Exhibit 10.12


 


PROTEOLOGICS LTD.


 


INTERIM FINANCIAL INFORMATION 


 


AS OF SEPTEMBER 30, 2013


 


UNAUDITED


 


INDEX


 


	 	Page
	 	 
	Statement of Financial Position  	2
	 	 
	Statements of Operations 	3
	 	 
	Statements of Changes in Equity	4
	 	 
	Statements of Cash Flows 	5 - 6
	 	 
	Notes to Condensed Financial Statements	7 - 10


 


- - -
- - - - - - - -


 




    	 	- 1 -	 



     


    

 


PROTEOLOGICS LTD.


CONDENSED
STATEMENT OF FINANCIAL POSITION 


 


	 	 	September 30,	 	 	December 31,	 
	 	 	2013	 	 	2012	 	 	2012	 
	 	 	Unaudited	 	 	Audited	 
	 	 	NIS in thousands	 
	ASSETS	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	CURRENT ASSETS:	 	 	 	 	 	 	 	 	 	 	 	 
	Cash and cash equivalents	 	 	12,049	 	 	 	8,335	 	 	 	10,437	 
	Financial assets at fair value through profit or loss	 	 	10,821	 	 	 	27,644	 	 	 	22,421	 
	Bank deposits - restricted as to use	 	 	365	 	 	 	334	 	 	 	364	 
	Accounts receivable	 	 	123	 	 	 	820	 	 	 	416	 
	Assets held for sale	 	 	628	 	 	 	-	 	 	 	-	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	23,986	 	 	 	37,133	 	 	 	33,638	 
	NON-CURRENT ASSETS:	 	 	 	 	 	 	 	 	 	 	 	 
	Property, plant and equipment	 	 	-	 	 	 	2,096	 	 	 	1,966	 
	Intangible assets	 	 	-	 	 	 	210	 	 	 	166	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	-	 	 	 	2,306	 	 	 	2,132	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total assets	 	 	23,986	 	 	 	39,439	 	 	 	35,770	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	LIABILITIES AND EQUITY	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	CURRENT LIABILITIES:	 	 	 	 	 	 	 	 	 	 	 	 
	Liability for discontinued operation	 	 	1,235	 	 	 	-	 	 	 	-	 
	Trade payables	 	 	157	 	 	 	638	 	 	 	517	 
	Other accounts payable	 	 	1,149	 	 	 	2,314	 	 	 	2,013	 
	Deferred revenues	 	 	-	 	 	 	3,191	 	 	 	2,068	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	2,541	 	 	 	6,143	 	 	 	4,598	 
	NON-CURRENT LIABILITIES:	 	 	 	 	 	 	 	 	 	 	 	 
	Employee benefit liabilities, net	 	 	-	 	 	 	118	 	 	 	218	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total liabilities	 	 	2,541	 	 	 	6,261	 	 	 	4,816	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	EQUITY:	 	 	 	 	 	 	 	 	 	 	 	 
	Share capital and premium	 	 	79,323	 	 	 	79,005	 	 	 	79,056	 
	Capital reserve	 	 	26,384	 	 	 	26,384	 	 	 	26,384	 
	Options	 	 	11,117	 	 	 	11,117	 	 	 	11,117	 
	Accumulated deficit	 	 	(95,379	)	 	 	(83,328	)	 	 	(85,603	)
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total equity	 	 	21,445	 	 	 	33,178	 	 	 	30,954	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total liabilities and equity	 	 	23,986	 	 	 	39,439	 	 	 	35,770	 




 


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


 


	November 25, 2013	 	 	 	 	 	 
	Date of approval of the

    financial statements	 	Mordechai Menashe 

Chairman of the Board	 	Sagi Ben Ishai 

Chief Executive Officer	 	Eran Mazor 

Director *)


 


		*)	The Company's Board at its meeting held on November 25,
2013, empowered this director to sign on these financial statements due to the fact that there is no senior financial officer
in the Company.



 




    	 	- 2 -	 



     


    

 


PROTEOLOGICS LTD.


CONDENSED
STATEMENTS OF OPERATIONS


 


	 	 	Nine months ended
 September 30,	 	 	Three months ended
 September 30,	 	 	Year ended
 December 31, 
	 
	 	 	2013	 	 	2012	 	 	2013	 	 	2012	 	 	2012	 
	 	 	Unaudited	 	 	Audited	 
	 	 	NIS in thousands (except per share data)	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Revenues from rendering of research and development services	 	 	3,638	 	 	 	10,649	 	 	 	-	 	 	 	4,153	 	 	 	13,436	 
	Cost of revenues from rendering of research and development services	 	 	(1,935	)	 	 	(8,671	)	 	 	-	 	 	 	(2,836	)	 	 	(10,716	)
	Research and development expenses, net	 	 	(5,963	)	 	 	(5,399	)	 	 	(1,834	)	 	 	(1,335	)	 	 	(6,946	)
	General and administrative expenses	 	 	(2,433	)	 	 	(4,447	)	 	 	(180	)	 	 	(1,480	)	 	 	(5,645	)
	Expenses relating to discontinued operation	 	 	(2,253	)	 	 	-	 	 	 	(2,253	)	 	 	-	 	 	 	-	 
	Capital gain	 	 	4	 	 	 	1	 	 	 	-	 	 	 	-	 	 	 	1	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Operating loss	 	 	(8,942	)	 	 	(7,867	)	 	 	(4,267	)	 	 	(1,498	)	 	 	(9,870	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Finance income	 	 	763	 	 	 	1,512	 	 	 	146	 	 	 	372	 	 	 	1,464	 
	Finance expenses	 	 	(1,241	)	 	 	(16	)	 	 	(371	)	 	 	(4	)	 	 	(429	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Finance income (expenses), net	 	 	(478	)	 	 	1,496	 	 	 	(225	)	 	 	368	 	 	 	1,035	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Loss before taxes on income	 	 	(9,420	)	 	 	(6,371	)	 	 	(4,492	)	 	 	(1,130	)	 	 	(8,835	)
	Taxes on income	 	 	(4	)	 	 	-	 	 	 	(4	)	 	 	-	 	 	 	-	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Comprehensive loss	 	 	(9,424	)	 	 	(6,371	)	 	 	(4,496	)	 	 	(1,130	)	 	 	(8,835	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Loss per share - basic and fully diluted (in NIS)	 	 	(0.63	)	 	 	(0.43	)	 	 	(0.30	)	 	 	(0.08	)	 	 	(0.60	)



 


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


 




    	 	- 3 -	 



     


    

  


PROTEOLOGICS LTD. 


CONDENSED
STATEMENTS OF CHANGES IN EQUITY


 


	 	 	Share 

capital 

and

 premium	 	 	Capital

reserve	 	 	Options	 	 	Accumulated

deficit	 	 	Total

equity	 
	 	 	NIS in thousands	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance at January 1, 2013 (audited)	 	 	79,056	 	 	 	26,384	 	 	 	11,117	 	 	 	(85,603	)	 	 	30,954	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Exercise of options	 	 	267	 	 	 	-	 	 	 	-	 	 	 	(35	)	 	 	232	 
	Comprehensive loss for the period	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(9,424	)	 	 	(9,424	)
	Cost of share-based payment	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(317	)	 	 	(317	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance at September 30, 2013 (unaudited)	 	 	79,323	 	 	 	26,384	 	 	 	11,117	 	 	 	(95,379	)	 	 	21,445	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance at January 1, 2012 (audited)	 	 	75,643	 	 	 	26,384	 	 	 	14,400	 	 	 	(77,841	)	 	 	38,586	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Expiration of options	 	 	3,283	 	 	 	-	 	 	 	(3,283	)	 	 	-	 	 	 	-	 
	Exercise of options	 	 	79	 	 	 	-	 	 	 	-	 	 	 	(10	)	 	 	69	 
	Comprehensive loss for the period	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(6,371	)	 	 	(6,371	)
	Cost of share-based payment	 	 	-	 	 	 	-	 	 	 	-	 	 	 	894	 	 	 	894	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance at September 30, 2012 (unaudited)	 	 	79,005	 	 	 	26,384	 	 	 	11,117	 	 	 	(83,328	)	 	 	33,178	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance at July 1, 2013 (unaudited)	 	 	79,259	 	 	 	26,384	 	 	 	11,117	 	 	 	(90,392	)	 	 	26,368	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Exercise of options	 	 	64	 	 	 	-	 	 	 	-	 	 	 	(8	)	 	 	56	 
	Comprehensive loss for the period	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(4,496	)	 	 	(4,496	)
	Cost of share-based payment	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(483	)	 	 	(483	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance at September 30, 2013 (unaudited)	 	 	79,323	 	 	 	26,384	 	 	 	11,117	 	 	 	(95,379	)	 	 	21,445	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance at July 1, 2012 (audited)	 	 	79,005	 	 	 	26,384	 	 	 	11,117	 	 	 	(82,438	)	 	 	34,068	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Comprehensive loss for the period	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(1,130	)	 	 	(1,130	)
	Cost of share-based payment	 	 	-	 	 	 	-	 	 	 	-	 	 	 	240	 	 	 	240	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance at September 30, 2012 (unaudited)	 	 	79,005	 	 	 	26,384	 	 	 	11,117	 	 	 	(83,328	)	 	 	33,178	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance at January 1, 2012 (audited)	 	 	75,643	 	 	 	26,384	 	 	 	14,400	 	 	 	(77,841	)	 	 	38,586	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Expiration of options	 	 	3,283	 	 	 	-	 	 	 	(3,283	)	 	 	-	 	 	 	-	 
	Exercise of options	 	 	130	 	 	 	-	 	 	 	-	 	 	 	(18	)	 	 	112	 
	Comprehensive loss for the period	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(8,835	)	 	 	(8,835	)
	Cost of share-based payment	 	 	-	 	 	 	-	 	 	 	-	 	 	 	1,091	 	 	 	1,091	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance at December 31, 2012 (audited)	 	 	79,056	 	 	 	26,384	 	 	 	11,117	 	 	 	(85,603	)	 	 	30,954	 



 


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


 




    	 	- 4 -	 



     


    

 


PROTEOLOGICS LTD.


CONDENSED
STATEMENTS OF CASH FLOWS


 


	 	 	Nine
months ended

September 30,
	 	 	Three
months ended

September 30,
	 	 	Year
ended

December 31, 
	 
	 	 	2013	 	 	2012	 	 	2013	 	 	2012	 	 	2012	 
	 	 	Unaudited	 	 	Audited	 
	 	 	NIS in thousands	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash flows from operating activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Comprehensive loss	 	 	(9,424	)	 	 	(6,371	)	 	 	(4,496	)	 	 	(1,130	)	 	 	(8,835	)
	Adjustments to reconcile comprehensive loss to net
    cash used in operating activities:	 	 	421	 	 	 	(5,419	)	 	 	1,815	 	 	 	(1,998	)	 	 	(5,458	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net cash used in operating activities	 	 	(9,003	)	 	 	(11,790	)	 	 	(2,681	)	 	 	(3,128	)	 	 	(14,293	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash flows from investing activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Purchase of property, plant and equipment	 	 	(36	)	 	 	(236	)	 	 	-	 	 	 	(17	)	 	 	(356	)
	Purchase of intangible assets	 	 	(13	)	 	 	(30	)	 	 	-	 	 	 	(17	)	 	 	(30	)
	Proceeds from sale of property, plant and equipment	 	 	23	 	 	 	3	 	 	 	-	 	 	 	-	 	 	 	3	 
	Proceeds from sale of financial assets at fair value through profit or loss, net	 	 	10,940	 	 	 	10,937	 	 	 	1,700	 	 	 	2,860	 	 	 	16,054	 
	Investment in deposits restricted as to use, net	 	 	(1	)	 	 	(4	)	 	 	(1	)	 	 	(1	)	 	 	(34	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net cash provided by investing activities	 	 	10,913	 	 	 	10,670	 	 	 	1,699	 	 	 	2,825	 	 	 	15,637	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash flows from financing activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Proceeds from exercise of options	 	 	232	 	 	 	69	 	 	 	56	 	 	 	-	 	 	 	112	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net cash provided by financing activities	 	 	232	 	 	 	69	 	 	 	56	 	 	 	-	 	 	 	112	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Increase (decrease) in cash and cash equivalents	 	 	2,142	 	 	 	(1,051	)	 	 	(926	)	 	 	(303	)	 	 	1,456	 
	Cash and cash equivalents at the beginning of the period	 	 	10,437	 	 	 	9,192	 	 	 	13,226	 	 	 	8,664	 	 	 	9,192	 
	Exchange differences on cash and cash equivalents	 	 	(530	)	 	 	194	 	 	 	(251	)	 	 	(26	)	 	 	(211	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash and cash equivalents at the end of the period	 	 	12,049	 	 	 	8,335	 	 	 	12,049	 	 	 	8,335	 	 	 	10,437	 



 


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


 




    	 	- 5 -	 



     


    

 


 


PROTEOLOGICS LTD.


CONDENSED
STATEMENTS OF CASH FLOWS


 





	 	 	 	 	Nine months ended
 September 30,	 	 	Three months ended
 September 30,	 	 	Year ended
 December 31,	 
	 	 	 	 	2013	 	 	2012	 	 	2013	 	 	2012	 	 	2012	 
	 	 	 	 	Unaudited	 	 	Audited	 
	 	 	 	 	NIS in thousands	 
	(a)	 	Adjustments to reconcile comprehensive
    loss to net cash used in operating activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Income and expenses not involving cash flows:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Loss (gain) from fair value change in financial assets at fair value through profit or loss	 	 	660	 	 	 	(351	)	 	 	53	 	 	 	(277	)	 	 	(245	)
	 	 	Depreciation and amortization	 	 	1,532	 	 	 	619	 	 	 	1,202	 	 	 	179	 	 	 	794	 
	 	 	Employee benefit liabilities, net	 	 	(218	)	 	 	38	 	 	 	(248	)	 	 	7	 	 	 	138	 
	 	 	Decrease (increase) in accounts receivable	 	 	293	 	 	 	(21	)	 	 	368	 	 	 	(144	)	 	 	383	 
	 	 	Exchange differences on cash and cash equivalents	 	 	530	 	 	 	(194	)	 	 	251	 	 	 	26	 	 	 	211	 
	 	 	Capital gain from property, plant and equipment, net	 	 	(4	)	 	 	(1	)	 	 	-	 	 	 	-	 	 	 	(1	)
	 	 	Cost of share-based payment	 	 	(317	)	 	 	894	 	 	 	(483	)	 	 	240	 	 	 	1,091	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	2,476	 	 	 	984	 	 	 	1,143	 	 	 	31	 	 	 	2,371	 
	 	 	Changes in operating asset and liability items:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Liability for Company's discontinued operation	 	 	1,235	 	 	 	-	 	 	 	1,235	 	 	 	-	 	 	 	-	 
	 	 	Decrease in trade payables	 	 	(360	)	 	 	(565	)	 	 	(208	)	 	 	(855	)	 	 	(567	)
	 	 	Decrease in other accounts payable	 	 	(862	)	 	 	(254	)	 	 	(355	)	 	 	(475	)	 	 	(555	)
	 	 	Decrease in deferred revenues	 	 	(2,068	)	 	 	(5,584	)	 	 	-	 	 	 	(699	)	 	 	(6,707	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	(2,055	)	 	 	(6,403	)	 	 	672	 	 	 	(2,029	)	 	 	(7,829	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	421	 	 	 	(5,419	)	 	 	1,815	 	 	 	(1,998	)	 	 	(5,458	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(b)	 	Information on investing and financing activities not involving cash flows:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Purchase of property, plant and equipment on credit	 	 	-	 	 	 	119	 	 	 	-	 	 	 	119	 	 	 	-	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(c)	 	Cash paid and received during the period for:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Taxes paid	 	 	3	 	 	 	4	 	 	 	-	 	 	 	1	 	 	 	21	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Interest received	 	 	759	 	 	 	1,120	 	 	 	146	 	 	 	217	 	 	 	1,305	 





 


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


 




    	 	- 6 -	 



     


    

 


 


PROTEOLOGICS LTD.


NOTES
TO CONDENSED FINANCIAL STATEMENTS


 


		NOTE 1:-	GENERAL



 


		a.	These financial statements have been prepared in a condensed format as of September 30, 2013 and
for the nine and three months periods then ended. These financial statements should be read in conjunction with the Company's annual
financial statements as of December 31, 2012 and for the year then ended and accompanying notes.



 


		b.	On August 21, 2013, the Company's Board directed the Company's management, among others (a)
to act to locate potential buyers for the Company's activity in the Ubiquitin field which then was the Company's main area of activity;
(b) to form immediately an action plan to the Company which derives from the accepted decision. It was further decided to empower
the Board's sub-committee to examine as soon as possible and to bring before the Board its recommendations regarding alternative
businesses for the Company.



 


The above decisions were accepted,
among others, because the products that the Company develops in the Ubiquitin field are in early development stages and the Board
anticipates that the financing sources that are currently available for the Company are no longer sufficient to bring these products
to a significant milestone.


 


		c.	On September 20, 2013, the control over the Company was transferred from a former significant shareholder,
XTL Biopharmaceuticals Ltd., to ZMIHA Investment House Ltd., a public company whose shares are traded on the TASE while all Company's
directors, except outside directors, resigned and other directors were nominated in their place. On October 31, 2013, Mr. Sagi
Ben Ishai was nominated as the Company's CEO (replacing Mr. Joshua Josh Levine who also resigned on September 20, 2013) and on
November 3, Mr. Eliyahu Yoresh was appointed as the Company's chairman of the Board.



 


In furtherance to the above
decision from August 21, 2013, the Company's Board and management accepted at their meetings held during the third quarter
of 2013, decisions the key elements of which are as followed: (a) to discontinue the Company's activity, including the main activity
in the Ubiquitin field; (b) to act to conclude the existing engagements of the Company in connection with its activity, including
termination of all contracts and commitments relating to the Ubiquitin activity; (c) to act to release from the lease agreement
for the Company's offices in Rehovot, among others, through early termination, assignment or lease to a sub-lessee; (d) to dismiss
all of the Company's employees; (e) to continue the search attempts for potential buyers to the IP and the property, plant and
equipment used by the Company's activity; (f) to convene the Board as soon as possible to discuss ways to continue the Company.


 


As a result of the above, during
the nine and three months periods ended September 30, 2013, the Company recorded expenses relating to discontinued operation
of approximately NIS 2,253 thousand (of which an amount of NIS 1,046 thousand in respect of depreciation of property,
plant and equipment).


 




    	 	- 7 -	 



     


    

 


 


PROTEOLOGICS LTD.


NOTES
TO CONDENSED FINANCIAL STATEMENTS


 


		NOTE 1:-	GENERAL (Cont.)



 


		d.	As of the date of the issuance of this report, the Company dismissed all of its employees (except
pregnant or postnatal employees in respect of whom the Company addressed the officer in charge of women employment to receive a
permit to dismiss them).



 


		e.	As of the date of the approval of the financial statements, the Company has no significant business
activity, except holding of securities. As a result, since October 1, 2013, the Company is a "public shell" without
significant business activity.



 


Since its inception, the Company
was engaged in the research and development of therapeutics through knowhow and expertise it possessed in the Ubiquitin system.


 


		f.	On November 11, 2013, the Company filed with the Tel-Aviv District Court an application for
a creditors' arrangement under section 350 to the Companies Law, 1999 whose purpose is to cause that all of the Company's debts
in respect of the discontinued operation will be paid to its creditors and it will be discharged from all its liabilities, including
contingent liabilities whose cause as of the date of the approval of the creditors' arrangement.



 


		NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES



 


		a.	Preparation format of the interim financial statements:



 


The interim financial statements
have been prepared in accordance with generally accepted accounting principles for the preparation of financial statements for
interim periods, as prescribed in IAS 34, "Interim Financial Reporting" and in accordance with the disclosure requirements
of Chapter D of the Securities Regulations (Periodic and Immediate Reports), 1970


 


		b.	New standards, interpretations and amendments applied for the first time by the company:



 


The significant accounting
policies and methods of computation adopted in the preparation of the interim financial statements are consistent with those adopted
in the preparation of the annual financial statements, except as noted below.


 


Non-current asset or group
of assets held for sale:


 


Non-current asset or group
of assets is classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather
than through continuing use. For this to be the case, the assets must be available for immediate sale in their present condition,
the Company must be committed to sell, there must be a program to locate a buyer and it is highly probable that a sale will be
completed within one year from the date of classification. From the date of such initial classification, these assets are no longer
depreciated and are presented separately as current assets at the lower of their carrying amount and fair value less costs to sell.


 




    	 	- 8 -	 



     


    

 


 


PROTEOLOGICS LTD.


NOTES
TO CONDENSED FINANCIAL STATEMENTS


 


		NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES (Cont.)



 


IAS 19 (Revised 2011), "Employee
Benefits": ("IAS 19(R)")


 


In June 2011, the IASB issued
IAS 19 (Revised) which is to be applied commencing January 1, 2013. The key amendments address the accounting treatment of defined
benefit plans. The first-time application of IAS 19(R) did not have a material effect on the Company's financial statements.


 


IFRS 13, "Fair Value
Measurement":


 


IFRS 13 establishes guidance
for the measurement of fair value, to the extent that such measurement is required according to IFRS. IFRS 13 defines fair value
as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. Fair value takes into account the market participant's ability to generate economic benefits by using
the asset in its highest and best use. Fair value measurement is based on the assumption that the transaction will take place in
the asset's or the liability's principal market, or in the absence of a principal market, in the most advantageous market. The
provisions of IFRS 13 are applied prospectively as from January 1, 2013 and they do not apply to comparative figures.


 


The first-time
application of IFRS 13 did not have a material effect on the Company's financial statements. 


 


		NOTE 3:-	ADDITIONAL SIGNIFICANT EVENTS DURING THE REPORTING PERIOD



 


		a.	Addressing the Chief Scientist in connection with the agreement between the Company and GlaxoSmithKline
LLC:



 


The Company and the Chief Scientist
at the Ministry of Industry and Trade ("the Scientist") had a dialogue with the purpose of putting an end to a dispute
regarding the Scientist demand to receive royalties from all Company's revenues, including from revenues whose source is the collaboration
with GSK. For the meantime, the parties halted, with no time frame, mutual procedures in order to allow the clarification of the
dispute in the right spirit.


 


The Company's maximal exposure
varies between 3% and 4% (by periods) of total Company's revenues from GSK ranges between NIS 947 thousand and NIS 1,262
thousand in respect of the Company's revenues from GSK agreement.


 


Currently, the Company can
not assess the potential effects of the above on the Company. Accordingly, no provision was recorded in the Company's financial
statements.


 




    	 	- 9 -	 



     


    

 


PROTEOLOGICS LTD.


NOTES
TO CONDENSED FINANCIAL STATEMENTS


 


		NOTE 3:-	ADDITIONAL SIGNIFICANT EVENTS DURING THE REPORTING PERIOD
(Cont.)



 


		b.	During the nine months period ended September 30, 2013, 266,679 options were exercised into
266,679 shares for a cumulative amount of NIS 232 thousand.



 


		c.	On July 30, 2013, the Israeli Parliament (the Knesset) approved the second and third readings of
the Economic Plan for 2013-2014 ("the Budget Law") which consists, among others, of fiscal changes whose main aim is
to enhance the collection of taxes in those years.



 


These changes include, among
others, raising the Israeli corporate tax rate from 25% to 26.5% and taxing revaluation gains effective from January 1, 2014.


 


These changes had no effect
on the Company's financial statements.


 


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