Elron Electronic Industries Ltd. English Translation of Periodic Report for 2017 Elron Electronic Industries Ltd. Table of Contents: Part I – Description of Corporation's Business Part II – Board of Directors Report on Corporation's State of Affairs Part III – Financial Statements Part IV – Additional Details on the Corporation and the Corporate Governance Questionnaire Part V – Report on the Effectiveness of the Internal Control over Financial Reporting and Disclosure Elron Electronic Industries Ltd. Periodic Report for 2017 Part I English Translation of Description of Corporation's Business Part I – Description of Corporation's Business – Table of Contents 1. Introduction 3 Chapter I: Overview of Elron's Operations 2. Description of Elron's Operations and Description of the 8 Evolution of Its Business 3. Field of Activity 18 4. Investments in Elron's Capital and Transactions in Its 18 Shares 5. Dividend Distributions 19 6. Financial Information on Elron's Field of Activity 19 7. General Landscape and Impact of External Factors on 19 Elron's Operations 8. Critical Success Factors in the Field of Activity 22 9. Main Entry Barriers in the Field of Activity 25 10. Competition Structure in the Field of Activity 26 11. Research and Development 26 12. A Medical Device - The Process from Idea to 27 Commercialization 13. Intangible Assets 29 14. Human Capital 30 15. Investments 32 16. Financing 32 17. Taxation 33 18. Restrictions and Regulation on Elron's Operations 34 19. Material Agreements and Collaboration Agreements 42 20. Legal Proceedings 45 21. Business Objectives and Strategy 45 22. Discussion of Risk Factors 47 1 Chapter II: Description of Group Companies 23. Introduction 67 24. BrainsGate 67 25. Pocared 73 26. CartiHeal 78 27. RDC 82 28. Additional Companies 84 2 1. Introduction 1.1. The operations and developments in the business of Elron Electronic Industries Ltd. ("Elron" or the "Company") as of December 31, 2017 are described below. This description was prepared pursuant to the Israeli Securities Regulations (Periodic and Immediate Reports), 5730-1970. 1.2. Legend For convenience, the following definitions shall be ascribed the meanings set opposite them: Elron or the Elron Electronic Industries Ltd.; Company- Alcide- Alcide IO Ltd.; Aqwise- Aqwise – Wise Water Technologies Ltd.; associates- companies over which the Company has material influence and which are not subsidiaries; Atlantium- Atlantium Technologies Ltd.; Board of Directors Elron's Board of Directors Report, included in Report- Part II of this Annual Report; BrainsGate- BrainsGate Ltd.; Cartiheal- CartiHeal (2009) Ltd.; Cloudyn- Cloudyn Software Ltd.; Companies Law- Israel Companies Law, 5759-1999; Coramaze- Coramaze Technologies GmbH; cyber- cybersecurity technologies; Cynerio- Cynerio Israel Ltd.; DEP- DEP Technology Holdings Ltd.; DIC- Discount Investment Corporation Ltd.; 3 dollar or $- U.S. dollar; Dolphin- Dolphin IL Investments Ltd.; FDA- U.S. Food and Drug Administration; filing date- signature date of this report; Financial Elron's Consolidated Financial Statements for Statements- 2017, included in Part III of this Annual Report; group companies- subsidiaries, associates, and other companies held by the Company; IDB Development- IDB Development Corporation Ltd.; IronScales- IronScales Ltd.; Jordan Valley- Jordan Valley Semiconductors Ltd.; Lirhot- Lirhot Systems Ltd.; Kindite- Kindite Ltd.; Kyma- Zoll Medical Israel Ltd. (formerly: Kyma Medical Technologies Ltd.); Medingo- Medingo Ltd; NASDAQ- Nasdaq Global Select Market; Nitinotes- Nitinotes Ltd.; Notal Vision- Notal Vision Inc.; OpenLegacy- Open Legacy Technologies Ltd.; other companies companies held by the company which are held by the neither subsidiaries nor associates; Company- PLYmedia- Plymedia Israel (2006) Ltd.; Pocared- Pocared Diagnostics Ltd.; Rafael- Rafael Advanced Defense Systems Ltd.; 4 RDC- RDC Rafael Development Corporation Ltd.; RDSeed- RDSeed Ltd.; reporting date- December 31, 2017; Secdo- Cyber Secdo Ltd.; SecuredTouch- SecuredTouch Inc.; Securities Law- Israel Securities Law, 5728-1968; Sixgill- SixGill Ltd.; subsidiaries- companies under the Company's control pursuant to IFRS 10, and whose financial statements are consolidated with the Company's Financial Statements; Sync-Rx- Sync-Rx Ltd. TASE- Tel Aviv Stock Exchange Ltd.; Wavion- Wavion Inc. 1.3. The financial data included in this Part I are presented in U.S. dollars, unless stated otherwise. The data in this report are as of December 31, 2017, unless stated otherwise. 1.4. The materiality of the information included in this Part I, and in general of the transactions and/or main companies described herein, was examined from Elron's perspective, while in certain cases descriptions were elaborated for the sake of providing a complete account of a subject matter. 1.5. Elron is an operational holding company that focuses on building technology companies. Elron's primary goal is to create value for its shareholders by enhancing and realizing its holdings (whether through exit transactions or public offerings), while seeking new investment opportunities in technology companies, mainly in the fields of medical devices, cyber, information technology (IT) and enterprise software. This Part I presents details, among others, on main group companies. From 5 Elron's perspective, a main company is a company that meets either the quantitative criterion or one of the qualitative criteria as specified below: (I) Quantitative criterion – a company in which the total investment in Elron's Statement of Financial Position exceeds 10% of Elron's equity in accordance with its consolidated financial reports. (II) Qualitative criteria – significant investment commitments by Elron, significant risks and exposure in connection with Elron's investment, the inherent potential in the investment from management’s perspective, or significant value (current or potential) of Elron’s investment, etc. As of the filing date, RDC, Pocared, BrainsGate and CartiHeal meet at least one of the criteria specified above, and are therefore deemed as main group companies. The composition of main companies may change from time to time due to, among others, changes arising from the sale of a company, investments in companies, or decreases in their value and change in value of the investment in Elron's financial statements. 1.6. In respect of ownership interest in shares of companies mentioned in this report, Elron's ownership interests in a group company through wholly owned corporations or companies are presented as direct ownership interests in the group company, unless stated otherwise. 1.7. Elron's ownership interests are rounded to the nearest whole percentage and are presented as of the reporting date, unless stated otherwise. Elron's ownership interests in a group company reflect its share in its outstanding share capital, and do not take into account dilution due to the exercise of options or other convertible instruments issued by it, unless stated otherwise. Elron's fully diluted holdings take into account all options and convertible instruments, unless the amount of shares to be received upon their exercise or conversion, as applicable, is not known in advance. Accordingly, Elron's ownership interests are subject to change, among 6 others, as a result of the exercise or conversion of such options or loans by other shareholders or parties. 1.8. It should be noted that some of the data included in this Part I were obtained from studies, market surveys and the like, which were not prepared by the Company or independently checked by the Company. 7 Part I: Overview of Elron's Operations 2. Description of Elron's Operations and Description of Developments in Its Business 2.1. Description of Elron's Operations 2.1.1. Elron was incorporated in Israel in 1962 as a private company in accordance with Israeli laws. Elron is a public company whose shares are listed for trading on the TASE since 1975. In 1981 Elron listed its shares for trading on the NASDAQ. Over the years, Elron conducted additional offerings on the TASE and NASDAQ. In 2010, Elron voluntarily delisted from the NASDAQ, and from that point on its shares are traded over the counter in the United States. In August 2017, Elron deregistered its shares in the U.S., and since November 2017 its reporting obligations to the public under U.S. securities law were discontinued. For further details see Section 2.3 below. 2.1.2. Elron is an operational holding company that focuses on building technology companies. Elron's current group companies include companies at different stages of development, mainly in the fields of medical devices, cyber, information technology (IT) and enterprise software. 2.1.3. Elron's primary goal is to create value for its shareholders by enhancing and realizing its holdings (whether through exit transactions or public offerings), while seeking new investment opportunities with significant exit potential. For this purpose, Elron strives for significant holdings in companies and acts to enhance their value through active involvement in their management and direction. 2.1.4. Elron is involved in the management of its group companies by means of active membership on their boards of directors and board committees and active assistance to management. 8 Elron is directly involved in matters of policy guidance, strategic planning, marketing, selecting and manning senior management positions, determining the business plan, approving investments and budgets, funding, development and operational