Chief Financial Officer of the
Company. The agreement provides for a monthly salary of NIS 22,000 (approximately USD
4,780). In addition to this salary, Mr. Hochboim also receives the benefits customarily
provided by the Company to its senior employees, including bonuses and the use of a
vehicle.

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

# Terms of Office

Directors
are elected by the shareholders at the annual general meeting of the shareholders, except
in certain cases where Directors (who are not External Directors) are appointed by the
Board of Directors, and their appointment is later ratified at the first meeting of the
shareholders thereafter. Except for External Directors (as discussed below), Directors
serve until the next annual general meeting of the shareholders.

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# Alternate Directors

The
Articles of Association of the Company provide that any director may, by written notice to
the Company, appoint another person to serve as an alternate director. Under the Israeli
Companies Law, the directors of the Company cannot appoint an incumbent director or an
incumbent alternate director as an alternate director. The term of appointment of an
alternate director may be for a specified period, or until notice is given of the
termination of the specified period or of the appointment. A Director on a Board Committee
may appoint anyone to be his Alternate subject to the potential alternate not being a
member of such committee, and if the appointing Director is an External Director then the
alternate must be an External Director having suitable financial and accountancy expertise
or professional qualifications, as those of the appointing director. Except for the
foregoing regarding a committee of the Board of Directors, an External Director cannot
appoint an alternate director.

# Audit Committee

Nasdaq
Requirements

The
Companys Ordinary Shares are listed for quotation on the Nasdaq Capital Market, and
the Company is subject to the rules of the Nasdaq Capital Market applicable to listed
companies. Under the current Nasdaq rules, a listed company is required to have an audit
committee consisting of at least three independent directors, all of whom are financially
literate and one of whom has accounting or related financial management expertise. Rachel
Bar-Ilan, Shai Bazak and David Weiss qualify as independent directors under the current
Nasdaq requirement, and are members of the Audit Committee.

# Independent Directors

The
Company is a Controlled Company within the meaning of the Nasdaq rules since
more than 50% of its voting power is held by Willi Food. As a Controlled Company, the
Company is exempt from certain Nasdaq independence requirements, such as the requirement
that a majority of the Board of Directors be independent and the rules relating to
independence of directors approving nominations and executive compensation.

The
responsibilities of the audit committee under the Israeli Companies Law include
identifying irregularities in the management of the companys business and approving
related party transactions as required by law.

External Directors under the Israeli Companies Law

The
Israeli Companies Law requires that the Company have at least two external directors on
its Board of Directors. The election of an external director under the Israeli Companies
Law must be approved by a general meeting of shareholders provided that either: (a) the
majority of shares voted at the meeting, including at least one third of the shares of
non-controlling shareholders voted at the meeting, vote in favor of such arrangement or
(b) the total number of shares voted against such arrangement does not exceed one percent
of the aggregate voting rights in the company.

A
Controlling Shareholder is defined in the Israeli Companies Law as a
shareholder with the ability to control the actions of the company, whether by majority
ownership or otherwise, and for the purpose of transactions with related parties, it may
include a shareholder who holds at least 25% of the voting rights in the Company, provided
that there is no other Shareholder who holds more than 50% of the voting rights in the
Company.

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The
Israeli Companies Law further requires that at least one external director have financial
and accounting expertise, and that the other external director(s) have professional
competence, as determined by the companys board of directors. Under recently enacted
regulations, a director having financial and accounting expertise is a person who, due to
his or her education, experience and talents is highly skilled in respect of, and
understands, business-accounting matters and financial reports in a manner that enables
him or her to understand in depth the companys financial statements and to stimulate
discussion regarding the manner in which the financial data is presented. Under the
regulations, a director having professional competence is a person who has an academic
degree in either economics, business administration, accounting, law or public
administration or an academic degree in an area relevant to the companys business,
or has at least five years experience in a senior position in the business management of a
corporation with a substantial scope of business, in a senior position in the public
service or a senior position in the field of the companys business.

An
External Director is appointed for a period of three consecutive years and may be
re-appointed for one additional three-year period only. Under the Companys Articles
of Association, any committee of the board of directors to which the board of directors
has delegated its powers in whole or in part, must include at least one External Director.
Under the Israeli Companies Law, the Audit Committee must include all the External
Directors.

The
External Directors of the Company are Mr. Shai Bazak, who was appointed as an External
Director in August 2003, and Mr. David Weiss, who was appointed as an External Director in
August 2004.

# Fiduciary Duties of an
Officer

The
Israeli Companies Law governs the duty of care and duty of loyalty which an Officer has to
the company. An Officer is defined in the Israeli Companies Law as a director,
general manager, chief executive officer, executive vice president, vice president, any
other person assuming the responsibilities of any of the foregoing positions without
regard to such persons title and other managers directly subordinate to the general
manager.

The
duty of loyalty requires the Officer to avoid any conflict of interest between the
Officers position in the company and personal affairs, and proscribes any
competition with the company or the exploitation of any business opportunity of the
company in order to receive personal advantages for him or herself or others. This duty
also requires him or her to reveal to the company any information or documents relating to
the companys affairs that the Officer has received due to his or her position as an
Officer. The duty of care requires an Officer to act in a way that a reasonable Officer
would act in the same position and under the same circumstances. This includes the duty to
utilize reasonable means to obtain information regarding the advisability of a given
action submitted for his or her approval or performed by virtue of his or her position and
all other relevant information.

The
Directors of the Company are entitled to obtain all information relating to such
companys management and assets and to receive assistance, in special cases, from
outside experts at the expense of the company. The law imposes an obligation on the
directors of the company to act to convene a meeting of a companys board of
directors upon becoming aware of matters that suggest infringements of law, neglect of
good business practice or conduct by an Officer, which may result in a breach of duty of
such Officer.

# Internal auditor

Under
the Israeli Companies Law, Israeli companies whose securities are publicly traded are also
required to appoint an internal auditor, in accordance with the proposal of the audit
committee. The role of the internal controller is to examine, inter alia, whether
the Companys actions comply with the law, integrity and orderly business procedures.
Mr. Joshua Freund, CPA (Isr), has been the internal auditor of the Company since November
1997.

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# Indemnification

In
accordance with the Israeli Companies Law and the Companys Articles of Association,
the Company has undertaken to indemnify and insure its directors and senior officers,
against certain liabilities which they may incur in connection with the performance of
their duties. Under the terms of such indemnification provisions, the Company may, to the
extent permitted by law, indemnify an Officer for legal expenses incurred by him in
connection with such indemnification.

On
May 4, 2005, the Board of Directors and the Audit Committee of the Board of Directors
approved, and on July 20, 2005, the General Meeting of Shareholders approved, the complete
restatement of the Companys Articles of Association in order to conform the
Companys Articles of Association to the revised provisions of the Israeli Companies
Law. On May 4, 2005, the Board of Directors and Audit Committee of the Company also
approved an exemption in advance to any Director or Officer from any liability to the
Company attributed to damage or loss caused by breach of the Directors or
Officers duty of care owed to the Company, except for such breach of duty of care in
distribution (as such term is defined in the Israeli Companies Law).

Also,
the Board of Directors and the Audit Committee of the Board of Directors approved an
irrevocable indemnification of the Officers by the Company with respect to any liability
or expense paid for by the Officer or that the Officer may be obligated to pay. On July
20, 2005, the aforementioned exemption and the aforementioned irrevocable indemnification
were approved by the shareholders of the Company.

# Approval of Related
Party Transactions under the Israeli Companies Law

The
Israeli Companies Law requires that an Office Holder promptly disclose any direct or
indirect personal interest that he or his affiliates may have, and all related material
information known to him, in connection with any existing or proposed transaction by the
company. If the Office Holder complies with such disclosure requirements, the company may
approve the transaction in accordance with the provisions of its articles of association
and the Companies Law. Under the Companies Law, if the Office Holder has a personal
interest in the transaction, the approval must confirm that the transaction is not adverse
to the companys interest.

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

Generally,
under the Israeli Companies Law the compensation of an Officer who is a director, or the
compensation of an Officer who holds a controlling interest in the company, requires the
approval of the audit committee, the Board of Directors and the general meeting of the
shareholders of the company. The Israeli Companies Law also requires that a transaction
between the company and its Officer and also a transaction between the company and another
person in which an Officer has a personal interest, requires the approval of the Board of
Directors if such transactions are not extraordinary transactions, although, as permitted
by law and subject to any relevant stock exchange rule. If such transactions are
extraordinary transactions (that is, a transaction other than in the ordinary course of
business, otherwise than on market terms, or is likely to have a material impact on the
companys profitability, assets or liabilities), in addition to audit committee
approval, the transaction also must be approved by the Board of Directors, and, in certain
circumstances, the shareholders of the Company at a general meeting. Under the Israeli
Companies Law, an extraordinary transaction between a public company and a person having
control of the company or an extraordinary transaction between a public company and
another person, in which a controlling member has a personal interest, must be approved by
the audit committee, the Board of Directors and a meeting of the shareholders, provided
that either: (a) the majority of shares voted at the meeting, including at least one third
of the shares voted by shareholders who do not have a personal interest in the matter and
who are present at the meeting, are voted in favor of such arrangement (abstentions shall
not be included in the total of the votes) or (b) the total number of shares of the
shareholders referred to in clause (a) voting against such arrangement does not exceed one
percent of the aggregate voting rights of the company.

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Under
the Israeli Companies Law, a private placement to a shareholder becoming a Controlling
Shareholder, or a private placement to a principal shareholder (a holder of 5% or more of
a companys issued share capital or voting rights) or due to which a shareholder will
become a principal shareholder of at least 20% of the voting rights in the Company before
such placement, is also subject to the approval of the Audit Committee, the Board of
Directors and a meeting of the shareholders, as specified above. Directors with respect to
whom the foregoing matters are brought for Board of Directors or Audit Committee approval
are not entitled to be present during discussions of, nor to participate in the vote for
approval of, such matters at Board and/or Audit Committee meetings, unless a majority of
Audit Committee or Board members, as the case may be, have a personal interest in such
matter or the matter involves non-extraordinary transactions between the company and
either a Director or a third party in which a Director has a personal interest. The
Israeli Companies Law further provides that in the event that a majority of board members
have a personal interest in such a matter, it also requires shareholder approval.

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

For
information  regarding the Company's  employees see "Item 4". "Information on the Company
- B. Business Overview -- Employees".

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

For
 information  regarding  the share  ownership  of  Directors  and  officers  of the
 Company  see "Item 7. Major Shareholders and Related Party Transactions".

# Options

As
of May 30, 2006, there were no outstanding options to purchase ordinary shares of the
Company.

# Employee Share Option
Plan

In
May 1997, the Board of Directors of the Company adopted an employee share option plan
(the 1997 Plan), pursuant to which the Company granted options to
purchase 180,000 ordinary shares to employees, officers, Directors and consultants of the
Company and the subsidiary (including 160,000 options to related parties).

Of
the above, options to purchase 130,000 ordinary shares were granted to Mr. Joseph Williger
and Mr. Zvi Williger at an exercise price equal to the nominal value per share of
NIS 0.10. The options were exercisable as to 20% every six-month anniversary from the
date of grant, on a cumulative basis, during a period of five years. These options were
exercised in January 2000.

Options
to purchase 35,000 ordinary shares were held by the Companys officers and Directors
(as a group) and options to purchase 15,000 ordinary shares were held by other employees.
The options, granted as of the effective date of the Companys initial public
offering under the Companys 1997 Share Option Plan, are generally exercisable during
a five-year period commencing on the 24th month anniversary from the date of grant, at an
exercise price equal to the initial public offering price per share  USD 4.10 per
share, which was equal to the fair market value of the shares on the date of the grant. On
April 2004, Zvi Williger and Joseph Williger exercised 15,000 options each at an exercise
price of USD 4.1 per share. The 1997 Plan was terminated on May 2004, and the remaining
20,000 options expired unexercised.

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

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

The
following table sets forth, as of May 30, 2006, the number of Ordinary Shares beneficially
owned by (i) each shareholder known to the Company to own more than 5% of the
Ordinary Shares and (ii) all directors and officers as a group:

|Name and Address                                  | Number of
Ordinary Shares
Beneficially Owned | Percentage of
Ordinary Shares
|------------------------------------------------- | -------------------------------------------- | -----------------------------
|
|
|
|
|Willi Food (1)                                    |                                              |                              
|Joseph Williger (1)(2)                            |                                              |                              
|Zvi Williger (1)(2)                               |                                              |                              
|All directors and officers as a group (2 persons) |                                              |                              

|(1) | Willi
Foods securities are traded on the Tel Aviv Stock Exchange. The
               principal executive offices of Willi Food are located at 3 Nahal Snir St.,
               Northern Industrial Zone, Yavne, 81224 Israel. The business address of
each of                Messrs. Joseph Williger and Zvi Williger is c/o the Company, 3
Nahal Snir St.,                Northern Industrial Zone, Yavne, 81224 Israel.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes
6,372,904 Ordinary Shares owned by Willi Food. Messrs. Zvi Williger and
               Joseph Williger serve as directors and executive officers of Willi Food
and of                the Company. Under Israeli law, Mr. Zvi Williger is deemed to be
the controlling                shareholder of Willi Food and has the ability to control
the Companys                management and policies, including matters requiring
shareholder approval such                as the election of directors. Under Israeli law,
Mr. Joseph Williger, who owns                approximately 17.5% of the Ordinary Shares
of Willi Food, is not deemed to be a                member of a group with Mr. Zvi
Williger or a controlling shareholder of the                Company.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

All of the shareholders of the
Company (including Willi Food) have the same number of votes for each ordinary share held.
Accordingly, the major shareholders of the Company, Willi Food, do not have voting rights
that are different from those of the Companys other shareholders. The Company
believes that 2,079,086 Ordinary Shares (approximately 24.13% of its outstanding Ordinary
Shares) are held by persons who are not officers, directors or the owners of 10% of the
Companys outstanding Ordinary Shares. As of May 15, 2006, there were 16 holders of
Ordinary Shares of record registered with a United States mailing address, including
banks, brokers and nominees. These holders of record, including a part of the
Companys shares held by Willi Food through brokers, represented approximately 60.5%
of the total outstanding Ordinary Shares. Because these holders of record include banks,
brokers and nominees, the beneficial owners of these Ordinary Shares may include persons
who reside outside the United States.

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

# Employment Agreements;
Management Service Agreements.

In
April 1997, the Company entered into employment agreements with each of Mr. Zvi Williger
and Mr. Joseph Williger (related parties), pursuant to which Mr. Zvi Williger agrees to
serve as Chairman of the Board of Directors and Chief Operating Officer of the Company and
Mr. Joseph Williger agrees to serve as a director and Chief Executive Officer of the
Company. Pursuant to the agreements, each of the above-mentioned related parties agreed to
devote the substantial portion of his time to his work in the Company.

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The
employment agreements were for a period of four years commencing April 1997, and were
automatically renewed in April 2001 for an additional two years and were automatically
renewable for additional terms of two years each unless either party notified the other,
six months prior to the expiration of the employment period of its/his intention not to
renew the agreement. If the Company terminated the agreements prior to the expiration of
the employment period, it would have been required to pay to each of the above-mentioned
related parties all amounts due to it under the agreements through the end of the
employment period.

The
employment agreements provided for a monthly remuneration, in NIS, equal to USD 17,500 to
each of the above-mentioned related parties and an annual bonus for the 1997 fiscal year
and thereafter of 3% of the Companys consolidated pre-tax annual profits (if such
profits are equal to or less than NIS 3 million, approximately USD 0.7 million), or
5% (if such profits exceed this level) (hereafter: the annual bonus). The
agreements also provided for managers insurance, paid annual vacation, paid annual
sick leave, social security, study fund, the use of a motor vehicle and reimbursement of
expenses. In addition, the agreements include confidentiality undertakings and
non-competition provisions.

In
June 1998, the Company entered into management service agreements with the above-mentioned
related parties through Williger Management Companies. The management service agreements
replaced the employment agreements entered into in April 1997. The management service
agreements were for a period of four years commencing June 1998, were renewed in June 2002
for two years and were automatically renewed in June 2004 for an additional period of two
years. The management fees are USD 24,500 a month (excluding VAT) paid to each of the
Williger Management Companies. In addition, according to the management service
agreements, each of the Williger Management Companies is entitled to an annual bonus as
provided in the employment agreements for the year 1998 and thereafter, as described
above. These agreements include a non-compete provision for the term of the agreement as
well as a confidentiality provision that applies during the term of the agreement and
thereafter.

On
May 4, 2005, the Audit Committee and the Board of the Company, resolved to amend the
provisions of the two above-mentioned agreements. The amendments were approved by the
shareholders of the Company at the General Meeting of Shareholders that convened on July
20, 2005. Please refer to Item 6. Directors, Senior Management and Employees 
B. Compensation  Management Service Agreements for more detail regarding the
amendments.

Under
the Transfer Agreement described below, 50% of the Companys rights and obligations
stipulated in the management agreement with Mr. Zvi Williger were transferred to Gold
Frost and 20% of the Companys rights and obligations stipulated in the management
agreement with Mr. Joseph Williger were transferred to Gold Frost.

# Lease

The
Companys principal executive offices are situated at a leased facility in the
northern industrial zone of Yavne, at 3 Nahal Snir St., Israel, 35 km south of Tel-Aviv.
These premises serve as the Companys logistic center for warehousing and
distribution of food products as well. The Yavne facility is leased by the Company from
Titanic, a private Israeli company controlled by Messrs. Joseph Williger and Zvi Williger.
See Item 4. Information on the Company  D. Property, Plants and
Equipment for a description of the terms of this lease.

In
August 2005, the Company purchased from Titanic a plot of 19,000 square meters
(approximately 171,000 square feet) for the construction of a new logistic center the size
of 8,600 square meters (approximately 77,400 square feet) pursuant to the approval of the
Board of Directors, the Audit Committee of the Board of Directors and the shareholders of
the Company. The plot is situated in the northern industrial zone of Yavne, and the new
logistic center will replace the Companys current logistic center (which the Company
leases from Titanic). See Item 4. Information on the Company  D. Property,
Plants and Equipment for more information.

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# Services to Willi Food

The
Company has been providing certain services to Willi Food on an on-going basis since the
Companys commencement of operations, including office space and certain management,
financial and administrative services. On April 1, 1997, the Company entered into a
service agreement with Willi Food, which become effective as of May 19, 1997, the
effective date of the Companys initial public offering. Pursuant to this agreement,
Willi Food is entitled to manage its operations from the Companys executive offices
in Yavne, including use of office facilities.

The
Company also agreed to provide Willi Food with accounting and secretarial services. In
consideration for the use of the Companys facilities and such other services, Willi
Food agreed to pay the Company a monthly fee equal to NIS 5,480 (USD 1,190) plus VAT.
This fee is payable quarterly and is linked to the Israeli CPI. The agreement is for an
unlimited term, and is mutually terminable upon three months prior notice. The Company
believes that the fees for these services and the terms of such agreement are no less
favorable to it than could be obtained from an unaffiliated third party.

As
of April 1, 1997, the Company and Willi Food entered into an agreement pertaining to the
allocation of corporate opportunities which may arise from time to time. The agreement
provides that Willi Food will make available and provide a right of first refusal to the
Company with regard to any corporate opportunity offered to Willi Food, which relates to
the food business.

On
March 31, 2003, the Board of Directors of the Company authorized Willi Food to participate
in the import license lottery of the Israeli Ministry of Industry and Trade, provided that
Willi Food agreed that if it wins an import license it will: (i) coordinate with the
Company the items of merchandise to be imported using the import license; and (ii) in
consideration for the transfer of the merchandise that is imported using the import
license, the Company will sell the merchandise, retaining 20% of the selling proceeds for
itself and transferring the balance, if any, to Willi Food. The Board of Directors of the
Company determined that this arrangement is not an extraordinary transaction. In 2005, the
amount retained by the Company pursuant to this arrangement was NIS 438 thousand (USD 95
thousand).

# Transfer Agreement

Pursuant
to the provisions of a Transfer Agreement, dated February 16, 2006, and effective as of
January 1, 2006, the Company and Gold Frost agree to cancel their earlier agreement dated
May 2001 (and amended in January 2002) under which the Company was to store and market the
food products imported by Gold Frost through the Company for a commission of 20% (which
changed from 15% since 2002) of the total monthly sales of Gold Frosts products,
which were sold by the Company within that month. Because Gold Frost desired to store,
market, sell and distribute its products on its own commencing January 1, 2006, the
Company agreed to transfer to Gold Frost employees, equipment and various rights that
would allow Gold Frost to store, market, sell and distribute its products on its own. The
Company continues to provide certain services to Gold Frost, such as collection of
payments from customers and others. Effective January 1, 2006, the following were
transferred from the Company to Gold Frost:

Employees:
Sixteen employees ceased to be employees of the Company and became employees of Gold
Frost. All the employees agreed to such transfer provided that all their rights due to
their employment period with the Company passed to Gold Frost. The Company paid to Gold
Frost the amount of NIS 47,927 (USD 10,412) in respect of sums due to the employees for
unused vacation days and accumulated recuperation pay. Because the Company had not made
all the required payments to the managers insurance of certain employees, the
Company agreed to pay any missing amounts to Gold Frost if and when relevant when the
employer-employee relationship between Gold Frost and the employees terminates.

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Equipment:
The Company sold to Gold Frost the ownership in certain trucks and other machines.

Storage:
The parties agreed that the existing lease agreement between the Company and Menrav
Tashtiot Ltd. (Menrav) in respect of storage facilities that are used to store
Gold Frost products would continue until its expiration in April 2006. Until such
expiration, the amounts payable by the Company to Menrav with respect to these storage
facilities were reimbursed by Gold Frost. After expiration of the agreement, the parties
would act towards the renewal of the agreement and the assignment of all the rights and
obligation of the Companys rights under the agreement to Gold Frost.

Logistic
Center: The parties agreed to enter into a lease agreement pursuant to which Gold
Frost would lease certain cooling chambers located in the logistic center to be
established by the Company.

Sales
Activities: The sale personnel of Gold Frost would be responsible for the sales
activities in respect of the Gold Frost products. However, since until the date of the
agreement such sales activities were performed by the Company and in order to allow Gold
Frost to benefit from the Companys experience and reputation among customers, sales
of Gold Frosts products in Israel will be made through the Company. Gold
Frosts products would be sold to the Company and then sold to customers of Gold
Frost. The Company would be responsible for billing and collecting payments from
customers, and will then transfer all collected payments to Gold Frost. Although the
Company would, in fact, purchase the products from Gold Frost, all risks connected with
the collect of payments from customers would be borne by Gold Frost.

Additional
Services: The Company agreed to provide certain services to Gold Frost including,
among others, professional services (such as legal services, accountants and directors
insurance), communication, office maintenance (such as courier services, electricity and
others) and other. In consideration for such services, Gold Frost would pay the Company a
certain amount based on a pro-rata amount of the management and general expenses of the
Company as they appear in the audited financial statements of the Company.

The
Directors: The Company assigned to Gold Frost 50% of its rights and obligations under
its agreement with the management agreement of Mr. Zvi Williger and 20% of its rights and
obligations under the management agreement of Mr. Joseph Williger. Consequently, the
management company of Mr. Zvi Williger would provide to Gold Frost 50% of its management
services that were previously provided to the Company, and the management company of Mr.
Joseph Williger would provide to Gold Frost 20% of its management services that were
previously provided to the Company. The parties further agreed that Gold Frost would pay
the management company the annual bonus from its pre-tax annual profits, and the Company
would pay the management company its annual bonus after deducting the annual bonus paid by
Gold Frost.

Term
and termination: The agreement is terminable at any time by Gold Frost by a six-month
prior written notice and by the Company by a twelve-month prior written notice.

# Lease agreement for
Logistics Center

The
Company and Gold Frost are parties to a lease agreement with respect to the Companys
new logistic center established by the Company, located in Yavne, Israel. The Company
agreed to lease to Gold Frost cooling chambers of 1,445 m2 located in the
aforementioned logistic center for a period of 24 years and 11 months. The lease period
may be shortened by a six-month prior notice from Gold Frost or by a twelve-month prior
notice from the Company. Gold Frost is to pay the Company rental fees in the amount of USD
18,084 + VAT per month, payable on the first day of each quarter in respect of the coming
three months, and Gold Frost will also pay all taxes usually imposed on lessees and
expenses such as electricity, water, gas, insurance and others related to its use of the
cooling chambers.

Page 47

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| | C. | INTERESTS
OF EXPERTS AND COUNSEL
| | -- | --------------------------------

Not
applicable.

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

| | A. | CONSOLIDATED
STATEMENTS AND OTHER FINANCIAL INFORMATION
| | -- | -------------------------------------------------------

The
financial statements required by this item are found at the end of this report, beginning
on page F-1.

# Dividend Policy

On
November 21, 2005, the Board of Director of the Company declared a cash dividend of US$
0.12 per share (USD 1,034 thousand) payable to its shareholders of record as of January
11, 2006. The cash dividend was paid on January 25, 2006. Apart from the abovementioned,
the Company has never declared or paid cash dividends on its ordinary shares. The Company
may declare cash dividends in the future, depending on its financial and operational
condition and on its expansion strategy.

Legal Proceedings

|1. | A
lawsuit was filed in December 2001 against 29 importers/producers of food
               products, including the Company, for an amount totaling NIS 500 million
(USD 108                million). Concurrently, the plaintiffs filed a request for an
exemption from the                court fee. Following the courts rejection of the
plaintiffs request                for the noted fee exemption and their failure to
pay such fee, the court                dismissed the case.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
January 2004 the abovementioned plaintiffs filed a new lawsuit against the 29 noted
importers/producers for NIS 1 billion (USD 217 million). Again, a request was made
concurrently for an exemption from the court fee that was rejected by the court. The
Companys legal counsel believes that the plaintiffs are unlikely to stand a
reasonable chance for prevailing, and until the fee issue is settled this matter should
not be regarded as a real claim.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | A
lawsuit was filed in June 2004 against the Company and a Company subsidiary in
               respect of their marketing and distribution of products manufactured by
Arla.                The plaintiffs alleged that the defendants marketed products bearing
a                commercial tag in which the plaintiffs have rights. The plaintiffs
requested a                court injunction prohibiting the Company and its subsidiary
from marketing these                products as well as an indemnification of NIS 100
thousand. Concurrently, a                counterclaim was filed by Arla against the
plaintiffs, alleging                misrepresentation, breach of fiduciary duties,
exceeding authorization and                breach of its rights in an intellectual
property. In March, 2005 the court                decided, in a temporary order, that the
intellectual property rights of the                above mentioned tags belong apparently
to Arla, forbade the marketing of                products under those tags by the
plaintiff and instructed the plaintiff to                collect products which were
labeled with those tags or commercial name from                plaintiffs
distributors. The Company committed itself to compensate the                plaintiff for
all damages derived from the temporary order if the court                ultimately
decides that the intellectual property rights of the above mentioned                tags
belong to the plaintiff. The Courts decision limits the probability
               that the lawsuit will be filed against the Company. It is impossible to
quantify                the damage to the plaintiffs due to the temporary order or to
evaluate the                Companys exposure, but the Company believes that it may
be insignificant.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|3. | On
or about October 11, 2005, Vitarroz Corp. commenced a civil action in the
               Superior Court of New Jersey, Law Division, Hudson County, against Willi
USA                Holdings, Inc. (an inactive subsidiary of the Company), the Company
and Zvi                Williger (collectively, the Defendants) due to a
dispute concerning                the press release announcing the termination of the
proposed acquisition of the                Vitarroz business by the Company. On or about
November 14, 2005, the Company                removed the matter from the Superior Court
to the United States District Court                for the District of New Jersey. The
complaint was subsequently amended and, as                amended, alleges breach of
contract, defamation, breach of covenants of good                faith and fair dealing,
fraudulent inducement and tortuous interference with                contractual relations
and prospective economic advantage. Defendants have not                responded to the
allegations in the complaint. Recently, the parties agreed to                submit the
claims which are the subject of the complaint to binding arbitration                and,
at the same time, to also submit to arbitration (i) those claims that
               Defendants have against plaintiff and related third parties, and (ii)
those                claims which the Company has asserted against Vitarroz in an action
now pending                in Israel regarding the breach of an agreement executed by the
Company and                Vitarroz, pursuant to which Vitarroz undertook to supply its
products to the                Company. Defendants believe that Vitarrozs
allegations are without merit,                and they intend to vigorously defend
against such claims. The Company also                intends to aggressively pursue their
affirmative claims.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Other
than as stated above, there are no pending or, to the Companys knowledge, threatened
legal proceedings, the outcome of which, in the Companys view, would have a material
adverse affect on the Companys consolidated financial position.

For
information concerning taxes to which stockholders in the United States may be subject,
see Item 10.Additional Information- Taxes.

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

We
are not aware of any significant changes bearing upon our financial condition since the
date of the audited consolidated financial statements included in this annual report.

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

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

Our
ordinary shares have been traded on the Nasdaq Stock Market under the symbol
WILCF since May 19, 1997. On March 15, 2006, the ticker symbol of our ordinary
shares was changed to WILC. The warrants that were issued as part of our
initial public offering in May 1997 expired in May 2000.

The
following table sets forth for the periods indicated the closing representative high and
low bid quotations of our ordinary shares as reported by Nasdaq and adjusted according to
the split by bonus share which took place on December 2004. The bid quotations are
expressed in United States Dollars and are not adjusted for retail mark-up, mark-down or
commissions and do not necessarily represent actual transactions.

|Calendar Period                       | Ordinary Shares
|------------------------------------- | ---------------
|
|
|
|
|2006                                  |                
|First Quarter                         |                
|Second Quarter (through May 30, 2006) |                
|2005                                  |                
|First Quarter                         |                
|Second Quarter                        |                
|Third Quarter                         |                
|Fourth Quarter                        |                
|2004                                  |                
|First Quarter                         |                
|Second Quarter                        |                
|Third Quarter                         |                
|Fourth Quarter                        |                
|2003                                  |                
|2002                                  |                
|2001                                  |                
|                                      |                
|May 2006 (through May 30, 2006)       |                
|April 2006                            |                
|March 2006                            |                
|February 2006                         |                
|January 2006                          |                
|December 2005                         |                

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

Not
applicable.

| | C. | MARKETS
| | -- | -------

In
May 1997, our ordinary shares began trading on the Nasdaq Capital Market under the symbol
WILCF. On March 15, 2005, the Companys NASDAQ ticker symbol was changed
to WILC.

| | D. | SELLING
SHAREHOLDERS
| | -- | --------------------

Not
applicable.

| | E. | DILUTION
| | -- | --------

Not
applicable.

| | F. | EXPENSES
ON THE ISSUE
| | -- | ---------------------

Not
applicable.

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

| | A. | SHARE
CAPITAL
| | -- | -------------

Not
applicable.

| | B. | MEMORANDUM
AND ARTICLES OF ASSOCIATION
| | -- | --------------------------------------

Purposes and Objects of
the Company

We
 are a  public  company  registered  under  the  Israeli  Companies  Law  as G.
 Willi-Food  International  Ltd., registration number 52-004320-9.

Pursuant
to Article 6 of our articles of association, we were formed for the purpose of importing,
exporting and marketing products and other commodities. Our Board of Directors is
empowered to embark on or withdraw from any business in which we deal. Under our articles
of association, our Board of Directors is entitled to donate reasonable amounts to worthy
causes, even if such donation is not within the framework of our business considerations.

The Powers of Directors

The
powers of a Director to vote on a proposal, arrangement or contract in which such Director
is materially interested is limited by the relevant provisions of the Israeli Companies
Law. In addition, the power of the Directors to vote compensation to themselves or any
members of their body requires the approval of the Audit Committee and the shareholders at
a general meeting, in addition to the approval of the Board of Directors. Compensation and
indemnification of expenses of External Directors must be in accordance with the
applicable provisions of the Israeli Companies Law.

The
Israeli Companies Law and our Articles of Association require that a Director or Office
Holder promptly disclose, either at a board meeting or by way of a general notice, any
personal interest that he or she may have and all related material information know to him
or her in connection with any existing or proposed transaction by the Company. In
addition, if the transaction is an extraordinary transaction (as defined in the Israeli
Companies Law), the member of the Board of Directors or Office Holder, must also disclose
any personal interest held by his or her spouse, siblings, parents, grandparents,
descendants, spouses descendants and the spouses of any of the foregoing.

Once
the Director or Office Holder complies with the above disclosure requirements, the Company
may approve the transaction in accordance with the provisions of the Articles of
Association. If the transaction is with a third party in which the member of the Board of
Directors or Office Holder has a potential interest, the approval must confirm that the
transaction is not adverse to the Companys interest. Furthermore, if the transaction
is an extraordinary transaction, then, in addition to any approval stipulated by the
Articles of Association, it also must be approved by the Audit Committee and then by the
Board of Directors, and, under certain circumstances, by a meeting of the shareholders of
the Company. See Item 6. Directors, Senior Management and Employees  6C. Board
Practices  Approval of Related Party Transactions under the Israeli Companies
Law.

Directors
with respect to whom the foregoing matters are brought for Board of Directors or Audit
Committee approval are not entitled to be present during discussions of, nor to
participate in the vote for approval of, such matters at Board and/or Audit Committee
meetings, unless a majority of Audit Committee or Board members, as the case may be, have
a personal interest in such matter or the matter involves non-extraordinary transactions
between the company and either a Director or a third party in which a Director has a
personal interest. The Israeli Companies Law further provides that in the event that a
majority of board members have a personal interest in such a matter, shareholder approval
is also required.

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The
Articles of Association provide that the Board of Directors, subject to the Israeli
Companies Law, may, at its discretion from time to time in accordance with the needs of
the Company, make decisions to borrow and/or obtain credit facilities in any amount and to
secure the repayment thereof either by mortgage, charge or other security on the
Companys undertakings or on its property, in whole or in part (both existing and
future) including the share capital of the company which is, at the time, uncalled.

Subject
to applicable provisions of the Israeli Companies Law regarding matters that the Board of
Directors may not delegate to a committee, or matters for which a committee may only make
recommendation to the Board of Directors, the Board of Directors may delegate its powers
to committees consisting of at least three (3) Directors, including at least one External
Director. A resolution passed or an action taken by a directors committee has the
same validity as a resolution passed or an action taken by the Board of Directors, unless
otherwise specifically expressed in the resolution of the Board of Directors that
established said committee.

Rights Attached to Shares

The
Company is authorized to issue 49,893,520 Ordinary Shares, par value NIS 0.1 and 106,480
Preferred Shares, par value NIS 0.1, each ranking pari passu. The Company may alter the
share capital of the Company in accordance with the provisions of the Israeli Companies
Law and the Articles of Association. The rights attached to the Companys Shares are
as follows:

Dividend Rights

Holders
of Ordinary Shares are entitled to participate pari passu with all other shareholders of
the Companys Ordinary Shares in any distribution of a dividend, whether in cash,
assets, or in any other legal form, declared, as well as the right to participate pari
passu with all other holders of our Ordinary Shares in the distribution of bonus shares
resolved by the Company. The Articles of Association note that a shareholder shall not be
entitled to receive a dividend or bonus shares as above, and shall not be entitled to
exercise any right as a shareholder unless he has paid in full all notices of call
delivered to him, together with linkage differences, interest and expenses owed, as
applicable, on calls which have not been paid by him on time.

Voting Rights

Holders
of Ordinary Shares of the Company have the right to receive notices of general meetings of
the Company, to be present, and to participate and vote therein. Each holder of Ordinary
Shares in the Company has the right to one vote per share in the general meetings of the
Company on all matters submitted to a vote of shareholders. A shareholder may vote in
person, via proxy, or by means of a written form (voting instrument) described
in the Articles of Association. Any resolution of the Company in a general meeting shall
be deemed duly passed if passed by a simple majority of registered shareholders present
and voting, unless a different majority is required by the Israeli Companies Law or the
Articles of Association.

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Under
the Articles of Association, the Directors are elected annually by the registered
shareholders at the annual meeting. Directors hold office until the conclusion of the next
annual meeting or until their earlier removal or resignation. In addition, at least two
(2) External Directors who comply with the qualifications described in the Israeli
Companies Law must serve on the Board of Directors. External Directors are appointed by a
majority vote at a general meeting, provided that: (i) the majority vote includes at least
one-third of the total number of the voted of the non-controlling shareholders voting at
the meeting, with abstentions not taken into consideration in calculating the total number
of the non-controlling shareholders, and (ii) the total number of non-controlling
shareholders voting against the resolution appointing an External Director is not more
than 1% of the overall voting rights in the Company. External Directors are appointed for
a term of three (3) years and their office may be extended by a resolution of the general
meeting for an additional three (3) years. An External Director may be removed from office
only in accordance with the relevant provisions of the Israeli Companies Law.

If
no Directors are elected at an annual meeting, then the persons who served as Directors
immediately prior to the annual meeting will continue to serve as directors unless
otherwise determined by the annual meeting or by the Board of Directors. A Director who
has ceased to serve in office is eligible for reelection. The Board of Directors has the
power to appoint additional Directors to fill a vacancy, so long as the number of
directors will not exceed a number of Directors approved at a general meeting. Any
Director so appointed will hold office until the conclusion of the next annual meeting
unless he is removed or resigns earlier.

Rights in the
Companys Profits

The
shareholders of the Company have the right to share in the Companys profits
distributed as a dividend and any other permitted distribution. See Dividend
Rights above.

Rights in the Event of
Liquidation

Holders
of Ordinary Shares are entitled to receive any return of capital, pari passu, with all
other ordinary shareholders, upon the dissolution of the Company. Holders of Ordinary
Shares are also entitled to participate, pari passu, with all other Ordinary Shareholders
in the distribution of the surplus of the Companys assets available for distribution
in the event of dissolution of the Company which remain after the Company has paid the
holders of Ordinary Shares all amounts payable as return of capital.

Liability to Further
Capital Calls by the Company

If
the terms of allotment of any shares of the Company do not specify a particular date for
the payment of all of the consideration which is to be paid therefore, or any part
thereof, our board of directors may, from time to time, as it deems fit, make calls on the
shareholders in respect of the amounts not yet paid for their shares, whether on account
of the par value of the shares or on the account of the premium, and each shareholder
shall be obligated to pay the Company the amount so demanded from him not later than the
date of payment set forth in the notice containing the call. Shareholders shall be given
prior notice of at least fourteen (14) days in respect of any call. In the event that
amounts set forth in the call have not been paid in whole or in part as of the date of
payment set forth in the call, the shareholders shall be obligated to pay linkage
differences or interest (or both) on the outstanding amounts, as determined by the Board
of Directors.

Changing Rights Attached
to Shares

Under
the Articles of Association, the Company may, by resolution of a general meeting, vary the
rights attached to any class of shares on the Companys stamp or its printed name
(unless otherwise determined in the terms of issue of the shares of such class), after
obtaining the written consent of the holders of the majority of the issued shares of said
class or with the approval of a resolution duly passed at a class meeting of the holders
of such class of shares.

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Annual and Extraordinary
Meetings

The
Board of Directors must convene an annual meeting at least once every calendar year,
within fifteen months of the preceding general meeting, at a place prescribed by the board
so long as it is in the State of Israel. Per the Articles of Association and subject to
the provisions of the Israeli Companies Law, notices to shareholders regarding the
convocation of a general meeting are to be published in two daily Hebrew language
newspapers circulated in Israel. Notice need not be served to our shareholders on an
individual basis.

The
Board of Directors will convene a special, extraordinary meeting upon receipt of a written
request from either (i) two directors or 25% of the total number of directors; (ii) one or
more shareholders holding at least 5% of the issued share capital and at least 1% of the
shareholders voting power; or (iii) one or more shareholders holding no less than 5%
of our issued voting shares. If the Board is required to convene an extraordinary meeting,
it shall convene it at a time which is at least 21 days, but not longer than 35 days after
the date of the notice of convening such meeting. In the event that the board of directors
does not convene an extraordinary meeting within the timeframe set forth above, those that
submitted the request for such meeting, or part of them representing more than one-half of
the voting rights of all of them, may convene the extraordinary meeting themselves,
provided that such meeting is held within three months of the time when the extraordinary
meeting was requested.

Limitations on the Rights
to Own Securities

The
Articles of Association do not place limitations on the rights to own securities. Under
the Articles no limitations apply to the transfer of shares in the Company and the number
of shareholders is unlimited.

Changes in the
Companys Capital

Changes
in the capital of the Company are subject to the approval by ordinary majority of the
shareholders at a general meeting, Shareholders may resolve to increase the authorized
share capital; consolidate our share capital and divide it into shares of greater value
than existing shares; divide existing shares into shares of lesser value; cancel any
authorized share capital which has not yet been allotted (provided there is no undertaking
to allot such share capital); or reduce the capital by way of a distribution if such
distribution has been approved by a court, in accordance with the relevant provisions of
the Israeli Companies Law. If the shareholders resolve to increase the share capital, the
new shares will be subject to the same provisions applicable to the shares of the original
capital.

Neither
the Memorandum of Association nor Articles of Association of the Company nor the laws of
the State of Israel restrict in any way the ownership or voting of ordinary shares by
non-residents of Israel, except with respect to citizens of countries which are in a state
of war with Israel.

| | C. | MATERIAL
CONTRACTS
| | -- | ------------------

Set
forth below are summaries of our material contracts. Because these are summaries, they are
qualified by reference to the actual agreements, which are attached as exhibits to this
Annual Report.

Placing
Agreement. In connection with the initial issuance to the public by Gold Frost on the
London AIM market, the Company entered into a Placing Agreement, dated March 2, 2006, with
Gold Frost, certain officers of Gold Frost and Corporate Synergy, the placement agent for
the issuance, pursuant to which Corporate Synergy agreed to use its reasonable endeavors
to procure subscribers for the shares in the issuance. Gold Frost agreed to pay Corporate
Synergy a commission on the gross proceeds of the Placing and a corporate finance fee,
together in each case with any applicable VAT, as well as certain other costs and expenses
of, or incidental to, the issuance. The parties, including the Company, gave various
warranties and indemnities to Corporate Synergy as to, although the liability of the
Company was limited to £ 250,000 sterling (approximately NIS 2 million).

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Relationship
Agreement. The Company, Gold Frost, Willi Food, Zvi Williger and Joseph Williger are
party to a Relationship Agreement, dated February 28, 2006, pursuant to which the Company,
as a controlling shareholder, and its controlling shareholders have given certain
undertakings to Gold Frost. Under the agreement, the Company undertook to Gold Frost to
exercise all voting rights and powers of control available to it in relation to Gold Frost
in order that:

(i)
          Gold Frost is capable of carrying on its business independently of the Company;

(ii)
          all transactions, agreements or arrangements entered into between Gold Frost,
          the Company and its associates (as defined in the agreement) will
be           made at arms length and on a normal commercial basis, or as otherwise
          approved in accordance with Israeli law;

(iii)
          no variations will be made to Gold Frosts articles of association which
          would be contrary to the maintenance of Gold Frosts ability to carry on
          its business independently of the Company;

(iv)
          each proposed related party transaction between any of the Company, the
          Controlling Parties (which consist of Willi Food, Zvi Williger and
          Joseph Williger) or any of their associates, on the one hand, and Gold Frost or
          any subsidiary thereof, on the other hand, will be considered on behalf of Gold
          Frost by its Board of Directors as a whole (or by committee of the Board that
          has at least one non-executive director present throughout) and the Company nor
          any of its associates will seek to influence the consideration of such matter
by           the Board (or the committee) in such a way as to further the interests which
are           or are potentially in conflict with the interests of Gold Frost or any
          subsidiary thereof;

(v)
          in the event that a conflict of interest or potential conflict of interest
          exists or is likely to arise between any of the Company, the Controlling
Parties           or any of their associates, on the one hand, and Gold Frost or any
subsidiary           thereof, on the other hand, disclosure of such conflict shall be
made to the           board of Gold Frost and any decision by the board of Gold Frost
shall be taken           by the board but excluding any director who is the Company, any
Controlling           Party or any of their associates or appointed by the Company or any
Controlling           Party,

(vi)
          the independence of the board of Gold Frost is maintained so as to enable
          independent decisions as to the enforcement of the agreement to be taken
          independently of the Company, any of the Controlling Parties or any of their
          associates, and

(vii)
          the provisions of the agreement will be observed. The Company had also
          undertaken to Gold Frost not to undertake any activity, which would conflict
          with Gold Frost and would render Gold Frost incapable of carrying on its
          business independently.

The
agreement will terminate if the Company ceases to hold 30% or less of the share capital of
Gold Frost.

Lock-In
Agreement. Pursuant to the terms of a Lock In Agreement, dated March 2, 2006, between
the Company, Gold Frost, Corporate Synergy, Joseph Williger, Zvi Williger and Gil
Hochboim, the Company and the executive directors agreed not to dispose of the legal or
beneficial ownership or any interest in the Ordinary Shares held by them at admission of
the Gold Frost shares on the AIM for a period of 12 months following such admission,
subject to certain exceptions. These exceptions include (i) transfer to a connected person
of the Company, (ii) transfer to any person acting as a trustee of a trust created by the
Company, (iii) accepting a general offer made to the shareholders of Gold Frost to acquire
all the issued Ordinary Shares, and (iv) to any compromise or arrangement under section
425 of the Companies Act or to any scheme or reconstruction under section 110 of the
Insolvency Act 1986. The Company and the executive directors also undertake for a further
12 months that any disposal by them of the legal or beneficial ownership or any interest
in the Ordinary Shares held at admission would be conducted through Gold Frosts
broker from time to time on an orderly market basis, subject to certain exceptions.

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For
information with respect to the Companys other material contracts, see Item 7.
Major Shareholders and Related Party Transactions  B. Related Party
Transactions.

| | D. | EXCHANGE
CONTROLS
| | -- | -----------------

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

| | E. | TAXATION
| | -- | --------

The
following is a summary of the material current tax laws of the State of Israel as they
relate to the Company and its shareholders. This section also contains a discussion of
some Israeli tax consequences to persons who hold or who will acquire our ordinary shares.
This summary does not discuss all the acts of Israeli tax law that may be relevant to a
particular investor in light of his or her personal investment circumstances or to some
types of investors subject to special treatment under Israeli law. Examples of this kind
of investor include banks, financial institution, insurance companies and securities
dealers, or persons that own, directly or indirectly, 10% or more of our outstanding
voting rights, or foreign company if Israeli residents hold 25% or more of their shares or
have the right to 25% or more of their income or profit, and also, all of whom are subject
to special tax regimes not covered in this discussion.

To
the extent that the following discussion describes legislation that remains subject to
judicial or administrative interpretation, there can be no assurance that the views
expressed herein will be consistent with any such 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.

Potential
investors and each holder of our ordinary shares is advised to consult his or her own tax
advisor with respect to the specific tax consequences to him or her of purchasing, holding
or disposing of our ordinary shares, including the applicability and effect of federal,
state, local and foreign income and other tax laws in his or her particular circumstances.

General Corporate Tax
Structure

Israeli
companies are generally subject to corporate tax at the rate of 31% of their taxable
income in 2006. The rate was 34% for 2005, and is scheduled to decline to 29% in 2007, 27%
in 2008, 26% in 2009 and 25% in 2010 and thereafter.

Special Provisions
Relating to Taxation under Inflationary Conditions

Taxation
under the Income Tax Law (Adjustment for Inflation), 1985 (the Adjustment for
Inflation Law) was designed to neutralize the erosion of capital investments in
businesses and to prevent tax benefits resulting from the deduction of inflationary
financial expenses. The law applies a supplementary set of inflationary adjustments to the
normal taxable profit computed according to regular historic cost principles. Generally,
the Inflationary Adjustments Law provides tax deductions and adjustments to depreciation
deductions and tax loss carry forwards to mitigate the effects resulting from an
inflationary economy.

The
Inflationary Adjustments Law is highly complex. Its principal features can be described as
follows:

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| |  | Where
a companys equity, as calculated under the Inflationary Adjustments Law, exceeds
the depreciated cost of its fixed assets (as defined in the Inflationary Adjustments
Law), a deduction from taxable income is permitted equal to the excess multiplied by the
applicable annual rate of inflation. The maximum deduction permitted in any single tax
year is 70% of taxable income, with the unused portion permitted to be carried forward.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Where
a companys depreciated cost of fixed assets exceeds its equity, then the excess
multiplied by the applicable annual rate of inflation is added to taxable income.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Subject
to specified limitation, depreciation deductions on fixed assets and losses carried
forward are adjusted for inflation based on the change in the consumer price index.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
Israeli Income Tax Ordinance and regulations promulgated there under allow
Foreign-Invested Companies, to adjust their tax returns based on exchange rate
fluctuations of the shekel against the US Dollar rather than changes in the Israeli
Consumer Price Index or CPI, in lieu of the principles set forth by the
Inflationary Adjustments Law. For these purposes, a Foreign-Invested Company is a company
in which more than 25% of the share capital in terms of rights to distributions, voting
and appointment of directors, and of the combined share capital, including shareholder
loans and capital notes, is held by persons who are not residents of Israel. A company
that elects to measure its results for tax purposes based on the US Dollar exchange rate
cannot change that election for a period of three years following the election. We adjust
our tax returns based on the changes in the Israeli CPI.

# Taxation of the Company
Shareholders

Dividends

| |  | Israeli
resident  The distribution of dividend income to Israeli residents who
purchased our Shares, will generally be subject to income tax at a rate of 20% (in 2006)
for individuals (25% if the dividends receipt is a significant shareholder (inter
alia, more than 10% of our outstanding voting rights during the 12 months prior to a
dividend distribution)) and will be exempt from income tax for corporations.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Non
Israeli resident  non Israeli resident (both individual and corporation) are
generally subject to Israeli income tax on the receipt of dividends paid on the ordinary
shares at the rate of 20% (25% if the dividends receipt is a significant
shareholder (see aforementioned), which tax will be withheld at source. Under
the U.S.-Israel Tax Treaty, the maximum tax on dividends paid to a holder of the ordinary
shares who is a U.S. resident is 25%.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Capital Gains

Israeli
law imposes a capital gains tax on the sale of capital assets, by an Israeli resident and
on the sale of capital assets located in Israel or the sale of direct or indirect rights
to assets located in Israel, including securities held by the Company and shares of the
Company sold by holders thereof. The Israeli Tax Ordinance distinguishes between the
Real Gain and the Inflationary Surplus.

Real
Gain is the excess of the total capital gain over Inflationary Surplus computed on the
basis of the increase in the Israeli CPI between the date of purchase and the date of
sale. Inflationary Surplus, that accrued after December 31, 1993, is exempt from tax.

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Capital Gains Taxes
Applicable to Israeli Shareholders

Real
Gains derived from the disposal after January 1, 2003 of an asset purchased prior to this
date will be subject to capital gains tax at a blended rate. The regular corporate tax
rate of 31% (In 2006) and a marginal tax rate of up to 49% (in 2006) for individuals will
be applied to the gain amount which bears the same ratio to the total gain realized as the
ratio which the holding period commencing at the acquisition date and terminating on
January 1, 2003 bears to the total holding period. The remainder of the gain realized will
be subject to capital gains tax at a 25% rate for corporations (31%, in 2006, if the
corporation are subject to the Inflationary Adjustments Law) and 20% for individuals (25%
if the shareholder is a significant shareholder (see aforementioned), or if
the shareholder claims a deduction of financing expenses).

The
Real Gain accrued at the sale of an asset purchased on or after January 1, 2003 will be
tax as follows:

| |  | 20%
rate for  individuals  (25% if the  shareholder is a "significant  shareholder"  (see
 aforementioned),  or if the          shareholder claims a deduction of financing
expenses); and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 25%
for corporations (which are not subject to the Inflationary Adjustments Law).
| | - | ---------------------------------------------------------------------------------

Capital Gains Taxes
Applicable to Non-Israeli Shareholders

Capital
gains from the sale of our ordinary shares by non-Israeli shareholders are exempt from
Israeli taxation. In addition, the U.S.- Israel Tax Treaty exempts U.S. residents who hold
an interest of less than 10% in an Israeli company, and who held an interest of less than
10% during the 12 months prior to a sale of their shares, from Israeli capital gains tax
in connection with such sale.

# U.S. Federal Income Tax
Considerations

Subject
to the limitations described herein, the following discussion describes the material U.S.
federal income tax consequences to a U.S. holder of the purchase, ownership and
disposition of our ordinary shares where the U.S. holder will own our ordinary shares as
capital assets. A U.S. holder is a holder of our ordinary shares who is:

| | An
individual citizen or resident of the United States for U.S. federal income tax purposes;
|- | --------------------------------------------------------------------------------------------

| | a
corporation or partnership  (or other entity  taxable as a corporation or partnership
 for U.S.  federal          tax  purposes)  created or  organized in the United  States
or under the laws of the United  States or any          political subdivision thereof;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | an
estate, the income of which is subject to U.S. federal income tax regardless of its
source; or
|- | -------------------------------------------------------------------------------------------------

| | a
trust (i) if, in general, a court within the United States 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.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Material
aspects of U.S. federal income tax relevant to a holder of our ordinary shares that is not
a U.S. holder (a non-U.S. holders) are also discussed below. This discussion
considers only U.S. Holders that will own our ordinary shares as capital assets and is not
a comprehensive description of all of the tax considerations that may be relevant to each
persons decision to purchase our ordinary shares.

This
discussion is based on current provisions of the Internal Revenue Code of 1986, as amended
(the Code), current and proposed Treasury regulations promulgated thereunder,
and administrative and judicial decisions as of the date hereof, all of which are subject
to change, possibly on a retroactive basis. This discussion does not address all aspects
of U.S. federal income taxation that may be relevant to any particular U.S. holder in
light of such holders individual circumstances. In particular, this discussion does
not address the potential application of the alternative minimum tax or the U.S. federal
income tax consequences to U.S. holders that are subject to special treatment, including
U.S. holders that:

| | are
broker-dealers or insurance companies;
|- | ------------------------------------------

| | have
elected mark-to-market accounting;
|- | ---------------------------------------

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| | are
tax-exempt organizations or retirement plans;
|- | -------------------------------------------------

| | are
financial institutions or financial services entities;
|- | ----------------------------------------------------------

| | hold
their shares as part of a straddle, hedge or conversion transaction with other
investments;
|- | ------------------------------------------------------------------------------------------------

| | acquired
their shares upon the exercise of employee stock options or otherwise as compensation;
|- | -----------------------------------------------------------------------------------------------

| | are,
or hold their shares through, partnerships or other pass-through entities;
|- | -------------------------------------------------------------------------------

| | own
directly, indirectly or by attribution at least 10% of our voting power; or
|- | -------------------------------------------------------------------------------

| | have
a functional currency that is not the dollar.
|- | --------------------------------------------------

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

Taxation of Dividends
Paid on Ordinary Shares

Subject
to the discussion below under Tax Consequences if we were a Passive Foreign
Investment Company, a U.S. holder will be required to include in gross income as
ordinary dividend income the amount of any distribution paid on our ordinary shares,
including any Israeli taxes withheld from the amount paid, to the extent the distribution
is paid out of our current or accumulated earnings and profits, as determined for U.S.
federal income tax purposes. Distributions in excess of such earnings and profits will be
applied against and will reduce the U.S. holders basis in our ordinary shares and,
to the extent in excess of such basis, will be treated as gain from the sale or exchange
of our ordinary shares. The dividend portion of such distribution generally will not
qualify for the dividends received deduction otherwise available to corporations.

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%), provided that such
dividends meet the requirements of qualified dividend income. 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 year, dividends paid on our ordinary shares in such year
or in the following year would not be qualified dividends. 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; in such case the dividend will be taxed at ordinary income rates.

Distributions
of current or accumulated earnings and profits paid in foreign currency to a U.S. holder
(including any Israeli taxes withheld therefrom) will be includible in the income of a
U.S. holder in a dollar amount calculated by reference to the exchange rate on the date of
the distribution. A U.S. holder that receives a foreign currency distribution and converts
the foreign currency into dollars after the date of distribution will 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.

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U.S.
          holders will have the option of claiming the amount of any Israeli income taxes
          withheld at source either as a deduction from gross income or as a
          dollar-for-dollar credit against their U.S. federal income tax liability.
          Individuals who do not claim itemized deductions, but instead utilize the
          standard deduction, may not claim a deduction for the amount of the Israeli
          income taxes withheld, but the amount may be claimed as a credit against the
          individuals U.S. federal income tax liability. The amount of foreign
          income taxes that may be claimed as a credit in any year is subject to complex
          limitations and restrictions, which must be determined on an individual basis
by           each shareholder. These limitations include rules that limit foreign tax
credits           allowable for specific classes of income to the U.S. federal income
taxes           otherwise payable on each such class of income. The total amount of
allowable           foreign tax credits in any year cannot exceed the pre-credit U.S. tax
liability           for the year attributable to foreign source taxable income.

A
U.S. holder will be denied a foreign tax credit with respect to Israeli income tax
withheld from dividends received on the ordinary shares:

| | if
the U.S.  holder has not held the ordinary  shares for at least 16 days of the 31-day
period  beginning          on the date which is 15 days before the ex-dividend date with
respect to such dividend; or
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | to
the extent the U.S.  holder is under an obligation  to make related  payments with
respect to positions          in substantially similar or related property.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

Any
days during which a U.S. holder has substantially diminished its risk of loss on the
ordinary shares are not counted toward meeting the 16-day holding period. Distributions of
current or accumulated earnings and profits will be foreign source passive income for U.S.
foreign tax credit purposes.

Taxation of the
Disposition of Ordinary Shares

Subject
to the discussion below under Tax Consequences if we were 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 U.S. holders basis in the ordinary shares, which is usually
the cost to the U.S. holder of the shares, and the amount realized on the disposition. A
disposition of shares will be considered to occur on the trade date, regardless of the
holders method of accounting. Capital gain from the sale, exchange or other
disposition of our ordinary shares held more than one year will be long-term capital gain,
and may, in the case of individual U.S. holders, be subject to a reduced rate of taxation.
Gain or loss recognized by a U.S. holder on a sale, exchange or other disposition of
ordinary shares will be treated as U.S. source income for U.S. foreign tax credit
purposes. The deductibility of a capital loss recognized on the sale, exchange or other
disposition of ordinary shares is subject to limitations.

A
U.S. holder that uses the cash method of accounting calculates the dollar value of the
proceeds received on the sale as of the date that the sale settles. However, a U.S. holder
that uses the accrual method of accounting is required to calculate the value of the
proceeds of the sale as of the trade date and may therefore realize foreign currency gain
or loss. A U.S. holder may avoid realizing foreign currency gain or loss if he or she has
elected to use the settlement date to determine its proceeds of sale for purposes of
calculating the foreign currency gain or loss. In addition, a U.S. holder that receives
foreign currency upon disposition of ordinary shares and converts the foreign currency
into dollars after the settlement date or trade date (whichever date the U.S. holder is
required to use to calculate the value of the proceeds of sale) will 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.

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Tax Consequences if we
were a Passive Foreign Investment Company

If
we were a Passive Foreign Investment Company (PFIC), each U.S. holder
would (unless it timely made an election to be taxed currently as a qualified
electing fund (QEF)) be taxable on gain recognized from the disposition of
ordinary shares (including gain deemed recognized if the ordinary shares are used as
security for a loan) and upon receipt of certain distributions with respect to ordinary
shares as if such income had been recognized ratably over the U.S. holders holding
period for the ordinary shares. Tax would be computed at the highest ordinary income tax
rate in effect for each other period to which income is allocated, and an interest charge
on the tax as so computed would also apply. Additionally, U.S. holders who acquire our
ordinary shares from decedents (other than nonresident aliens) dying before 2010 would be
denied the normally-available step-up in basis for such shares to fair market value at the
date of death and, instead, would have a tax basis in such shares equal to the
decedents basis, if lower.

Generally,
we would be a passive foreign investment company, or a PFIC, for a taxable
year if (taking into account certain look-through rules with respect to the
income and assets of our subsidiaries) either 75% or more of our gross income for such
taxable year is passive income or the average percentage (by value) of our passive assets
during such taxable year is at least 50 percent. We believe that because we are and intend
to remain an operating business for the foreseeable future, it is very unlikely that we
will be deemed a PFIC.

Tax Consequences for
Non-U.S. Holders of Ordinary Shares

Except
as described in Information Reporting and Back-up Withholding below, a
non-U.S. holder of ordinary shares 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:

| | 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, a fixed place of business, in the United States;
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | the
non-U.S. holder is an individual who holds the ordinary shares as a capital asset and is
present in the United States for 183 days or more in the taxable year of the
disposition and does not qualify for an exemption; or
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | the
non-U.S. holder is subject to tax under the provisions of U.S. tax law applicable to U.S.
expatriates.
|- | ----------------------------------------------------------------------------------------------------------

Information Reporting and
Back-up Withholding

U.S.
          holders generally are subject to information reporting requirements with
respect           to dividends paid in the United States on, or proceeds from the
disposition of,           our ordinary shares. In addition, a U.S. holder may be subject,
under certain           circumstances, to backup withholding at a rate of up to 28% with
respect to           dividends paid on, or proceeds from the disposition of, our ordinary
shares           unless the U.S. holder provides proof of an applicable exemption or
correct           taxpayer identification number and otherwise complies with applicable
          requirements of the backup withholding rules. A holder of our ordinary shares
          who provides an incorrect taxpayer identification number may be subject to
          penalties imposed by the IRS. Amounts withheld under the backup withholding
          rules are not an additional tax and may be refunded or credited against the
          holders federal income tax liability, provided the required information
is           furnished to the IRS.

Non-U.S.
          holders generally are not subject to information reporting or back-up
          withholding with respect to dividends paid on, or proceeds from the disposition
          of, our ordinary shares, provided that the non-U.S. holder provides a taxpayer
          identification number, certifies to its foreign status, or establishes another
          exemption to the information reporting or back-up withholding requirements.

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| | F. | DIVIDENDS
AND PAYING AGENTS
| | -- | ---------------------------

Not
applicable.

| | G. | STATEMENTS
BY EXPERTS
| | -- | ---------------------

Not
applicable.

| | H. | DOCUMENTS
ON DISPLAY
| | -- | --------------------

The
Company is subject to the informational requirements of the Securities Exchange Act of
1934, as amended, applicable to foreign private issuers and fulfills the obligation with
respect to such requirements by filing reports with the Securities and Exchange
Commission. You may read and copy any document we file with the Securities and Exchange
Commission without charge at the Securities and Exchange Commissions public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material
may be obtained by mail from the Public Reference Branch of the Securities and Exchange
Commission at such address, at prescribed rates. Please call the Securities and Exchange
Commission at l-800-SEC-0330 for further information on the public reference room.

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

| | I. | SUBSIDIARY
INFORMATION
| | -- | ----------------------

Not
applicable.

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

Exchange
rate risk:The Company regularly assesses currency rate risks to minimize any adverse
effects on the Companys business as a result of currency fluctuations.

The
Companys foreign currency exposure gives rise to market risk associated with
exchange rate movements of the NIS, the Company functional and reporting currency, against
the USD and Euros. Most of the Companys purchases are denominated in USD and Euros,
whereas its income and other expenses are denominated mostly in NIS. Consequently,
devaluation of the NIS against the other currencies may cause a negative impact on the
Company profit margins.

The
Company strives to minimize market risks arising from exchange rates and the cost of
imported goods, especially by opening wide documentary credits for suppliers abroad and
holding foreign currency surpluses, initiates forward transactions and foreign currency
options.

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Credit
risk: Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of trade receivables. Despite the Companys large
number of clients (over 1,000 in Israel), a major and significant part of its sales are
made to only a limited number of customers (mainly in the organized market). The Company
generally does not require and does not receive collateral from those major customers.
However, it does require and receive collateral from most of the remainder of its clients
to insure security of collecting payments. The Company maintains an allowance for doubtful
debts, based upon factors surrounding the credit risk of specific customers, historical
trends and other information which management believes adequately covers all anticipated
losses in respect of trade receivables. There can be no assurance that this allowance will
be adequate. In the event that any of the Companys major clients defaults on its
payment obligations to us (such as Club Market  see Item 4. Information on the
Company  B. Business Overview  Customers), the Company will not possess
sufficient collateral to collect the entire debt. The Company strives to minimize the
credit risks by constantly reviewing the credit it extends to customers versus the
collateral it receives. As a result, the Company has ceased selling products to certain
customers and considerably reduced sales to other customers, and may continue to do so in
the future.

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

Not
applicable.

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# PART II

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

Not
applicable.

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

Not
applicable.

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

(a)
Disclosure Controls and Procedures.

Our
Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, are responsible for
establishing and maintaining our disclosure controls and procedures. These controls and
procedures were designed to ensure that information required to be disclosed in the
reports that we file under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the rules and
forms of the SEC. We evaluated these disclosure controls and procedures under the
supervision of our CEO and CFO as of December 31, 2005. Based on this evaluation, our CEO
and CFO concluded that our disclosure controls and procedures are effective in timely
alerting them to information required to be disclosed in our periodic reports to the SEC.

(b)
Managements annual report on Internal Control Over Financial           Reporting.

Not
applicable.

(c)
Attestation report of the registered public accounting firm.

Not
applicable.

(d)
Changes in Internal Control Over Financial Reporting.

There
were no changes in the Companys internal control over financial reporting that
occurred during the year ended December 31, 2005 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.

|ITEM 16. | [RESERVED]
|-------- | ----------

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

The
Companys Board of Directors has determined that David Weiss is the audit
committee financial expert for the Company, as such term is defined in Item 16A of
Form 20-F. Mr. Weiss serves on the Companys Audit Committee of the Board of
Directors. All the members of the Audit Committee are independent directors as
defined in the Nasdaq listing standards applicable to us.

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

On
June 23, 2004, the Companys Board of Directors adopted a Code of Ethics for the
Company that applies to all directors, officers and other employees of the Company. A copy
of the Code of Ethics is available for review on the Companys website at
www.willi-food.co.il.

Page 65

---

---



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

Brightman
Almagor & Co., independent certified public accountants and a Member Firm of Deloitte
Touche Tohmatsu, served as our independent public accountants for the years ended December
31, 2005 and 2004, for which audited financial statements appear in this annual report on
Form 20-F.

Brightman
Almagor & Co charged the Company NIS 256 thousand (USD 56 thousand) for audit fees in
2005, and NIS 172 thousand (USD 37 thousand) for audit fees in 2004. There were no
audit-related fees, tax fees or other fees billed to the Company by Brightman Almagor
& Co. in those years.

We
received no non-audit services from our independent public accountants, Brightman Almagor
& Co. during the last two years. To the extent that non-audit services are to be
performed by our independent public accountants in the future, these services will either
be pre-approved by the audit committee on an individual basis during the year, or our
audit committee will approve in advance the particular services or categories of services
to be provided to the Company during the following yearly period and also set forth a
specific budget for such audit and non-audit services.

|ITEM 16D. |  | EXEMPTIONS
FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
|--------- | - | ----------------------------------------------------------

Not
applicable.

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

Below
is a list of purchases of the Companys ordinary shares by affiliated purchasers
during calendar year 2005 and from January 1, 2006 to May 30, 2006. There were no
purchases by the Company of the Companys ordinary shares during such periods.

|Period                      | Total Number of
Shares Purchased | Average Price
Paid Per Share | Total Number of
Shares Purchased
as Part of
Publicly
Announced Plans
or Programs | Maximum Number of
Shares that May
Yet Be Purchased
Under Plans or
Programs
|--------------------------- | -------------------------------- | ---------------------------- | -------------------------------------------------------------------------------- | --------------------------------------------------------------------------
|
|
|
|
|Oct 26, 2005 - Oct 31, 2005 |                                  |                              |                                                                                  | 66,770                                                                    
|Nov 1, 2005 - Nov 29, 2005  |                                  |                              |                                                                                  | 92,454                                                                    
|
|Jan 3, 2006                 |                                  |                              |                                                                                  | 163,010                                                                   
|
|Nov 2, 2005 - Nov 7, 2005   |                                  |                              |                                                                                  | 24,525                                                                    

Page 66

---

---



# PART III

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

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

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

The
financial statements required by this item are found at the end of this annual report,
beginning on page F-1.

Page 67

---

---



|ITEM 19. | EXHIBITS
|-------- | --------

|Exhibit Number |  | Description
|-------------- |  | -----------

|1.1 |  | Memorandum
of Association of the Company, as amended (1)
|---- |  | --------------------------------------------------------

|1.2 |  | Articles
of Association of the Company, as amended*
|--- |  | ---------------------------------------------------

|2.1 |  | Specimen
of Certificate for ordinary shares (2)
|--- |  | -----------------------------------------------

|4.1 |  | Share
Option Plan (2)
|--- |  | ---------------------

|4.2 |  | Management
Agreement between Registrant and Yossi Willi Management Investments Ltd., dated June 1,
1998 (3)
|---- |  | -----------------------------------------------------------------------------------------------------------

|4.3 |  | Amendment
to the Management Agreement between Registrant and Yossi Willi Management Investments
Ltd.,                        dated August 1, 2005*
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------

|4.4 |  | Management
Agreement between the Company and Zvi W. & Co. Ltd., dated June 1, 1998 (3)
|---- |  | --------------------------------------------------------------------------------------

|4.5 |  | Amendment
to the Management Agreement between Registrant and Zvi W. & Co., Ltd., dated August 1,
2005*
|---- |  | ------------------------------------------------------------------------------------------------------

|4.6 |  | Lease
of Company's premises with Titanic Food Ltd., dated November 23, 1998 (3)
|---- |  | -------------------------------------------------------------------------------

|4.7 |  | Services
Agreement between the Company and Willi Food, dated April 1, 1997 (3)
|---- |  | ------------------------------------------------------------------------------

|4.8 |  | Transfer
Agreement between Registrant and Gold Frost dated February 16, 2006*
|---- |  | -----------------------------------------------------------------------------

|4.9 |  | Lease
agreement for Logistics Center between Registrant and Gold Frost dated February 16, 2006*
|---- |  | -----------------------------------------------------------------------------------------------

|4.10 |  | Relationship
Agreement between Registrant, Gold Frost, Willi Food, Zvi Williger and Joseph Williger
                       dated February 28, 2006*
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

|4.11 |  | Placing
Agreement between Registrant, Gold Frost, certain officers of Gold Frost and Corporate
                       Synergy dated March 2, 2006*
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------

|4.12 |  | Lock
In Agreement, between Registrant, Gold Frost, Corporate Synergy and certain officers of
Gold                        Frost dated March 2, 2006*
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

|8 |  | Subsidiaries
of the Company*
|- |  | ----------------------------

|12.1 |  | Certification
of CEO of the Company pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of
                       the Sarbanes-Oxley Act of 2002*
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|12.2 |  | Certification
of CFO of the Company pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of
                       the Sarbanes-Oxley Act of 2002*
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|13.1 |  | Certification
of CEO of the Company pursuant to Rule 13a-14(b), as adopted pursuant to Section 906 of
                       the Sarbanes-Oxley Act of 2002*
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|13.2 |  | Certification
of CFO of the Company pursuant to Rule 13a-14(b), as adopted pursuant to Section 906 of
                       the Sarbanes-Oxley Act of 2002*
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

Page 68

---

---



---

| | English
translations from Hebrew original.
|- | ------------------------------------------

|(1) | Incorporated
by Reference to the Registrants Annual Report on Form 20-F                for the
Fiscal year ended December 31, 1997.
|--- | ------------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated
by reference to the Companys Registration Statement on Form                F-1,
File No. 333-6314.
|--- | ----------------------------------------------------------------------------------------------------------------

|(3) | Incorporated
by reference to the Companys Annual Report on Form 20-F for                the
fiscal year ended December 31, 2001.
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|* | Filed
Herewith
|- | --------------

Page 69

---

---



# G. WILLI-FOOD
INTERNATIONAL LTD.

# CONSOLIDATED FINANCIAL
STATEMENTS

# DECEMBER 31, 2005



---

---

# G. WILLI-FOOD
INTERNATIONAL LTD.

# Contents

|                                     | Page      
|------------------------------------ | ----------
|
|
|
|
|Report of registered accounting firm | F- 2      
|                                    
|Consolidated financial statements:  
|                                    
|Balance sheets                       | F-3       
|                                    
|Statements of operations             | F-4       
|                                    
|Statements of shareholders' equity   | F-5       
|                                    
|Statements of cash flows             | F-6 - F-7 
|                                    
|Notes to the financial statements    | F-8 - F-25



---

---

# REPORT OF REGISTERED
PUBLIC ACCOUNTING FIRM 
TO THE SHAREHOLDERS OF G. WILLI-FOODS INTERNATIONAL LTD.

We have audited the accompanying
consolidated balance sheets of G. Willi-Food International Ltd. (the Company)
and its subsidiaries at December 31, 2005 and 2004 and the related consolidated statements
of operations, shareholders equity and cash flows for each of the three years in the
period ended December 31, 2005. 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 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. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects, the
consolidated financial position of the Company and its subsidiaries at December 31, 2005
and 2004 and the consolidated results of their operations and their consolidated cash
flows for each of the three years in the period ended December 31, 2005, in conformity
with Israeli generally accepted accounting principles in Israel. Such accounting
principles, as applicable to these financial statements, are, in all material respects,
substantially identical to U.S. generally accepted accounting principles, except as
indicated in Note 14.

Brightman Almagor & Co.
Certified Public Accountants
A member firm of Deloitte Touche Tomhatsu
Tel-Aviv, Israel
oMarch 26, 2006



---

---

# G. WILLI-FOOD
INTERNATIONAL LTD.

# CONSOLIDATED BALANCE
SHEETS

|                                                |  | December 31,
|----------------------------------------------- |  | ------------
|
|
|
|
|ASSETS                                          |  |             
|Current assets                                  |  |             
|Cash and cash equivalents                       |  |             
|Marketable securities                           |  |             
|Trade accounts receivable                       |  |             
|Receivables and other current assets            |  |             
|Inventories                                     |  |             
|                                                |  |             
|Total current assets                            |  |             
|                                                |  |             
|                                                |  |             
|Fixed assets                                    |  |             
|Cost                                            |  |             
|Less: accumulated depreciation and amortization |  |             
|                                                |  |             
|                                                |  |             
|                                                |  |             
|Other assets, net                               |  |             
|                                                |  |             
|                                                |  |             
|                                                |  |             
|                                                |  |             
|LIABILITIES AND SHAREHOLDERS' EQUITY            |  |             
|                                                |  |             
|Current liabilities                             |  |             
|Short-term bank borrowings                      |  |             
|Trade accounts payable                          |  |             
|Due to related parties                          |  |             
|Payables and other current liabilities          |  |             
|                                                |  |             
|Total current liabilities                       |  |             
|                                                |  |             
|                                                |  |             
|Long-term liabilities                           |  |             
|Accrued severance pay, net                      |  |             
|                                                |  |             
|Total long-term liabilities                     |  |             
|                                                |  |             
|                                                |  |             
|Commitments and contingent liabilities          |  |             
|                                                |  |             
|Shareholders' equity                            |  |             
|Share capital:                                  |  |             
|Ordinary shares NIS 0.10 par value              |  |             
|(authorized - 50,000,000 shares, issued         |  |             
|and outstanding - 8,615,000 shares)             |  |             
|Additional paid-in capital                      |  |             
|Retained earnings                               |  |             
|                                                |  |             
|                                                |  |             
|                                                |  |             
|                                                |  |             
|                                                |  |             
|                                                |  |             

|(*) | Convenience
translation into U.S. dollars.
|--- | ------------------------------------------

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

F - 3

---

---

# G. WILLI-FOOD
INTERNATIONAL LTD.

# CONSOLIDATED
STATEMENTS OF OPERATIONS

|                                 |  | Year ended December 31,
|-------------------------------- |  | -----------------------
|
|
|
|
|Sales                            |  |                        
|                                 |  |                        
|Cost of sales                    |  |                        
|                                 |  |                        
|                                 |  |                        
|Gross profit                     |  |                        
|                                 |  |                        
|                                 |  |                        
|Operating expenses:              |  |                        
|Sales and marketing              |  |                        
|General and administrative       |  |                        
|Bad debt -                       |  |                        
|Club Market Marketing Chains Ltd |  |                        
|                                 |  |                        
|Total operating expenses         |  |                        
|                                 |  |                        
|                                 |  |                        
|Operating income                 |  |                        
|                                 |  |                        
|Financing income, net            |  |                        
|                                 |  |                        
|Other income, net                |  |                        
|                                 |  |                        
|                                 |  |                        
|Income before income taxes       |  |                        
|                                 |  |                        
|Income taxes                     |  |                        
|                                 |  |                        
|                                 |  |                        
|Net income                       |  |                        
|                                 |  |                        
|                                 |  |                        
|Earnings per share (EPS)         |  |                        
|Basic and diluted                |  |                        
|                                 |  |                        
|                                 |  |                        
|Shares used in computation       |  |                        
|of basic and diluted EPS         |  |                        
|                                 |  |                        

(*)
          Convenience translation into U.S. dollars.

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

F - 4

---

---

# G. WILLI-FOOD
INTERNATIONAL LTD.

# STATEMENTS OF
SHAREHOLDERS EQUITY

|                            | Number of
ordinary
shares | Share
capital | Additional
paid-in capital | Retained
earnings | Total
shareholders'
equity
|--------------------------- | ------------------------- | ------------- | -------------------------- | ----------------- | --------------------------
|
|
|
|
|Balance - January 1, 2003   |                           |               |                            | 8,555,000         |                           
|                            |                           |              
|Net income for the year     |                           |               |                            | -                 |                           
|                            |                           |               |                            |                   |                           
|                            |                           |              
|Balance - December 31, 2003 |                           |               |                            | 8,555,000         |                           
|                            |                           |              
|Exercise of stock options   |                           |               |                            | 60,000            |                           
|                            |                           |              
|Share dividend              |                           |               |                            | -                 |                           
|                            |                           |              
|Net income for the year     |                           |               |                            | -                 |                           
|                            |                           |               |                            |                   |                           
|                            |                           |              
|Balance - December 31, 2004 |                           |               |                            | 8,615,000         |                           
|                            |                           |              
|Declared dividend           |                           |               |                            | -                 |                           
|                            |                           |              
|Net income for the year     |                           |               |                            | -                 |                           
|                            |                           |               |                            |                   |                           
|                            |                           |              
|Balance - December 31, 2005 |                           |               |                            | 8,615,000         |                           
|                            |                           |               |                            |                   |                           

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

F - 5

---

---

# G. WILLI-FOOD
INTERNATIONAL LTD.

# CONSOLIDATED
STATEMENTS OF CASH FLOWS

|                                           | Year ended December 31,
|------------------------------------------ | -----------------------
|
|
|
|
|CASH FLOWS - OPERATING ACTIVITIES          |                        
|                                           |                        
|Net income                                 |                        
|                                           |                        
|Adjustments to reconcile net income to net |                        
|cash provided by operating activities:     |                        
|                                           |                        
|Depreciation and amortization              |                        
|Deferred income taxes                      |                        
|Gain on disposition of fixed assets        |                        
|Unrealized gain on marketable securities   |                        
|                                           |                        
|Changes in assets and liabilities:         |                        
|                                           |                        
|Decrease (Increase) in:                    |                        
|Trade accounts receivable                  |                        
|Receivables and other current assets       |                        
|Inventory                                  |                        
|Increase in:                               |                        
|Trade accounts payable                     |                        
|Payables and other current liabilities     |                        
|Accrued severance pay, net                 |                        
|                                           |                        
|                                           |                        
|Net cash provided by (used in) operating   |                        
|activities                                 |                        
|                                           |                        

(*)
          Convenience translation into U.S. dollars.

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

F - 6

---

---

# G. WILLI-FOOD
INTERNATIONAL LTD.

# CONSOLIDATED
STATEMENTS OF CASH FLOWS

(Continued)

|                                                   | Year ended December 31,
|-------------------------------------------------- | -----------------------
|
|
|
|
|CASH FLOWS - INVESTING ACTIVITIES                  |                        
|                                                   |                        
|Proceeds from realization (purchase) of marketable |                        
|securities, net                                    |                        
|Additions to fixed assets                          |                        
|Proceeds on disposition of fixed assets            |                        
|                                                   |                        
|                                                   |                        
|Net cash provided by (used in) investing           |                        
|activities                                         |                        
|                                                   |                        
|                                                   |                        
|CASH FLOWS - FINANCING ACTIVITIES                  |                        
|                                                   |                        
|Repayment of loans                                 |                        
|Short-term bank borrowings, net                    |                        
|Proceeds from stock options exercise               |                        
|                                                   |                        
|                                                   |                        
|Net cash provided by (used in)                     |                        
|financing activities                               |                        
|                                                   |                        
|                                                   |                        
|                                                   |                        
|Net change in cash and cash equivalents            |                        
|                                                   |                        
|Cash and cash equivalents at beginning of year     |                        
|                                                   |                        
|                                                   |                        
|Cash and cash equivalents at end of year           |                        
|                                                   |                        
|                                                   |                        
|                                                   |                        
|Supplemental cash flow information:                |                        
|                                                   |                        
|Cash paid during the period for:                   |                        
|Interest                                           |                        
|Taxes                                              |                        

(*)
          Convenience translation into U.S. dollars.

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

F - 7

---

---

# G. WILLI-FOOD
INTERNATIONAL LTD.

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

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

| | G.
Willi-Food International Ltd. (the Company) was incorporated in
          Israel in January 1994 and is engaged in the import, marketing and distribution
          of food products.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company is a subsidiary of Willi-Food Investments Ltd. (the parent company).
The shares of the parent company are registered for trade on the Tel-Aviv Stock Exchange.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | A. | Accounting
principles
| | -- | ---------------------

| | The
consolidated financial statements have been prepared in conformity with accounting
principles generally accepted in Israel. As applicable to these financial statements,
these accounting principles are substantially identical to U.S. GAAP, except as indicated
in Note 14.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | B. | Use
of estimates
| | -- | ----------------

| | The
preparation of the financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | C. | Ceasing
the adjustment of financial statements and financial reporting in           reported
amounts
| | -- | ------------------------------------------------------------------------------------------------------

| | In
October 2001, the Israel Accounting Standards Board published Accounting Standard No. 12,
Discontinuance of Adjustment of financial Statements. Pursuant to this
standard and in accordance with Accounting Standard No. 17 that was published in December
2002, the adjustment of financial statements was discontinued as of January 1, 2004. Up
to December 31, 2003, the Company continued to prepare adjusted financial statements in
accordance with Opinion No. 36 of the Institute of Certified Public Accountants in
Israel. The adjusted amounts included in the financial statements as at December 31, 2003
constitute the starting point for the nominal financial report as of January 1, 2004. The
Company has implemented the provisions of the standard and has accordingly discontinued
the adjustments as of January 1, 2004.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 1. | In
the past the Company prepared its financial statements on the basis of
               historical cost adjusted for the changes in the Consumer Price Index. The
               adjusted amounts that are included in the financial statements as at
December                31, 2003 constitute the starting point for the nominal financial
report as of                January 1, 2004. Any additions made during the period are
included according to                their nominal values.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 8

---

---

# G. WILLI-FOOD
INTERNATIONAL LTD.

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

|NOTE 2 |  | SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|------ | - | ---------------------------------------

| | C. | Ceasing the adjustment of financial statements and financial reporting in
               reported amounts (Cont.)
| | -- | -------------------------------------------------------------------------------------------------------------------

| | 2. | Amounts
of non-monetary assets do not necessarily reflect their realizable value
               or updated economic value, but only the reported amounts of such assets.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | The
term cost in these financial statements means the reported
               amount of cost.
| | -- | -----------------------------------------------------------------------------------------------

| | 4. | All
the comparative data for prior periods is stated adjusted to the index at
               December 31, 2003.
| | -- | ---------------------------------------------------------------------------------------------------------------

| | Balance
sheets:
| | ---------------

| | a. | Non-monetary
items are stated at reported amounts.
| | -- | --------------------------------------------------

| | b. | Monetary
items are stated in the balance sheet at their nominal historical           values as at
balance sheet date.
| | -- | ---------------------------------------------------------------------------------------------------------------------

| | Statement
of operations:
| | ------------------------

| | a. | Income
and expenses deriving from non-monetary items from provisions included in
               the balance sheet are derived from the difference between the reported
amounts                of the opening balance and the reported amounts of the closing
balance.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | The
other income and expense items (such as: sales, purchases, current
               manufacturing costs, etc.) are presented at their nominal values.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------

| | D. | Exchange
rates and linkage
| | -- | --------------------------

| | Assets
and liabilities in, or linked to, foreign currency are included on the basis of the
representative exchange rate prevailing at the applicable balance sheet date.
Representative rates of exchange for the U.S. dollar were as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                   |            
| | ----------------- | -----------
|
|
|
|
| | December 31, 2005 | - NIS 4.603
| | December 31, 2004 | - NIS 4.308
| | December 31, 2003 | - NIS 4.379

| | CPI-linked
balances are stated using the specific index to which the balances are linked.
| | -----------------------------------------------------------------------------------------

| | E. | Convenience
translation
| | -- | -----------------------

| | The
adjusted financial statements as of December 31, 2005 and for the year then ended have
been translated into United States dollars using the representative exchange rate at
December 31, 2005 as published by the Bank of Israel (US$ 1.00 = NIS 4.603). The translation
was made solely for the convenience of readers in the United States.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 9

---

---

# G. WILLI-FOOD
INTERNATIONAL LTD.

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

|NOTE 2 |  | SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|------ | - | ---------------------------------------

| | E. | Convenience
translation (Cont.)
| | -- | -------------------------------

| | It
should not be construed that the translated dollar figures actually represent, or could
be converted into, US dollars.
| | -------------------------------------------------------------------------------------------------------------------------

| | F. | Principles
of consolidation
| | -- | ---------------------------

| | The
consolidated financial statements include the financial statements of the Company and its
wholly owned subsidiaries. All significant inter-company transactions and balances are
eliminated upon consolidation.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | G. | Cash
equivalents
| | -- | ----------------

| | Cash
equivalents include short-term, highly liquid investments that are readily convertible
into cash with original maturities of three months or less.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------

| | H. | Marketable
securities
| | -- | ---------------------

| | Marketable
securities are classified as trading and are stated at market value.
| | ---------------------------------------------------------------------------------

| | I. | Allowance
for doubtful accounts
| | -- | -------------------------------

| | The
allowance has been computed on the basis of specific accounts receivable.
| | -----------------------------------------------------------------------------

| | J. | Inventories
| | -- | -----------

| | Inventories
are stated at the lower of cost or market value. Cost is determined by the first-in-first-out method.
| | -------------------------------------------------------------------------------------------------------------------

| | K. | Fixed
assets
| | -- | ------------

| | Fixed
assets are stated at cost, with depreciation computed by the straight-line method over
the assets estimated useful lives, as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------

| |                                    | Years  | 
| | ---------------------------------- | ------ | 
|
|
|
|
| | Motor vehicles                     | 5-6.7  | 
| | Office furniture and equipment     | 6.7-16 | 
| | Computers and peripheral equipment | 3-5    | 

| | Leasehold
improvements are amortized by the straight-line method over the shorter of the term of
the lease, or the estimated useful life of the improvements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company assesses the recoverability of the carrying amount of its fixed assets, when
circumstances exist, based on expected undiscounted cash flows. If an assets
carrying amount is not expected to be recoverable, the Company recognizes an impairment
loss based upon the difference between the carrying amount and the fair value of such
assets, in accordance with SFAS No.144 (Accounting for the Impairment or Disposal
of Long-Lived Assets).
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 10

---

---

# G. WILLI-FOOD
INTERNATIONAL LTD.

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

|NOTE 2 |  | SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|------ | - | ---------------------------------------

| | L. | Deferred
income taxes
| | -- | ---------------------

| | Deferred
income taxes are provided for temporary differences between the assets and liabilities,
as measured in the financial statements, and for tax purposes at the tax rates expected
to be in force when these differences reverse, in accordance with SFAS No. 109 (Accounting
for Income Taxes).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | M. | Revenue
recognition
| | -- | -------------------

| | The
Company recognizes revenue upon the shipment of its products to the customer provided
that persuasive evidence of an arrangement exists, title has transferred, the price is
fixed, collection of resulting receivables is probable and there are no remaining
significant obligations. The Company grants to certain customers a right to return the
products, with the corresponding provision recorded for the estimated future product
returns, based on the Companys experience.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | N. | Customer
incentives
| | -- | -------------------

| | The
Company is obligated to pay incentives to certain customers based on the volume of sales.
The incentive is computed as a percentage of the annual volume and is generally paid at
the beginning of each year in respect of the previous year. In accordance with Emerging
Issues Task Force (EITF) No. 01-9,Accounting for Consideration Given by a Supplier
to a Customer (Including a Reseller of the Vendors Products)", the Company
presents its revenues as net of such incentives, calculated based on the volume of sales.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | O. | Stock-based
compensation
| | -- | ------------------------

| | The
Company accounts for employee stock-based compensation in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and
in accordance with FASB Interpretation No. 44. Pursuant to these accounting
pronouncements, the Company records compensation for options to purchase 63,000 shares of
the Parent Company granted to the Companys employees over the vesting period of the
options based on the difference, if any, between the exercise price of the options and
the market price of the underlying shares at that date. Deferred compensation is
amortized to compensation expense over the vesting period of the options. Had
compensation cost for the Companys option plans been determined on the basis of the
fair value at the grant dates in accordance with the provisions of SFAS No. 123 Accounting
for Stock-Based Compensation, as amended by SFAS No. 148, the Companys pro
forma net income and pro forma basic and diluted net income per share would have been as
follows:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Year ended December 31, 2005
| |  | ----------------------------
|
|
|
|
| |  |                             
| |  |                             
| |  |                             
| |  |                             
| |  |                             
| |  |                             
| |  |                             
| |  |                             
| |  |                             
| |  |                             
| |  |                             

| | The
following assumptions were used for the year 2005: dividend yield of 0.00%; risk-free
interest rate of 2.5%; an expected life of 1.75  3.75 years; a volatility rate of
48%.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 11

---

---

# G. WILLI-FOOD
INTERNATIONAL LTD.

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

|NOTE 2 |  | SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|------ | - | ---------------------------------------

| | P. | Earnings
per share
| | -- | ------------------

| | Basic
and fully diluted net earnings per share have been computed in accordance with Opinion
No. 55 of the Institute of Certified Public Accountants in Israel (ICPAS), which, as it
relates to these financial statements, is consistent with SFAS No. 128 (Earnings
per Share), using the weighted average number of ordinary shares outstanding. Basic
earnings per share are computed by using the weighted average number of shares
outstanding. Fully diluted earnings per share are computed by using the weighted average
number of outstanding shares adjusted for the incremental shares attributed to
outstanding options to purchase ordinary shares. During 2004, 30,000 of the above were
exercised where the remaining 20,000 expired.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Q. | Reclassification
| | -- | ----------------

| | Certain
prior years amounts have been reclassified in conformity with current years
financial statements presentation.
| | -----------------------------------------------------------------------------------------------------------------------

| | R. | Impact
of recently-issued accounting standards
| | -- | ----------------------------------------------

| | Israeli
GAAP:
| | -------------

| | Accounting
Standard No.24 Stock-Based Compensation
| | ----------------------------------------------------

| | In
September 2005, the Israeli Accounting Standards Board published Accounting Standard No.
24 Share-Based Payment (the Standard), which calls for the
recognition in the financial statements of share-based payment transactions. Such
transactions include transactions with employees and related parties to be settled by
cash, by other assets, or by equity instruments. Consequently, amongst other matters,
costs associated with grants of shares and options to employees will be expensed over the
vesting period of each grant. These costs will be determined based on the fair value of
the awards at each grant date. The Standard establishes guidelines for measuring each
award based on the settlement terms (either by cash or equity instrument). The Standard
also establishes certain disclosure requirements relating to share-based payment.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Standard is effective for financial statements for periods commencing January 1, 2006 or
thereafter (initial adoption is recommended). The application of the Standard is not
expected to affect the Companys financial position and results of operations.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Accounting
Standard No. 21 Earnings Per Share
| | -----------------------------------------------

| | In
February 2006, the Israeli Accounting Standards Board approved for publication Accounting
Standard No. 21, Earnings Per Share (the Standard). With the
initial adoption of the Standard, Opinion No. 55 of the Institute of Certified Public
Accountants in Israel  Earnings per share will be cancelled. The Standard
prescribes that an entity shall calculate basic earnings per share amounts for profit or
loss attributable to ordinary equity holders of the parent entity and, if presented,
profit or loss from continuing operations attributable to those equity holders. The basic
earnings per share shall be calculated by dividing profit or loss attributable to
ordinary equity holders of the parent entity (the numerator) by the weighted average
number of ordinary shares outstanding (the denominator) during the reported period. For
the purpose of calculating diluted earnings per share, an entity shall adjust profit or
loss attributable to ordinary equity holders of the parent entity, and the weighted
average number of shares outstanding, for the effects of all dilutive potential ordinary
shares.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Standard is effective for financial statements for periods commencing January 1, 2006 or
thereafter. The initial adoption of the Standard will be accounted for retrospectively
and comparative Earnings per share data for prior periods shall be adjusted. The
application of the Standard is not expected to materially affect the Companys
Earnings per share data.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 12

---

---

# G. WILLI-FOOD
INTERNATIONAL LTD.

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

|NOTE 2 |  | SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|------ | - | ---------------------------------------

| | R. | Impact
of recently-issued accounting standards (Cont.)
| | -- | ------------------------------------------------------

| | Accounting
Standard No. 25 Revenues
| | -------------------------------------

| | In
February 2006, the Israeli Accounting  Standards Board approved for publication
 Accounting  Standard                      No. 25, "Revenues" (the "Standard").
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | This
Standard establishes the requirements for recognition criteria, measurement, disclosure
and presentation of revenues arising from sale of goods, rendering of services and from
the use by others of entity assets yielding interest, royalties and dividends. This
Standard prescribes that revenue shall be measured at the fair value of the consideration
received or receivable. The Standard is effective for financial statements for periods
commencing January 1, 2006 or thereafter. Assets and liabilities included in the
financial statements as of December 31, 2005 in different amounts from those that would
have been presented if the standards requirements were applied will be adjusted on
January 1, 2006 to the amounts to be recognized in accordance with the Standards
guidelines. The results of the initial adoption of the Standard as at January 1, 2006
shall be accounted for by the cumulative effect of a change in accounting method. The
application of the Standard is not expected to affect the Companys financial
position and results of operations.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | US
GAAP:
| | --------

| | In
December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123(R).
SFAS No. 123(R) requires employee share-based equity awards to be accounted for under the
fair value method, and eliminates the ability to account for these instruments under the
intrinsic value method prescribed by APB Opinion No. 25 and allowed under the original
provisions of SFAS No. 123. SFAS No. 123(R) requires the use of an option pricing model
for estimating fair value, which is then amortized to expense over the service periods.
Had the Company adopted SFAS 123(R) in prior periods, the impact of that standard would
have approximated the impact of SFAS 123 as described in the disclosure of pro forma net
income and income per share above. SFAS No. 123(R) allows for either prospective
recognition of compensation expense or retrospective recognition. In January 2005, the
SEC issued SAB No. 107, which provides supplemental implementation guidance for SFAS No.
123(R). In the first quarter of 2006, the Company began to apply the prospective
recognition method and implemented the provisions of SFAS No. 123(R). The Company does
not expect the adoption of SFAS No. 123(R). will have any material impact on its
consolidated financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections. SFAS
No. 154 replaces APB Opinion No. 20. Accounting Changes and SFAS No. 3, Reporting
Accounting Changes in Interim Financial Statements. SFAS No. 154 requires
retrospective application to prior periodsfinancial statements of changes in
accounting principle, unless it is impracticable to determine either the period-specific
effects or the cumulative effect of the change. The Company does not expect the adoption
of SFAS No. 154 will have any material impact on its consolidated financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 13

---

---

# G. WILLI-FOOD
INTERNATIONAL LTD.

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

|NOTE 3 |  | RECEIVABLES AND OTHER CURRENT ASSETS
|------ | - | ------------------------------------

| | Comprised
as follows:
| | ---------------------

| |                             | December 31,
| | --------------------------- | ------------
|
|
|
|
| | Advances to suppliers       |             
| | Value-added tax             |             
| | Accrued interest            |             
| | Deferred income taxes       |             
| | Prepaid expenses and others |             
| |                             |             
| |                             |             
| |                             |             

|NOTE 4 |  | FIXED ASSETS
|------ | - | ------------

| | Comprised
as follows:
| | ---------------------

| |                                            | December 31,
| | ------------------------------------------ | ------------
|
|
|
|
| | Cost:                                      |             
| | Land and constructed fixed assets          |             
| | Motor vehicles                             |             
| | Computers and peripheral equipment         |             
| | Office furniture and equipment             |             
| | Leasehold improvements                     |             
| |                                            |             
| |                                            |             
| |                                            |             
| |                                            |             
| | Accumulated depreciation and amortization: |             
| | Motor vehicles                             |             
| | Computers and peripheral equipment         |             
| | Office furniture and equipment             |             
| | Leasehold improvements                     |             
| |                                            |             
| |                                            |             
| |                                            |             

| | (*) | Convenience
translation into U.S. dollars.
| | --- | ------------------------------------------

|NOTE 5 |  | OTHER ASSETS, NET
|------ | - | -----------------

| | As
of December 31, 2005 and 2004 the Companys other assets consisted solely of
deferred income taxes.
| | -------------------------------------------------------------------------------------------------------

F - 14

---

---



# G. WILLI-FOOD
INTERNATIONAL LTD.

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

|NOTE 6 |  | PAYABLES AND OTHER CURRENT LIABILITIES
|------ | - | --------------------------------------

| | Comprised
as follows:
| | ---------------------

| |                         | December 31,
| | ----------------------- | ------------
|
|
|
|
| | Tax authorities         |             
| | Declared dividend       |             
| | Accrued expenses        |             
| | Payroll-related amounts |             
| | Customer advances       |             
| |                         |             
| |                         |             
| |                         |             

| | (*) | Convenience
translation into U.S. dollars.
| | --- | ------------------------------------------

|NOTE 7 |  | ACCRUED SEVERANCE PAY, NET
|------ | - | --------------------------

| | The
Companys obligation for severance pay is calculated in accordance with the Israeli
Severance Pay Law, 1963, and is based on the most recent monthly salary and the length of
employment in the Company. The obligation is partially funded through insurance policies
not under the Companys custody, and the unfunded balance is accrued as a
liability on the balance sheet.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Severance
pay expenses for 2005, 2004 and 2003 were NIS 411 thousand ($89 thousand), NIS 306
thousand and NIS 271 thousand, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------

| | The
total value of the insurance policies at December 31, 2005 and 2004 and 2003 was NIS 665
thousand ($145 thousand), NIS 560 thousand and NIS 488 thousand, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has no liability for pension expenses to its employees.
| | -------------------------------------------------------------------

|NOTE 8 |  | COMMITMENTS AND CONTINGENT LIABILITIES
|------ | - | --------------------------------------

| | A. | Contingent
liabilities and guarantees
| | -- | -------------------------------------

| | The
Company is contingently liable in respect of documentary letters of credit from banks and
suppliers credit guaranteed by banks for the import of food products totaling, at
December 31, 2005, NIS 15,904 thousand ($3.5 million).
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | B. | Credit
risk
| | -- | -----------

| | Financial
instruments that potentially subject the Company to credit risk consist principally of
trade receivables. A major portion of the Companys sales was to a limited number of
customers (see Note 12A). The Company, which generally does not require security from
those customers, maintains an allowance for doubtful accounts, based upon factors
regarding the credit risk of specific customers, historical trends and other information,
which management believes adequately covers all anticipated losses in respect of trade
receivables.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 15

---

---



# G. WILLI-FOOD
INTERNATIONAL LTD.

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

|NOTE 8 |  | COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
|------ | - | ----------------------------------------------

| | C. | Supply
of products
| | -- | ------------------

| | As
of December 31, 2005, the Company was dependent on one supplier in respect of some of its
products. Purchases of products from this supplier were approximately 15% and 11% of all
the Companys purchases of products for 2005 and 2004, respectively. The Company has
a contract with the supplier, according to which the Company is the latters exclusive
agent and distributor in Israel in connection with certain products for a five-year
period starting March 2005. Termination of the Companys business relationships with
this supplier and/or a material adverse change in the terms at which it purchases
products from him may have a material adverse effect on the Companys financial
results. There can be no assurance that alternative source of supply, if required, will
be readily available nor can there be any assurance as to purchase terms.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | D. | Fair
value of financial instruments
| | -- | -----------------------------------

| | The
financial instruments of the Company consist mainly of cash and cash equivalents, current
accounts receivable, short-term borrowings, accounts payable and accruals. In view of
their nature, the fair value of the financial instruments, included in working capital,
is usually identical or close to their book value.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | E. | Lease
commitments
| | -- | -----------------

| | The
premises of the Company and its subsidiaries are rented under various operating lease
agreements with related parties for various periods through 2006 (including renewal
options). Future aggregate minimum annual rental payments, pursuant to existing lease
commitments in effect on December 31, 2005, follow:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                     | NIS | US dollars (*)
| | ------------------- | --- | --------------
|
|
|
|
| | 2006                |     |               
| | 2007 and thereafter |     |               
| |                     |     |               
| |                     |     |               
| |                     |     |               

| | (*) | Convenience
translation into U.S. dollars.
| | --- | ------------------------------------------

| | Total
rent expenses for 2005, 2004 and 2003 were NIS 1,918 thousand ($417 thousand), NIS 1,833
thousand and NIS 1,837 thousand, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------

| | In
August 2005 the Company acquired from a related party a plot of land totaling 19,000 sq.
m. for establishing a logistics center of 8,600 sq. m. The transaction has been ratified
by the Companys Audit Committee and Board of Directors on May 25, 2005 and by the
shareholders General Meeting on July 20, 2005.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
new logistics center, which will be built on that land, will replace the present one
(which is rented from related parties). Upon completion of the new logistics center
(expected to open in November 2006) the Company will return to the related party the old
center whose lease expires in January 2007. Should the new logistic center be completed
before the expiration date of the present centers lease, the related party
consented to a reduction in the lease period accordingly with no claim for
indemnification. Alternatively, should completion take place subsequently, the related
party consented to extend the lease until the new centers opening date and under
identical terms ($35,886 per month).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 16

---

---



# G. WILLI-FOOD
INTERNATIONAL LTD.

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

|NOTE 8 |  | COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
|------ | - | ----------------------------------------------

| | F. | Claims
| | -- | ------

| | 1. | A
lawsuit was filed in December 2001 against 29 importers/producers of food
               products, including the Company, for an amount totaling NIS 500 million
($109                million). Concurrently, the plaintiffs filed a request for an
exemption from the                court fee. Following the courts rejection of the
plaintiffs request                for the fee exemption and their failure to pay
it, the court dismissed the case.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
January 2004 the abovementioned plaintiffs filed a new lawsuit against the 29 noted
importers/producers for NIS 1 billion ($218 million). A request was made concurrently for
an exemption from the court fee that was rejected by the court. The Companys legal
counsel believes that the plaintiffs do not stand a reasonable chance for prevailing and
until the fee issue is settled this matter should not be regarded as a real claim.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | A
lawsuit was filed in June 2004 against the Company and a subsidiary in
               connection with the marketing and distribution of ARLA products. The
plaintiffs                allege that the defendants marketed products bearing a
commercial tag on which                the plaintiffs posses the rights and, accordingly,
asked for a court injunction                prohibiting the marketing of these products
by the defendants along with a                compensation of NIS 100 thousand.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Concurrently,
ARLA filed its own lawsuit against the above plaintiffs in respect of the commercial tag,
alleging misleading actions, breach of trust, exceeding authority and beach of
intellectual property rights in that commercial tag. In March 2005 the court issued a
temporary injunction against the plaintiff regarding the marketing of products veering
the noted commercial tag until the issuance of a court final decision.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Based
on the opinion of its legal counsel, management believes that the plaintiffsprospects
to be awarded the injunction and the compensation are not favorable.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | In
October, 2005, Vitarroz Corp. commenced a civil action in the Superior Court
               of New Jersey, against Willi USA Holdings, Inc. (a subsidiary of the
Company),                the Company and Zwi Williger (collectively, the Defendants)
due to a                dispute concerning the press release announcing the termination
of the proposed                acquisition of the Vitarroz business by the Company.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
November 2005, the Company removed the matter from the Superior Court to the United
States District Court for the District of New Jersey. The complaint was subsequently
amended and, as amended, alleges breach of contract, defamation, breach of covenants of
good faith and fair dealing, fraudulent inducement and tortious interference with
contractual relations and prospective economic advantage. Defendants have not responded
to the allegations in the complaint.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Recently,
the parties agreed to submit the claims which are the subject of the complaint to binding
arbitration and, at the same time, to submit to arbitration (i) those claims that
Defendants have against plaintiff and related third parties, and (ii) those claims which
the Company has asserted against Vitarroz in an action now pending in Israel regarding
the breach of an agreement executed by the Company and Vitarroz, pursuant to which
Vitarroz undertook to supply its products to the Company.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Defendants
believe that Vitarrozs allegations are without merit, and they intend to vigorously
defend against such claims. The company also intends to aggressively pursue their
affirmative claims.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 17

---

---



# G. WILLI-FOOD
INTERNATIONAL LTD.

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

|NOTE 8 |  | COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
|------ | - | ----------------------------------------------

| | G. | Liens
| | -- | -----

| | The
Company has registered fixed and floating liens in favor of banks on its assets and
insurance rights and a fixed lien, unlimited in amount, on its share capital and
goodwill.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | H. | Related
parties
| | -- | ---------------

| | 1. | As
of June 1, 1998, the Company entered into certain management services
               agreements with certain companies controlled by each of Messrs. Joseph and
Zvi                Williger, respectively (collectively, the Williger Management
               Companies), pursuant to which Messrs. Joseph and Zvi Williger are to
               provide management services on behalf of the Williger Management Companies
to                the Company (the Management Services Agreements).
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Management Services Agreements were for a period of four years commencing on June 1,
1998 (the Management Services Period), were automatically renewed on June 1,
2002 for two years and were automatically renewed for an additional period of two years
in June 2004.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Each
of the Management Services Agreements provides for monthly services fees equal to $24,500
(excluding VAT) and an annual bonus at a rate of 3% of the Companys consolidated
pre-tax annual profits, if such profits are equal to or less than NIS 3.0 million
(approximately USD 0.7 million), or at a rate of 5% if such profits exceed such
level.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
May 14, 2005 the Companys Audit Committee and Board of Directors decided to amend
the terms of the abovementioned agreements, mainly extending the management services
period for an unlimited period, with an option to terminate them by the Companys
advance notice of 18 months and the management companies advanced notice of 180
days. The General Meeting of the Companys shareholders ratified these amendments on
July 20, 2005.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
February 15, 2006 the Companys board of directors resolved, in light of the
expressed position of the Israeli Securities Authority, to set those agreements for a
five-year period following ratification by the Companys shareholders General
Meeting, i.e., until July 19, 2010.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | On
April 1, 1997, the Company entered into an agreement to provide the Parent
               Company administrative services pursuant to which the Company may provide
office                facilities leased by the parent company for a monthly fee of NIS
5,480 to be                adjusted annually for changes in the Israeli CPI.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Lease
agreement with related parties  see E above.
| | -- | ---------------------------------------------------

F - 18

---

---



# G. WILLI-FOOD
INTERNATIONAL LTD.

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

|NOTE 9 |  | SHAREHOLDERS EQUITY
|------ | - | --------------------

| | A. | The
Companys shares are traded on the NASDAQ.
| | -- | ----------------------------------------------

| | B. | As
of December 31, 2003, 50,000 stock options were outstanding and exercisable,           at
an exercise price of $4.1 per share. In April 2004, 30,000 of the above           options
were exercised by related parties, for a total consideration of NIS 557
          thousand. The remaining 20,000 stock options expired in May, 2004.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | C. | In December 2004, the Company declared a share dividend of 1 ordinary share for
          each outstanding ordinary share (an aggregate of 4,307,500 ordinary shares).
All           shares and per share amounts in the financial statements have been
retroactively           restated to reflect the aforementioned share dividend for all
periods presented.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | D. | In February, 2005, the Companys authorized share capital was increased by
          40,000,000 shares of NIS 0.1 par value, from 10,000,000 to 50,000,000 shares.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | E. | On
November 21, 2005, the Company declared a cash dividend of $ 0.12 per share
          payable to its shareholder of record as of January 11, 2006. The cash dividend
          was paid on January 25, 2006.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 10 |  | INCOME TAXES
|------- | - | ------------

| | Taxation
under various laws
| | ---------------------------

| | The
Company is assessed under the provisions of the Income Tax Law (Inflationary
Adjustments), 1985, pursuant to which the results for tax purposes are measured in real
terms in accordance with changes in the Israeli CPI.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Provision
for income taxes  consolidated:
| | ------------------------------------------

| |                         | Year ended December 31,
| | ----------------------- | -----------------------
|
|
|
|
| | Current taxes           |                        
| | Deferred income taxes   |                        
| | Erosion of tax advances |                        
| |                         |                        
| |                         |                        
| |                         |                        

| | (*) | Convenience
translation into U.S. dollars.
| | --- | ------------------------------------------

F - 19

---

---



# G. WILLI-FOOD
INTERNATIONAL LTD.

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

|NOTE 10 |  | INCOME TAXES (Cont.)
|------- | - | --------------------

| | Deferred
income taxes
| | ---------------------

| |                                           | December 31,
| | ----------------------------------------- | ------------
|
|
|
|
| | Included in other assets:                 |             
| | Accrued severance pay                     |             
| |                                           |             
| | Included in current assets (liabilities): |             
| | Marketable securities                     |             
| | Accrued vacation pay                      |             
| | Allowance for doubtful accounts           |             
| |                                           |             
| |                                           |             
| |                                           |             

| | Reconciliation
| | --------------

| | The
following is a reconciliation of the income taxes assuming that all income is taxed at
the ordinary statutory corporate tax rate in Israel and the actual taxes on income, in
the statement of operations:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                           | Year ended December 31,
|------------------------------------------ | -----------------------
|
|
|
|
|Income before taxes on income              |                        
|                                           |                        
|Statutory tax rates                        |                        
|                                           |                        
|                                           |                        
|Provision computed by ordinary rates       |                        
|                                           |                        
|                                           |                        
|Increase (decrease) in provision due to:   |                        
|Tax-exempt income                          |                        
|Erosion of tax prepayments                 |                        
|Non-deductible expenses                    |                        
|Utilization of tax loss carryforwards for  |                        
|which deferred taxes were not              |                        
|previously recorded                        |                        
|Effect of decrease in tax rate on deferred |                        
|taxes assets                               |                        
|                                           |                        
|Differences in the definition of Capital   |                        
|and non-monetary items for tax             |                        
|purposes and financial reporting           |                        
|purposes                                   |                        
|Other                                      |                        
|                                           |                        
|                                           |                        
|                                           |                        
|                                           |                        
|                                           |                        
|                                           |                        

| | Tax
assessments
| | ---------------

| | The
Company has not yet been assessed for income tax purposes since its inception.
| | ----------------------------------------------------------------------------------

| | (*) | Convenience
translation into U.S. dollars.
| | --- | ------------------------------------------

F - 20

---

---



# G. WILLI-FOOD
INTERNATIONAL LTD.

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

|NOTE 11 |  | TRANSACTIONS WITH RELATED PARTIES
|------- | - | ---------------------------------

| | A. | Balances
with related parties
| | -- | -----------------------------

| |                                  | December 31,
| | -------------------------------- | ------------
|
|
|
|
| | Due to officers (shareholders in |             
| | the parent company)              |             
| | Parent company                   |             

| | B. | Transactions
with related parties
| | -- | ---------------------------------

|                          | Year ended December 31,
|------------------------- | -----------------------
|
|
|
|
|Management fees           |                        
|Rent expenses             |                        
|Participation in expenses |                        

| | For
other transactions with related parties, see Note 8.
| | --------------------------------------------------------

|NOTE 12 |  | SELECTED CONSOLIDATED STATEMENTS OF OPERATIONS DATA
|------- | - | ---------------------------------------------------

| | A. | Classification
of major customers
| | -- | ---------------------------------

| | Percentage
of revenues from customers constituting 10% or more of revenues:
| | ---------------------------------------------------------------------------

| |            | Year ended December 31,
| | ---------- | -----------------------
|
|
|
|
| | Customer A |                        
| | Customer B |                        
| | Customer C |                        

| | (*) | Convenience
translation into U.S. dollars.
| | --- | ------------------------------------------

F - 21

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---



# G. WILLI-FOOD
INTERNATIONAL LTD.

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

|NOTE 12 |  | SELECTED CONSOLIDATED STATEMENTS OF OPERATIONS DATA (Cont.)
|------- | - | -----------------------------------------------------------

| | B. | Cost
of sales
| | -- | -------------

| |                         | Year ended December 31,
| | ----------------------- | -----------------------
|
|
|
|
| | Purchases               |                        
| | Increase in inventory   |                        
| | Transportation and rent |                        
| | Other                   |                        
| |                         |                        
| |                         |                        
| |                         |                        

| | (*) | Convenience
translation into U.S. dollars.
| | --- | ------------------------------------------

| | C. | Bad
debt
| | -- | --------

| | In
July 2005, Club Market Marketing Chains Ltd., one of the three largest food chains in
Israel, encountered major financial difficulties, announcing that it could not pay its
debts to its creditors. The District Court of Tel Aviv accepted Club Markets
petition for a stay of procedures against it and appointed receivers for Club Market. On
August 28, 2005 the court allowed the Club Market court-appointed receivers to sell Club
Market to Supersol, one of the largest food chain in Israel, subject to several
conditions. The court also ratified the creditors arrangement presented by the
receivers. As of September 1, 2005 Club Markets activities were been substantially
transferred to Supersol. The Company submitted a claim of debt with the receivers with
respect to Club Markets debt to the Company, which was NIS 6.5 million (USD 1.4
million), (NIS 5.5 million net of VAT ($1.2 million)), as of July 13, 2005. In view of
this claim and the ratification of the creditors arrangement by the court on
December 12, 2005, the Company is expected to receive a proportionate share of its claim
of debt. The Club Market receivers estimate the rate of payment to be approximately 51%
of the total debts, although this is subject to the examination by the receivers and
their approval of the Companys claim of debt. There is no assurance as to the
portion of the debt owed by ClubMarket that will actually be paid to the Company. During
2005, the Company wrote off the sum of NIS 3.5 million (USD 0.76 million) as a bad debt
due to the abovementioned Club Market debt.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 22

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---



# G. WILLI-FOOD
INTERNATIONAL LTD.

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

|NOTE 12 |  | SELECTED CONSOLIDATED STATEMENTS OF OPERATIONS DATA (Cont.)
|------- | - | -----------------------------------------------------------

| | D. | Financial
income, net
| | -- | ---------------------

| |                                        | Year ended December 31,
| | -------------------------------------- | -----------------------
|
|
|
|
| | Financing expenses:                    |                        
| | Rate exchanges, interest               |                        
| | expenses and bank fees                 |                        
| | Others                                 |                        
| |                                        |                        
| |                                        |                        
| |                                        |                        
| | Financing income:                      |                        
| | Interest income                        |                        
| | Realized gains on derivative financial |                        
| | instruments                            |                        
| | Gain from marketable securities        |                        
| | Others                                 |                        
| |                                        |                        
| |                                        |                        
| |                                        |                        
| |                                        |                        
| | Financing income, net                  |                        
| |                                        |                        

| | (*) | Convenience
translation into U.S. dollars.
| | --- | ------------------------------------------

|NOTE 13 |  | REPORTING SEGMENTS
|------- | - | ------------------

| | The
Company is engaged in the import, marketing and distributing of preserved products and
non-preserved products which constitute the basis for its reporting segments.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                   | Non- Preservedproducts | Preservedproducts | Total
| | --------------------------------- | ---------------------- | ----------------- | -----
|
|
|
|
| | Year ended December 31, 2005      |                        |                   |      
| |                                   |                        |                  
| | Sales                             |                        |                   |      
| |                                   |                        |                   |      
| |                                   |                        |                  
| | Gross profit                      |                        |                   |      
| | Selling & marketing expenses      |                        |                   |      
| |                                   |                        |                   |      
| | Income per segment                |                        |                   |      
| | General & administrative expenses |                        |                   |      
| |                                   |                        |                   |      
| | Consolidated operating income     |                        |                   |      
| | Financing income, net             |                        |                   |      
| | Other income, net                 |                        |                   |      
| | Income taxes                      |                        |                   |      
| |                                   |                        |                   |      
| | Net income                        |                        |                   |      
| |                                   |                        |                   |      
| |                                   |                        |                  
| | Inventory                         |                        |                   |      
| | Assets not allocated to segments  |                        |                   |      
| |                                   |                        |                   |      
| | Total consolidated assets         |                        |                   |      
| |                                   |                        |                   |      

F - 23

---

---

# G. WILLI-FOOD
INTERNATIONAL LTD.

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

# NOTE 13 -OPERATING
SEGMENTS (Cont.)

| |                                   | Non- Preserved
products | Preserved
products | Total
| | --------------------------------- | ----------------------- | ------------------ | -----
|
|
|
|
| | Year ended December 31, 2004      |                         |                    |      
| |                                   |                         |                   
| | Sales                             |                         |                    |      
| |                                   |                         |                    |      
| |                                   |                         |                   
| | Gross profit                      |                         |                    |      
| | Selling & marketing expenses      |                         |                    |      
| |                                   |                         |                    |      
| | Income per segment                |                         |                    |      
| | General & administrative expenses |                         |                    |      
| |                                   |                         |                    |      
| | Consolidated operating income     |                         |                    |      
| | Financing income, net             |                         |                    |      
| | Other income, net                 |                         |                    |      
| | Income taxes                      |                         |                    |      
| |                                   |                         |                    |      
| | Net income                        |                         |                    |      
| |                                   |                         |                    |      
| |                                   |                         |                   
| | Inventory                         |                         |                    |      
| | Assets not allocated to segments  |                         |                    |      
| |                                   |                         |                    |      
| | Total consolidated assets         |                         |                    |      
| |                                   |                         |                    |      
| |                                   |                         |                   
| | Year ended December 31, 2003      |                         |                   
| |                                   |                         |                   
| | Sales                             |                         |                    |      
| |                                   |                         |                    |      
| |                                   |                         |                   
| | Gross profit                      |                         |                    |      
| | Selling & marketing expenses      |                         |                    |      
| |                                   |                         |                    |      
| | Income per segment                |                         |                    |      
| | General & administrative expenses |                         |                    |      
| |                                   |                         |                    |      
| | Consolidated operating income     |                         |                    |      
| | Financing income, net             |                         |                    |      
| | Other income, net                 |                         |                    |      
| | Income taxes                      |                         |                    |      
| |                                   |                         |                    |      
| | Net income                        |                         |                    |      
| |                                   |                         |                    |      

F - 24

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---

# G. WILLI-FOOD
INTERNATIONAL LTD.

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

|NOTE 14 |  | DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP
|------- | - | -----------------------------------------

| | A. | In
accordance with Israeli GAAP, the Companys financial statements are
          denominated through December 31, 2003 in adjusted amounts and as of January 1,
          2004 in reported amounts (also see Note 2). Such accounting
          principle is considered a more meaningful presentation than financial reporting
          based on nominal historical cost. Accordingly, the Company is not required to
          eliminate the effect of historic price level changes in a reconciliation to
U.S.           GAAP.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | B. | In
accordance with U.S. GAAP, SFAS No. 115, changes in trading securities should
          be presented in the statement of cash flows as part of the operating
activities.           The following table provides a reconciliation of the Statements of
Cash flows           for 2005, 2004 and 2003 in accordance with U.S. GAAP:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                          | Year ended December 31,
| | ---------------------------------------- | -----------------------
|
|
|
|
| | Net cash provided by (used in) operating |                        
| | activities before adjustment             |                        
| | Adjustment                               |                        
| |                                          |                        
| | Net cash provided  by (used in)          |                        
| | operating activities after adjustment    |                        
| |                                          |                        
| | Net cash used in investing               |                        
| | activities before adjustment             |                        
| | Adjustment                               |                        
| |                                          |                        
| | Net cash used in investing               |                        
| | activities after adjustment              |                        
| |                                          |                        

| | (*) | Convenience
translation into U.S. dollars.
| | --- | ------------------------------------------

|NOTE 15 |  | SUBSEQUENT EVENTS
|------- | - | -----------------

| | Public
issuance on Londons AIM exchange of Gold Frost Ltd. a subsidiary
| | ------------------------------------------------------------------------

| | On
March 9, 2006 Gold Frost Ltd., a subsidiary, raised approximately $7.9 million (net) on
Londons AIM exchange upon the issuance of new shares constituting 24.3% of its
share capital after this allotment.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 25

---

---

# SIGNATURES

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

| |  | G. WILLI-FOOD INTERNATIONAL LTD.By: /s/ Joseph Williger
Joseph WilligerChief Executive Officer
| |  | ------------------------------------------------------------------------------------------------------------

Date: May 31, 2006

Page 70

---

---



# EXHIBIT INDEX

|Exhibit
Number |  | Description
|-------------- |  | -----------

|1.1 |  | Memorandum
of Association of the Company, as amended (1)
|---- |  | --------------------------------------------------------

|1.2 |  | Articles
of Association of the Company, as amended*
|--- |  | ---------------------------------------------------

|2.1 |  | Specimen
of Certificate for ordinary shares (2)
|--- |  | -----------------------------------------------

|4.1 |  | Share
Option Plan (2)
|--- |  | ---------------------

|4.2 |  | Management
Agreement between Registrant and Yossi Willi Management Investments Ltd., dated June 1,
1998 (3)
|---- |  | -----------------------------------------------------------------------------------------------------------

|4.3 |  | Amendment
to the Management Agreement between Registrant and Yossi Willi Management
                              Investments Ltd., dated August 1, 2005*
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|4.4 |  | Management
Agreement between the Company and Zvi W. & Co. Ltd., dated June 1, 1998 (3)
|---- |  | --------------------------------------------------------------------------------------

|4.5 |  | Amendment
to the Management Agreement between Registrant and Zvi W. & Co., Ltd., dated
                              August 1, 2005*
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------

|4.6 |  | Lease
of Company's premises with Titanic Food Ltd., dated November 23, 1998 (3)
|---- |  | -------------------------------------------------------------------------------

|4.7 |  | Services
Agreement between the Company and Willi Food, dated April 1, 1997 (3)
|---- |  | ------------------------------------------------------------------------------

|4.8 |  | Transfer
Agreement between Registrant and Gold Frost dated February 16, 2006*
|---- |  | -----------------------------------------------------------------------------

|4.9 |  | Lease
agreement for Logistics Center between Registrant and Gold Frost dated February 16,
                              2006*
|---- |  | -----------------------------------------------------------------------------------------------------------------------------

|4.10 |  | Relationship
Agreement between Registrant, Gold Frost, Willi Food, Zvi Williger and Joseph
                              Williger dated February 28, 2006*
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|4.11 |  | Placing
Agreement between Registrant, Gold Frost, certain officers of Gold Frost and
                              Corporate Synergy dated March 2, 2006*
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|4.12 |  | Lock
In Agreement, between Registrant, Gold Frost, Corporate Synergy and certain officers
                              of Gold Frost dated March 2, 2006*
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|8 |  | Subsidiaries
of the Company*
|- |  | ----------------------------

|12.1 |  | Certification
of CEO of the Company pursuant to Rule 13a-14(a), as adopted pursuant to
                              Section 302 of the Sarbanes-Oxley Act of 2002*
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12.2 |  | Certification
of CFO of the Company pursuant to Rule 13a-14(a), as adopted pursuant to
                              Section 302 of the Sarbanes-Oxley Act of 2002*
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13.1 |  | Certification
of CEO of the Company pursuant to Rule 13a-14(b), as adopted pursuant to
                              Section 906 of the Sarbanes-Oxley Act of 2002*
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13.2 |  | Certification
of CFO of the Company pursuant to Rule 13a-14(b), as adopted pursuant to
                              Section 906 of the Sarbanes-Oxley Act of 2002*
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

| | English
translations from Hebrew original.
|- | ------------------------------------------

|(1) | Incorporated
by Reference to the Registrants Annual Report on Form 20-F           for the Fiscal
year ended December 31, 1997.
|--- | -------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated
by reference to the Companys Registration Statement on Form           F-1, File No. 333-6314.
|--- | -----------------------------------------------------------------------------------------------------------

|(3) | Incorporated
by reference to the Companys Annual Report on Form 20-F for           the fiscal
year ended December 31, 2001.
|--- | ----------------------------------------------------------------------------------------------------------------------------

|* | Filed
Herewith
|- | --------------



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