FORM 20-F

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

           [_] 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

             [_] TRANSITION REPORT PURSUANT TO SECTION 12(b) OR (g)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
           for the transition period from ____________ to ____________

                           Commission File No. 0-17788

                          HEALTHCARE TECHNOLOGIES LTD.
              (Exact name of registrant as specified in its charter
               and translation of Registrant's Name into English)

                                     ISRAEL
                 (Jurisdiction of incorporation or organization)

                         BEIT AMARGAD, 32 SHAHAM STREET,
                   KIRYAT MATALON, PETACH TIKVA, ISRAEL, 49170
                    (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 0.04 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: As of December 31, 2005, the registrant had outstanding 7,702,832
Ordinary Shares, NIS 0.04 nominal value per share.

      Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes [_] No [x]

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

      Note -- checking the box above will not relieve any registrant required to
file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 from their obligations under those sections.

      Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [_]

      Indicate by check mark 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 [_] Accelerated filer [_] Non-accelerated filer [x]

      Indicate by check mark which financial statement item the registrant has
elected to follow: Item 17 [_] 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 [_] No
[x]

            In addition to historical information, this Annual Report on Form
20-F contains forward-looking statements. The forward-looking statements
contained herein are subject to certain risks and uncertainties that could cause
actual results to differ materially from those reflected in the forward-looking
statements. Factors that might cause such difference include, but are not
limited to, those discussed in Item 3. "Key Information - D. Risk Factors" and
Item 5. "Operating and Financial Review and Prospects." Readers are cautioned
not to place undue reliance on these forward-looking statements, which reflect
management's analysis as of the date hereof. The Company undertakes no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances that arise after the date hereof. In addition to the disclosure
contained herein, readers should carefully review any disclosure of risks and
uncertainties contained in other documents that the Company files from time to
time with the Securities and Exchange Commission.

<PAGE>

                                TABLE OF CONTENTS

                                                                           PAGE

INTRODUCTION ...........................................................      2

PART I .................................................................      5

      Item 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS ...      5

      Item 2.  OFFER STATISTICS AND EXPECTED TIMETABLE .................      5

      Item 3.  KEY INFORMATION .........................................      5

               A.    Selected Financial Data ...........................      5
               B.    Capitalization and Indebtedness ...................      6
               C.    Reason for the Offer and Use of Proceeds ..........      6
               D.    Risk Factors ......................................      6

      Item 4.  INFORMATION ON THE COMPANY ..............................     16

               A.    History and Development of the Company ............     16
               B.    Business Overview .................................     19
               C.    Organizational Structure ..........................     31
               D.    Property, Plant and Equipment .....................     32

      Item 5.  Operating and Financial Review and Prospects ............     32

               A.    Results of Operations .............................     32
               B.    Impact of Inflation and Devaluation ...............     35
               C.    Liquidity and Capital Resources ...................     36
               D.    Research and Development, Patents and Licenses,
                         Etc ...........................................     36
               E.    Trend Information .................................     37
               F.    Off-Balance Sheet Arrangements ....................     38
               G.    Tabular Disclosure of Contractual Obligations .....     38

      Item 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES ..............     39

               A.    Directors and Senior Management ...................     39
               B.    Compensation ......................................     41
               C.    Board Practices ...................................     42
               D.    Employees .........................................     44
               E.    Share Ownership ...................................     45

      Item 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS .......     46

               A.    Major Shareholders ................................     46
               B.    Related Party and Inter-Company Transactions ......     46
               C.    Interests of Experts and Counsel ..................     48

      Item 8.  FINANCIAL INFORMATION ...................................     49

               A.    Consolidated Statements and other Financial
                        Information ....................................     49
               B.    Significant Changes ...............................     49

<PAGE>

      Item 9.  THE OFFER AND LISTING ...................................     49

               A.    Offer and Listing Details .........................     49

      Item 10. ADDITIONAL INFORMATION ..................................     50

               A.    Share Capital .....................................     50
               B.    Memorandum and Articles of Association ............     50
               C.    Material Contracts ................................     55
               D.    Exchange Controls .................................     57
               E.    Taxation ..........................................     57
               F.    Dividends and Paying Agent ........................     58
               G.    Statements by Experts .............................     58
               H.    Documents on Display ..............................     58
               I.    Subsidiary Information ............................     59

      Item 11. Quantitative and Qualitative Disclosure About Market
                  Risk .................................................     59

      Item 12. Description of Securities other than Equity Securities ..     59

PART II ................................................................     60

      Item 13. Defaults, Dividends, Arrearages and Delinquencies .......     60

      Item 14. Material Modifications to the Rights of Security holders
                  and Use of Proceeds ..................................     60

      Item 15. Controls and Procedures .................................     60

      Item 16. [Reserved] ..............................................     60

               A.    Audit Committee Financial Expert ..................     60
               B.    Code of Ethics ....................................     60
               C.    Principal Accountant Fees and Services ............     60
               D.    Exemption from listing standards for Audit
                        Committee ......................................     61
               E.    Purchases of Equity Securities by the issuer and
                        affiliated purchasers ..........................     61

PART III ...............................................................     61

      Item 17. FINANCIAL STATEMENTS ....................................     61

      Item 18. FINANCIAL STATEMENTS ....................................     61

      Item 19. FINANCIAL STATEMENTS AND EXHIBITS .......................     61

SIGNATURES .............................................................    114

<PAGE>

                                  INTRODUCTION

      This Annual Report on Form 20-F (the "Annual Report" or "Report") is being
filed by Healthcare Technologies Ltd., an Israeli corporation ("Healthcare" the
"Company" "we" or "us").

      The Company specializes in the development, manufacture and marketing of
clinical diagnostic test kits and provides services and tools to diagnostic and
biotech research professionals in laboratory and point of care sites in Israel
and worldwide. The Company is also engaged in the production and marketing of
molecular biology based gene screening tools for the detection of certain
gene-associated disorders in humans.

      The Company's principal stockholder is Gamida for Life B.V. ("Gamida"),
which owned approximately 64% of the Company's issued and outstanding shares as
of the date of this report.

      The Company operates as a holding company with three main active direct
subsidiaries (and two additional affiliates), which together comprise the
Healthcare group of companies. Unless the context indicates otherwise, the term
"Company" as used herein refers to Healthcare, its subsidiaries and Savyon
Diagnostics Ltd. (its affiliate).

The Company's consolidated financial statements appearing in this annual report
are prepared in U.S. dollars and in accordance with Generally Accepted
Accounting Principles in the United States, or US GAAP.

All references in this Annual Report to "dollars" or "$" are to U.S. dollars and
all references in this Annual Report to "NIS" are to New Israeli Shekels. The
representative exchange rate between the NIS and the dollar as published by the
Bank of Israel on December 31, 2005 was NIS 4.603 per $1.00.

Statements made in this Annual Report concerning the contents of any contract,
agreement or other document are summaries of such contracts, agreements or
documents and are not complete descriptions of all of their terms. If we filed
any of these documents as an exhibit to this annual report or to any
registration statement or annual report that we previously filed, you may read
the document itself for a complete description of its terms

                                      - 2 -

<PAGE>

      The following is a schematic presentation of the Company and its
subsidiaries and affiliates (as of June 28, 2006):

                                -----------------
                                   Healthcare
                                Technologies Ltd.
                                    (Israel)
                                 ("Healthcare")
                                -----------------
                                        |
                                        |
                                        |
              --------------------------------------------------------
              |                         |                            |
      100%    |                 80%     |                    50%     |
              |                         |                            |
        -------------           ----------------             ----------------
           Gamidor               Danyel Biotech                   Savyon
         Diagnostics                  Ltd.                   Diagnostics Ltd.
          (1984)Ltd.                (Israel)                     (Israel)
           (Israel)                ("Danyel")                   ("Savyon")
         ("Gamidor")
        -------------           ----------------             ----------------
           |    |
      100% |    |   26.6%
           |    |
-------------  ------------
 Gamida Gen
     Ltd.      Afferix Ltd.
   (Israel)
("GamidaGen")
-------------  ------------

      The Company's business activities are organized into three main functional
groups: research and development, manufacturing and worldwide marketing of
diagnostic tools; marketing and distribution of products and services to
biotechnology researchers in Israel; and marketing and distribution of products
and services to clinical diagnostic laboratories in Israel. The Company's
research, development and manufacturing activities are conducted primarily by
Savyon, a leader in the serological diagnosis of chlamydial infections.

      The Company's marketing and sales activities in Israel are conducted by
Danyel in the field of biotech research, and by the Gamidor Group (as defined
below) in the fields of clinical diagnostic laboratories and laboratories in
general. The Company's sales and marketing activities worldwide (other than in
Israel) are conducted by Savyon.

      Danyel conducts the Company's marketing and sales activities to
biotechnology researchers in Israel in the genomics field and also in the fields
of proteomics and proteins separation, where sequencing, microarray and other
technologies are employed. Danyel also imports and distributes a range of
specialized instruments, reagents and radioactively labeled compounds for
academic and biomedical research laboratories as well as consumable products in
the fields of cell culture, molecular biology and immunology, including
analytical and laboratory systems such as spectrophotometers and fluorometers
designed to read the results of specific types of tests and electrophoresis
equipment used to separate materials according to their movement in
electromagnetic fields.

      The Gamidor Group consists of Gamidor and its wholly owned subsidiary
Gamida-Gen. The Gamidor Group conducts the Company's marketing and sales
activities with respect to genetic diagnostic kits, systems, reagents and
services for clinical diagnostic laboratories throughout Israel and also
provides doctors' offices with near-patient testing systems.

                                      - 3 -

<PAGE>

      Savyon has developed and manufactured immunoassays for the diagnosis of
infectious diseases, especially sophisticated microplate-based enzyme
immunoassays. An immunoassay is an analytical test that uses antibodies to
detect the presence of a target compound in a sample matrix such as blood, urine
or saliva. A serological test utilizes blood as the sample matrix. Antibodies
are proteins made by cells within the body as part of the immune response to
invasion by antigens, which are foreign substances like bacteria and viruses
such as chlamydia. An antibody physically binds only to the substance that
elicited its production. This characteristic of specific binding makes
antibodies useful tools for detecting substances in sample matrices. The
Company's microplate-based enzyme immunoassays are automated tests that utilize
enzyme-based color changes to demonstrate the presence of the target antigen in
the sample.

      Savyon focuses on specific segments of the clinical diagnostic markets and
is positioned to identify ideas and turn them into marketable products. Savyon
provides in vitro diagnostic kits and related products to laboratory
professionals and other point of care locations in Israel and worldwide. An in
vitro diagnostic kit is a test that is performed outside of the subject's body
on a test sample from the subject such as blood. In addition, Savyon markets
kits for the diagnosis of certain infectious diseases in the over-the-counter
market in the United States. As a product developer, Savyon holds proprietary
rights to certain products in the in vitro diagnostics healthcare field.

      In 2003 a new line of products was established aimed at the over the
counter market. This line includes a product for the detection of vaginal yeast
antigens, based on lateral flow immuno-chromatography technology. In 2004 two
product lines, pregnancy tests and ovulation kits, both based on the above
technology, were transferred to the Company's production facility.

      The Company is also engaged in the production and marketing in Israel,
through Savyon and the Gamidor Group, respectively, of molecular biology based
gene screening tools for the detection of certain gene-associated disorders in
humans using Pronto(TM), a molecular biology based technology for genetic
screening and testing of certain human genetic disorders, including prenatal
testing for diseases such as cystic fibrosis, gaucher and other diseases that
are prevalent in the Jewish population, and testing for predisposition to
diseases such as breast, ovarian and colon cancer, thrombosis and certain
cardiovascular diseases. In 2003, the Company granted an exclusive license to
exploit the Pronto product range outside of Israel to a company formed by a
former officer of the Company.

                                      - 4 -

<PAGE>

                                     PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

      Not Applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

      Not Applicable

ITEM 3. KEY INFORMATION

            A.    SELECTED FINANCIAL DATA

      The following selected consolidated financial data of the Company have
been prepared in accordance with US GAAP, and are derived from the Company's
audited consolidated financial statements and accompanying notes. The selected
financial data set forth below should be read in conjunction with and are
qualified by reference to "Item 5. Operating and Financial Review and
Prospects", and the Consolidated Financial Statements included elsewhere in this
Annual Report.

      INCOME STATEMENT DATA:

      CONSOLIDATED STATEMENT OF OPERATIONS

      (in thousands of U.S. Dollars except per share data)

<TABLE>
<CAPTION>
                                                            2005      2004      2003      2002      2001
                                                           ------    ------    ------    ------    ------
<S>                                                        <C>       <C>       <C>       <C>       <C>
Sales                                                      12,053    12,130    12,412    16,676    16,013

Gross Profit                                                4,369     4,205     4,023     5,432     5,171

Operating income ( Loss)                                      161      (555)     (474)   (1,156)   (5,673)

Net income ( Loss) for year                                   276      (359)     (500)   (1,827)   (6,046)
                                                           ===============================================

Basic and diluted earnings (loss) per share                  0.04     (0.05)    (0.07)    (0.24)    (1.01)

Shares used in computing basic and diluted
   earnings (loss) per share.                               7,703     7,667     7,644     7,644     5,977
</TABLE>

CONSOLIDATED BALANCE SHEET DATA:
      (in thousands of U.S. Dollars)

                                                            2005      2004
                                                           ------    ------

Working capital                                             2,223     2,832

Total assets                                               12,374    11,988

Short-term credit including current maturities                940       925

Long-term liabilities, not including current maturities       174       142

Shareholders' equity *                                      6,791     1,902

Following the closing of the Procognia transaction on May 29th 2005,
shareholder's equity increased by $4.8 million. [See Item 4A "History and
Development of the Company - The Procognia Investment.".]

                                      - 5 -

<PAGE>

            B.    CAPITALIZATION AND INDEBTEDNESS

                  Not Applicable.

            C.    REASON FOR THE OFFER AND USE OF PROCEEDS

                  Not Applicable.

            D.    RISK FACTORS

      An investment in the Company's securities involves a high degree of risk.
Prospective investors should carefully consider the risks and uncertainties
described below and the other information in this report before deciding whether
to invest in the Company's ordinary shares. Additional risks and uncertainties
not presently known to the Company or that the Company currently deems
immaterial may also impair the Company's business operations. If any of the
following risks actually occur, the Company's business, financial condition and
operating results could be materially adversely affected. In such case, the
trading price of the Company's ordinary shares could decline and investors may
lose part or all of their investments.

                     RISKS RELATED TO THE COMPANY'S BUSINESS

      THE COMPANY SUSTAINED NET LOSSES IN THE PAST, HAS AN ACCUMULATED DEFICIT
      AND MAY NOT GENERATE PROFITS IN THE FUTURE.

            While the company ended 2005 with a net income of $ 276 thousand,
      for the two fiscal years ended December 31, 2004, and 2003 the Company had
      net losses of approximately $0.36 and $0.5 million, respectively. Such
      losses resulted principally from:

      -     Expenses associated with the ImmvaRx transaction of $104 thousand in
            the year 2004.

      -     Impairment of the investment in Afferix of $100 thousand and $111
            thousand in the years 2004 and 2003.

      and amortization of technology of approximately $749 thousand in 2003.

      The Company may incur significant losses in the future as it continues its
research and development efforts mainly by Savyon, expands its marketing, sales
and distribution activities, develops strategies for competing with other
manufacturers, and scales up its research and development and manufacturing
capabilities. There can be no assurance that the Company will be able to
generate profits in the future. As of December 31, 2005, the Company's
accumulated deficit was approximately $21 million.

      IF THE COMPANY CANNOT MAINTAIN ADEQUATE OPERATING CAPITAL, ITS BUSINESS
      WILL SUFFER.

      On December 31, 2005, the Company had a working capital of $2.2 million,
including cash in the amount of $0.7 million. The Company anticipates that these
funds, together with funds from operations will be sufficient to meet its
anticipated cash requirements for 2006. For the fiscal year 2005, net cash
provided by operating activities amounted to $644 thousand. Although the Company
currently believes that it will generate a positive cash flow from operations in
fiscal 2006, it is possible that it will not succeed in doing so.

      On a longer term basis, the Company's operations may not provide
sufficient internally generated cash flows to meet its projected requirements.
The Company's ability to continue to finance its operations, including the
research, development and introduction of new products and technologies, will
depend on its ability to achieve profitability by improving sales and margins,
its ability to reduce cash outflows and, if necessary, its ability to obtain
other sources of funding sufficient to support its operations. There can be no
assurance that such funding will be available on satisfactory terms or at all.

      The Company has not yet explored whether any additional sources of capital
will be available. To the extent, if any, that the Company is able to obtain
equity capital from other sources, the issuance of more ordinary shares may
dilute the economic interests and will dilute the voting interests of current
shareholders. To the extent, if any, that the Company is able to obtain debt
financing, the terms of such financing may be expensive and may subject it to
covenants that materially restrict it.

                                      - 6 -

<PAGE>

      THE SUCCESS OF COMPETITIVE PRODUCTS COULD HAVE AN ADVERSE EFFECT ON THE
      COMPANY'S BUSINESS.

      The medical products industry, including the medical diagnostic testing
industry, is rapidly evolving and intensely competitive and the Company's
customers have a wide variety of products and technologies from which to choose.

      Danyel Biotech's principal competitors in the distribution of reagents and
systems to the biotechnology market in Israel include: Biorad Israel, Eldan
(Agilent), Medtechnica (Waters) in the field of chromatography; Pharmatec
(Tecan) and Saifan (PE Life Science) in the field of advanced laboratory
instrumentation (fluorometers, counters); DeGroot (Greiner), Geter (Corning) in
the field of bio-plastics; and Saifan (PE Life Sciences -NEN-), Biological
Industries (Promega), Dinco Renihum (Invitrogen) and Sigma Israel in the field
of molecular biology and Biology Reagents. Although the Company is not aware of
any published industry market share statistics, it estimates, based upon its
knowledge of the industry, that in fiscal 2005 Danyel accounted for a
significant portion of the Israeli distribution market for chromatography
products, bio-plastics and advanced laboratory instrumentation and a lesser
portion of the Israeli market for Danyel's other products.

      The Gamidor Group's principal competitors in the distribution of reagents
and systems to clinical laboratories in Israel include: Ilex (Abbott) and Dover
(J&J) for hematology products; Dyn Diagnostics (Roche) and Sorin for immunology
products; Ilex (Vitek) and Pharmtop (Sorin) for microbiology products; Travenol
(Nequas) for quality control products; and Dyn Diagnostics (Roche) and
Medtechnica (Olympus) for clinical chemistry products. Although the Company is
not aware of any published industry market share statistics, it estimates, based
upon its knowledge of the industry, that in fiscal 2005 the Gamidor Group
accounted for a significant portion of the Israeli pathology, genetics,
hemostasis products market and a lesser portion of the Israeli market for the
Group's other products.

      Savyon's serology test kits for chlamydia compete with serology tests
produced by companies such as Hitachi (Japan), Medac (Germany), Orgenics
(Israel), MRL (USA) and LabSystems (Finland). Savyon's SeroMP (microplasma
pneumoniae) products compete in the field of serology testing with products
produced by companies such as Fujirebio in Japan. The Company believes that
Savyon is a leader in the serological diagnosis of chlamydial infections. This
belief is based on a study conducted by Froste & Salive, which indicated that
Savyon supplied approximately 30% of the worldwide market for serology based
chlamydia diagnostic kits in 1999. The belief is further based on the fact that
the Company's sales in the worldwide serology based chlamydia market since 1999
have remained stable at approximately $3.2 million, $3.1 million and $2.6
million in 2005, 2004 and 2003 respectively and, to the best of Savyon's
knowledge from both current sales figures and a network of over 60 worldwide
distributors, the worldwide serology based chlamydia market has not undergone
any material changes since 1999, thereby leaving Savyon's market share
relatively unchanged. Savyon's remaining kits represent a much smaller portion
of the overall market for such products.

      The success of any competing alternative products to those the Company
provides could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company believes that its
competitors include companies that have substantially greater financial
capabilities for product development and marketing than it does and can
therefore market their products or procedures to the medical community in a more
effective manner. There is also a risk that the Company's competitors may
succeed in developing safer or more effective products that could render its
products obsolete or noncompetitive.

      THE COMPANY'S PATENTS MAY NOT PROTECT ITS PRODUCTS FROM COMPETITION

      In the genetic field, the Company has seven granted patents that it
utilizes in producing its products. The patents are registered for methods of
single nucleotide primer extension and kits therefor, of quick screening and
identification of specific DNA sequences by single nucleotide primer extension
and kits therefor, and of characterizing GC-rich nucleic acid sequences. These
methods relate to the Company's Pronto(TM) genetic test products line. Three of
the granted patents are registered in Israel, three are registered in the United
States and one is registered in Europe (national phase). All of them expire
during 2012 to 2014.

      In the serologic field, during 2004 the Company received a U.S. patent
regarding chlamydia in addition to the patent granted in Israel during 2001 and
several pending patents applications registered in Europe These patents are used
in the production of the Company's Sero CT diagnostic test kit products. In both
the genetic field and the serologic field, the Company has certain other granted
patents and applications for patents that are not utilized by it for its
products, will probably not be used in the future and, therefore, will not be
renewed.

                                      - 7 -

<PAGE>

      Although several patents have been issued to the Company, there can be no
assurance that any additional patents will be issued to the Company, or that any
patents that are issued to it will provide it with meaningful patent protection.
In addition, there can be no assurance that others will not successfully
challenge the validity or enforceability of any patent issued to the Company.
The costs required to uphold the validity and prevent infringement of any patent
issued to the Company could be substantial, and it might not have the resources
available to defend its patent rights.

      The risks and uncertainties that the Company faces with respect to its
patents and other proprietary rights include the following:

      -     The pending patent applications that the Company has filed or to
            which it has exclusive rights may not result in issued patents or
            may take longer than it expects to result in issued patents;

      -     The claims of any patents which are issued may be more limited than
            those in the Company's patent applications as filed and may not
            provide meaningful protection;

      -     The Company may not be able to develop additional proprietary
            technologies that are patentable;

      -     The patents licensed or issued to the Company may not provide a
            competitive advantage;

      -     Other companies may challenge patents licensed or issued to the
            Company;

      -     Patents issued to other companies may substantially impair the
            Company's ability to conduct its business;

      -     Other companies may independently develop similar or alternative
            technologies or duplicate the Company's technologies;

      -     Other companies may design around technologies the Company has
            licensed or developed; and

      -     certain countries such as the People's Republic of China, in which
            the Company may seek to sell its patented products in the future,
            may not protect its patent rights to the same extent as the United
            States, Europe and Israel.

      THE VALUE OF THE COMPANY'S PROPRIETARY TECHNOLOGY AND KNOW-HOW MAY DEPEND
      ON ITS ABILITY TO PROTECT TRADE SECRETS.

      The Company relies on trade secret protection for its confidential and
proprietary technology and know-how. The Company currently protects such
technology and know-how as trade secrets. The Company protects its trade secrets
through recognized practices, including access control, confidentiality
agreements with employees, consultants, collaborators and customers, and other
security measures. These confidentiality agreements may be breached, however,
and the Company may not have adequate remedies for any such breach. In addition,
the Company's trade secrets may otherwise become known to or be independently
developed by competitors.

      THE COMPANY MAY INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES
      AND MAY BECOME INVOLVED IN EXPENSIVE INTELLECTUAL PROPERTY LITIGATION.

      The intellectual property rights of diagnostic and biotechnology
companies, including the Company, are generally uncertain and involve complex
legal, scientific and factual questions. The Company's success in these fields
may depend, in part, on its ability to operate without infringing on the
intellectual property rights of others and to prevent others from infringing on
the Company's intellectual property rights.

      Although the Company is not currently involved in any litigation related
to its patents or intellectual property, the Company may become party to patent
litigation or proceedings at the U.S. Patent and Trademark Office or a foreign
patent office to determine the Company's patent rights with respect to third
parties. Interference proceedings in the U.S. Patent and Trademark Office or
opposition proceedings in a foreign patent office may be necessary to establish
which party was the first to discover such intellectual property. The Company
may become involved in patent litigation against third parties to enforce the
Company's patent rights, to invalidate patents held by such third parties, or to
defend against such claims. The cost to the Company of any patent litigation or
similar proceeding could be substantial, and it may absorb significant
management time. If infringement litigation against the Company is resolved
unfavorably to the Company, it may be enjoined from manufacturing or selling
certain of its products or services without a license from a third party. The
Company may not be able to obtain such a license on commercially acceptable
terms, or at all.

                                      - 8 -

<PAGE>

      IF A PRODUCT THE COMPANY SELLS RESULTS IN INJURY TO A USER, THE COMPANY
      COULD BE SUBJECT TO PRODUCT LIABILITY EXPOSURE.

      The Company sells diagnostic products, which may involve product liability
risk. While the Company carries product liability insurance, there can be no
certainty that its coverage will be adequate to protect the Company against
future liability claims. In addition, product liability insurance is expensive
and there can be no certainty that this insurance will be available to the
Company in the future on terms satisfactory to it, if at all. A successful
product liability claim or series of claims brought against the Company in
excess of its insurance coverage could have a material adverse effect on its
business, financial condition and results of operations. The Company maintains
product liability coverage in the maximum amount of $1 million per case for
products not manufactured by the Company and $2 million per case for all
products manufactured in house up to an aggregate sum of $4 million per annum.

      IF THE COMPANY DOES NOT RECEIVE CERTAIN REGULATORY APPROVALS, IT WILL NOT
      BE PERMITTED TO SELL ITS PRODUCTS.

      Certain of the products that the Company develops cannot be sold until the
U.S. Federal Drug Administration ("FDA") and corresponding regulatory
authorities of other jurisdictions approve the products for medical use. This
means that:

      -     the Company will incur the expense and delay inherent in seeking FDA
            approval of new products;

      -     a product that is approved may be subject to restrictions on use;

      -     the FDA can recall or withdraw approval of a product if problems
            arise; and

      -     the Company will face similar regulatory issues in other countries,
            including countries of the European Union.

      Currently, the Company does not have any pending applications for
approvals by the FDA.

      THE PRICE AND SALES OF THE COMPANY'S PRODUCTS MAY BE LIMITED BY HEALTH
      INSURANCE COVERAGE AND GOVERNMENT REGULATION.

      The Company's success in selling its products may depend in part on the
extent to which health insurance companies, health maintenance organizations and
government health administration authorities, such as Medicare and Medicaid,
will reimburse end users for the cost of the products the Company provides. For
example, in Israel, in which the Company makes most of its sales, the
reimbursement rates of third party health care reimbursement organizations range
widely from 100% of certain products such as the hematology kits PT Innovin, PTT
Calcium and PTT Actin FS to nothing for other products such as the genetic kits
Gaucher 6MUT 24T and Bloom/Fanconi 48T. Although customers are required to pay
the full price of the products regardless of whether or not they are reimbursed
for such costs, the lack of reimbursement may reduce the demand for the
Company's products. There can be no assurance that adequate health insurance,
health maintenance organization and government coverage will be available to
permit the Company's products to be sold at prices high enough for it to
generate a profit. In certain countries, pricing or profitability of health care
products is subject to government control. In the United States, there have been
a number of federal and state proposals to implement similar government
controls, and new proposals are likely to be made in the future.

      THE COMPANY'S BUSINESS COULD BE ADVERSELY AFFECTED IF IT LOSES THE
      SERVICES OF THE KEY PERSONNEL UPON WHOM IT DEPENDS.

      The Company depends upon the efforts of its chairman, Mr. Daniel Kropf,
and of other senior executives, including Mr. Moshe Reuveni, Mr. Yacob Ofer, Mr.
Luly Gurevich and Dr. Martin Lee. Mr. Kropf's services are mutually terminable
upon ninety (90) days' prior written notice by either the Company or Gamida for
Life (Israel) Ltd.. The Company's agreement for Mr. Reuveni's services is
subject to termination with three months' prior written notice served by either
party. Mr. Ofer has an employment agreement which may be terminated upon six
months prior written notice by either party. Mr. Gurevich's consulting agreement
is automatically renewed every two years, but either party may decide not to
extend it by giving six months prior written notice. Savyon's agreement for Dr.
Lee's management services is subject to termination in the event that he ceases
to be a substantial shareholder of Savyon and under certain other circumstances.
Except for Dr. Lee, these executives are not covered by key man life insurance
policies.

      The Company also depends upon its research and development personnel.
Although the Company has been successful in attracting and retaining key
management and technical personnel in the past and is not aware that any such
personnel plan to leave the Company in the near future, the loss of any such key
personnel and the inability to successfully recruit and retain additional highly
skilled and experienced management and technical personnel could have a material
adverse effect on the Company's business, financial condition and results of
operations.

                                      - 9 -

<PAGE>

      THE COMPANY IS DEPENDENT UPON INDEPENDENT SALES AGENTS, DISTRIBUTORS AND
      DEALERS.

      The Company markets and sells its products in part through networks of
independent sales agents, distributors and dealers in certain countries. The
Company has written distribution agreements with its major distributors that
grant these companies the exclusive right to distribute the Company's products
for periods of one year, subject to automatic renewals unless the Company or the
distributor elects not to continue in either case. These agreements do not
require the distributors to purchase any minimum amounts of the Company's
products.

      The Company also relies on its distributors to assist the Company in
obtaining reimbursement and regulatory approvals in certain international
markets. There can be no assurance that the Company's sales agents, distributors
and dealers, some of which operate relatively small businesses, have the
financial stability to assure their continuing presence in their markets. The
inability of a sales agent, distributor or dealer to perform its obligations, or
the cessation of business by a sales agent, distributor or dealer, could
materially adversely affect the Company's business, financial condition and
results of operations. There can be no assurance that the Company will be able
to engage or retain qualified sales agents, distributors or dealers in each
territory that it targets. The failure to engage or retain such sales agents,
distributors or dealers in these territories would have a material adverse
effect on the Company's business, financial condition and results of operations.

      A SIGNIFICANT PERCENTAGE OF TWO OF THE COMPANY'S SUBSIDIARIES' PRODUCTS
      ARE DEPENDENT ON CERTAIN PRINCIPAL SUPPLIERS

      During 2004 and 2005, purchases from one of Danyel's suppliers, Amersham
Biosciences ("Amersham"), which was acquired by General Electric during October
of 2003, accounted for 31% and 26% respectively of the Company's annual cost of
sales. In addition, during 2004 and 2005, purchases from one of the Gamidor
Group's suppliers, Dade Behring, accounted for 15% and 19% respectively of the
Company's annual cost of sales. A failure of such suppliers to continue to
supply products to the Company or failure to renew such agreements, will
adversely affect its business and financial results.

      In general, Danyel's agreement with Amersham appoints Danyel as the
exclusive distributor in Israel and certain related areas for Amersham's
products and services in the field of applied genomics, cell biology and
separation, subject to Danyel meeting certain minimum sales
requirements.Effective as of January 2002, Amersham assigned its rights and
obligations under the agreement to a third party sub-distributor which has
entered into an agreement with Danyel pursuant to which the sub-distributor has
agreed to honor Amersham's obligations to Danyel under the agreement for so long
as the sub-distributor continues to serve as such for Amersham.

      In general, Gamidor's agreement with Dade Behring appoints Gamidor as the
exclusive distributor in Israel and certain related areas for certain of Dade
Behring's diagnostic products, subject to Gamidor meeting certain minimum sales
requirements. The agreement had an initial four year term ending October 31,
2003 and has been renewed for a further term ending October 31, 2006.The company
does not expect any obstacles in renewing the agreement for another 3 years, of
which there can be no assurance. Such an agreement may be terminated by Dade
Behring if, among other reasons, Gamidor fails to meet the minimum sales
requirements.

                                     - 10 -

<PAGE>

      In addition, certain other products distributed by the Company are
obtained from a limited group of suppliers. The Company has no written
agreements with some of these suppliers. The Company's reliance on a limited
group of suppliers involves several risks, including a potential inability to
obtain adequate supplies of certain products and reduced control over pricing
and timely delivery of products. Although the Company believes that additional
sources of supply are available, should one or more of such suppliers be unable
to meet the Company's needs, there can be no assurance that supplies will be
available on terms acceptable to the Company, or at all, and there can be no
assurance as to the extent of delays which may be caused upon replacing such
suppliers. An inability to obtain or significant delay in obtaining such
products could have a material adverse effect on the Company.

      SALES TO THREE CUSTOMERS ACCOUNT FOR A SIGNIFICANT PORTION OF THE
      COMPANY'S SALES AND THE LOSS OF ANY ONE OF THESE CUSTOMERS COULD HAVE A
      MATERIAL ADVERSE AFFECT ON THE COMPANY'S BUSINESS AND FINANCIAL RESULTS

      Sales to three sick funds in Israel, namely Maccabi, Clalit and Meuhedet
(collectively "the Sick Funds") accounted respectively for 8%, 14% and 7% of the
Company's annual sales during 2004, and 12%, 16% and 3% of such sales in 2005.
The Company has a number of written agreements with the Sick Funds covering
different products. Under these agreements, the Company has undertaken to charge
the Sick Funds a fixed price for various products over a period of three to five
years, provided that they purchase certain minimum quantities of such products
from the Company.

      Some of these agreements may be terminated by the Sick Funds at any time
upon 30 days' written notice to the Company. In addition, the Company has agreed
to supply the Sick Funds with certain laboratory instrumentation on which the
Company's products are used, which becomes the property of the Sick Funds at the
end of a three or five year period so long as they have purchased the applicable
minimum amount of products during this period.

      THE COMPANY MAY NEED STRATEGIC PARTNERS TO BE SUCCESSFUL.

      The Company anticipates that it may be necessary to enter into
arrangements with corporate partners, licensees or others, in order to
efficiently market, sell and distribute its products. These strategic partners
may also be called upon to assist in the support of the Company's products,
including participation in certain product development functions. As a result,
the Company's success may be dependent in part upon the efforts of these third
parties. There can be no assurance that the Company will be able to negotiate
additional acceptable arrangements with strategic partners or that the Company
will realize any meaningful revenues pursuant to these arrangements.

      THE GENOMICS INDUSTRY IS INTENSELY COMPETITIVE AND EVOLVING.

      There is intense competition among entities attempting to sequence
segments of the human genome to identify genes associated with specific diseases
and to develop products and services based on these discoveries. The Company has
developed a patented molecular biology-based technology that enables the mass
screening of genetic materials for mutations. Based on this technology, the
Company has developed over 15 diagnostic kits for carrier screening, pre-natal
diagnosis, and predisposition screening of mutation carriers for a variety of
genetic defects.

      The Company's competitors in the field of genetic diagnostic tests have
developed competing technologies for the screening of genetic materials for
mutations. These competitors include many large and medium sized multi-national
corporations, including Innogenetics, Third Wave Technologies, Myriad Genetics,
Affymetrix, Orchid BioSciences and Roche. The Company's indirect competitors in
this field include numerous small scale laboratories. Although it is unaware of
any published industry market share statistics, the Company estimates, based
upon its knowledge of the industry, that its market share in this field
represents a very small portion of the total market other than the Israeli
market for genetic predisposition tests for gaucher and cystic fibrosis, for
which it does have a significant share of the market.

      Many of the Company's competitors have substantially greater capital
resources, sequencing capabilities, research and developmental staffs,
facilities, manufacturing and marketing experience, distribution channels and
human resources than it. These competitors may discover, characterize or develop
important genes, treatment targets or leads, treatment discovery technologies or
treatments which are more effective than those that have been developed by the
Company or its customers, or may develop techniques for genomic-based treatment
discovery that are superior to those of the Company's and render its
technologies non-competitive or obsolete even before they generate revenue, any
of which could have a material adverse effect on any of the Company's similar
programs.

      Moreover, these competitors may obtain patent protection or other
intellectual property rights that would limit the Company's rights or the
Company's customers' ability to use the Company's products to commercialize
therapeutic, diagnostic or vaccine products.

                                     - 11 -

<PAGE>

      The Company faces rapid technological change in the genomics-based
diagnostic industry. This could result in the development of technologies by
others for use in diagnostics and pharmacogenetics, which will be superior to
its existing technologies.

      FUTURE ACQUISITIONS MAY ABSORB SIGNIFICANT RESOURCES AND MAY BE
      UNSUCCESSFUL.

      As part of the Company's strategy, it may pursue acquisitions, investments
and other relationships and alliances. Acquisitions may involve significant cash
expenditures, debt incurrence, additional operating losses, dilutive issuances
of equity securities, and expenses that could have a material adverse effect on
the Company's financial condition and results of operations. For example, to the
extent that the Company elects to pay the purchase price for such acquisitions
in ordinary shares, the issuance of additional shares will be dilutive to the
Company's shareholders. Acquisitions involve numerous other risks, including:

      -     difficulties integrating acquired technologies and personnel into
            the Company's business;

      -     diversion of management from daily operations;

      -     inability to obtain required financing on favorable terms;

      -     entering new markets in which the Company has little or no previous
            experience;

      -     potential loss of key employees or customers of acquired companies;

      -     assumption of the liabilities and exposure to unforeseen liabilities
            of acquired companies; and

      -     amortization of the intangible assets of the acquired companies.

      It may be difficult for the Company to complete these types of
transactions quickly and to integrate the businesses efficiently into its
current business. Any acquisitions or investments by the Company may ultimately
have a negative impact on its business and financial condition.

                     RISKS RELATING TO OPERATIONS IN ISRAEL

      THE COMPANY HAS IMPORTANT FACILITIES AND RESOURCES LOCATED IN ISRAEL,
      WHICH HAS HISTORICALLY EXPERIENCED MILITARY AND POLITICAL UNREST.

      The Company is incorporated under the laws of the State of Israel. The
Company's principal research and development and manufacturing facilities are
located in Israel and most of the Company's revenues are derived from sales made
in Israel. As a result, the Company is directly influenced by the political,
economic and military conditions affecting Israel. Any major hostilities
involving Israel, or the interruption or curtailment of trade between Israel and
its present trading partners, could significantly harm the Company's business,
operating results and financial condition.

      Since the establishment of the State of Israel in 1948, a number of armed
conflicts have taken place between Israel and its Arab neighbors and, since
September 2000, involving the Palestinian population, and a state of hostility,
varying in degree and intensity, has led to security and economic problems for
Israel and companies based in Israel. Acts of random terrorism periodically
occur which could affect the Company's operations or personnel. In addition,
Israel, Israeli-based companies and companies doing business with Israel, have
been the subject of an economic boycott by members of the Arab League and
certain other predominantly Muslim countries since Israel's establishment.
Although Israel has entered into various agreements with certain Arab countries
and the Palestinian Authority, and various declarations have been signed in
connection with efforts to resolve some of the economic and political problems
in the Middle East, the Company cannot predict whether or in what manner these
problems will be resolved. Also, since the end of September 2000, there has been
a marked increase in the level of terrorism in Israel, which has significantly
damaged both the Israeli economy and levels of foreign and local investment.

      In addition, certain of the Company's officers and employees are currently
obligated to perform annual reserve duty in the Israel Defense Forces and are
subject to being called up for active military duty at any time. All Israeli
male citizens who have served in the army are subject to an obligation to
perform reserve duty until they are between 45 and 54 years old, depending upon
the nature of their military service. The Company has operated effectively under
these requirements since its inception. The Company cannot predict the effect of
such obligations in the future, however.

                                     - 12 -

<PAGE>

      EXCHANGE RATE FLUCTUATIONS AND INFLATION IN ISRAEL COULD ADVERSELY IMPACT
      THE COMPANY'S FINANCIAL RESULTS.

      Exchange rate fluctuations and inflation in Israel could adversely impact
the Company's financial results. During calendar years 2003, 2004 and 2005, the
annual rate of inflation was approximately 6.5%, (1.8)% and 2.4% respectively,
while the NIS was devalued (appreciated) against the U.S. Dollar by
approximately (7.6)%, (0.02)% and 6% respectively. Consequently, during calendar
years 2003, 2004 and 2005 the annual rate of inflation as adjusted for
devaluation (appreciation) was approximately (1.1)%, (1.8)% and 8% respectively.

      A substantial part of the Company's third party product distribution
activities are conducted by its subsidiaries, the Gamidor Group and Danyel. The
Gamidor Group's and Danyel's sales are quoted in NIS; however, their selling
prices are based upon a price list which is quoted in the suppliers' original
currencies, mainly Euros and U.S. Dollars. The price is then converted into NIS
at the relevant exchange rate on the date of sale to the customer. This enables
the Gamidor Group and Danyel to reduce exposure to losses from devaluations of
the NIS in relation to such foreign currencies. The Gamidor Group's and Danyel's
accounts receivables are, however, quoted in non-linked NIS and, consequently,
inflation in Israel would have the effect of increasing their financial
expenses.

      In addition, the Gamidor Group's and Danyel's accounts payable are mainly
quoted in such foreign currencies and, consequently, any excess of a devaluation
rate in the NIS in relation to such currencies over the inflation rate in Israel
would have the effect of increasing the Company's financial expenses. Because
the exchange rates between the NIS and the Yen, Euro and U.S. Dollar fluctuate
continuously, exchange rate fluctuations and especially larger periodic
devaluations have an impact on the Company's profitability and period-to-period
comparisons of the Company's results in U.S. Dollars.

      The Company's consolidated results of operations are, therefore, affected
by several interrelated factors, including the rate of inflation in Israel, the
devaluation of the NIS in relation to the primary foreign currencies relevant to
the Company including the U.S. Dollar, the devaluation of relevant foreign
currencies in relation to the U.S. Dollar, and the extent to which the Company
holds assets and liabilities in foreign currencies. Similarly, the relationship
between the Company's monetary assets and liabilities in U.S. Dollars and NIS
and whether these are linked to foreign currencies or price indices also affect
financial results.

      PROVISIONS OF ISRAELI CORPORATE AND TAX LAW MAY HAVE THE EFFECT OF
      DELAYING, PREVENTING OR MAKING MORE DIFFICULT A MERGER WITH, OR OTHER
      ACQUISITION OF, THE COMPANY THIS COULD CAUSE OUR ORDINARY SHARES TO TRADE
      AT PRICES BELOW THE PRICE FOR WHICH THIRD PARTIES MIGHT BE WILLING TO PAY
      TO GAIN CONTROL OF THE COMPANY. THIRD PARTIES WHO ARE OTHERWISE WILLING TO
      PAY A PREMIUM OVER PREVAILING MARKET PRICES TO GAIN CONTROL OF THE COMPANY
      MAY BE UNABLE OR UNWILLING TO DO SO BECAUSE OF THESE PROVISIONS OF ISRAELI
      LAW.

      The Companies Law includes provisions that allow a merger transaction and
requires that each company, that is a party to a merger, have the transaction
approved by its board of directors and a vote of at least 75% of its shares, at
a shareholders' meeting called on at least 21 days' prior notice. For purposes
of the shareholders vote, unless a court rules otherwise, the merger will not be
deemed approved if a majority of the shares held by parties other than the other
party to the merger, or by any person who holds 25% or more of the shares of the
other party, or the right to appoint 25% or more of the directors of the other
party, vote against the merger. Upon the request of a creditor of either party
of the proposed merger, the court may delay or prevent the merger if it
concludes that there exists a reasonable concern that as a result of the merger,
the surviving company will be unable to satisfy the obligations of any of the
parties to the merger. In addition, a merger may not be completed unless at
least 50 days have passed from the time that a proposal for the approval of the
merger has been filed with the Israel Registrar of Companies and 30 days have
passed from the time that the approval of the merging parties' shareholders has
been received.

      The Companies Law also provides that an acquisition of shares of a public
company must be made by means of a tender offer if, as a result of the
acquisition, the purchaser would become a 25% shareholder of the company and
there is no existing 25% or greater shareholder in the company. If there is no
existing 45% or greater shareholder in the company, the Companies Law provides
that an acquisition of shares of a public company must be made by means of a
tender offer if, as a result of the acquisition, the purchaser would become a
45% shareholder of the company. Regulations adopted under the Companies Law
provide that these tender offer requirements do not apply to companies whose
shares are listed for trading outside of Israel if, according to the laws of the
country in which the shares have been offered to the public or in which the
shares are listed for trading on an exchange, including the rules and
regulations of such exchange, there is either a restriction upon any acquisition
of control to any extent, or the acquisition of control to any extent requires
the purchaser to make a tender offer to the public.

                                     - 13 -

<PAGE>

      If following any acquisition of shares, the acquirer will hold 90% or more
of the company's shares the acquisition may not be made other than through a
tender offer to acquire all of the shares. If the shareholders who declined the
tender offer hold 5% or less of the company's outstanding share capital, all the
shares that the acquirer offered to purchase will be transferred to it. However,
the tendered shareholders may seek to alter the consideration by court order.

                 RISKS RELATED TO THE COMPANY'S ORDINARY SHARES

      THE COMPANY'S SHARES PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE, WHICH
      COULD RESULT IN SUBSTANTIAL LOSSES FOR INDIVIDUAL SHAREHOLDERS.

      The market price of the Company's ordinary shares ranged between a high
sales price of $1.45 and a low sales price of $0.37 during 2005 and may continue
to be highly volatile and subject to wide fluctuations in response to factors
including the following, some of which are beyond the Company's control:

      -     actual or anticipated variations in the Company's quarterly
            operating results;

      -     announcements of technological innovations or new products or
            services or new pricing practices by the Company or its competitors;

      -     changes in United States and other countries' government regulations
            relating to

      -     approval of the Company's products;

      -     results of regulatory inspections;

      -     the status of patents and proprietary rights relevant to the
            Company's products that are developed by the Company or its
            competitors;

      -     increased market share penetration by the Company's competitors;

      -     announcements by the Company or its competitors of significant
            acquisitions, strategic partnerships, joint ventures or capital
            commitments;

      -     additions or departures of key personnel; and

      -     sales of additional ordinary shares.

      In addition, the stock market in general, and stocks of medical technology
companies in particular, have from time to time experienced extreme price and
volume fluctuations. This volatility is often unrelated or disproportionate to
the operating performance of these companies. These broad market fluctuations
may adversely affect the market price of the Company's ordinary shares,
regardless of the Company's actual operating performance.

      AN INVESTOR SHOULD NOT RELY ON AN INVESTMENT IN THE COMPANY IF SUCH
      INVESTOR REQUIRES DIVIDEND INCOME; THE ONLY RETURN THAT SUCH INVESTOR MAY
      RECEIVE MAY COME FROM THE APPRECIATION, IF ANY, IN THE VALUE OF THE
      COMPANY'S ORDINARY SHARES.

      The Company has not paid cash dividends on its ordinary shares in the past
and has no plans to pay such dividends in the future. However, the Company does
not rule out the possibility of paying such dividends in the future in the
appropriate circumstances. An investor should not rely on an investment in the
Company if such investor requires dividend income; the only return that such
investor may receive may come from the appreciation, if any, in the value of the
Company's ordinary shares. In determining whether to pay dividends, the
Company's board of directors will consider many factors, including its earnings,
capital requirements and financial condition. In addition, under Israeli law,
the Company may only pay cash dividends in any fiscal year from its profits, if
any, as calculated under Israeli law.

      CONTROLLING SHAREHOLDERS CAN LIMIT SHAREHOLDERS' ABILITY TO INFLUENCE THE
      OUTCOME OF MATTERS REQUIRING SHAREHOLDER APPROVAL AND COULD DISCOURAGE
      POTENTIAL ACQUISITIONS OF THE COMPANY'S BUSINESS BY THIRD PARTIES; PLEDGE
      OF SHARES.

      Gamida, the Company's principal shareholder, holds 4,944,745 shares or
approximately 64% of the Company's voting securities. As a result, Gamida has a
controlling interest over all matters, excluding related party transactions
requiring approval by shareholders, including the election or removal of
directors and the approval of mergers or other business combination
transactions.

                                     - 14 -

<PAGE>

Out of the 4,944,475 shares, 4,053,000 are currently pledged to Bank Leumi
Le'Israel Ltd as security for a loan from the Bank to Gamida. So long as the
Bank does not demand immediate payment of the loan (which may occur upon the
occurance of an event of default), Gamida shall be entitled to exercise the
voting rights pertaining to the pledged shares for any purpose not inconsistent
with the terms of the pledge.

However, as a shareholder, Gamida is required, to oppose certain resolutions,
such as, but not limited to, resolutions that might result in the dilution of
Gamida's holdings in Healthcare, or result in the reduction in the value of the
pledged shares or harm the rights of the Bank under the pledge, except where the
Bank has given its prior written consent.

In the event the bank demands immediate payment of the loan, following the
occurrence of an event of default, all voting rights shall vest with the Bank.

      Upon the occurrence of an event of default, the Bank shall be entitled to
dispose of the shares, subject to complying with the terms of the pledge
agreement.

      THE SALE OF RESTRICTED SHARES COULD CAUSE THE MARKET PRICE OF THE
      COMPANY'S ORDINARY SHARES TO DROP SIGNIFICANTLY.

      Most of the ordinary shares beneficially owned by Gamida, the Company's
management and directors and their affiliates, aggregating approximately five
million shares, are restricted securities under the federal securities laws. On
August 2003 the Company has registered approximately 4.1 million shares for sale
in which out of them approximately 3.9 million shares for sale by Gamida As long
as the registration statement remains effective, these shares may be resold
without the volume restriction to which they would otherwise be subject. The
remaining shares may be sold, but are subject to certain volume and other
restrictions. The Company cannot estimate the number of these shares that may be
sold in the future or the effect that their sale may have on the market price of
the ordinary shares. However, it could drop significantly if the holders of
these shares sell them or are perceived by the market as intending to sell them,
even if the Company's business is doing well.

      THE MARKET PRICE OF THE COMPANY'S SHARES COULD DECLINE IF IT DOES NOT MEET
      THE REQUIREMENTS FOR CONTINUED LISTING ON NASDAQ.

      The Company's ordinary shares are traded on the NASDAQ Capital Market,
which has adopted rules that establish criteria for initial and continued
listing of securities. The Company currently meets the criteria for continued
listing of its securities on the NASDAQ Capital Market. However, commencing as
of May 29, 2006, Nasdaq rules will require the Company to maintain a minimum
closing bid price for the Company's ordinary shares of $1.00 per share. If the
Company's ordinary shares trade for 30 consecutive business days below the
applicable minimum closing bid price requirement, Nasdaq will send a deficiency
notice to us, advising that we have 180 calendar days to regain compliance with
the minimum bid price. The Company must then maintain compliance for a minimum
of 10 consecutive business days. Under certain circumstances, Nasdaq may require
maintenance of a $1.00 minimum bid price for more than 10 days. Thereafter, the
Company can receive an additional 180-day compliance period if we meet all
initial inclusion requirements for the Nasdaq Capital Market, except for the bid
price requirement. If the Company does not demonstrate compliance within the
requisite compliance period, it will be issued a delisting letter, which the
Company may appeal at that time.

                                     - 15 -

<PAGE>

      If the Company's ordinary shares are delisted from the NASDAQ Capital
Market, trading in its ordinary shares could be conducted on an electronic
bulletin board established for securities that do not meet the NASDAQ listing
requirements. If the Company's ordinary shares were delisted from the NASDAQ
Capital Market, it would be subject to the so-called penny stock rules that
impose restrictive sales practice requirements on broker-dealers who sell those
securities. Consequently, de-listing, if it occurred, could affect the ability
of shareholders to sell their ordinary shares in the secondary market. The
restrictions applicable to shares that are de-listed, as well as the lack of
liquidity for shares that are traded on an electronic bulletin board, may
adversely affect the market price of such shares. For information concerning the
recent trading history of the Company's ordinary shares, see Item 9. "The Offer
and Listing - A. Offer and Listing Details".

ITEM  4.    INFORMATION ON THE COMPANY

            A.    HISTORY AND DEVELOPMENT OF THE COMPANY

GENERAL

      The company was incorporated as a limited liability company under the law
of the state of Israel in May 1988. The Company's principal executive offices
are located at, 32 Shaham Street, Kiryat Matalon, Petach Tikva, Israel, 49170
(tel: 972 3 9277227).

      The Company's business consists of development, manufacture and marketing
of clinical diagnostic test kits and provides services and tools to diagnostic
and biotech research professionals in laboratory and point of care sites in
Israel and worldwide. The Company is also engaged in the production and
marketing of molecular biology based gene screening tools for the detection of
certain gene-associated disorders in humans.

IMPORTANT EVENTS IN THE DEVELOPMENT OF THE COMPANY'S BUSINESS

      The Company was incorporated in May 1988. On February 24, 1989, the
Company completed an initial public offering of ordinary shares and share
purchase warrants in the United States and listed its securities on the NASDAQ
SmallCap Market.( NASDAQ)

      In April 1991, the Company acquired Diatech Diagnostica Inc., a Delaware
Corporation ("DDI"), and its wholly-owned Israeli subsidiary, Diatech
Diagnostica Ltd. ("Diatech Israel"), a medical diagnostic kits manufacturer.

      In October 1991, the Company consolidated the operations of Diatech Israel
with those of the Company's subsidiary Pronto Technologies Ltd. ("Pronto") which
was, subsequently merged into Gamidor

      In January 1995, the Company acquired 50% of Gamidor Limited, a United
Kingdom company ("Gamidor UK") engaged in the distribution and marketing of
medical diagnostic products and laboratory systems and equipment. The remaining
shares of Gamidor UK were owned by Gamida Trading Limited (formerly Eryphile
Trading Ltd.), an affiliate of Gamida.

      In April 1997, the Company acquired Gamida-Gen Marketing (1979) Ltd.
(subsequently merged into Gamidor), an Israeli private company engaged in
providing products and services to clinical laboratories and in the molecular
biology field in Israel.

      Effective February 1998, the Company completed a one-for-four share
consolidation of its ordinary shares.

      In December 1998, the Company transferred all of its shares of Gamidor UK
to the Company's principal shareholder Gamida and acquired one half of Gamidor
UK's remaining shareholding in Gamidor Diagnostics Limited ("Gamidor Diagnostics
UK"), formerly one of Gamidor UK's wholly-owned subsidiaries, but by that time
owned as to 52% by an unaffiliated third party (the "Purchaser"). Such
shareholding was subject to put and call options in favour of the Company and
the Purchaser respectively, and the Purchaser has since exercised such call
options in full.

      In January 1999, the Company established Danyel, an Israeli company
engaged in the marketing and distribution to biotechnology researchers in Israel
of products in the fields of applied genomics and cell biology and separation.
As part of the establishment process, the Company sold fixed assets and
inventory to Danyel for a purchase price of approximately $125 thousand, which
represents the book value of the assets transferred as of January 1, 1999. The
Company had no capital expenditures in the establishment of Danyel. The Company
owns 80% of Danyel and the balance is owned by its general manager (through a
company under his control).

                                     - 16 -

<PAGE>

      As of December 1999, the assets of Diatech Israel were transferred and
assigned to Pronto, whereby Pronto acquired and assumed all the current
undertakings, services and assets of Diatech Israel and approved a share sale
and assignment agreement between DDI and the Company whereby DDI transferred its
holding in Diatech Israel to the Company. The Company's board simultaneously
approved the liquidation of DDI, due to its effectively being an inactive
company.

      In January 2001, the Company acquired all of the issued and outstanding
shares of Gamida Gen Ltd. ("GamidaGen"), formerly controlled by Gamida (see Item
7 below), in consideration for the issuance of 1,000,000 of the Company's
ordinary shares to the shareholders of GamidaGen. GamidaGen's aggregate
outstanding debts to third parties (including banks) amounted to approximately
$0.7 million, in addition to approximately $0.3 million owed to the Company. As
part of the acquisition the Company agreed to assume a guarantee of up to
$270,000 of Gamida Gen's debts in favor of an Israeli commercial bank (included
in the above sum of third party debts) provided by DMI Investments B.V. ("DMI").
DMI had thereafter been required by the bank to discharge its obligations
pursuant to its guarantee. In September 2004, the Company entered into an
agreement by and among DMI, the Company and Gamida Gen pursuant to which the
Company issued to DMI, fifty-four thousand one hundred and five ordinary shares
of the Company in consideration of DMI fully and finally releasing the Company
of any obligation which it may have in connection with DMI's demands to be
reimbursed for the amount of approximately $270,000.

      In January 2001, the Company transferred all of the GamidaGen shares to
its wholly owned subsidiary, Pronto, in consideration for $750,000. By the end
of 2001 the Company had merged GamidaGen into Pronto. The purpose of this merger
was to consolidate the operations of the two companies in order to achieve
operating efficiencies by combining the two companies' resources and activities.
The merger was subsequently cancelled due to the Savyon Transaction described
below.

      During October 2001, following the approval of the Company's annual
meeting of shareholders, the Company issued 2,000,000 additional ordinary shares
to Gamida by means of a private placement. The proceeds amounted to $1.58
million.

      On August 19, 2003, the Company completed the registration for sale of
approximately four million shares held principally by Gamida, as part of
Gamida's pledge to the United Mizrahi Bank as well as shares issued to the
remaining shareholders of Gamida Gen. For additional information concerning
important events in the development of the Company's business, see Item 7.
"Major Shareholders and Related Party Transactions - B. Related Party and
Inter-Company Transactions."

      In December 2003, Pronto and Gamida Gen Marketing (1979) Ltd. initiated a
merger with Gamidor. Subsequent to the merger, Gamidor remains the sole
surviving entity. The purpose of the merger was to achieve operating
efficiencies. Such merger is still subject to the approval of the Israeli tax
authorities and Companies Registrar.

      INVESTMENT IN AFFERIX LTD.

      In August 2003, Pronto, which has since merged into Gamidor, invested in
Afferix Ltd. $ 211,000 by way of a convertible bridge loan. Afferix is in the
process of developing a diagnostic kit for the identification of free iron in
the blood stream. In the beginning of 2005, the loan was converted into shares
representing approximately 27% of the issued and outstanding share capital of
Afferix. Gamidor is entitled to designate one director to the Afferix board of
directors. During 2005, Afferix entered into a contract with Novartis to supply
samples analyzed for free iron in the blood stream. Afferix received
approximately $ 50,000 as a pre payment for the tests.

      THE PROCOGNIA INVESTMENT

      In January 2000, the Company established Procognia (Israel) with an
initial investment of $600,000, and subsequently transferred the Company's
glycobiology research and development project into Procognia (Israel). During
the second half of 2000, Procognia (Israel) effected a private placement of its
equity securities to unaffiliated third party investors, raising an aggregate of
$2,500,000, for approximately 28.14% of the share capital of Procognia (Israel)
(allotted as 2,500,000 preferred shares). At the end of 2001, the third party
investors granted convertible loans amounting to $2 million.

                                     - 17 -

<PAGE>

      In April 2002, Procognia (Israel) secured $14.3 million in a second round
of financing, . For the purposes of this financing, a newly organized company
registered in England, Procognia Ltd., ("Procognia") acquired 100% ownership of
Procognia (Israel), in consideration for which the Company, as well as another
existing Procognia (Israel) shareholder, received ordinary shares of Procognia
in exchange for their Procognia (Israel) shares, while the subsequent investors
received preferred shares carrying certain dividend and liquidation preferences
and veto rights. Following the April 2002 financing, various funds managed by
Apax Partners Europe became the principal shareholders of Procognia, owning in
the aggregate approximately 37% of Procognia's share capital.

      Procognia subsequently effected certain financing transactions from 2002
to 2004 that reduced

      the Company's ownership interest in Procognia to approximately 4%. Owing
to this dilution, the Company lost its right to nominate a director on
Procognia's board.

      On March 31, 2005, the Board of Directors and Audit Committee approved the
sale of all the Company's shares in Procognia to Gamida. Despite being only
about a 4% equity investee of the Company and although the Company did not have
any financial liabilities in respect of its investment in Procognia, under U.S.
GAAP the Company was required to consolidate its proportionate share of
Procognia's accumulated losses in the Company's balance sheet which amounted to
$4,761,000 at December 31, 2004. As a result, the Board of Directors determined
that it would be in the Company's best interests to dispose of its holdings in
Procognia.

      On April 15, 2005, the Company announced that it received notice from
Nasdaq indicating that based on, the Company's stockholders' equity which was
$1,921,000, the Company is not in compliance with the minimum $2,500,000
stockholders' equity requirement for continued listing on Nasdaq. Therefore, the
Nasdaq Staff is reviewing the Company's eligibility for continued listing on
Nasdaq.

      As requested by Nasdaq, the Company provided Nasdaq with a definitive
specific plan to achieve and sustain compliance with the listing requirements
through the previously announced sale of all the Company's shares in Procognia
to Gamida, which would result in an increase in stockholder's equity of
approximately $4.8 million thereby regaining compliance with the stockholders
equity requirement for continued listing.

      On May 29, 2005, the shareholders of the Company approved the sale of all
the Company's shares in Procognia to Gamida. For a description of the terms of
this agreement, see Item 7B "Major Shareholders and Related Party
Transactions-Related Party and Inter-Company Transactions."

      THE SAVYON TRANSACTION

      Prior to the transaction described in this section (the "Savyon
Transaction"), Pronto Technologies Ltd. ("Pronto") was called Savyon Diagnostics
Ltd. The company changed its name from Savyon to Pronto in order to permit the
new company established for the purposes of the Savyon Transaction to adopt the
name Savyon Diagnostics Ltd.

      On December 31, 2002, the Company and Pronto, which has since merged into
Gamidor, entered into agreements with the Levine Family LP ("LF"), controlled by
Dr. Martin Lee, to establish Savyon Diagnostics Ltd. for the purpose of
acquiring Pronto's clinical laboratory diagnostics business for a purchase price
of approximately $1.9 million.

      In connection with the Transaction, Dr. Lee agreed to loan Savyon $1.2
million to be used to pay a portion of the $1.9 million purchase price to
Pronto. These funds were advanced as agreed and have been duly remitted in
partial payment of such purchase price. The loan bears an interest rate of libor
plus 1.75% and has no fixed repayment date. The Company and Dr. Lee respectively
own fifty percent of Savyon. Each of them has the right to appoint three members
of the board of directors. Dr. Lee is the chief executive officer and Mr. Daniel
Kropf is the chairman of the board. The purchase agreements with LF provide for
certain buy and sell provisions, rights of first refusal and co-sale rights with
respect to Savyon's shares. They also provide that Savyon will provide certain
manufacturing services to the Company. For further information, see Item 10.
"Additional Information - C. Material Contracts". As part of the Savyon
transaction, the prior merger between Pronto and GamidaGen was cancelled.

Any reference herein to "Savyon"'s activities in the field of clinical
laboratory diagnostics shall in effect be referring to Pronto Technologies Ltd.
with respect to anything that occurred before the Savyon Transaction and shall
refer to Savyon Diagnostics Ltd. with respect to anything that occurred after
the Savyon Transaction.

                                     - 18 -

<PAGE>

      RECENT DEVELOPMENTS

      IMMVARX TRANSACTION

      On July 26, 2005, Healthcare Technologies signed a definitive agreement
with ImmvaRx, Inc. (a company engaged in the development of therapies and
diagnostic techniques addressing the adenocarcinoma class of cancers and certain
kinds of allergies) and Gamida, for the transfer of all of ImmvaRx's assets,
including its intellectual property, to Healthcare and for the sale of all of
Healthcare's holdings in other companies to Gamida (the "IMMVARX AGREEMENT"). On
January 30, 2006, the ImmvaRx Agreement was terminated, before the closing could
take place, in accordance with its terms.

      CHAIM SHEBA MEDICAL CENTER TRANSACTION

On June 26, 2006 the Company announced that the State of Israel's Chaim Sheba
Medical Center has selected PerkinElmer, Inc.'s neonatal screening technology to
create a comprehensive newborn screening program that is intended to cover every
child born in Israel. PerkinElmer's clinical diagnostics division is represented
throughout Israel by Healthcare (via Gamidor) together with PerkinElmer's
regional distributor HVD Vertriebs Gmbh ("HVD").

Under the terms of this transaction, PerkinElmer, via the Gamidor and HVD, will
provide the State of Israel with instrumentation, reagents, scientific
expertise, and an informatics system that will enhance Israel's neonatal
screening and data management capabilities. The system will allow the Sheba
Medical Center to implement a comprehensive solution that will electronically
track laboratory workflow from sample receipt and preparation, through the
analytical steps, to quality control review, reporting and follow-up.

The contract will fulfill a recent mandate by the Medical Research
Infrastructure Development and Health Services Fund to substantially expand its
newborn screening program to cover Israel's entire population and increase the
number of tests that will be screened for indications of disease.

PRINCIPAL CAPITAL EXPENDITURES AND DIVESTITURES

The following is a table of the Company's principal capital expenditures for the
last three years.

                          in thousands of U.S. Dollars
                                   2005      2004       2003
                                 --------   -------   -------
Fixed Assets                        936       313       293
Investments in other companies      150         -       211
Total                             1,086       313       504

      The figures do not include Savyon which under U.S GAAP is presented
according to the equity method.

      For information concerning material acquisitions and divestitures of
business interests by the Company, see Item 4. "Information On The Company - A.
History and Development of the Company" and Item 7. "Major Shareholders and
Related Party Transactions".

            B.    BUSINESS OVERVIEW

GENERAL

      The Company specializes in the development, manufacture and marketing of
clinical diagnostic test kits and provides services and tools to diagnostic and
biotech research professionals in laboratory and point of care sites in Israel
and worldwide. The Company is also engaged in the production and marketing in
Israel of molecular biology based gene screening tools for the detection of
certain gene-associated disorders in humans, including prenatal testing for
diseases such as cystic fibrosis, gaucher and other diseases that are prevalent
in the Jewish population, and testing for predisposition to diseases such as
breast, ovarian and colon cancer, thrombosis and certain cardiovascular
diseases.

      The Company distributes its own products as well as products from other
manufacturers, including some of the leading in vitro diagnostics and scientific
companies in the world (such as Dade- Behring and Amersham), which enhances the
Company's international commercial contacts and access to marketing know-how and
expertise. The Company also believes it is well placed in Israel's scientific
community, particularly in the biotechnology sector, which allows for
opportunities to participate in investment and scientific cooperation with
others seeking commercial implementations for their technological achievements.

                                     - 19 -

<PAGE>

      By being both a developer and distributor of products, the Company
believes it is well situated to gain an understanding of the needs of the
market. The Company further believes that this position also creates
opportunities for strategic partnerships in marketing and joint manufacturing.
The Company remains focused on streamlining and consolidating its business
operations in Israel.

      As a result of its vertical integration, the Company is able to develop
new products based on market needs identified by the Company's in-field sales
force, test the release of new products in Israel and internationally,
commercially manufacture such products in highly regulated production facilities
and then market the products worldwide using its international network of
distributors. The Company believes that this approach makes it attractive to
third parties in need of diagnostic test marketing and distribution, as well as
to third parties in need of contract research and development and/or
manufacturing services.

      On December 31, 2002, the Company and Pronto entered into an agreement
with the Levine Family LP ("LF"), controlled by Dr. Martin Lee to establish
Savyon as a newly organized Israeli company to acquire Pronto's clinical
laboratory diagnostics business. The Company and LF each own fifty percent of
Savyon. Mr. Daniel Kropf was appointed chairman of the board and Dr. Lee was
appointed as its chief executive officer. See Item 4 - "Information on the
Company --A. History and Development of the Company."

MANUFACTURING - SAVYON - www.savyondiagnostics.com

      The manufacturing activities of the Company are primarily conducted by
Savyon.

      The Company believes that Savyon is a leader in the serological diagnosis
of chlamydial infections. This belief is based on a study conducted by Froste &
Salive, which indicated that Savyon supplied approximately 30% of the worldwide
market for serology based chlamydia diagnostic kits in 1999." The belief is
further based on the fact that the Company's sales in the worldwide serology
based chlamydia market since 1999 have remained stable at approximately, 3.2
million, $3.1 million and $2.6 million in 2005, 2004 and 2003, respectively -,
and to the best of Savyon's knowledge from both current sales figures and a
network of over 60 worldwide distributors, the worldwide serology based
chlamydia market has not undergone any material changes since 1999, thereby
leaving Savyon's market share relatively unchanged. Savyon also manufactures
immunoassays for the diagnosis of infectious diseases, especially sophisticated
microplate-based enzyme immunoassays. Savyon focuses on specific segments of the
clinical diagnostics market and is positioned to identify ideas and turn them
into marketable products. Savyon provides quality diagnostic tools to laboratory
professionals and point of care locations in Israel and worldwide. In addition,
Savyon markets kits for the diagnosis of certain infectious diseases in the
over-the-counter market in the United States. As a product developer, Savyon
holds proprietary rights to certain products in the in vitro diagnostics
healthcare field. Savyon manufactures sophisticated immunoassays for antibodies
detection of certain pathogens of sexually transmitted diseases (STD),
particularly for the serological diagnosis of chlamydial infections and of
respiratory tract infections (RTI), and sophisticated devices for the detection
of urinary tract infections (UTI). Savyon operates under the quality standards
of ISO 13485:2003 and currently produces its diagnostic kits for the detection
of certain sexually transmitted diseases and other infectious diseases at its
Ashdod facility. Savyon has not experienced any difficulty in obtaining supplies
to date, there being many available suppliers including chemical companies for
reagents and antibodies and for other supplies.

      During the past three fiscal years, the main categories of products
manufactured by Savyon have been medical diagnostic kits and related products.
Savyon's current products include enzyme linked immunosorbent assay (ELISA) test
kits, micro-immunofluorescence techniques (MIF), immuno peroxidase assays (IPA),
Uriscreen(TM) - a rapid screening tool for over-the-counter and point of care
testing, and rapid tests for the diagnosis of certain infectious diseases. As
established above, Savyon believes it is a market leader in the sero-diagnosis
of chlamydial infections. Savyon's products are used by medical laboratories,
physicians, other healthcare providers and research laboratories worldwide.

      A separate line of products is based on lateral flow immuno-
chromatography technology. Savyon manufactures and sells pregnancy tests and
ovulation kits to 6 distributors around the world, mainly in north America.

      Savyon's newest over the counter (OTC) and point of care (POC) product,
the SavvyCheck test, which has recently received CE registration, is for the
diagnosis of Vaginal Yeast Infections. The SavvyCheck test will be sold
worldwide through newly established distribution channels to pharmacies, health
clinics, and physicians.

                                     - 20 -

<PAGE>

      Savyon is also engaged in the production of molecular biology based gene
screening tools for the detection of certain gene-associated disorders in humans
(some cancers, thrombosis, cystic fibrosis and certain other diseases),
facilitating early diagnosis, treatment or medical intervention. GamidaGen
developed Pronto(TM), a molecular biology based technology for the detection of
single nucleotide polymorphisms (SNPs) that is currently used for genetic
screening and testing of certain human genetic disorders.

SAVYON - DIAGNOSTIC TECHNOLOGY AND PRODUCTS

      The following is a summary description of the technologies underlying the
diagnostic products currently manufactured by Savyon.

      Savyon's diagnostic kits are designed for the simple and accurate conduct
of a range of diagnostic tests utilizing enzyme immunoassay (EIA) and
micro-immunofluoresence techniques and rapid tests. Immunoassays are diagnostic
techniques which detect the presence or absence of a specific disease by
measuring the amount of a specific antibody (indirect tests) or antigen (direct
tests) in a patient's blood sample or other body fluids through the introduction
of a specific antigen or antibody into the sample. The manufactured tests are
highly sensitive and highly specific.

      The immune systems of humans and animals respond to an antigen (a foreign
substance such as a virus or bacterium) by producing antibodies that react to
and bind with specific antigens. The EIA technique uses the linking of enzymes
to antibodies or antigens to create measurable color reaction marking the
presence of specific antibodies or antigens. EIAs may be classified into various
categories based upon methodological difference.

      In general, EIAs require reagents to be mixed in discrete steps and, at
some point during the assay, involve a physical separation of antibody bound
from excess enzyme reagent. Several technologies exist for this separation step.

      The three principal types of antibodies for certain specific infections
are: IgM - which appears mainly the first time the body is infected by the
infective agent, very close to the onset of the disease, and persists for a
limited period of time varying from one infection to another; IgG - which
appears and remains in the bloodstream even after the disease disappears; and
IgA - which appears in both blood and body secretions and generally persists as
long as the infective agent remains and disappears shortly after the pathogen
leaves.

      Savyon manufactures highly specific immunoassays, SeroCT(TM), SeroCP(TM)
and SeroCP Quant, that are utilized for the detection of antibodies specific to
chlamydia. Chlamydia is an intracellular bacterium that causes acute and chronic
respiratory and sexually transmitted diseases in mammalian and avian species.
There are four types of chlamydia: C. trachomatis, C. pneumoniac, C. psittaci
and C. pecorum. Chlamydia trachomatis is one of the most common causes of
sexually transmitted diseases in the world. It is mostly asymptomatic and
therefore difficult to diagnose. This pathogen requires accurate diagnosis and
specific treatment with antibiotics. Its related complications, which may occur
if it is improperly diagnosed and consequently mistreated, include trachoma,
pelvic inflammatory disease, mechanical infertility (adhesions of the fallopian
tubes) and respiratory disorders or eye infections to the newborn of infected
mothers. Chlamydia is a major cause of pneumonia and it is also associated with
upper and lower respiratory tract infection.

      Savyon also manufactures SeroFIA(TM) Chlamydia IgG, IgA and IgM diagnostic
kits, which are based on the MIF assay methodology. This method uses a U.V.
fluorescence microscope for the detection of "fluorescence staining" of glass
slides fixed with chlamydia particles onto which the human antiserum to be
tested is applied, followed by a specific fluorescent probe. This assay
methodology is considered to be the gold standard in chlamydia serology. The MIF
technique allows for differential determination of chlamydia pneumoniae,
trachomatis and psittaci antibodies in human serum.

      In addition, Savyon manufactures SeroMP(TM) IgG, IgM & IgA diagnostic kits
for the serological diagnosis of mycoplasma pneumoniae infections, one of the
leading causes of atypical pneumonia. The test kits are based on M. pneumoniae
membrane proteins and improve the diagnostic value of M. pneumoniae infection
(more specifically, identification of the phase of disease) by enabling the
specific detection and differential determination of the M. pneumoniae IgG, IgM
and IgA antibodies. The test kits further provide semi-quantitative results for
easier interpretation and follow up.

      SeroPertussis(TM) is a product line launched during the year 2001.
Whooping cough (pertussis) is a highly contagious bacterial respiratory tract
infection associated with bordetella pertussis bacilli. Pertussis is an endemic
disease, but epidemics occur every 3 - 5 years. In the USA, 5000 - 7000 cases
are reported each year. The incidence of pertussis has been greatly reduced by
mass vaccination; however, even in countries with high vaccination coverage, the
disease is re-merging. Worldwide, nearly 50 million cases of pertussis are
diagnosed annually and about 350,000 people die of the disease.

                                     - 21 -

<PAGE>

      In order to improve the diagnostic value of bordetella pertussis
infection, Savyon has developed the SeroPertussis(TM) IgA/IgM and IgG kits. The
kits utilize specifically enriched fraction as antigens, allowing sensitive
detection of IgA and/or IgM antibodies and the semi-quantitative determination
of IgG antibodies to bordetella pertussis, thus enabling immune response
follow-up of patients and determination of their immune status.

      In 2003 a new line of products was established aimed at the OTC market.
This line includes a test for the detection of vaginal yeast antigens, based on
lateral flow immuno-chromatography technology. In 2004 two product lines,
pregnancy tests and ovulation kits, both based on the same technology, were
transferred to our production facility.

      Savyon also markets the Quickstripe(TM) product line, which is produced by
other manufacturers. The QuickStripe(TM) tests are rapid, quantitative one-step
systems based on immuno-chromatographic technology. QuickStripe(TM) tests
consist of a compact cassette-like plastic card which includes the components
required to run the test, including a built-in procedural control to enable
accurate results. QuickStripe(TM) tests are easy to use, require no
instrumentation or procedures other than adding the sample to be tested to the
kit and are therefore particularly suitable for use in physicians' offices,
hospital emergency rooms and urgent cases. QuickStripe(TM) test results are
usually obtained within less then an hour, and generally provide a
"positive/negative" result.

      Savyon also manufactures Uriscreen(TM), a test kit for the rapid screening
of urinary tract infections which is an easy-to-use, inexpensive and highly
sensitive test that can be carried out in a few minutes. The Uriscreen(TM) is
based upon a catalase-based enzyme test which allows for rapid screening as
compared with the traditional culture-based tests involving waiting periods of
24-48 hours.

      The following charts summarize Savyon's principal commercial diagnostic
products:

                      SEXUALLY TRANSMITTED DISEASES (STDS)

PRODUCT                                        DESCRIPTION
--------------------------------------------------------------------------------
SeroCT(TM) IgG, IgA       A peptide based enzyme-linked immunosorbent assay for
                          the specific detection of IgG or IgA antibodies
                          species specific to chlamydia trachomatis in human
                          serum.

--------------------------------------------------------------------------------
SeroFIA(TM)               An immunofluorescence assay for the detection of IgG
Chlamydia IgG,            or IgM or IgA antibodies specific to C. trachomatis,
IgM, IgA                  C. pneumoniae and C. psittaci in human serum.

--------------------------------------------------------------------------------
SeroELISA(TM)             An enzyme-linked immunosorbent assay for the detection
Chlamydia IgG,            of IgG or IgA or True IgM antibodies specific to
IgA, TRUE-IgM             chlamydia.

--------------------------------------------------------------------------------
SeroHSV(TM)IgM            An enzyme-linked immunosorbent assay for the
                          qualitative detection of specific IgM antibodies to
                          herpes simplex virus type 1 or 2 in human serum.

                       RESPIRATORY TRACT INFECTIONS (RTIS)

PRODUCT                                        DESCRIPTION
--------------------------------------------------------------------------------
SeroCP(TM)                An enzyme-linked immunosorbent assay for the
IgG,IgM,IgA               qualitative detection of IgG or IgM or IgA antibodies
                          specific to C. pneumoniae in human serum.

SeroCP Quant IgG,         An enzyme-linked immunosorbent assay for the
IgA                       semi-quantitative determination of IgG or IgA
                          antibodies specific to C. pneumoniae in human serum.

                                     - 22 -

<PAGE>

                       RESPIRATORY TRACT INFECTIONS (RTIS)

PRODUCT                                        DESCRIPTION
--------------------------------------------------------------------------------
SeroMP(TM) IgG,           An enzyme-linked immunosorbent assay for the detection
IgM,  IgA                 of IgG or IgM or IgA antibodies specific to mycoplasma
                          pneumoniae in human serum.

--------------------------------------------------------------------------------
SeroPertussis(TM)         An enzyme-linked immunosorbent assay for the
IgA/IgM, IgG              semi-quantitative detection of IgG antibodies and
                          IgA/IgM antibodies specific to bordetella pertussis in
                          human serum.

--------------------------------------------------------------------------------
SeroFIA(TM)               An immunofluorescence assay for the detection of IgG
Chlamydia IgG,            or IgA or IgM antibodies specific to C. pneumoniae, C.
IgM, IgA *                trachomatis and C. psittaci in human serum.

--------------------------------------------------------------------------------
SeroELISA(TM)             An enzyme-linked immunosorbent assay for the detection
Chlamydia IgG,            of IgG or IgA or True IgM antibodies specific to
IgA, TRUE-IgM *           chlamydia.

      o     Savyon's SeroFIA(TM) Chlamydia and SeroELISA(TM) Chlamydia kits may
            be used for the diagnosis of both STDs as well as for the diagnosis
            of RTIs.

                         URINARY TRACT INFECTIONS (UTIS)

PRODUCT                                        DESCRIPTION
--------------------------------------------------------------------------------
URISCREEN(TM)             A rapid UTI screening test for bacteria and the
                          presence of somatic cells in human urine.

                                 QUICKSTRIPE(TM)

PRODUCT                                        DESCRIPTION
--------------------------------------------------------------------------------
Strep A                   A rapid, visual assay for the detection of
                          streptococcal Group A antigen from throat swabs.

--------------------------------------------------------------------------------
Hepatitis B               A rapid, visual assay for the detection of hepatitis
                          B surface antigen (HbsAg) in human serum. hepatitis B
                          affects the liver, can be fatal and is transmitted
                          either through sexual contact or by infected blood.

--------------------------------------------------------------------------------
Chlamydia Ag              A rapid, visual assay for the detection of
                          chlamydia trachomatis antigen in endocervical,
                          urethral, or male urine specimens.

--------------------------------------------------------------------------------
hcg                       A rapid, visual assay for the detection of human
                          chorionic gonadotropin (hCG) in human serum or urine
                          (a pregnancy testing kit).

--------------------------------------------------------------------------------
PregnanStick(TM)          A rapid, visual assay for the detection of human
                          chorionic gonadotropin (hCG) in human serum or urine
                          (a pregnancy testing kit).

--------------------------------------------------------------------------------
Savvy check               Vaginal Yeast infection - A rapid visual assay for the
                          detection of vaginal yeast antigen from the vaginal
                          swabs in women symptomatic for vaginitis.

                                     - 23 -

<PAGE>

THE COMPANY - TECHNOLOGY AND PRODUCTS FOR GENETIC SCREENING AND TESTING

      The proprietary Pronto(TM) technology for the rapid detection of point
mutations and SNPs in DNA sequences is an accurate, user friendly, ELISA-based
technology, suitable for medium and large scale screening. This molecular
biology based technology enables the mass screening of genetic material for
mutations, and has applications in many fields, including human healthcare,
pharmacogenomics research and agriculture. Based on this technology, the
Company, through GamidaGen and Pronto, developed over 15 diagnostic kits for
carrier-screening, pre-natal diagnosis, and a selection of genetic
pre-disposition to certain diseases.

      For carrier-screening and pre-natal testing, the Company developed a panel
of kits that test for the most common disease-associated genes in Israel's
diverse population (e.g. cystic fibrosis, Canavan, gaucher, Bloom syndrome and
Fanconi anemia). Such kits are used in many genetic testing centers in Israel
for identifying prospective parents who may be carriers of mutations in genes
associated with these diseases. the Company further developed a kit that tests
for genes associated with cystic fibrosis, in order to address the needs of
different European populations by testing different mutations in the same
disease-associated gene in people from varying ethnic backgrounds.

      The Company also developed pre-disposition tests for certain diseases.
Among these is a three-kit panel which tests for mutations in genes associated
with pre-disposition to thrombosis, namely Factor V Leiden ("Factor V"), which
is the most common hereditary blood coagulation disorder in the United States,
the prothrombin ("Factor II") mutation 20210A, which is a major risk factor for
venous thrombosis and certain arterial thrombotic conditions and the
methylenetetrahydrofolate reductase mutation 677C>T ("MTHFR"). People with even
one copy of the mutated Factor II or Factor V gene may have an increased
likelihood of thrombotic events. Such likelihood may be increased further in
smokers, women taking birth-control pills and people who undergo major
operations; thus, awareness of the existence of these mutations promotes
preventive therapy. The Company developed further tests associated with
pre-disposition to other diseases such as hemochromatosis (iron overload),
screening kits for familial mediterranean fever, breast and ovarian cancer and
colorectal cancer and a genotyping kit for Apo E (a gene correlated with
pre-disposition to Alzheimer's disease).

      The Company's products in this field are intended for clinical
laboratories carrying out diagnosis of a variety of genetic defects and, in
particular, for Israeli, Arab, Jewish and ethnic European populations. In
addition, the Company's products are used in clinical laboratories performing
pre-disposition testing (thrombosis, hemochromatosis, certain cancers and
several other diseases and conditions). Under an agreement executed in September
2003 (the "PDL AGREEMENT"), exclusive rights for the exploitation of the
Pronto(TM) product range outside Israel have been licensed to Pronto Diagnostics
Ltd. PDL, a company founded by Dr. Nir Navot, formerly an employee of GamidaGen
and latterly chief executive officer of Pronto. Gamidor continues to distribute
the products in Israel, having also reserved a right of first refusal for
handling there any new products that PDL develops but does not market itself.
Subject to certain conditions, the manufacture of the product line for Gamidor
continues to be assigned to Savyon.

      The following charts summarize the Company's principal commercial products
for genetic screening and testing:

                    CARRIER SCREENING AND PRE-NATAL DIAGNOSIS

PRODUCT                                          ASSOCIATED DISEASE GENE
--------------------------------------------------------------------------------
Gaucher                         Gaucher (glucocerebrosidase)

--------------------------------------------------------------------------------
FMF                             Familial Mediterranean Fever (Pyrin)

--------------------------------------------------------------------------------
Canavan                         Canavan (Aspartoacylase)

--------------------------------------------------------------------------------
Bloom/Fanconi                   Bloom's syndrome (BLM); Fanconi Anemia C (FACC)

--------------------------------------------------------------------------------
CF Basic; CF Open; CF Euro 1    Cystic Fibrosis (CFTR)

--------------------------------------------------------------------------------
FD                              Familial Dysautonomia (IKBKAP)

--------------------------------------------------------------------------------
2 GeneScreen                    Mucolipidosis type IV (ML IV), Niemann-Pick
                                types A+B

                                     - 24 -

<PAGE>

                    CARRIER SCREENING AND PRE-NATAL DIAGNOSIS

PRODUCT                                       ASSOCIATED DISEASE GENE
--------------------------------------------------------------------------------
4 GeneScreen                 Canavan, BLM, FACC, FD

--------------------------------------------------------------------------------
Tay Sachs                    Tay Sachs (hexosaminidase)

                       GENETIC PRE-DISPOSITION TO DISEASE

PRODUCT                                       ASSOCIATED DISEASE GENE
--------------------------------------------------------------------------------
Brca                         Pre-disposition to breast cancer and ovarian cancer
                             (Brca1, Brca2)

--------------------------------------------------------------------------------
ApoE                         Hyper-cholesterolemia (Apolipoprotein E)

--------------------------------------------------------------------------------
APC                          Pre-disposition to colorectal cancer

--------------------------------------------------------------------------------
ThromboRisk (TM)             Increased risk of thrombosis (Factor V, Factor II,
                             MTHFR)

--------------------------------------------------------------------------------
Factor V                     Increased risk of thrombosis

--------------------------------------------------------------------------------
MTHFR                        Increased risk of thrombosis

--------------------------------------------------------------------------------
Factor II / Prothrombin      Increased risk of thrombosis

--------------------------------------------------------------------------------
Hemochromatosis              Hemochromatosis\ iron overload (HFE)

                              DNA EXTRACTION

PRODUCT                                               USAGE
--------------------------------------------------------------------------------
DNA extraction kit (from     Rapid DNA extraction for use in diagnostics and
human whole blood)           research laboratories

RESEARCH AND DEVELOPMENTS -SAVYON

      The Company, through Savyon mainly, is engaged in certain research and
development activities as detailed below. See Item 5D "Operating and Financial
Review and Prospects - Research and Development Grants." These activities
include certain new projects in the diagnostic field. Savyon's gross research
and development expenditures were approximately $552 thousand dollars and $672
thousand dollars for the years 2005 and 2004 and represents Savyon's effort in
developing new products.

PATENTS

      The Company's policy generally is to secure patent and design protection
for significant aspects of its products and technologies, as well as contractual
obligations - including confidentiality and proprietary rights undertakings -
with employees and distributors. There can be no assurance as to the degree of
protection these measures may or will afford.

                                     - 25 -

<PAGE>

      The Company is actively involved in research and has secured or is seeking
patent and trademark protection for various aspects of its developments.

      In the genetic field, the Company has seven granted patents that it
utilizes in producing its products (three of which have been assigned to PDL
under the PDL Agreement). The patents are registered for methods of single
nucleotide primer extension and kits therefore, of quick screening and
identification of specific DNA sequences by single nucleotide primer extension
and kits therefore, and of characterizing GC-rich nucleic acid sequences. These
methods relate to the Company's ProntoTM genetic test products line. Three of
the granted patents are registered in Israel, three are registered in the United
States and one is registered in Europe (national phase). All of them expire
between 2012 and 2014.

      In the serologic field, during 2004 the Company received a U.S. patent
regarding chlamydia trachomatis, specific peptides and their use in diagnostic
assays. This patent is used in the production of the Company's Sero CT
diagnostic test kit products. Likewise, there is a pending patent application
registered in Europe.

      In both the genetic and the serologic fields, the Company has certain
other granted patents and applications for patents that are not utilized by it
for its products, will probably not be used in the future and, therefore, will
not be renewed.

      There can be no assurance that patent applications will result in issued
patents or that patents will not be circumvented or invalidated or that, if
granted, they will provide any material benefit to the Company. The Company may
be adversely affected by the costs of or delays in any litigation which may be
required to protect patents and there can be no assurance that the Company will
ultimately be successful in any such litigation. There can be no assurance as to
the risk of infringing the patent rights of others.

      The Company, directly and/or through certain of its subsidiaries and
affiliates, is also the exclusive licensee of issued (or applications pending
relating to) patents and designs of certain research institutions and other
third parties in Israel and certain other countries (including under the Patent
Cooperation Treaty). The terms of such licenses are generally non-exclusive,
subject to payment of royalties, including minimum annual royalties. See Item
10. "Additional Information - C. Material Contracts".

      MARKETING AND SALES - GAMIDOR GROUP, DANYEL AND SAVYON

      The Company's marketing and sales activities in Israel are conducted by
the Gamidor Group in the fields of clinical diagnostic laboratories and
laboratories in general and by Danyel in the field of biotech research. The
Company's sales and marketing activities worldwide (other than in Israel) are
conducted by Savyon.

      MARKETING AND SALES IN ISRAEL

      CLINICAL DIAGNOSTICS LABORATORIES - GAMIDOR GROUP - www.gamidor.com

      The Company markets products, reagents and systems to clinical diagnostic
laboratories and doctors' offices in Israel through the Gamidor Group.

      The Gamidor Group provides diagnostic systems, accessories, disposables
and services to clinical laboratories, including for example genetic, pathology
and hematology laboratories, as well as near-patient testing devices to doctors'
offices and supplies for industrial laboratories. Its customers generally
consist of technicians and managers of such laboratories, the quality control
departments of industrial firms, the Ministry of Health, administrators in sick
funds (Israeli health insurance organizations), private health care institutions
and the Ministry of Defense.

      The Gamidor Group distributes its products from various sources worldwide.
Among its suppliers are Dade Behring, IRIS, Oxoid, Perkin Elmer Analitycal &Life
Sciences-, Pharmacia Diagnostics and Ventana Medical. The Gamidor Group's
relationships with such suppliers are generally based on detailed written
agreements, granting exclusive or non-exclusive distribution rights in Israel,
in most cases subject to the attaining of certain minimum annual performance
levels. Although the terms of some such written agreements have elapsed, the
business relationships with the suppliers concerned are maintained and new
contracts are negotiated for extended periods.

                                     - 26 -

<PAGE>

      The Gamidor Group is also exclusively responsible in Israel for making
available to clinical laboratories the external assessment programs of the
College of American Pathologists. It additionally markets software programs for
diagnostic and related educational purposes.

      The Gamidor Group, moreover, distributes certain expensive items of
capital equipment, such as the Microscan instrument of Dade Behring, TOA's
Sysmex coagulation systems (through Dade Behring) and the IRIS automated
microscopy system. The Gamidor Group provides certain customers with such
instruments for a period of three to five years, during which time such
customers undertake to purchase minimum monthly quantities of reagents from the
Gamidor Group at prices which take into account the values of both instruments
and reagents. Throughout such period, the Gamidor Group retains ownership and is
entitled to re-possess such instruments. The terms and conditions of these
arrangements are generally agreed in writing.

      In addition, the Gamidor Group acts in Israel pursuant to a written
agreement as the sole and exclusive agent and technical support contractor for
the automated laboratory specimen handling systems of Lab-Interlink Canada,
Inc.. In this capacity, Gamidor in 2000 entered into an undertaking with
Labotix's for support to the customer, Maccabi Medical Healthcare Services, and
to meet certain technical service, support, training and related obligations
provided for on its part in the Turnkey and Service & Support Agreements made
between Labotix and Maccabi in connection with the first installation in Israel
of one such system.

      BIOTECHNOLOGY RESEARCHERS - DANYEL - WWW.DANYEL.CO.IL

The Company markets instruments, devices, systems, compounds, reagents and
services to biotechnology researchers in Israel through Danyel. Such products
include -

genomic-sequencing - genotyping, single nucleotide polymorphism (SNP) analysis
and DNA microarray methodologies;

proteomics - analytical instruments for taking any step in protein purification
and characterization processes, such as columns/media for chromatography
evaluation software systems for analyzing interacting bio-molecules, and, a high
throughput 2-D electrophoresis workstation including an automated spot picker
and a MALDI_TOF mass spectrometer;

bio-plast division - disposable devices for immunology, cell culture and
molecular biology for research laboratories and biotech industries;

Danyel Biotech Services (DBS) - DNA sequencing and SNPs analysis, RT PCR and
special customized biological projects with the cooperation of QBI Ltd.
(dbs-QBI)

Danyel also imports and markets a range of specialized instruments, reagents and
radioactively labeled compounds for academic and biomedical research
laboratories, consumable products in the fields of cell culture, molecular
biology and immunology, and analytical and laboratory systems such as
spectrophotometers, fluorometers, electrophoresis equipment and consumables.

      Danyel represents and distributes products manufactured by leading
companies from around the world, including Ge Healthcare (formerly Amersham
Biosciences), BiaCore, Ciphergen, Dynal Biotech, Nunc, Nalgene, JRH Biosciences,
Tc Tech and Biotage ( Pyrosequencing).

      MARKETING AND SALES WORLDWIDE - SAVYON

      Savyon markets its diagnostic products through the Company's subsidiaries,
affiliates and in-house marketing organizations as well as through independent
distributors and, in certain cases, OEM arrangements. Savyon's continuing
strategy has been to utilize the Company's own marketing organization while
relying on independent distributors, which presently account for the majority of
sales of such products.

      Sales of Savyon's diagnostic products in Israel have been made mainly
through the Gamidor Group. Elsewhere, such sales have to date been made mainly
to Germany, France and other Western European countries and to the United
States, primarily through local distributors. Savyon also currently markets
these products through distributors in Australia, Austria, Belgium, Cameroon,
Canada, China, Dominican Republic, Finland, Greece, Italy, Japan, Latvia,
Lithuania, Moldavia, Nigeria, Norway, Peru, the Philippines, Russia, South
Africa, Spain, Switzerland, Taiwan, Thailand, The Netherlands, Turkey and
Venezuela. The relationships with Savyon's distributors are, in certain cases,
regulated by written distribution agreements and, in some instances, by
distributorship arrangements which are non-binding on the distributor.

                                     - 27 -

<PAGE>

      Under Savyon's distribution agreements, the distributors are generally
granted exclusive or non-exclusive rights to market Savyon's products in limited
territories for specified periods. These agreements usually require minimum
purchase commitments and, in certain cases, are automatically renewable for
additional periods, subject to satisfaction of defined minimum purchase
obligations. Some such agreements also grant the distributor certain rights of
first refusal for additional distribution rights. Distributors are typically
required to undertake confidentiality and proprietary rights protection
obligations. Savyon's distributorships are not normally on a consignment basis.

      The Company's products for genetic screening and testing have been
commercially sold in Israel since January 1997 through Gamidor. Exclusive rights
for the exploitation of the Pronto(TM) product range outside Israel have been
licensed to PDL during 2003.

      MAJOR SUPPLIERS

      During 2004 and 2005, purchases from one of Danyel's suppliers, Amersham
Biosciences ("Amersham"), which was acquired by General Electric during October
of 2003, accounted for 31% and 26% respectively of the Company's annual cost of
sales. In addition, during 2004 and 2005, purchases from one of the Gamidor
Group's suppliers, Dade Behring, accounted for 15% and 19% respectively of the
Company's annual cost of sales. A significant decrease in the level of the
Company's sales to these customers could adversely affect the Company's business
and financial results.

      MAJOR CUSTOMERS

      Sales to three sick funds in Israel, namely Maccabi, Clalit and Meuhedet
(collectively "the Sick Funds") accounted respectively for 8%, 14% and 7% of the
Company's annual sales during 2004, and 12%, 16% and 3% of such sales in 2005.

COMPETITION

SAVYON

      Competition in the diagnostic products field is intense and the market is
dominated by major diagnostic companies. The market itself is fragmented, in
that there are many products available for testing a large number of diseases,
which are produced by many small and medium sized manufacturers, including
companies with substantially greater financial and other resources than the
Company. Although the Company expects the market for diagnostic testing of
sexually transmitted and infectious diseases to grow, it also expects that
additional companies will enter this field.

      The Company's strategy is to look for high growth niches, to concentrate
on markets not competitively dominated or crowded and to ascertain market needs
before commencing development of new products and technologies. The Company
attempts to compete through its technology, short time-to-market, rapidness of
assay, quality and price.

      In the area of chlamydia Savyon competes with such multi-national
companies in the direct testing field as Abbott (LCR, Ag), Biomerieux, Roche
(PCR), Syva and Unipath, which produce diagnostic products for the detection of
chlamydia antigens. Savyon's serology test kits for chlamydia compete with
serology tests produced by companies such as Medac in Germany, Orgenics in
Israel, MRL in the United States and LabSystems in Finland. Savyon's SeroMP
(micoplasma pneumoniae) products compete in the field of serology testing with
products produced by companies such as Fujirebio in Japan.

      The QuickStripe(TM) products marketed by Savyon compete mainly with
products produced by companies such as Quidel (USA), Sentinal Diagnostics
(Italy), Agen (Australia), SA - Scientific (USA), Oxoid / Unipath (UK), Syntron
(USA) and Veda Lab (France), although there are many others.

      The Company's competitors in the field of genetic diagnostic tests have
developed competing technologies for the screening of genetic materials for
mutations. These competitors include many large and medium sized multi-national
corporations, including Innogenetics in Belgium and Third Waves Technologies,
Myriad Genetics, Affymetrix, Orchid BioSciences and Roche in the United States.
The Company's indirect competitors in this field include numerous small scale
laboratories. Although the Company is not aware of any published industry market
share statistics, the Company estimates, based upon its knowledge of the
industry, that its market share in this field represents a very small portion of
the total market.

                                     - 28 -

<PAGE>

DANYEL

      Danyel Biotech's principal competitors in the distribution of reagents and
systems to the biotechnology market in Israel include: Biorad Israel, Eldan
(Agilent), Medtechnica (Waters) in the field of chromatography; Pharmatec
(Tecan) and Saifan (Pe Life Science) in the field of advanced laboratory
instrumentation (fluorometers, counters); DeGroot (Greiner), Geter (Corning) in
the field of bio-plastics; and Saifan (PE Life Sciences -NEN-), Biological
Industries (Promega), Dinco Renihum (Invitrogen) and Sigma Israel in the field
of molecular biology and Biology Reagents. Although the Company is not aware of
any published industry market share statistics, it estimates, based upon its
knowledge of the industry, that in fiscal 2005 Danyel accounted for a
significant portion of the Israeli distribution market for chromatography
products, bio-plastics and advanced laboratory instrumentation and a lesser
portion of the Israeli market for Danyel's other products.

GAMIDOR GROUP

      The Gamidor Group's principal competitors in the distribution of reagents
and systems to clinical laboratories in Israel include: Ilex (Abbott) and Dover
(J&J) for hematology products; Dyn Diagnostics (Roche) and Pharmtop (Sorin) for
immunology products; Ilex (Vitek) and Sorin for microbiology products; Teva
Medical (Nequas) for quality control products; Dyn Diagnostics (Roche) and
Medtechnica (Olympus) for clinical chemistry products. Although the Company is
not aware of any published industry market share statistics, it estimates, based
upon its knowledge of the industry, that in fiscal 2005 the Gamidor Group
accounted for a significant portion of the Israeli pathology, genetics,
hemostasis products market and a lesser portion of the Israeli market for the
Group's other products.

MARKET OPPORTUNITIES

      MARKET DEFINITION: In vitro diagnostics (IVD) refers to the detection of
various substances found in body fluids such as whole blood, plasma, serum,
urine or saliva. In vitro, as distinguished from in vivo, refers to tests
performed outside of the body. These are undertaken in a number of different
clinical settings including hospital laboratories, commercial laboratories,
doctors' offices, ambulatory care centers and consumers' homes. Due to its
important role in the diagnosis and treatment of patients, in vitro diagnostic
testing is an integral part of cost efficient, high quality patient care.

      The in vitro diagnostics market is large and essentially mature, with
revenues of over $20 billion. The Company believes that its moderate level of
growth is directly attributable to structural changes within the clinical
laboratory sector. Hospital laboratories are radically restructuring to lower
costs and improve productivity by way of liaison with in vitro diagnostics
manufacturers. They seek integrative technological solutions that automate all
or a significant portion of their testing workloads.

The Company anticipates that the pressure on clinical laboratories to reduce the
costs of in vitro diagnostic testing, coupled with the sluggish state of the
market, may result in a consolidation among in vitro diagnostics suppliers. The
Company expects the point of care and over-the-counter diagnostics segments to
grow at a higher rate than the traditional in vitro diagnostics market, however.
For further details as to the Company's current engagement in both areas, see
below: "Market Segmentation - (end-user / product)".

      NEW BUSINESS OPPORTUNITIES: By being both a developer and distributor of
products, the Company believes it is able to gain an understanding of the needs
of the market. The Company further believes that this position also creates the
opportunity for strategic partnerships in marketing and joint manufacturing. As
a result of its vertical integration, the Company is able to develop new
products based on market needs, test the release of the products in Israel and
internationally, and further market the products worldwide. This approach makes
Healthcare attractive to third parties in need of test marketing and
distribution in Israel.

      The following segments of the laboratory, point of care and
over-the-counter markets are areas which the Company believes offer future
market opportunity and are envisaged as growth areas, conforming to current
product lines and technologies of the Company, as well as those under
development.

      MARKET SEGMENTATION (END-USER / PRODUCT): The Company provides diagnostic
tools to laboratory professionals and at point of care sites in Israel and
worldwide. The Company also provides over-the-counter kits for the diagnosis of
certain infectious diseases.. The Company's medical diagnostic kits for certain
sexually transmitted and infectious diseases are sold primarily to commercial
laboratories and hospitals, which use them to perform tests requested by
physicians. The Company's QuickStripe(TM) products are addressed to the point of
care markets, emergency rooms, urgent medical care and doctors' offices. While
the SeroFIA(TM) Chlamydia kits are generally used by professionals in reference
laboratories, the Company's SeroELISA(TM) Chlamydia, SeroCT and SeroCP Kits are
mainly used by large institutional laboratories employing automated ELISA
processors.

                                     - 29 -

<PAGE>

GOVERNMENT REGULATIONS

      Government Regulations

      The FDA of the United States as well as the IVDD European Directive, the
Health Authorities in Canada and the Ministry of Health in Israel impose
substantial regulations on the manufacture of diagnostic products and must
register these products before they can be marketed. In their evaluation
process, such governmental bodies require lengthy and detailed laboratory and
clinical testing procedures and manufacturing data for in vitro diagnostic
products.

      The conduct of clinical testing is presently covered by extensive
regulations designed to protect research subjects and to ensure the validity of
the test data. Government regulation may impose costly procedures upon the
Company and may delay or prevent the marketing of certain of the Company's
products.

      Failure to obtain, or delays in obtaining, approvals of products would
prevent or delay the commercial development of such products and could have a
material adverse effect on the business of the Company. When the FDA and
comparable regulatory bodies of other jurisdictions approve the sale of a
product, their regulations apply to the manufacturing and marketing of such
product.

      The manufacture, distribution and sale of in vitro diagnostics products,
such as the Company's test kits, require compliance with regulations which,
generally, are less difficult to comply with than those covering therapeutic
products. The FDA and similar agencies have substantial regulations applying to
the testing, marketing (including export) and manufacturing of products to be
used for the diagnosis of disease. The registration of the products by each
governmental body is defined by the classification of the product. In the United
States, many diagnostic products may be accepted by the FDA pursuant to a
"510(k)" notification. which establishes that the product in question is
"substantially equivalent" to similar diagnostic products already in general
use. Failure to obtain acceptance under the 510(k) application process would
require pre-market approval ("PMA"), a process involving lengthy and detailed
laboratory and clinical testing as well as other costly and time-consuming
procedures.

The IVD European Directive uses 3 classifications: A, B, and NON A/B. The A
classification signifies high risk whereas B signifies moderate risk and NON A/B
signifies low risk. In Canada, the Health Authorities classify the products in 4
classes, where the highest number signifies the highest risk. The Israeli
Ministry of Health has no formal classification, which enables the company to
sell throughout Europe.

      In addition, the Company has received an FDA approval for marketing a
number of products in the United States, Canada and Israel. The Company is
accredited with the international quality standards of research, development and
manufacturing and has received the FDA License and ISO 13485 (2003), which is
recognized by IVDD European Direct, CMDCAS (Canadian Authorities), and The
Standards Institution of Israel.

                                     - 30 -

<PAGE>

      The following summarizes the principal foreign regulatory approvals that
the Company's products have received:

<TABLE>
<CAPTION>
  CATALOG NO               PRODUCT                 FDA APPROVED 510K     CE EUROPE 98/79
-------------   --------------------------------   -----------------   -------------------
<S>             <C>                                <C>                 <C>
   A181-01               SeroCT(TM) IgG                                      Approved
   A183-01               SeroCT(TM) IgA                                      Approved
    511-01         SeroFIA(TM) Chlamydia IgG                                 Approved
    512-01         SeroFIA(TM) Chlamydia IgM                                 Approved
    513-01         SeroFIA(TM) Chlamydia IgA                                 Approved
    570-01          SeroFIA(TM) C. psittaci                                  Approved
    580-01         SeroFIA(TM) C. trachomatis                                Approved
    590-01         SeroFIA(TM) C. pneumoniae                                 Approved
   A111-01        SeroELISA(TM) Chlamydia IgG          K915281/A             Approved
   A112-01      SeroELISA(TM) Chlamydia TRUE IgM                             Approved
   A113-01        SeroELISA(TM) Chlamydia IgA          K914327/C             Approved
    011-01       IPAzyme(TM) Chlamydia IgG/IgA          K910644              Approved
    012-01       IPAzyme(TM) Chlamydia TRUE IgM        K901975/B             Approved
   B261-01M              SeroMP(TM) IgG                K882596/D             Approved
   B262-01M              SeroMP(TM) IgM                K895276/D             Approved
   B263-01M              SeroMP(TM) IgA                K882596/D             Approved
   A191-01               SeroCP(TM) IgG                                      Approved
   A192-01               SeroCP(TM) IgM                                      Approved
   A193-01               SeroCP(TM) IgA                                      Approved
   A291-01               SeroCP Quant IgG                                    Approved
   A293-01               SeroCP Quant IgA                                    Approved
    511-01         SeroFIA(TM) Chlamydia IgG                                 Approved
    512-01         SeroFIA(TM) Chlamydia IgM                                 Approved
    513-01         SeroFIA(TM) Chlamydia IgA                                 Approved
    570-01          SeroFIA(TM) C. psittaci                                  Approved
    580-01         SeroFIA(TM) C. trachomatis                                Approved
    590-01         SeroFIA(TM) C. pneumoniae                                 Approved
   A231-01           SeroPertussis(TM) IgG                                   Approved
   A233-01         SeroPertussis(TM) IgA/IgM                                 Approved
    101-01               URISCREEN(TM)                  K981084
    41110             QuickStripe(TM) hCG                                    Approved
    41210               PregnanStick(TM)                                     Approved
    41207         QuickStripe(TM) Adeno / Rota                               Approved
    41206          QuickStripe(TM) Adenovirus                                Approved
    41205          QuickStripe(TM) Rotavirus                                 Approved
    41209             QuickStripe(TM) RSV                                    Approved
    41101         QuickStripe(TM) Chlamydia Ag                               Approved
    42013            Vaginal Yeast Test                                      Approved

</TABLE>

      ISO COMPLIANCE

      The Company's and certain of its subsidiaries' activities in Israel have
been audited by the Standards Institution of Israel and found to comply with the
Quality Management Standard ISO 13485:2003, in the following sectors: research
and development, manufacture and sales of diagnostics for the detection of
various pathogens (Savyon); ISO 9001:2000 for supply, service and support of
biological products for research and biotechnology (the Gamidor Group and
Danyel); and biomedical supply, service and support (Gamidor).

            C.    ORGANIZATIONAL STRUCTURE

      See "Introduction" for a description of the Company's organizational
structure.

                                     - 31 -

<PAGE>

            D.    PROPERTY, PLANT AND EQUIPMENT

      The Company's principal facilities, including its administrative,
research, manufacturing and marketing facilities, are located mainly at leased
premises in, Petach-Tikva, Ashdod and Rehovot in Israel.

      The Company's offices are located in Petach Tikva and are leased from
Gamida for Life (Israel) Ltd. ("Gamida Israel"), a company controlled by Gamida.
During 2005 the Company leased 220 square meters with parking for an annual
rental fee of approximately $38,000, linked to the Israeli consumer price index,
which includes rent and parking charges.

      The Gamidor Group's principal offices are located at the same location in
Petach Tikva and are leased from Gamida Israel. The Gamidor Group leases
approximately 265 square meters of space plus parking space for an annual rental
fee of approximately $50,000, linked to the Israeli consumer price index. Such
lease currently extends until September 2007. In addition, the Gamidor Group has
extended and increased its lease of a warehouse in Petach Tikva to approximately
450 square meters for an annual rental fee of approximately $43,000. The
extension is for an additional two years ending September 2007.

      Danyel's principal offices, including its administrative and technical
service laboratory facilities, are located in the Kiryat Weizman Science Park,
Rehovot. Danyel leases approximately 240 square meters at an annual rental fee
of approximately $35,000 (linked to the Israeli consumer price index) for a
period of five years, ending May 30 2005. The agreement was extended for
additional three years for an annual rental fee of approximately $ 27,000. In
addition, Danyel leases a warehouse of approximately 270 square meters for an
annual rental fee of approximately $16,000 for a period of five years, ending
June 30, 2008

      The Ashdod facilities are held by Savyon under the terms of a lease
agreement from 1993, which as of August 1, 2004 was extended for an additional
ten years, pursuant to which Savyon leases approximately 2,300 square meters of
space at an annual rental fee of approximately $185,000, linked to the Israeli
consumer price index. Savyon's obligations under the terms of this lease are
secured by a bank guarantee of approximately $185,000. These facilities, which
are used for research and development activities, as well as for production and
marketing of products, have been designed to comply with Good Manufacturing
Practices requirements. The Ashdod site generally operates on a one-shift basis
and there is presently capacity available to accommodate future growth.

      The Company believes that its facilities are well maintained and in good
operating condition, and will be adequate for its operations for the foreseeable
future.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

      The Company and some of its subsidiaries maintain their accounts and
present their financial statements in U.S. Dollars, the currency of the economic
environment in which the Company operates. The results are then translated into
New Israeli Shekels based on the current rate of exchange.

      The sales of the company represent the sales of Gamidor Diagnostics Ltd.
and Danyel Biotech Ltd. Operational costs include the expenses of Gamidor,
Daniel, Headquarters and public company related costs. The company's
consolidated figures for the year ended December 31, 2005 ,2004 and 2003 include
Savyon's results on an equity method basis.

            A.    RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2005 COMPARED TO THE YEAR ENDED DECEMBER 31, 2004

      Revenues for 2005 were $12.0 million compared to $12.1 million in 2004.
This represents stability in sales to laboratories and point of care sites in
Israel. Revenues for these two years do not include Savyon's sales, which are
presented on an equity basis according to US GAAP. Gross profit was $4.3 million
as compared to $4.2 million for 2004.

      Selling and Marketing expenses were $2.5 million in 2005 compared to $2.8
million in 2004. General and Administrative expenses were $1.7 million in 2004
versus $1.8 million in 2004.

      In 2005, the company was not required to record losses in Afferix as
compared to an impairment loss of $100 thousand in 2004.

                                     - 32 -

<PAGE>

      Operating income for the year 2005 amounted to $161 thousand compared to
operating loss of $(555) thousand in 2004. The improvement is due to the
following reasons:

      -     An increase in profitability in some of our business with clinical
            diagnostics laboratories, as reflected in gross profits.

      -     Efficiency in allocating selling and marketing efforts which reduced
            costs.

      -     During 2005 we did not record one time expenses as we did during
            2004, such expenses in 2004 included expenses associated with the
            ImmvaRx transaction in the amount of $104 thousand, bad debt
            expenses in the amount of $102 thousand

      Equity earnings in affiliates amounted to $ 116 thousand in 2005 as
compared to $ 53 thousand in 2004 and represents the company's share in Savyon's
net income.

      Net profit for fiscal 2005 was $276 thousand or $0.04 per share, as
compared to a net loss of $(359) thousand, or $(0.05) per share for fiscal 2004.

    YEAR ENDED DECEMBER 31, 2004 COMPARED TO THE YEAR ENDED DECEMBER 31, 2003

      Revenues for 2004 were $12.1 million compared to $12.4 million in 2003.
The gross profit was $4.2 million as compared to $4.0 million for 2003.
Amortization of goodwill and technology amounted to $0 thousand in 2004 versus
$749 thousand in 2003. The reason for the decrease is due to the fact that the
Company concluded the amortization of technology related to its investments
during 2003.

      Net research and development costs for the year 2004 and 2003 were $95
thousand and $94 thousand respectively. However, Savyon's net research and
development expenditures were approximately $626 thousand and $474 thousand for
the years 2004 and 2003 respectively and represent Savyon's efforts in
developing new products.

      Selling and Marketing expenses were $2.8 million in 2004 compared to $2.9
million in 2003. General and Administrative expenses were $1.8 million in 2004
versus $1.4 million in 2003. The increase of $0.4 million is mainly due to
expenses associated with the ImmvaRx transaction in the amount of $104 thousand,
bad debt expenses in the amount of $102 thousand and consultancy expenses
related to our Genetic products amounting to $61 thousand.

      Impairment of an investment in an affiliate amounted to $100 thousand and
$111 thousand in 2004 and 2003 and represents the writing off of the investment
in Afferix. As of December 31, 2004, the Afferix investment has been fully
written off and as the Company does not guaranty any additional losses of
Afferix, it shall therefore not be required to record Afferix's future losses in
its financial statements.

      Equity earnings (losses) in affiliate amounted to $53 thousand in 2004 as
compared to $(14) thousand in 2003 and represent the Company's share in Savyon's
income (loss).

      The net loss for 2004 was $359 thousand or $0.05 per share, as compared to
a net loss of $500 thousand or $0.07 per share for 2003.

      CRITICAL ACCOUNTING POLICIES

      Management's discussion and analysis of the Company's financial condition
and results of operations are based upon its consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States, The Company's critical accounting policies are
described in Note 2 to the Company's financial statements.

                                     - 33 -

<PAGE>

      ALLOWANCE FOR DOUBTFUL ACCOUNTS

      The Company maintains allowances in respect of doubtful accounts for
estimated losses resulting from the inability of its customers to make required
payments. If the financial condition of the Company's customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances could be required.

      EXCESS AND OBSOLETE INVENTORY

      The Company writes down its excess and obsolete inventory to an extent
equal to the difference between the cost of inventory and the estimated market
value based upon assumptions about future product life-cycles, product demand
and market conditions. If actual product life cycles, product demand and market
conditions are less favorable than those projected by management, additional
inventory write-downs may be required.

      GOODWILL AND OTHER INTANGIBLE ASSETS

      We follow SFAS No. 142, "Goodwill and Other Intangible Assets." Under SFAS
No. 142, goodwill and intangible assets deemed to have indefinite lives are no
longer amortized but are subject to periodic impairment tests in accordance with
the Statement. Goodwill impairment is deemed to exist if the net book value of a
reporting unit exceeds its estimated fair value. The total purchase price of
business acquisitions accounted for using the purchase method is allocated first
to identifiable assets and liabilities based on estimated fair values. The
excess of the purchase price over the fair value of net assets of purchased
businesses is recorded as goodwill.

      We perform an annual impairment test for each fiscal year, or more
frequently if impairment indicators are present. We operate in one operating
segment, and this segment comprises our only reporting unit. In calculating the
fair value of the reporting unit, we use a discounted cash flow methodology,
market multiples and market capitalization. Significant estimates that we use in
these fair value methodologies include estimates of future cash flows, future
short-term and long-term growth rates, weighted average cost of capital and
estimates of market multiples of the reportable unit. Other factors we consider
are the brand awareness and the market position of the reporting unit and
assumptions about the period of time we will continue to use the brand in our
product portfolio. If these estimates or their related assumptions change in the
future, we may be required to record impairment charges for our goodwill and
intangible assets with an indefinite life. As of December 31, 2005 no impairment
charges were required.

      RECENTLY ISSUED ACCOUNTING STANDARDS

In December 2004, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 123 (revised 2004) (SFAS No. 123(R)), "Share-Based Payment," which
is a revision of SFAS No. 123. SFAS No.123(R) supersedes APB No. 25, and amends
FASB Statement No. 95, "Statement of Cash Flows." Generally, the approach in
SFAS No. 123(R) is similar to the approach described in SFAS No. 123. SFAS No.
123(R) requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the income statement based on their
fair values beginning in the first quarter of 2006. Pro forma disclosure is no
longer an alternative. In March 2005, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 107 (SAB No. 107), which provides
supplemental implementation guidance on SFAS No. 123(R).

We have the option to choose either the modified prospective or modified
retrospective method. We currently expect to adopt SFAS No. 123(R) using the
modified prespective method of adoption. This method requires that compensation
expense be recorded over the expected remaining life of all unvested stock
options and restricted stock, and for any new grants thereof at the beginning of
the first quarter of adoption of SFAS No.123(R).

Currently account for share-based payments to employees using APB No. 25's
intrinsic value method and, as such, generally recognize no compensation cost
for employee stock options. Accordingly, the adoption of the SFAS No. 123(R)
fair value method will have an impact on our consolidated financial results.

In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections", a replacement of APB No. 20, "Accounting Changes" and SFAS No. 3,
"Reporting Accounting Changes in Interim Financial Statements". SFAS No. 154
provides guidance on the accounting for and reporting of accounting changes and
error corrections. APB No. 20 previously required that most voluntary changes in
accounting principles be recognized by including in net income for the period of
the change, the cumulative effect of changing to the new accounting principle.
SFAS No. 154 requires retroactive application to prior periods' financial
statements of a voluntary change in accounting principles unless it is
impracticable. SFAS 154 is effective for accounting changes and corrections of
errors made in fiscal years beginning after December 15, 2005. As of December
31, 2005, adoption of SFAS No. 154 will not have a material impact on the
Company's financial position or results of operations.

                                     - 34 -

<PAGE>

In November 2004, the FASB issued Statement of Financial Accounting Standard No.
151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4." ("SFAS 151").
SFAS 151 amends Accounting Research Bulletin ("ARB") No. 43, Chapter 4, to
clarify that abnormal amounts of idle facility expense, freight handling costs
and wasted materials (spoilage) should be recognized as current-period charges.
In addition, SFAS 151 requires that allocation of fixed production overheads to
the costs of conversion be based on normal capacity of the production
facilities. SFAS 151 is effective for inventory costs incurred during fiscal
years beginning after June 15, 2005. The Company does not expect that the
adoption of SFAS 151 will have a material effect on its financial position or
results of operations.

            B.    IMPACT OF INFLATION AND DEVALUATION

PRODUCT DEVELOPMENT AND MARKETING OPERATIONS

      Although a substantial portion of the Company's expenses arising from its
product development and marketing operations is in U.S. Dollars or Dollar
linked, the Dollar cost of such operations of the Company 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 a
devaluation of the New Israeli Shekel in relation to the U.S. Dollar. Inflation
in Israel will increase the Company's Dollar cost of such operations and thus
have a negative effect on the profitability to the Company of contracts under
which the Company is to receive payments in U.S. Dollars or other foreign
currencies, unless such inflation is offset by a devaluation of the NIS.

      A devaluation of the NIS in relation to the U.S. Dollar would have the
effect of decreasing the Dollar value of any assets of the Company consisting of
NIS or receivables payable in NIS (unless such receivables were Dollar linked).
Such devaluation would also have the effect of reducing the Dollar amount of any
liabilities of the Company payable in NIS (unless such payables were Dollar
linked). Conversely, any increase in the value of the NIS in relation to the
U.S. Dollar would have the effect of increasing the Dollar value of any unlinked
NIS assets of the Company and the Dollar amount of any unlinked NIS liabilities
of the Company. Similarly, the Company's gross profit is influenced by the
devaluation of the Euro and NIS, in which a substantial portion of the Company's
sales are made, in relation to the U.S. Dollar.

THIRD PARTY PRODUCT DISTRIBUTION ACTIVITIES

      A substantial part of the Company's third party product distribution
activities is managed by the Gamidor Group and by Danyel. The Gamidor Group's
and Danyel's sales are quoted in NIS; however, their selling prices are based
upon a price list, which is quoted in the suppliers' original currencies, mainly
Euros and U.S. Dollars. The price is then converted into NIS at the relevant
exchange rate on the date of sale to the customer. This enables the Gamidor
Group and Danyel to reduce exposure to losses from devaluations of the NIS in
relation to such foreign currencies. The Gamidor Group's and Danyel's accounts
receivable are, however, quoted in non-linked NIS and, consequently, inflation
in Israel would have the effect of increasing their financial expenses.

      In addition, the Gamidor Group's and Danyel's accounts payable are mainly
quoted in such foreign currencies and, consequently, any excess of a devaluation
rate in the NIS in relation to such currencies over the inflation rate in Israel
would have the effect of increasing the Company's financial expenses. Because
the exchange rates between the NIS and the Yen, Euro and U.S. Dollar fluctuate
continuously, exchange rate fluctuations and especially larger periodic
devaluations have an impact on the Company's profitability and period-to-period
comparisons of the Company's results in U.S. Dollars. For details of changes
effected in the Israeli government's monetary policy relating to the
representative rate of exchange of foreign currencies into NIS, see Item 3. "Key
Information - D. Risk Factors."

      The Company's consolidated results of operations are, therefore, affected
by several interrelated factors, including the rate of inflation in Israel, the
devaluation of the NIS in relation to the primary foreign currencies relevant to
the Company, the devaluation of relevant foreign currencies in relation to the
U.S. Dollar, the extent to which the Company holds assets and liabilities in
foreign currencies and the export programs of the Israeli government in which
the Company participates. Similarly, the relationship between the Company's
monetary assets and liabilities in U.S. Dollars and NIS and whether these are
linked to a foreign currency or price index also affect financial results.

                                     - 35 -

<PAGE>

            C.    LIQUIDITY AND CAPITAL RESOURCES

      On December 31, 2005, the Company had working capital of approximately
$2.2 million and shareholders' equity of approximately $6.8 million. During the
year ended December 31, 2005, cash flow provided by operating activities was
approximately $0.6 million. The Company used approximately $1.0 million of net
cash flow for investing activities, mainly for purchasing diagnostic equipment
for long term transactions with hospitals and sick funds in Israel.

      At December 31, 2005 we had cash and cash equivalents of $ 0.7 million as
compare to short-term bank credit of approximately $0.9 million (including
current maturities of long term bank loans) and long-term loans of $0.2 million.
The Company believes that revenues from operations, bank credits and its
available cash resources will provide sufficient funds to meet anticipated cash
requirements for the Company's planned operations over the next twelve months.

            D.    RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

      The Company, mainly through Savyon, is actively engaged in research and
development programs intended to develop new products, manufacturing processes,
systems and technologies and to enhance existing products and processes.
Research and development is funded by a combination of the Company's own
resources and research and development grants. The Company believes its research
and development effort has been an important factor in establishing and
maintaining its competitive position.

      In the genetic field, the Company has seven granted patents that it
utilizes in producing its products (three of which have been assigned to PDL
under the PDL Agreement). The patents are registered for methods of single
nucleotide primer extension and kits therefore, of quick screening and
identification of specific DNA sequences by single nucleotide primer extension
and kits therefore, and of characterizing GC-rich nucleic acid sequencers. These
methods relate to the Company's ProntoTM genetic test products line. Three of
the granted patents are registered in Israel, three are registered in the United
States and one is registered in Europe (national phase). All of them expire
between 2012 and 2014.

      In both the genetic field and the serologic field, the Company has certain
other granted patents and applications for patents that are not utilized by it
for its products, will probably not be used in the future and therefore will not
be renewed.

      The following table shows, for each of the periods indicated, the gross
research and development expenses of Savyon and the Company:

<TABLE>
<CAPTION>
                                                                            Year ended December 31,
                                                                      ----------------------------------
                                                                         2005        2004        2003
                                                                      ---------   ---------   ----------
                                                                        (in thousands of U.S. Dollars)
<S>                                                                   <C>         <C>         <C>
Gross research and development expenses other than Savyon (*) .....           -          95           94
                                                                      ---------   ---------   ----------
Gross research and development expenses by Savyon .................         627         672          511

   Portion funded by the European Union's 5th Framework Program
   (FP5) ("The CHEMAG Project" - detailed below) ................           (57)        (46)         (37)
                                                                      ---------   ---------   ----------
Net research and development expenses by Savyon ...................         570         626          474
                                                                      =========   =========   ==========
Net research and development expenses .............................         570         721          568
                                                                      =========   =========   ==========
</TABLE>

(*) Research and Development according to U.S GAAP.

RESEARCH AND DEVELOPMENT GRANTS

      OFFICE OF CHIEF SCIENTIST ("OCS")

      Under the Company's research and development agreements with the Office of
the Chief Scientist and pursuant to the Encouragement of Industrial Research and
Development Law, 5744-1984, the Company is required to pay royalties at the rate
of 3%-5% of sales of products developed with funds provided by the Chief
Scientist, up to an amount equal to the Chief Scientist's research and
development grants (U.S. Dollar linked and bearing annual LIBOR interest since
1999) related to such products.

                                     - 36 -

<PAGE>

      The terms of these grants impose significant restrictions on the
manufacture outside of Israel or the transfer of the technology developed
pursuant to these grants to any person or entity without the prior consent of
the Research Committee of the Chief Scientist. There can be no assurance that
such consent, if requested, will be granted impose significant restrictions on.

      To date, the Company, excluding Savyon, has received approximately $0.66
million in grants for one project for the development of genetic diagnostic
kits. The Company's contingent obligations based upon the OCS project are
approximately $0.51 million (excluding accrued interest). As at December 31,
2005 the Company had paid the Chief Scientist approximately $0.15 million in
royalties at a royalty rate of 3.5%.

      CHEMAG CONSORTIUM

      Savyon is a member of a consortium ("CHEMAG Consortium") engaged in a
research and development project, commenced in September 2001, into "novel
paramagnetic materials, surface activation and nucleic acid modification
chemistries for application in biology, chemistry, health/medicine/diagnostics
and the environment" ("CHEMAG Project"). The CHEMAG Consortium is funded by the
European Union's 5th Framework Program (FP5) with a total budget of (euro)4.9
million. expendable over a three-year period. Savyon's budget for this program
over the three-year period of the CHEMAG Project is (euro)930,249, of which it
is entitled to claim a contribution of one half from the EU through FP5, i.e. a
total contribution not exceeding (euro)465,125. As of December 31, 2004 the
Company had received (euro)330,000 and expects to have received approximately
(euro)130,000 by the end of 2006.

      The consortium agreement and the terms of the project, require each party
(including Savyon), under certain conditions, to grant the other parties
licenses and/or other user rights with respect to the intellectual property
resulting from the performance of the project which it owns ("Foreground"), and
with respect to certain intellectual property owned by each party in the same
and/or a related field ("Background"). According to the agreement unless
otherwise agreed in mutually satisfactory licensing agreements the ownership of
Savyon's Background intellectual property rights, patents, patent applications,
registered designs or copyrights remains with Savyon and may not be used by any
other party. The agreement further states that with regard to the exploitation
of any Foreground intellectual property rights resulting from the performance of
the project, whether patents, patent applications, registered designs or
copyrights that a separate contract between the respective partners is to be
made in a timely manner.

      NACBO PROJECT

      In May 2004, Savyon entered into a consortium agreement with various other
entities for the purpose of submitting a proposal to be awarded a project under
the 6th Framework Program of the European Union (2002-2006) regarding the novel
and improved nanomaterials, chemistries and apparatus for nanobiotechnology
("NACBO Project"). The consortium agreement and the terms of the project, if
awarded, set forth various provisions regarding the parties' (including Savyon)
rights and obligations with respect to the intellectual property developed by
each party throughout the project (Project IP) and certain pre-existing
intellectual property of each party thereto (Pre-existing IP). Amongst others,
each party is required, under certain conditions, to grant the other parties to
the consortium agreement licenses and/or other user rights regarding the Project
IP which they own, and regarding certain of their pre-existing IP which the
parties are required to identify and list in an annex to the agreement.

            E.    TREND INFORMATION

      The first quarter financial reports of 2006 show an increase in the
Company's revenues and net profit. Revenues for the first quarter ended March
31, 2006 were $3.6 million, as compared to $3.1 million for the corresponding
quarter last year. The increase is mainly due to more business transactions we
made in the genetic, chemistry and microbiology segments. The first quarter
gross profit was $1.4 million, as compared to $1.1 million in the first quarter
of 2005. Net income for the quarter was $352 thousand, an increase of 115% as
compared to net income of $163 thousand for the first quarter of the year 2005.

                                     - 37 -

<PAGE>

      SALES

      The following is a breakdown of the Company's total revenues according to
the main categories of products sold and/or services provided and according to
the principal geographic markets in which the Company competes, for each of the
last three fiscal years:

Geographic Market     Product Category                2005     2004     2003
-------------------   ----------------------------   ------   ------   ---------
                                                     in thousand of U.S. Dollars
                                                     ---------------------------
Israel                Reagents and systems for the
                      molecular biology industry      4,794    5,177    5,061

                      Reagents and systems for
                      clinical laboratories           7,274    6,654    7,351
TOTAL BY U.S GAAP                                    12,068   12,130   12,412
                                                     ======   ======   ======

Europe*               Serology and others             3,522    3,228    2,796
Rest of the world *   Serology and others             1,585    1,182      860

* Revenues by the Company's 50% owned affiliate, Savyon, which are not included
in revenues according to U.S GAAP.

            F.    OFF-BALANCE SHEET ARRANGEMENTS

            We are not a party to any material off-balance sheet arrangements.
      In addition, we have no unconsolidated special purpose financing or
      partnership entities that are likely to create material contingent
      obligations.

            G.    TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

            The following table summarizes our minimum contractual obligations
      and commercial commitments, including obligations of discontinued
      operations, as of December 31, 2005 and the effect we expect them to have
      on our liquidity and cash flow in future periods:

<TABLE>
<CAPTION>
                                                Payments due by period
                                                  in thousands of USD
                              ----------------------------------------------------------
Contractual Obligations       Total   less than 1 year   2 - 3 years   more than 3 years
<S>                           <C>           <C>              <C>               <C>
Long-Term Debt Obligations    1,115           939            176               -

Operating Lease Obligations     438           223            215               -

Purchase Obligations (1)         -              -              -               -
----------------------------------------------------------------------------------------
Total                         1,553         1,162            391               -
========================================================================================
</TABLE>

(1) The Company to date has met its purchase obligations mostly due to its main
suppliers and maintains certain minimum purchase requirements with its main
customers.

                                     - 38 -

<PAGE>

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

            A.    DIRECTORS AND SENIOR MANAGEMENT

      The executive officers and directors of the Company are as follows:

Name              Age  Position with the Company
----------------  ---  ---------------------------------------------------------
Daniel Kropf      58   Chairman of the Board of Directors and Director (Class D)
Moshe Reuveni     50   Chief Executive Officer and Director (Class A)
Eran Rotem        38   Chief Financial Officer
Yacob Ofer        57   Director (Class D)
Rolando Eisen     64   Director (Class C)
Samuel Penchas    66   Director (Class B)
Israel Amir       64   Director (Class B)
Ethan Rubinstein  64   Director (Class A)
Varda Rotter      59   External Director
Elan Penn         55   External Director
Luly Gurevitch    45   Director (Class C )

      Mr. Daniel Kropf has served as Chairman of the board of directors of the
Company since March 1996 and was also its Chief Executive Officer from January
2000 until January 2003. Following business school in Italy and training with
American Hospital Supply in the United States, Mr. Kropf entered the businesses
of Laboratori Don Baxter and Eurospital in Trieste, Italy, founded by his late
father and managed by his mother. He later took responsibility for a French
distribution house which forms a part of the Gamida Group of companies, and
chaired the Migada Ltd. medical device manufacturing company.

Mr. Kropf is the Secretary-General of the Centre European Juif d'Information
("CEJI") in Brussels and, is a life-time member of the ADL National Commission
in the USA. He also serves as Chairman of two, not-for-profit organizations
based in Holland, the Education for Life Foundation and the Universal Education
Foundation and serves on the board of the Evens Foundation. Mr. Kropf was
formerly a director, chief executive officer and chairman of the board of
directors of Rosebud Medical Ltd. ("Rosebud") and a member of the board of
directors of certain of the companies in which Rosebud held investments
(Oridion, Bikurofe and AMC). Mr. Kropf is a director of certain of the Company's
subsidiaries (Gamidor, Savyon and Danyel) and of various companies in the Gamida
Group. Mr. Kropf received his academic degree in marketing from the School of
Industrial Administration of the University of Turin.

      Mr. Moshe Reuveni was appointed as the Company's Chief Executive Officer
in January 2003. Mr. Reuveni has been a director of the Company since March
1996. Mr. Reuveni also currently serves as the Managing Director of Gamida
MedEquip Ltd. (a subsidiary of Gamida). Mr. Reuveni served as a director and
Chief Financial Officer of Rosebud Medical Ltd. from March 1996 to January 2000.
From December 1990 to December 1999, he served as General Manager of Gamida for
Life (Israel) Ltd. Mr. Reuveni also currently serves as a director of certain of
the Company's subsidiaries: Gamidor and Danyel. Mr. Reuveni is a Certified
Public Accountant and received his B.A. in Accounting and Economics from
Tel-Aviv University.

      Mr. Eran Rotem has since May 2002 served as the Company's Chief Financial
Officer ("CFO"). During April 2006, Mr. Rotem was appointed as a director of
Afferix Ltd. Mr. Rotem served as a senior manager in Ernst & Young, Certified
Public Accountants, from 1995 until April, 2002. He is himself a CPA and
received his B.A. in Accounting and Finance from the Tel-Aviv College of
Management.

      Mr. Yacob Ofer has served as a director of the Company since March 1996,
as Executive Vice Chairman between April 1996 and May 1997 and as President and
Chief Executive Officer between May 1997 and January 2000. Mr. Ofer served as
the Managing Director of Gamidor Diagnostics from 1985 until May 1997. Since
January 1, 2001, Mr. Ofer has been the Chief Executive Officer of Gamidor. He
was formerly a director of Rosebud. Mr. Ofer received his academic degree in
Chemistry from Tel-Aviv University.

                                     - 39 -

<PAGE>

      Mr. Rolando Eisen has served as a director of the Company since December
1999. Mr. Eisen also serves as a director in the following Israeli companies:
Mercantile Discount Bank Ltd. since 1986, ABJAC Israel Oil and Gas Exploration
Ltd. since 1991, Merhav Ltd. since August 1999, I.D.B. Holdings Ltd. since
December 2000 (as an external director), and Koor Industries Ltd. and Amidar
since 2002. Mr. Eisen also serves in various board and/or management positions
with other Israeli Companies and/or business activities. Mr. Eisen received his
B.Sc. in Industrial Management from the Carnegie Institute of Technology in
Pittsburgh and participated in graduate studies towards a Ph.D. in Applied
Mathematics and Computer Science at the Northwestern University in Evanston,
Illinois.

      Professor Samuel Penchas was elected to serve as a Director of the Company
by the Board of Directors on July 22, 2004. Between the years 1981 and 1999 he
was, amongst others, the Director General of the Hadassah medical organization.
Professor Penchas currently serves as a member of the board of directors of the
following corporations and organizations: Bank Hamizrachi Funds, Rosebud Medical
Ltd., Comsec Ltd., and Migdal Insurance holdings co. Ltd. Professor Penchas also
currently holds the following positions: Professor of health administration and
Associate Professor of Medicine at the Hebrew University Hadassah Medical
School, Foreign Associate of the USA Academy of Science-Institute of Medicine
and an Advisor to the Prime Minister Republic of Srbska.

      Mr. Israel Amir has served as a director of the Company since January
2000. Mr. Amir has also served as an external director of Dan Vehicle and
Transportation (D.R.T) Ltd, an Israeli public company and as a member of the
boards of directors of several private Israeli companies (A.T & T (Israel), TNS
Teleseker Ltd., Israel Amir consulting Ltd., SCT stem cell Technologies Ltd. and
Tele-Gal Ltd.). Mr. Amir has served since 1989 as an independent economic
consultant. He received his M.A. in Economics from the Hebrew University in
Jerusalem.

      Prof. Ethan Rubinstein has served as a director of the Company from July
1991 until October 1992 and since February 1993 and thereafter. Prof. Rubinstein
also served as a director in Careline Ltd. from January 1990 until December 1995
and as a member of the board of Agis Ltd. from 1996 to 2001. He is currently a
board member of Meditor Ltd. Prof. Rubinstein received his M.D. in Medicine from
Basel University in Switzerland and his LL.B. in Jurisprudence from Tel-Aviv
University.

      Prof. Varda Rotter has since October 2001 been serving as an External
Director of the Company. Prof. Rotter received her B.Sc. and M.Sc. from Bar-Ilan
University in 1969 and 1971 respectively, and a Ph.D. in Cell Biology from the
Weizmann Institute of Science, Rehovot, in 1976. Following post-doctoral
research at the Center for Cancer Research of the Massachusetts Institute of
Technology, she joined the Weizmann Institute's Department of Cell Biology. She
was appointed Associate Professor in 1985 and Full Professor in 1992, and is now
the incumbent of the Norman and Helen Asher Professorial Chair in Cancer
Research at the Institute. Prof. Rotter is a genetic engineer, building
biological bridges in the submicroscopic world of cancer research, focusing on
certain tumor suppressor genes which may be used to obstruct the proliferation
of cancer cells.

      Mr. Luly Gurevitch was appointed to serve as a director on December 29,
2005. Luly Gurevitch, together with the Company, founded Danyel Biotech Ltd. in
1999 and he has served as Danyel's Chief Executive Officer since then. Prior to
this appointment, he was Director of Marketing and subsequently Deputy General
Manager of Gamidor Ltd. Mr. Gurevich, prior to joining the Gamida For Life Group
in 1991, was the Protein Purification Product Specialist in Dexmor Ltd. He
started his career in the field of Marketing and Supporting Life Science
products after 6 years' experience as an R&D and Process Development technician
for Sigma Israel Ltd. (formerly Bio Makor), where he was involved in protein
purification, characterization and scale -up.

      Dr. Elan Penn was appointed as an External Director of the Company in
December 2003. Since 2002, he has owned and managed a private publisher (Penn
Publishing Ltd.). Prior to that Dr. Penn was V.P. Finance of A.I- Research &
Development of Artificial Intelligence Ltd. From 1998 to 2000 Dr. Penn was a
Director and the Chief Executive Officer of Sivan Computer Training Company Ltd
(traded on the TASE) and a Director and V.P. Finance of Mentortech Inc. (traded
on NASDAQ), both companies being part of the Formula Systems Ltd. group of
companies. From 1987 to 2000 Dr. Penn was V. P. Finance, Mashov Computers Ltd.
(traded on the TASE) and Magic Software Enterprises Ltd. (traded on NASDAQ),
both companies also being part of the Formula Systems Ltd. group. He has served
as a member of the Board of Directors of Mashov Computers Ltd. and Walla
Communications Ltd. (traded on the TASE), as well as of several international
subsidiaries of the Mashov Computers Ltd. group of companies. In 2005, he was
appointed as a director and audit committee member of Magic software Enterprises
Ltd and Telkor power Supplies Ltd. Dr. Penn completed his PhD in Management
Science, Imperial College of Science & Technology, University of London and read
Economics at the Hebrew University of Jerusalem.

                                     - 40 -

<PAGE>

      The Company has determined that Ms. Varda Rotter and. Messrs. Rolando
Eisen, Ethan Rubinstein, Elan Penn, and Samuel Penchas are independent directors
under the applicable Nasdaq and SEC regulations.

SENIOR MANAGEMENT AND EMPLOYEES

      Dr, Martin Lee, has served as the president and chief executive officer of
Savyon since January 1, 2003. He was previously a founder, Chief Executive
Director and Laboratory Director of Great Smokies Diagnostic Laboratory. Dr.
Lee's Ph.D. is in biochemistry and microbiology. His career has included senior
clinical positions at Lakeview and Meadowlands Clinical Lab Services, Rockland
Medilabs, Corning Medical, Coulter Electronics and Pharmacia Fine Chemicals.

CONSULTANTS AND SERVICE SUPPLIERS

      Mr. Yossi Ginossar has, since November 2000, been serving as the Internal
Auditor of the Company. Mr. Ginossar has been employed by Fahn Kanne Control
Management Ltd., Tel Aviv, as an internal auditing managing partner since 1991.
Prior to that, Mr. Ginossar was employed as senior auditor at Spicer &
Oppenheim, Certified Public Accountants, Chicago, Illinois, and at Kesselman &
Kesselman, Certified Public Accountants, Tel-Aviv. Mr. Ginossar is a CPA in
Israel and a Certified Internal Auditor and Certified Fraud Examiner in the USA.
Mr. Ginossar has a B.A. in Accounting and Economy from the Hebrew University in
Jerusalem.

      There is no family relationship between any of our directors and executive
officers.

            B.    COMPENSATION

      The aggregate direct compensation paid or accrued on behalf of all
directors and executive officers of the Company as a group during the 2005
fiscal year and in respect of such year was approximately $850,000, which
includes expenses and amounts set aside or accrued to provide pension,
retirement or similar benefits (which amounts constitute the Company's entire
obligation towards said directors and executive officers in respect of severance
pay), as well as annual consultancy fees paid to certain directors and amounts
expended by the Company for automobiles made available to its officers (but
excluding insurance premiums paid in respect of Directors & Officers' Liability
Insurance). See Item 7. "Major Shareholders and Related Party Transactions - B.
Related Party Transactions."

      The Company may be deemed to be a "controlled company" under the
applicable Nasdaq regulations because the Company's principal stockholder owns
approximately 64% of the Company's issued and outstanding shares. As such, the
Company is exempt from the requirements of Nasdaq Rule 4350(c)(3) with respect
to the compensation of its Chief Executive Officer.

COMPENSATION OF INDIVIDUAL DIRECTORS

Included in the aggregate directors' and officers' compensation figure for 2005
set forth above were amounts paid pursuant to the following individual
compensation arrangements:

      Mr. Daniel Kropf: In 2005, the Company reimbursed Gamida Israel for the
services of Mr. Kropf as its active chairman at the rate of $10,000 per month.

      Mr. Israel Amir: Mr. Amir, who serves as a director of the Company,
received approximately $5,000 per month in consulting fees in 2005.

      For additional information concerning these arrangements, see Item 7,
"Major Shareholders and Related Party Transactions - Related Party and
Inter-Company Transactions."

STOCK OPTIONS

      2000 EMPLOYEE SHARE OPTION PLAN: in July 2000, the shareholders of the
Company approved the Company's 2000 Incentive Share Option Plan (the "2000
Plan") adopted by the Company's board of directors in February 2000, pursuant to
which share options in the Company may be granted to employees, directors and
consultants of the Company or any subsidiary. An aggregate of 500,000 Ordinary
Shares of the Company were reserved for issuance under the 2000 Plan, subject to
certain adjustment. The 2000 Plan was administered by the board of directors
either directly or upon the recommendation of the Share Option Committee. The
Company's board of directors appointed the members of the Company's audit
committee to also serve as the Company's Share Option Committee.

                                     - 41 -

<PAGE>

      On August 28, 2003 the Company amended the 2000 Plan, as detailed below,
pursuant to amendments to the Israel Income Tax Ordinance regarding options that
had come into effect. Under the amended plan, a total of 377,500 ordinary shares
of the Company are reserved and authorized for the purpose of the option plan,
subject to certain adjustments. The plan is administered by the Board of
Directors, (either directly or upon the recommendation of the Share Option
Committee), which has broad discretion, subject to certain limitations, to
determine the persons entitled to receive options, the terms and conditions on
which options are granted and the number of shares subject to each grant.
Options under the plan are issued to Israeli employees, directors, office
holders, consultants, advisers and service providers of the Company and its
subsidiaries.

During 2003, the Company issued to each of the following employees, Eran Rotem
and Moshe Reuveni, options to purchase 100,000 Ordinary Shares of the Company.
Mr. Reuveni's options are exercisable in accordance with the provisions of the
2000 Plan, each into one Ordinary Share of the Company, NIS 0.04 nominal value,
at an exercise price of $0.35.. Mr. Rotem's options are exercisable in
accordance with the provisions of the 2000 Plan, each into one Ordinary Share of
the Company, NIS 0.04 nominal value, at an exercise price of $0.38,. On August
24 ,2004, the Audit Committee and the Board of Directors, and on December 20,
2004, the shareholders, approved the granting to Yacob Ofer of options to
purchase up to 62,500 Ordinary Shares of the Company. Mr. Ofer's options are
exercisable in accordance with the provisions of the 2000 Plan, each into one
Ordinary Share of the Company, NIS 0.04 nominal value, at an exercise price of
$0.86. For additional information concerning vesting schedules see Item 6 E.

On July 24, 2005, the Board of Directors issued to 8 employees Options to
purchase an aggregate of 50,000 Ordinary Shares of the Company. Such options are
exercisable in accordance with the provisions of the 2000 Plan, each into 1
Ordinary share of the Company, NIS 0.04 nominal value, at an exercise price of
$0.72, subject to a vesting schedule of three years, a 1/3 on each of July 24,
2006, July 24, 2007, and July 24, 2008.

In addition, on July 24, 2005, the Board of Directors issued to two consultants
in all, options to purchase an aggregate of 35,000 Ordinary Shares of the
Company. Such options are exercisable in accordance with the provisions of the
2000 Plan, each into 1 Ordinary share of the Company, NIS 0.04 nominal value, at
an exercise price of $0.72, subject to a vesting schedule of three years, a 1/3
on each of July 24, 2006, July 24, 2007, and July 24, 2008. Out of such options,
Mr. Luly Gurevitch was issued options to purchase 30,000 Ordinary Shares of the
Company.

     As of December 31, 2005 options to purchase 90,000 ordinary shares remain
available for issuance under the plan.

      In addition, see E. "Share Ownership" below for details of certain
additional options granted by the Company.

            C.    BOARD PRACTICES

TERMS OF OFFICE

      The Company's Articles of Association, as amended, provide for a board of
directors consisting, in addition to the two External Directors to be appointed
and hold office in accordance with the provisions of the Israeli Companies Law,
1999 and any Regulations enacted thereunder, of not less than two nor more than
eight members, classified with respect to the time for which the directors
severally hold office, into up to four classes, each class to include two
directors. Of such four classes, Class A directors were to hold office initially
for a term expiring at the Annual General Meeting of the Company's shareholders
("AGM") convened in the year 1999, Class B directors to hold office initially
for a term expiring at the AGM convened in the year 2000, Class C directors to
hold office initially for a term expiring at the AGM convened in the year 2001
and Class D directors to hold office initially for a term expiring at the AGM
convened in the year 2002.

      At each AGM as of and following the AGM convened for the year 1999, the
successors to the class of directors whose term expires at that meeting shall be
elected to hold office for a term expiring at the AGM held in the second year
following the year of their election and until their successors have been duly
elected and qualified. Directors whose terms of office have expired may be
re-elected.

                                     - 42 -

<PAGE>

      The Israeli Companies Law-1999 was most recently amended in March 2005 and
requires the board of directors of a public company to determine the number of
directors who shall possess accounting and financial expertise On March 29, 2006
the board of directors determined the minimum number to be two directors. In
addition, the law was amended to require that, at least one external director
have financial and accounting expertise and the other external directors are to
possess professional qualifications, as promulgated by regulations to the
Companies Law. These regulations provide that financial and accounting expertise
require such director to possess a high level of understanding in business
matters, such that he or she can read and understand financial statements in
depth and be able to raise issues with respect to the manner in which the
financial data is presented therein. The company's board of directors is to
determine such candidate's qualifications based on his or her education,
experience and skills regarding financial and control matters in companies of
similar size and in a similar industry and knowledge of preparation and approval
of financial statements under the Companies Law and Israeli securities laws. The
Company may be deemed to be a "controlled company" under the applicable Nasdaq
regulations because the Company's principal stockholder owns approximately 64%
of the Company's issued and outstanding shares. As such, the Company is exempt
from the requirements of Nasdaq Rule 4350(c) with respect to the nomination of
directors.

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, subject to the approval of the directors, and may cancel
such appointment. According to the Companies Law, the following persons may not
be appointed nor serve as an alternate director: (i) a person not qualified to
be appointed as a director, (ii) an actual director, or (iii) another alternate
director. Appointment of an alternate director for a member of a committee of
the board of directors is only permitted if the alternate director is a member
of the board of directors and does not regularly serve as a member of such
committee. If the committee member being substituted is an external director,
such alternate director may only be another outside director possessing the same
expertise as the external director being substituted and may not be a regular
member of such committee. There are currently no alternate directors.

EXTERNAL DIRECTORS

      Pursuant to Israeli law, the Company is required to appoint two external
directors. These directors must be unaffiliated with the Company and its
principals. A person shall be qualified to serve as an external director only if
he or she possesses accounting and financial expertise or professional
qualifications. At least one external director must posses accounting and
financial expertise and the other external directors are to possess professional
qualifications, as promulgated by regulations to the Companies Law. These
regulations provide that financial and accounting expertise require such
external director to possess a high level of understanding in business matters,
such that he or she can read and understand financial statements in depth and be
able to raise issues with respect to the manner in which the financial data is
presented therein. The company's board of directors is to determine such
candidate's qualifications based on his or her education, experience and skills
regarding financial and control matters in companies of similar size and in a
similar industry and knowledge of preparation and approval of financial
statements under the Companies Law and Israeli securities laws These
requirements do not apply to external directors appointed before the recent
amendment to the Companies Law but will apply to their re-appointment for an
additional term.

      External directors are to be elected by a majority vote at a shareholders'
meeting, provided that such majority includes at least one-third of the shares
held by non-controlling shareholders voted at the meeting or that the total
number of shares held by non-controlling shareholders voted against the election
of the director does not exceed one percent of the aggregate voting rights in
the Company.

      The initial term of an external director is three years and may be
extended for an additional three years. External directors may be removed only
by the same percentage of shareholders as is required for their election, or by
a court, and then only if the external directors cease to meet the statutory
qualifications for their appointment or if they violate their duty of loyalty to
the Company. Under the Companies Law, any committee of the Board of Directors
must include at lease one external director, and the Audit Committee must
include all if the external Directors.

      The Companies Law details certain standards for the independence of
External Directors. These directors must be unaffiliated with the company on
whose board they serve and such company's principals. They 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 Companies Law imposes an obligation on these directors 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 improper
conduct

                                     - 43 -

<PAGE>

      An external director is entitled to compensation, as provided for in
regulations adopted under the Companies Law, but is prohibited from receiving
any other compensation, directly or indirectly, in connection with service
provided as an external director.

      In October 2001, the Company's shareholders appointed Prof. Varda Rotter
as an External Director, and on December 20, 2004 the shareholders re-appointed
her in the same capacity. In December 2003, the Company's shareholders appointed
Mr. Elan Penn in the same capacity. Both Prof. Rotter and Mr. Penn have been
serving as External Directors from the date of their respective appointments to
date.

DIRECTORS' COMPENSATION

      The Company's executive directors (i.e. directors who receive remuneration
from the Company either as employees or consultants) are not entitled to receive
any separate compensation in consideration for their services as directors of
the Company. The Company's non-executive directors receive annual fees which
amounted to approximately $5,000 per person in 2005 on account of all services
as directors, including participation in board and audit committee proceedings.
The members of the board do not receive any additional remuneration upon
termination of their services as directors. The Company's non-executive
directors for the year of 2005 were Professors. Varda Rotter, Ethan Rubinstein
and Samuel Penchas, Mr. Rolando Eisen, and Dr. Elan Penn.

AUDIT COMMITTEE

      The Companies Law requires that certain transactions, actions and
arrangements be approved in certain cases, by the audit committee of the
company's board of directors, whose members meet certain criteria of
independence as defined in the Companies Law and by the board of directors
itself and in certain circumstances, shareholder approval is also required. The
vote required by the audit committee and the board of directors for approval of
such matters, in each case, is a majority of the disinterested directors
participating in a duly convened meeting. The audit committee has a written
charter which has been filed as an exhibit to this annual report.

      The Company's audit committee is comprised of Professors Varda Rotter,
Samuel Penchas and Dr. Elan Penn. Mr. Ethan Rubinstein resigned from the audit
committee on May 30, 2005. The Company has determined that the members of the
audit committee meet the applicable Nasdaq and SEC independence standards. In
addition, the Company has determined that Dr. Elan Penn is a financial expert as
defined by the SEC.

INTERNAL AUDITOR

      Under the 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 Auditor is to examine,
inter alia, whether the Company's actions comply with the law, integrity and
orderly business procedure. In November 2000, Mr. Yossi Ginosar was appointed as
the Company's Internal Auditor, and he has been serving as such since that time.

            D.    EMPLOYEES

      As of December 31, 2005, the Company (directly and through its
subsidiaries) employed at its facilities 115 persons, of whom 27 were employed
in production, 7 in research and development and 81 in marketing, administration
and management.

                                                        YEAR ENDED DECEMBER 31,
                                                        -----------------------
Number of Employees employed by the Company in *:       2005     2004      2003
                                                        ----     ----      ----
Management, sales and marketing                           81       91        67

Research and development                                   7        8         8

Production                                                27       26        30
                                                        ----     ----      ----

Total                                                    115      125       105
                                                        ====     ====      ====

      * Including Savyon's employees which were 55 and 56 and 46 in fiscal 2005
,2004 and 2003 respectively.

                                     - 44 -

<PAGE>

      The Company's employees are generally required to sign a non-disclosure
agreement covering the Company's proprietary information which they may possess
or have access to.

      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) are
applicable to the Company's Israeli employees by order of the Israeli Ministry
of Labor. These provisions concern mainly the length of the workday, minimum
daily wages for professional workers, contributions to a pension fund, insurance
for work-related accidents, procedures for dismissing employees, determination
of severance pay and other conditions of employment. The Company generally
provides its employees with benefits and working conditions beyond the required
minimums. Furthermore, under collective bargaining agreements, the wages of some
of the Company's senior employees are partially linked to the Israeli consumer
price index. Our employees are not represented by a labor union. We have written
employment contracts with our employees and we believe that our relations with
our employees are good.

      A general practice in Israel, which is followed by the Company, although
not legally required, is the contribution of funds on behalf of its senior
employees to a "Manager's Insurance" fund. This fund provides a combination of
savings plan, insurance and severance pay benefits to the employee, giving the
employee a lump sum payment upon retirement and securing his right to receive
severance pay, if legally entitled, upon termination of employment. The employee
contributes an amount equal to 5% of his wages and the employer contributes an
additional 13.3% to 15.8%. Notwithstanding the aforesaid, the Company is
obligated to contribute funds on behalf of nearly all of its employees to a
pension fund if such employees' wages are not insured under a Manager's
Insurance fund pursuant to recent Israeli labor law legislation enacted in April
2006. The Company is currently taking measures to ensure that it is in full
compliance with this recent amendment. 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 the United States Social Security Administration.

            E.    SHARE OWNERSHIP

      As of December 31, 2005, none of the executive officers and directors of
the Company owned individually an amount of ordinary shares equal to or greater
than 1% of the outstanding ordinary shares, other than Mr. Kropf (indirectly, as
controlling shareholder of the parent company of Gamida). See Item 7 "Major
Shareholders and Related Party Transactions - A. Major Shareholders". The
following table sets forth, as of June 28, 2006, the number of options to
acquire ordinary shares owned by each of the directors and officers of the
Company, the exercise prices and termination dates of such options:

<TABLE>
<CAPTION>
     NAME        NO. OPTIONS   EXERCISE PRICE                 TERMINATION DATE
--------------   -----------   --------------   --------------------------------------------
<S>                <C>             <C>          <C>
Eran Rotem          95,000         $ 0.38       180 days from the date of termination of Mr.
                                                Rotem's employment agreement *

Moshe Reuveni      100,000         $ 0.35       180 days from the date of termination of Mr.
                                                Reuveni's employment agreement **

Yacob Ofer          62,500         $ 0.86       180 days from the date of termination of Mr.
                                                Ofer's employment agreement***

Luly Gurevitch      30,000         $ 0.72       60 days from the date of termination of Mr.
                                                Gurevitch's service agreement ****
</TABLE>

*     five year vesting schedule: 1/5 on each of May 20, 2003, 2004, 2005, 2006
      and 2007.

**    four year vesting schedule: 1/4 on each of February 1, 2004, 2005, 2006
      and 2007.

***   three year vesting schedule: 1/3 on each of August 24, 2005, 2006, and
      2007.

****  three year vesting schedule: 1/3 on each of July 24 2006, 2007 and 2008.

                                     - 45 -

<PAGE>

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

            A.    MAJOR SHAREHOLDERS

      The following table sets forth, June 28 2006, the number of ordinary
shares owned by all shareholders known to the Company to own beneficially more
than 5% of the Company's ordinary shares.

<TABLE>
<CAPTION>
                              Number of Ordinary   Percentage of all Ordinary Shares
Name and Address              Shares NIS 0.04      NIS 0.04 Owned Outstanding (1)
---------------------------   ------------------   ---------------------------------
<S>                                <C>                            <C>
Gamida for Life B.V. (2)(3)
Drentestraat 24BG                  4,944,745                      64%
1083 HK Amsterdam
The Netherlands
</TABLE>

1. Based on 7,702,832 ordinary shares NIS 0.04 outstanding on, June 28, 2006.
   Also see (2) below.

2. Gamida is the principal holding company of the Gamida Group (formerly the
   Eryphile Group), which engages in research, development, production and
   distribution of products and services for healthcare in various territories,
   including France, Israel, the United Kingdom, Turkey and Bulgaria. Gamida's
   share ownership had increased by 18% in October 2001, mainly due to a private
   placement (See Item 4. "Information On The Company - A. History and
   Development of the Company - Recent Developments" above). During 2003 Gamida
   increased its percentage ownership in the Company by 14% through the
   acquisition of 1,122,317 ordinary shares in a private transaction.
   Approximately 80% of Gamida's holdings in the Company are held by Bank Leumi
   Le'Israel Ltd as security for a loan advanced to Gamida by the Bank. So long
   as the Bank does not demand immediate payment of the loan (which may occur
   upon the occurance of an event of default), Gamida shall be entitled to
   exercise the voting rights pertaining to the pledged shares for any purpose
   not inconsistent with the terms of the pledge. However, as a shareholder,
   Gamida is required, to oppose certain resolutions, such as, but not limited
   to, resolutions that might result in the dilution of Gamida's holdings in
   Healthcare, or result in the reduction in the value of the pledged shares or
   harm the rights of the Bank under the pledge, except where the Bank has given
   its prior written consent. Upon the occurrence of a default, the Bank has the
   right to dispose of the shares, subject to complying with the terms of the
   pledge agreement.

3. Mr. Daniel Kropf, who serves as Chairman of the Company's board of directors
   and who served as the Company's Chief Executive Officer from January 2000
   until January 2003, is the controlling shareholder of the parent company of
   Gamida.

   As of June 28, 2006 there were 7,702,832 ordinary shares outstanding, 87
stockholders of record and more than 300 beneficial owners of its ordinary
shares

            B.    RELATED PARTY AND INTER-COMPANY TRANSACTIONS

      The following is a description of certain transactions between the Company
and its parent company, its affiliates, its officers, its subsidiaries and other
matters. The management of the Company believes that the related party
transactions described hereinafter (not inclusive of transactions between the
Company and its wholly-owned subsidiaries or among the subsidiaries) have been
at least as favorable to the Company as it could have negotiated with unrelated
third parties.

                                     - 46 -

<PAGE>

SERVICES ARRANGEMENTS

      GAMIDA GROUP

      Following approval by the Company's audit committee and board of directors
in November 2004the Company's shareholders, on December 20, 2004, approved the
following: Effective as of January 1, 2004, the annual service fees payable by
the Company to Gamida Israel in consideration for the services of Mr. Daniel
Kropf as Chairman of the Board of Directors shall be $120,000 per annum, such
fees to continue to be paid on a monthly basis plus VAT at the rate legally
applicable at the time of payment, and both said services and the payment of
such fees to remain mutually terminable upon ninety (90) days' prior written
notice by either the Company or Gamida Israel.

      Previously, following approval by the Company's board of directors and
audit committee in November 1999 and March 2000 respectively, the Company's
shareholders approved the payment of annual services fees equal to the lower of
(i) an aggregate of $120,000 and (ii) zero point eight percent (0.8%) of the
Company's gross consolidated annual turnover (the "Fees") to Gamida Israel for
the services of Mr. Daniel Kropf as active chairman of the Company's board of
directors and Chief Executive Officer. The Fees were paid on a monthly basis,
plus VAT at the rate legally applicable at the time of payment. The services and
payment of the Fees were mutually terminable upon ninety (90) days' prior
written notice by either the Company or Gamida Israel. The Fees were paid in
respect of Mr. Kropf's services commencing as of October 1, 1999. The fees for
the period from October 1999 - January 2003 were determined at $10,000 per
month, based on (i) an aggregate of $120,000 per annum.

      No additional fees were paid in respect of Mr. Kropf's services while
acting as Chief Executive Officer of the Company.

      Mr. Reuveni, who took office as the Company's Chief Executive Officer as
of January 2003, is paid a monthly fee of $5,000.

      Until March, 2002, Gamida Israel provided the Company with financial
management, accounting and book-keeping services for an aggregate annual fee of
$316,000, which had been approved by the Company's board of directors, audit
committee and shareholders meeting. In March 2002, the Company's board of
directors, audit committee and shareholders approved a revision of the foregoing
arrangements, as a result of which the Company with effect from January 2002 is
to provide the Gamida Group as well as itself with the services previously
rendered by Gamida Israel and Gamida Group is to reimburse the Company for its
proportionate share of the expenses of providing such services. Accordingly, the
Company received payment amounting to an annual sum of approximately $262,000
(not including subsidiaries) for the year 2005 from the Gamida Group for such
services.

      Mr. Gareth Keene, who is a director of Gamida, provides legal advice to
the Company and its subsidiaries through Gamida Israel. During 2005, Mr. Keene
provided such legal services at a cost amounting to approximately $26,000.

      PROFESSOR ETHAN RUBINSTEIN

      Professor Rubinstein served as a scientific advisor to Savyon from
September 1989 for an annual fee of $18,000, such appointment being for a term
of twelve months, but automatically renewable for additional 12-month periods.
The arrangement ceased at the end of December 2000.

      During 2004, the Company's audit committee, the board of directors and
shareholders, respectively, approved an aggregate payment to Professor
Rubinstein of approximately $2,000 in consideration of his engagement to attend
Procognia's board meeting in London regarding the Company's investment in
Procognia and the dilution of the Company's holdings following the recent round
of investments in Procognia. In December 2004, shareholder approval for such
payment was obtained.

                                     - 47 -

<PAGE>

      ISRAEL AMIR

      Mr. Amir serves as a director of the Company. He receives $5,000 per month
from the Company as consultancy fees.

SUB-LEASE ARRANGEMENTS

      For details of sub-lease arrangements of and with the Company's
subsidiaries, affiliates etc., see Item 2. "Information on the Company - D.
Property, Plant and Equipment."

ACQUISITION OF GAMIDAGEN LTD

      In January 2001, the Company acquired all of the issued and outstanding
shares of GamidaGen Ltd. ("GamidaGen"), formerly controlled by Gamida (see Item
7 below), in consideration for the issuance of 1,000,000 of the Company's
ordinary shares to the shareholders of GamidaGen. GamidaGen's aggregate
outstanding debts to third parties (including banks) amounted to approximately
$0.7 million, in addition to approximately $0.3 million owed to the Company. As
part of the acquisition the Company agreed to assume a guarantee of up to
$270,000 of Gamida Gen's debts in favor of an Israeli commercial bank (included
in the above sum of third party debts) provided by DMI Investments B.V.("DMI").
DMI had thereafter been required by the bank to discharge its obligations
pursuant to its guarantee. In September 2004, the Company entered into an
agreement by and among DMI, the Company and Gamida Gen pursuant to which the
Company issued to DMI, 54,105 ordinary shares of the Company in consideration of
DMI fully and finally releasing the Company of any obligation which it may have
in connection with DMI's demands to be reimbursed for the amount of
approximately $270,000.

SALE OF PROCOGNIA

On May 29, 2005, the shareholders of the Company approved the sale of all the
Company's shares in Procognia to the Company's principal shareholder, Gamida.
The material terms of the Agreement are as follows:

1.    Upon signing the agreement, Gamida paid the Company an initial payment of
      $10,000 in consideration for all of the shares in Procognia held by the
      Company (the "PROCOGNIA SHARES").

2.    Gamida shall pay the Company, upon the sale of the Procognia Shares, all
      amounts received in consideration therefore (the Consideration")
      equivalent to an amount no greater than $420,000, plus, if any, 30% of the
      remaining Consideration.

      Notwithstanding the above, in the even: Gamida, within one year of the
execution date of the Agreement, either sells the Procognia Shares and/or
executes a letter of intent with a potential purchaser of the Procognia Shares
(the "Sale"); then, Gamida shall pay the Company, upon the sale of the Procognia
Shares, all amounts received in consideration therefore (the " Year One
Consideration") up to $420,000, plus, if any, 80% of the remaining Year One
Consideration.

      The consideration of $430,000, i.e. the value of the Procognia Shares, was
determined by an independent valuator.

ASSIGNMENT OF INTER COMPANY DEBTS:

      The Company's Board of Directors and Audit Committee, approved the
      assignment by Gamidor to the Company all of its rights with respect to
      Danyel's debt to Gamidor, in the amount of NIS 9,450,118 as satisfaction
      of Gamidor's debt to the Company in the amount of NIS 9,450,118, effective
      as of January 1, 2005.

            C.    INTERESTS OF EXPERTS AND COUNSEL

      Not Applicable.

                                     - 48 -

<PAGE>

ITEM 8. FINANCIAL INFORMATION

            A.    CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

      See Item 19. "Financial Statements and Exhibits" below.

      The financial statements included under "Item 18. Financial Statements and
Exhibits" are incorporated herein by reference. The Financial Statement
Schedules listed under the Rules of the Securities and Exchange Commission but
not included herein are omitted either because they are not applicable, they are
not required under the provisions of Regulation S-X or the required information
is included in the Consolidated Financial Statements or the related notes
thereto.

LEGAL PROCEEDINGS

      The Company is not currently involved in any material legal proceedings
and there are no material legal proceedings pending against it, with the
exception of a legal claim that was filed in February 2003 against the Company
and Pronto, in an amount of approximately $166,000, by a former employee
concerning termination of employment. The Company believes that it will not be
required to make any additional payment with respect to this claim in excess of
the provisions that have been made in the financial statements.

DIVIDEND POLICY

      The Company has never paid a cash dividend on its ordinary shares. In the
foreseeable future, the Company intends to retain earnings for use in its
business, but does not rule out the possibility of paying cash dividends in the
appropriate circumstances. Future dividend policy will be determined by the
board of directors, and will depend upon the Company's earnings and financial
condition, capital requirements and other relevant factors, including the impact
of the distribution of dividends on the Company's tax liabilities. Declaration
of any final annual cash dividend requires shareholder approval, which may
reduce but not increase such dividend from the amount proposed by the board.

            B.    SIGNIFICANT CHANGES

      See Item 5. "Operating and Financial Review and Prospects - E. Trend
Information" above.

ITEM 9. THE OFFER AND LISTING

            A.    OFFER AND LISTING DETAILS

      The Company's ordinary shares are traded in the NASDAQ Capital Market
under the symbol HCTL. The following table sets forth for the periods indicated
the closing representative high and low sales price quotations of the Company's
ordinary shares as reported by NASDAQ. These quotations are not adjusted for
retail mark-up, mark-down or commissions and do not necessarily represent actual
transactions.

      The following table lists the high and low market prices for the periods
indicated:

   FISCAL YEAR                                                      HIGH    LOW
   -----------                                                      ----   -----
   2001 .........................................................   1.03   0.48
   2002 .........................................................   0.68    0.2
   2003 .........................................................    1.9   0.25
   2004 .........................................................   1.52    0.6
   2005 .........................................................   1.45   0.37

   2004
   ----
   First Quarter ................................................    1.5   1.05
   Second Quarter ...............................................   1.52   0.72
   Third Quarter ................................................   1.18    0.6
   Fourth Quarter ...............................................   0.87    0.6

                                     - 49 -

<PAGE>

   2005                                                             HIGH    LOW
   ----                                                             ----   -----
   First Quarter ................................................   1.09   0.58
   Second Quarter ...............................................   0.95    0.6
   Third Quarter ................................................   0.87   0.65
   Fourth Quarter ...............................................   0.75    0.6

   MOST RECENT SIX MONTH
   ---------------------
   December, 2005 ...............................................   0.75   0.50
   January, 2006 ................................................   0.65   0.47
   February, 2006 ...............................................   0.88   0.48
   March, 2006 ..................................................   0.72   0.58
   April, 2006 ..................................................   0.62   0.52
   May 2006 .....................................................   0.86   0.55

ITEM 10. ADDITIONAL INFORMATION

            A.    SHARE CAPITAL

      Not Applicable

            B.    MEMORANDUM AND ARTICLES OF ASSOCIATION

      PURPOSES

      The Company is an Israeli public company that is subject to the Companies
Law 1999 and the Companies Ordinance. Its corporate registry number is
52-003621-1.

      The principal objects and purposes of the Company, as set forth in Section
2 of its Memorandum of Association, are to initiate, promote and advance
investments and to finance such activities in projects involving research and
development in the fields of healthcare, science, technology, life science,
industry, medicine, agriculture and any other field.

      TRANSACTIONS REQUIRING SPECIAL APPROVAL

      An "office holder" is defined in the Companies Law as a director, general
manager, chief business manager, deputy general manager, vice general manager
and any person assuming the responsibilities of any of the foregoing positions
without regard to such person's title and any other manager who is directly
subject to the general manager.

      The Companies Law imposes a duty of care and a duty of loyalty on all
office holders of a company. The duty of care requires an office holder to act
with the level of care which a reasonable office holder in the same position
would have acted under the same circumstances. The breach of such duty is
governed by Israeli contract laws. The duty of care includes a duty to use
reasonable means to obtain:

         -     information on the appropriateness of a given action brought for
               his approval or performed by him by virtue of his position; and

         -     all other important information pertaining to the previous
               actions.

                                     - 50 -

<PAGE>

The duty of loyalty requires an office holder to act in good faith for the
interests of the company and includes a duty to:

         -     refrain from any conflict of interest between the performance of
               his duties in the company and his personal affairs;

         -     refrain from any activity that is competitive with the company;

         -     refrain from exploiting any business opportunity of the company
               to receive a personal gain for himself or others; and

         -     disclose to the company any information or documents relating to
               a company's affairs which the office holder has received due to
               his position as an office holder.

      Each person listed in the table under "Item 6 - Directors, Senior
Management and Employees - A. Directors and Senior Management" is an office
holder.

      The Companies Law requires that an office holder disclose to the company
any personal interest that he or she may have, and all related material
information known to him or her, in connection with any existing or proposed
transaction by the company. The disclosure is required to be made promptly and
in any event, no later than the board of directors meeting in which the
transaction is first discussed. A personal interest of an office holder includes
an interest of a company in which the office holder is, directly or indirectly,
a 5% or greater shareholder, director or general manager or in which he or she
has the right to appoint at least one director or the general manager. If the
transaction is an extraordinary transaction, the office holder must also
disclose any personal interest held by his or her relative.

      Under the Companies Law, an extraordinary transaction is a transaction:

         -     not in the ordinary course of business;

         -     not on market terms; or

         -     likely to have a material impact on the company's profitability,
               assets or liabilities.

      Under the Companies Law, once an office holder complies with the above
disclosure requirement, the board of directors may approve the transaction,
unless the company's articles of association provide otherwise. A transaction
that is adverse to the company's interest may not be approved. If the
transaction is an extraordinary transaction, then it also must be approved by
the audit committee, before the board approval, and under certain circumstances,
by the shareholders of the company. A director who has a personal interest in a
matter which is considered at a meeting of the board of directors or the audit
committee may not be present at this meeting or vote on this matter. If a
majority of the directors has a personal interest in a transaction, these
directors are permitted to be present and vote, but shareholder approval is also
required.

      Approval by the audit committee and/or the board of directors is required
for such matters as: (i) certain transactions to which the company intends to be
a party and in which an Office Holder, a controlling shareholder and/or certain
other parties (including affiliates of the aforementioned) have a direct or
indirect personal interest, (ii) actions or arrangements which could otherwise
be deemed to constitute a breach by an Office Holder of a fiduciary duty to the
company, (iii) arrangements with directors as to the term of their service, (iv)
indemnification and/or insurance of Office Holders, and (v) certain transactions
defined in the Companies Law as extraordinary transactions (a transaction which
is not in the ordinary course of business or is not at market conditions, or a
transaction which is likely to have a material impact on the profitability,
property or obligations of the Company).

      Under the Companies Law, the disclosure requirements which apply to an
office holder also apply to a controlling shareholder of a public company. A
controlling shareholder includes a shareholder that holds 25% or more of the
voting rights in a public company if no other shareholder owns more than 50% of
the voting rights in the company.

                                     - 51 -

<PAGE>

Extraordinary transactions of a public company with a controlling shareholder or
in which a controlling shareholder has a personal interest, and the terms of
compensation of a controlling shareholder who is an office holder, require the
approval of the audit committee, the board of directors and the shareholders of
the company. The shareholder approval must satisfy either of the following
criteria:

         -     the majority of the votes for the approval includes the votes of
               at least one-third of the total votes of shareholders who are
               present at the meeting and who have no personal interest in the
               transaction; the votes of abstaining shareholders shall not be
               included in the number of the said total votes; or

         -     the total number of votes against the approval, among the
               shareholders who are present at the meeting and who have no
               personal interest in the transaction shall not exceed 1% of the
               aggregate voting rights in the company.

      For information concerning the direct and indirect personal interests of
certain of our office holders and principal shareholders in certain transactions
with us, see "Item 7 - Major Shareholders and Related Party Transactions - B.
Related Party Transactions."

      Under the Companies Law, all arrangements as to compensation of office
holders who are not directors require approval of the board of directors.
Arrangements as to compensation of directors also require audit committee
approval, before board approval, and shareholder approval. The Companies
Regulations (Rules Regarding Compensation and Expenses of External Directors),
2000, ("Companies Regulations - Compensation of External Directors") regulate
compensation of external directors.

      EXCULPATION, INSURANCE AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

      According to the Company's Articles, as amended in December 2003, the
Company may, subject to the provisions of the Companies Law, and certain
qualifications set forth in the Company's Articles:

(i)   Undertake in advance to exempt any Office Holder (as such term is defined
      in the Companies Law and described below), from such Office Holder's
      responsibility or liability for damages caused to the Company due to any
      breach of such Office Holder's duty of care towards the Company.

(ii)  Indemnify any Office Holder to the fullest extent permitted by the
      Companies Law.

(iii) Resolve retroactively to indemnify an Office Holder with respect to
      certain monetary liabilities imposed on an Office Holder pursuant to a
      judgment and certain reasonable legal expenses incurred by the Office
      Holder, provided that such liabilities or expenses were incurred by such
      Office Holder in such Office Holder's capacity as an Office Holder of the
      Company.

(iv)  Undertake, in advance to indemnify a Company's Office Holder for the
      foreseeable liabilities and expenses described in section (iii) above up
      to a maximum amount set by the board of directors.

(v)   Enter into an agreement to insure an Office Holder for any liability that
      may be imposed on such Office Holder in connection with an act performed
      by such Officer Holder in such Office Holder's capacity, with respect to
      (i) a violation of the duty of care of the Office Holder; (ii) a breach of
      the fiduciary duty of the Office Holder; and (iii) a financial obligation
      imposed on the Office Holder for the benefit of another person.

The Company may, moreover, procure insurance for or indemnify any person who is
not an Office Holder, including without limitation, any employee, agent,
consultant or contractor, provided, however, that any such insurance or
indemnification is in accordance with the provisions of the Articles and the
Companies Law.

      DESCRIPTION OF SHARE CAPITAL

      DESCRIPTION OF SHARES. Set forth below is a summary of the material
provisions governing the Company's share capital. This summary is not complete
and should be read together with the Company's Memorandum and Articles of
Association, copies of which have been filed as exhibits to the Annual Report.

                                     - 52 -

<PAGE>

      As of December 31, 2005, the Company's authorized share capital consisted
of 40,000,000 ordinary shares, NIS 0.04 nominal value. As of December 31, 2005,
there were 7,702,832 issued and outstanding ordinary shares and no preferred
shares issued and outstanding.

      DESCRIPTION OF ORDINARY SHARES. All issued and outstanding ordinary shares
of the Company are duly authorized and validly issued, fully paid and
non-assessable. The ordinary shares do not have preemptive rights. Neither the
Company's Memorandum and Articles of Association 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 subjects of countries which are
in a state of war with Israel.

      DIVIDEND AND LIQUIDATION RIGHTS. Subject to the rights of the holders of
shares with preferential or other special rights that may be authorized, the
holders of ordinary shares are entitled to receive dividends in proportion to
the sums paid up or credited as paid up on account of the nominal value of their
respective holdings of the shares in respect of which the dividend is being paid
(without taking into account the premium paid up on the shares) out of assets
legally available therefor and, in the event of the Company's winding up, to
share ratably in all assets remaining after payment of liabilities in proportion
to the nominal value of their respective holdings of the shares in respect of
which such distribution is being made, subject to applicable law. The board of
directors may declare interim dividends and recommend a final annual dividend
only out of profits and in such amounts as the board of directors may determine.
Declaration of the final annual dividend requires shareholder approval at a
general meeting, which may reduce but not increase such dividend from the amount
recommended by the board of directors.

      In case of a share dividend, holders of shares can receive shares of a
class whether such class existed prior thereto or was created therefor or shares
of the same class that conferred upon the holders the right to receive such
dividend.

      VOTING, SHAREHOLDER MEETINGS AND RESOLUTIONS. Holders of ordinary shares
have one vote for each ordinary share held on all matters submitted to a vote of
shareholders. Such rights may be affected by the future grant of any special
voting rights to the holders of a class of shares with preferential rights. Once
the creation of a class of shares with preference rights has been approved, the
board of directors may issue preferred shares, unless the board is limited from
doing so by the Articles of Association or a contractual provision.

      An annual general meeting must be held once every calendar year at such
time (not more than 15 months after the last preceding annual general meeting)
and at such place, either within or outside the State of Israel, as may be
determined by the board of directors. The quorum required for a general meeting
of shareholders consists of at least two shareholders present in person or by
proxy and holding, or representing, at least one-third of the total voting
rights in the Company on the record date for such meeting. A meeting adjourned
for lack of a quorum may be adjourned to the same day in the next week at the
same time and place, or to such time and place as the board of directors may
determine. At such reconvened meeting, if a quorum is not present within half an
hour from the appointed time, any two shareholders present in person or by proxy
(and not in default under the Articles) will constitute a quorum. Shareholder
resolutions generally will be deemed adopted if approved by the holders of a
majority of the voting power represented at the meeting, in person or by proxy,
and voting thereon. Shareholder resolutions for amending the Company's
Memorandum and/or Articles of Association, including making changes in the
Company's capital structure, approving mergers with or into the Company and/or
the Company's liquidation, will be deemed adopted if approved by the holders of
75% of the voting power represented at the meeting, in person or by proxy,
entitled to vote and voting on the resolution. In addition, the Companies Law
provides for certain extraordinary majorities for the approval of certain
related party transactions, nomination of External Directors, authorizing a
chairman of a company's board of directors to also act as its general manager,
as well as certain arrangements between a company and its shareholders and/or
creditors.

      SHAREHOLDERS' DUTIES. Under the Companies Law, a shareholder has a duty to
act in good faith towards the Company and other shareholders and to refrain from
abusing his power in the company, including, among other things, when voting at
the general meeting of shareholders on the following matters:

   o  any amendment to the Articles of Association;

   o  an increase of the authorized share capital of the Company;

   o  a merger; or

   o  approval of certain acts and require transactions which shareholder
      approval.

                                     - 53 -

<PAGE>

      In addition, a shareholder has the general duty to refrain from depriving
other shareholders of their rights. Furthermore, any controlling shareholder,
any shareholder who knows that he possesses the power to determine the outcome
of a shareholder vote and any shareholder who, pursuant to the Articles of
Association, has the power to appoint an office holder is under a duty to act in
fairness towards the company. The Companies Law does not describe the substance
of this duty.

      ANTI-TAKEOVER PROVISIONS UNDER ISRAELI LAW. Under the Companies Law, a
merger is generally required to be approved by the shareholders and board of
directors of each of the merging companies. If the share capital of the company
that will not be the surviving company is divided into different classes of
shares, the approval of each class is also required. The Companies Law provides
that the articles of association of companies, such as the Company, that were
incorporated prior to February 1, 2000 are deemed to include a provision whereby
the approval of a merger requires a majority of three quarters of those present
and voting at a general meeting of shareholders. In addition, a merger can be
completed only after all approvals have been submitted to the Israeli Registrar
of Companies and at least seventy days have passed from the time that a proposal
for approval of the merger was filed with the Registrar.

      The Companies Law provides that an acquisition of shares in a public
company must be made by means of a tender offer if, as a result of the
acquisition, the purchaser would become a 25% shareholder of the company. This
rule does not apply if there is already another 25% shareholder of the company.
Similarly, the Companies Law provides that an acquisition of shares in a public
company must be made by means of a tender offer if, as a result of the
acquisition, the purchaser would become a 45% shareholder of the company, unless
someone else already holds 50% of the voting power of the company. These rules
do not apply if the acquisition is made by way of a merger. Regulations
promulgated under the Companies Law provide that these tender offer requirements
do not apply to companies whose shares are listed for trading outside of Israel
if, according to the law in the country in which the shares are traded,
including the rules and regulations of the stock exchange on which the shares
are traded, either:

   o  there is a limitation on acquisition of any level of control of the
      company; or

   o  the acquisition of any level of control requires the purchaser to do so by
      means of a tender offer to the public.

      However, under the Companies Law, if following any acquisition of shares
the acquirer holds 90% or more of the company's shares or of a class of shares,
the acquisition must be made by means of a tender offer for all of the target
company's shares or all the shares of the class, as applicable. An acquirer who
wishes to eliminate all minority shareholders must do so by way of a tender
offer and acquire 95% of all shares not held by or for the benefit of the
acquirer prior to the acquisition. If, however, the tender offer to acquire 95%
is not successful, the acquiror may not acquire shares tendered if, by doing so,
the acquiror would own more than 90% of the shares of the target company.

      Finally, Israeli tax law treats specified acquisitions, including a
share-for-share swap between an Israeli company and a non-Israeli company, less
favorably than does U.S. tax law. For example, Israeli tax law may subject a
shareholder who exchanges his ordinary shares for shares in a non-Israeli
corporation to immediate taxation, although the tax event can be postponed in
certain cases for 2 to 4 years upon approval of the tax authorities.

      TRANSFER OF SHARES AND NOTICES. Fully paid ordinary shares are issued in
registered form and may be transferred freely, subject to applicable securities
law requirements. Each shareholder of record is entitled to receive at least 21
days' prior notice of shareholders' meetings. For purposes of determining the
shareholders entitled to notice and to vote at such meetings, the board of
directors may fix the record date not exceeding 60 days prior to the date of any
general meeting.

      MODIFICATION OF CLASS RIGHTS. If at any time the share capital is divided
into different classes of shares, the rights attached to any class (unless
otherwise provided by the Company's Articles of Association) may be modified or
abrogated by the Company by a special resolution, subject to the consent in
writing of the holders of the issued shares of the class, or by the adoption of
a special resolution passed at a separate general meeting of the holders of the
shares of such class.

      ACCESS TO INFORMATION. The Company files reports with the Israeli
Registrar of Companies regarding its registered address, its registered capital,
its shareholders and the number of shares held by each, the identity of the
directors and details regarding security interests on its assets. In addition,
Healthcare must file with the Israeli Registrar of Companies its Articles of
Association and a copy of any special resolution adopted by a general meeting of
shareholders. The information filed with the Registrar of Companies is available
to the public. In addition to the information available to the public, the
Company's shareholders are entitled, upon request, to review and receive copies
of all minutes of meetings of the Company's shareholders.

                                     - 54 -

<PAGE>

      TRANSFER AGENT AND REGISTRAR. The transfer agent and registrar for the
Company's ordinary shares is Continental Stock Transfer & Trust Company.

            C.    MATERIAL CONTRACTS

      The Company, directly and/or through certain of its subsidiaries and
affiliates, is a licensee of issued (or applications pending relating to)
patents and designs belonging to certain research institutions and other third
parties in Israel and certain other countries. The Company is also a licensee of
certain manufacturing and/or marketing rights relating to technologies and/or
products developed by third parties. The following is a summary description of
certain principal license agreements pursuant to which the Company has been
appointed as licensee of certain rights to certain know-how, as well as certain
other material agreements to which the Company and/or certain of its
subsidiaries are party.

      SAVYON

      RAMOT AGREEMENTS: In September 1987, the Company entered into an agreement
with Ramot - University Authority for Applied Research & Industrial Development
Ltd., a company engaged in the commercial exploitation of scientific
developments of Tel-Aviv University ("Ramot"), pursuant to which the Company
undertook to fund research conducted by Ramot on the isolation of bacteria from
liquids.

      According to the agreement, Ramot will retain proprietary rights to the
know-how resulting from the research, and the Company will receive an exclusive
worldwide license for utilizing the know-how and results of the research for the
development, manufacture and marketing of diagnostic products. Royalties are
payable at the rate of 5% or 3% respectively, depending on whether a patent has
been registered or not. Through December 31, 2001, Ramot was entitled to
approximately $25,000 in royalties from the Company with respect to this
agreement, which amount has been paid in full. Through November 15, 2002, Ramot
was entitled to approximately $19,000 in royalties from the Company with respect
to this agreement, which amount has been paid in full. On November 15, 2002,
following the sale of the Diaslide manufacturing line (see Item 4.B. "Business
Overview"), the Company assigned the Ramot agreement to the purchaser of the
Diaslide manufacturing line.

      WRF AGREEMENT: In accordance with an agreement dated October 26, 1994
between the Company and the Washington Research Foundation ("WRF"), the Company
has been granted a worldwide non-exclusive license to make, have made, market,
distribute and sell products which use certain licensed rights or know-how
relating to diagnostic methods for the detection of chlamydia pneumoniae in a
defined field of use. In accordance with the agreement, the Company paid WRF a
license fee of $30,000, to which an additional $10,000 was, in accordance with
the agreement, added on the anniversary of the agreement date and credited
against future royalties. In addition, the Company undertook to pay,
semi-annually, royalties at a rate of 7% of net sales, and an annual license
administration fee of $3,500.

In January 2003, the agreement was amended as a result of which the royalties
were reduced to 5.5% and the annual license administration fee was increased to
$7,000. The agreement is for a term of 17 years from its execution, or until the
last remaining patent rights thereunder expire, whichever is later. Other than
for termination upon breach and bankruptcy/insolvency, the Company may terminate
the agreement upon 60 days' written notice.

      CHEMAG CONSORTIUM: Savyon is a member of a consortium ("CHEMAG
Consortium") engaged in a research and development project into "novel
paramagnetic materials, surface activation and nucleic acid modification
chemistries for application in biology, chemistry, health/medicine/diagnostics
and the environment" ("CHEMAG Project"). The partners in the CHEMAG Consortium
are Professor Ian Bruce of Greenwich University (UK), Professor Jean-Paul
Lellouche of Bar-Ilan University (Israel), Istituto Zooprofilattico Sperimentale
dell'Umbria e delle Marche (Italy), Nexttec GmbH (Germany), Proligo GmbH
(Germany), Tecna SrL (Italy) and Savyon. The work plan covers three overlapping
areas of materials science and materials chemistry: paramagnetic nano-particles,
surface activation chemistries and novel phosphoramidites for DNA/RNA
modification.

      The CHEMAG Consortium is funded by the EU's 5th Framework Program (FP5)
with a total budget of (euro)4.9 million expendable over a three-year period.
The CHEMAG Project commenced in September 2001. Savyon's budget for this program
over the three-year period of the Project is (euro)930,249, of which it is
entitled to claim a contribution of one half from the EU through FP5, i.e. a
total contribution not exceeding (euro)465,125. As of December 31, 2005 the
Company had received (euro)330,000 and expects to have received approximately
(euro)130,000 by the end of 2006.

                                     - 55 -

<PAGE>

      The consortium agreement and the terms of the project require each party
(including Savyon), under certain conditions, to grant the other parties
licenses and/or other user rights with respect to the intellectual property
resulting from the performance of the project which it owns ("Foreground"), and
with respect to certain intellectual property owned by each party in the same
and/or a related field ("Background"). According to the agreement, unless
otherwise agreed in mutually satisfactory licensing agreements, the ownership of
Savyon's Background intellectual property rights, patents, patent applications,
registered designs or copyrights remains with Savyon and may not be used by any
other party. The agreement further states with regard to the exploitation of any
Foreground intellectual property rights resulting from the performance of the
project, whether patents, patent applications, registered designs or copyrights,
that a separate contract between the respective partners is to be made in a
timely manner.

      AGREEMENTS WITH LEVINE FAMILY LP: On December 31, 2002, the Company and
Pronto, entered into agreements with the Levine Family LP ("LF"), controlled by
Dr. Martin Lee, to establish Savyon Diagnostics Ltd. for the purpose of
acquiring Pronto's clinical laboratory diagnostics business for a purchase price
of approximately $1.9 million.

      In connection with the transaction, Dr. Lee agreed to loan Savyon $1.2
million to be used to pay a portion of the $1.9 million purchase price to
Pronto. These funds were advanced as agreed and have been duly remitted in
partial payment of such purchase price. The loan bears an interest rate of libor
plus 1.75% and has no fixed repayment date.

      The Company and LF respectively own fifty percent of Savyon. Each of them
has the right to appoint three members of the board of directors. Dr. Lee is the
chief executive officer and Mr. Daniel Kropf is the chairman of the board. The
agreements with LF provide for certain buy and sell provisions, rights of first
refusal and co-sale rights with respect to the shares of Savyon.

      The agreements also provide that Savyon shall render certain manufacturing
services to the Company pursuant to a cost plus 20% arrangement. According to
the agreements, the Company may undertake manufacture itself or through
affiliates, but must grant Savyon the right of first refusal in the event it
wishes to engage a third party for such manufacture.

      Dr. Lee has assigned Savyon various patents with respect to methods for
producing diagnostic kits and has undertaken to assist Savyon in their
exploitation. In consideration thereof, Dr. Lee is entitled to receive royalties
of 4% of all net sales of the relevant future products by Savyon.

      NACBO PROJECT: In May 2004, Savyon entered into a consortium agreement
with various other entities for the purpose of submitting a proposal to be
awarded a project under the 6th Framework Program of the European Union
(2002-2006) regarding "novel and improved nanomaterials, chemistries and
apparatus for nanobiotechnology" ("NACBO Project").

The consortium agreement and the terms of the project, if awarded, set forth
various provisions regarding the rights and obligations of the parties
(including Savyon) with respect to the intellectual property developed by each
party throughout the project ("Project IP") and certain pre-existing
intellectual property of each party ("Pre-existing IP"). Among other things,
each party is required, under certain conditions, to grant the other parties to
the consortium agreement licenses and/or other user rights regarding the Project
IP which they own, and regarding certain of their Pre-existing IP which the
parties are required to identify and list in an annex to the agreement.

      PROCOGNIA

      See Item 7B. "Major Shareholders and Related Transactions - Related Party
and Inter-Company Transactions", for a description of the agreement for the sale
of the Company's shares in Procognia to Gamida.

      DANYEL

      DANYEL AGREEMENT: Danyel is an 80% owned subsidiary of the Company, the
remaining 20% being owned by L.C.Tech Ltd., a company controlled by Mr. Luly
Gurevich, who also provides general management services to Danyel through a
consultancy company under his full control. The founders agreement of 1998
provides Mr. Gurevich with certain rights to require Healthcare to acquire his
shareholdings in Danyel upon termination of his office as General Manager. The
agreement further provides the parties with the right to appoint a certain
number of members to Danyel's board of directors (to consist of up to 5 members,
of whom one shall be Mr. Gurevich, subject to certain conditions). In accordance
with the agreement, Mr. Gurevich was formally appointed as Danyel's first
General Manager. The founders agreement also provides Mr. Gurevich with veto
rights relating to certain matters as well as requiring a special majority for
the approval of certain others. The agreement provides for distribution of
annual dividends at a rate of up to 50% of profits, subject to certain
conditions. The agreement imposes certain restrictions on transfer and disposal
of shares by the parties, including rights of first refusal and certain
tag-along rights.

                                     - 56 -

<PAGE>

      The agreement further provides for certain confidentiality and
non-competition provisions. The agreement is to continue in effect for so long
as the Company and its affiliates shall together hold at least 50% of Danyel's
issued share capital and Mr. Gurevich shall continue to be a shareholder, with
certain of the rights terminating upon a certain decrease in either party's
shareholdings.

      According to the agreement, the Company acknowledged Mr. Gurevich's
entitlement to specific terms of an employment agreement as of January 1, 1997
(see below). In 1998 Danyel and Mr. Gurevich entered into an employment
agreement effective as of October 1, 1998 which was later replaced with a
services agreement on essentially the same terms. Mr. Gurevich's service
agreement includes, a fixed fee, entitlement to options to purchase Company
shares, as well as to receive 5% of Danyel's annual profits. The agreement is
for an initial period of five years commencing October 1998, automatically
renewed every two years thereafter. Either party may decide not to extend the
agreement upon six months prior written notice.

      Pursuant to an agreement between Mr. Luly Gurevich, Healthcare and
Gamida-Gen Marketing, which has since merged into Gamidor, Gamida-Gen Marketing
was entitled to 15% of Danyel's annual sales turnover, in consideration for
marketing and logistics services provided to Danyel, for a period of 4 years
ended December 31, 2002.

            D.    EXCHANGE CONTROLS

      Under Israeli Law, non-residents of Israel who purchase ordinary shares of
the Company outside of Israel will be able to receive dividends, if such be
declared, and any amounts payable upon the dissolution, liquidation or winding
up of the affairs of the Company, which will be freely repatriable in certain
non-Israeli currencies (including Dollars) at the rate of exchange prevailing at
the time of conversion, provided that Israeli income tax has been paid on such
amounts by the holders of such ordinary shares. Because exchange rates between
the NIS and the dollar continuously fluctuate, a U.S. shareholder will be
subject to the risk of currency fluctuations between the date a NIS-denominated
dividend is declared and the date they are actually paid in NIS. See "Item 3.
Key Information-- D. Risk Factors."

      Neither the Memorandum and 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 subjects of
countries which are in a state of war with Israel.

            E.    TAXATION

ISRAELI TAX CONSIDERATIONS

   The following contains a discussion of certain Israeli tax consequences to
U.S. Shareholders (as defined below under "U.S. Federal Income Tax
Considerations") of ordinary shares. To the extent that the discussion is based
on new tax legislation that has not been subject to judicial or administrative
relevant interpretation, there can be no assurance that the views expressed in
the discussion will be accepted by the tax authorities. This discussion is not
intended, and should not be construed, as legal or professional tax advice and
is not exhaustive of all possible tax considerations.
You are urged to consult your own tax advisor as to the Israeli and other tax
consequences of the purchase, ownership and disposition of our ordinary shares,
including, in particular, the effect of any non Israeli, state or local taxes.

GENERAL CORPORATE TAX STRUCTURE IN ISRAEL

Israeli companies were generally subject to corporate tax at the rate of 34% of
their taxable income in 2005. Pursuant to tax reform legislation that came into
effect in 2003, the corporate tax rate is to undergo further staged reductions
to 25% by the year 2010. In order to implement these reductions, the corporate
tax rate is scheduled to decline to 31% in 2006, 29% in 2007, 27% in 2008 and
26% in 2009.

                                     - 57 -

<PAGE>

TAXATION OF NON-RESIDENTS

SPECIAL PROVISIONS RELATING TO MEASUREMENT OF TAXABLE INCOME

   We measure our taxable income in accordance with the Income Tax Law
(Inflationary Adjustments), 1985, or the Inflationary Adjustments Law, which
represents an attempt to overcome the problems presented to a traditional tax
system by an economy undergoing rapid inflation. The Inflationary Adjustments
Law is highly complex.

Results of the Company for tax purposes are measured in terms of earning in NIS
after certain adjustments for changes in the Israeli consumer price index.

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, provided that the capital gain is not derived
from a permanent establishment in Israel. In addition, the United States- Israel
tax treaty exempt United States residents who hold less than 10% of our voting
rights, and who held less than 10% of our voting rights during the 12 months
prior to a sale of their shares, from Israeli capital gains tax in connection
with such sale.

TAXATION OF NON-RESIDENT SHAREHOLDERS ON RECEIPT OF DIVIDENDS

Non- residents of Israel are subject to Israeli income tax on income accrued or
derived from sources in Israel, including passive income such as dividends,
royalties and interest. On distribution of dividends, other than bonus shares
and stock dividends, income tax is withheld at the source for dividends
distributed on or after January 1, 2006, at the rate of 20%, or 25% for a
shareholder that is considered a Material Shareholder at any time during the 12-
month period preceding such distribution; unless a different rate is provided in
treaty between Israel and the shareholder's country of residence.

Under the U.S - Israel Tax Treaty, the maximum tax on dividends paid to a holder
of shares who is a treaty U.S resident is 25%, such tax rate is reduced to 12.5%
.. If the Non- residents is a U.S corporation and holds 10% or more of our voting
power during the part of the tax year that precedes the date of payment of
dividend and during the whole of its prior tax year, and provided that not more
then 25% of the Israeli company's gross income consists of interest or
dividends.

FOREIGN EXCHANGE REGULATIONS

Non- residents of Israel who hold our ordinary shares are able to receive any
dividends, and any amounts payable upon the dissolution, liquidation and winding
up our affairs, freely repatriable in non-Israeli currency at the rate of
exchange prevailing at the time of conversion. However, Israeli income tax is
required to have been paid or withheld on these amounts. In addition, the
statutory framework for the potential imposition of exchange controls has not
been eliminated, and may be restored at any time by administrative action.

            F.    DIVIDENDS AND PAYING AGENT

      Not Applicable

            G.    STATEMENTS BY EXPERTS

      Not Applicable

            H.    DOCUMENTS ON DISPLAY

Copies of the documents that the Company has filed or incorporated by reference
as exhibits in this Annual Report may be inspected at the public reference
facilities of the Securities and Exchange Commission at 450 Fifth Street, N.W.
Washington D.C., 20549.

                                     - 58 -

<PAGE>

            I.    SUBSIDIARY INFORMATION

      Not Applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

      The following discussion about the Company's market risk disclosures
involves forward-looking statements. Actual results could differ materially from
those discussed in the forward-looking statements. Market risk to the Company
represents risks related to changes in the value of a financial instrument
caused by fluctuations of interest rates (on carrying interest assets and
liabilities), foreign currency exchange rates (on non-U.S. Dollar denominated
assets and liabilities) and inflation and devaluation.

INTEREST RATE RISK

      At December 31, 2005, the Company had loans payable carrying fluctuating
interest rates in the amount of approximately $1.1 million (including current
maturities). Market risk was estimated as the potential increase in fair value
resulting from a hypothetical 10% increase in the annual interest rate. Assuming
such increase in the interest rate, the fair value of the Company's loans would
increase by approximately $110 thousand.

FOREIGN CURRENCY EXCHANGE RISK

      At December 31, 2005, the Company had U.S. Dollar denominated assets (i.e.
cash and cash equivalents, trade receivables, etc.) in the amount of
approximately $1.9 million and liabilities (i.e. short-term credit, trade
payable, long term loans, etc.) in the amount of approximately $2.4 million.
Market risk was estimated as the potential increase in fair value of net excess
abovementioned liabilities over abovementioned assets resulting from a
hypothetical 10% increase in the year-end Dollar exchange rate. Assuming such
increase in the Dollar exchange rate, the fair value of the Company's net excess
U.S. Dollar denominated liabilities over assets would increase by approximately
$50 thousand.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

      Not Applicable

                                     - 59 -

<PAGE>

                                     PART II

ITEM 13. DEFAULTS, DIVIDENDS, 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

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

      (a) The Company performed an evaluation of the effectiveness of its
disclosure controls and procedures that are designed to ensure that the material
financial and non-financial information required to be disclosed on Form 20-F
and filed with the Securities and Exchange Commission is recorded, processed,
summarized and reported timely. Based on the Company's evaluation, the Company's
management, including the chief executive officer and chief financial officer,
has concluded that the Company's disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as
amended) as of the end of the period covered by this report are effective. The
Company believes that a control system, no matter how well designed and operated
cannot provide absolute assurance that the objectives of the controls system are
met, and no evaluation of controls can provide absolute assurance that all
control issues, and instances of fraud, if any, within a company have been
detected.

      (b) There were no changes to our internal control over financial reporting
that occurred during the period covered by this annual report that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

ITEM 16. RESERVED

ITEM 16. A. AUDIT COMMITTEE FINANCIAL EXPERT

      During 2003 the Company named Dr. Elan Penn, as an audit committee
financial expert serving on its audit committee and board of directors. Dr. Penn
is independent and serves as one of the company's external directors.

         B. CODE OF ETHICS

      The Company's Board of Directors has adopted a code of ethics that applies
to its officers, directors and employees. A copy of this code has been filed as
an exhibit to this report.

There are no material modifications to, or waivers from, the provisions of such
code which are required to be disclosed.

         C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      The Company's principal accountants for the years 2005 and 2004 were Kost
Forer Gabbay & Kasierer, a member of Ernst & Young Global.

      The table below summarizes the audit and other fees paid (in thousands of
USD) the Company and its consolidated subsidiaries to Kost Forer Gabbay &
Kasierer, during each of 2005 and 2004:

<TABLE>
<CAPTION>
                         Year Ended December 31, 2005   Year Ended December 31, 2004
                         ----------------------------   ----------------------------
                         Amount            Percentage   Amount            Percentage
                         ------            ----------   ------            ----------
<S>                      <C>               <C>          <C>               <C>
Audit Fees (1)             $61                 68%        $51                 77%
Audit-Related Fees (2)     $ 4                  4%        $ 4                  6%
Tax Fees (3)               $25                 28%        $11                 17%
Total                      $90                100%        $66                100%
</TABLE>

                                     - 60 -
<PAGE>

(1) "Audit fees" includes annual audit fees for Healthcare and its subsidiaries
as well as an audit for the registration statement filed in 2003.

(2) "Audit-related fees" are fees related to assurance and associated services
that traditionally are performed by the independent auditor, including
consultation concerning reporting standards.

(3) for services rendered to the company during and/or pertaining to the year
2005 in connection with the following: tax related work, consulting services as
to government grants, review of the financial statements, consultation as to
various transaction and the like

      The Audit Committee pre-approves on an annual basis the audit and certain
non-audit services provided to the Company by its auditors. Such annual
pre-approval is given with respect to particular services and sets forth a
specific budget for such services. Additional services not covered by the annual
pre-approval may be approved by the Audit Committee on a case-by-case basis as
the need for such services arises.

         D. EXEMPTION FROM LISTING STANDARDS FOR AUDIT COMMITTEE

      Not Applicable

         E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS

      Not Applicable

                                    PART III

ITEM 17. FINANCIAL STATEMENTS

      Not applicable.

ITEM 18. FINANCIAL STATEMENTS

      Attached. See Item 19(a).

ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS

         (a)   Healthcare Technologies Ltd. and its subsidiaries consolidated
               financial statements.

         (b)   Savyon Diagnostics Ltd financial statements.

                                     - 61 -

<PAGE>

                HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                             AS OF DECEMBER 31, 2005

                                 IN U.S. DOLLARS

                                      INDEX

                                                                      PAGE

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                63

CONSOLIDATED BALANCE SHEETS                                         64 - 65

CONSOLIDATED STATEMENTS OF OPERATIONS                                  66

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY                          67

CONSOLIDATED STATEMENTS OF CASH FLOWS                                  68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                          69 - 90

APPENDIX TO CONSOLIDATED FINANCIAL STATEMENTS                          91

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

                                     - 62 -

<PAGE>

[ERNST & YOUNG LOGO]

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

                             TO THE SHAREHOLDERS OF

                          HEALTHCARE TECHNOLOGIES LTD.

      We have audited the accompanying consolidated balance sheets of Healthcare
Technologies Ltd. ("the Company") and its subsidiaries as of December 31, 2005
and 2004, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2005. These consolidated 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. We were not engaged to
perform an audit of the Company's internal control over financial reporting. An
audit includes 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, and
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 as of December 31, 2005 and 2004 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2005, in conformity with U.S
generally accepted accounting principles.

                                                    KOST FORER GABBAY &
Tel-Aviv, Israel                                          KASIERER
June 29, 2006                                 A Member of Ernst & Young Global

                                     - 63 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

                                                             DECEMBER 31,
                                                      -------------------------
                                                          2005          2004
                                                      -----------    ----------
      ASSETS

CURRENT ASSETS:
   Cash and cash equivalents                          $       699    $      951
   Trade receivables (net of allowance
      for doubtful accounts of $ 39 and $ 46
      as of December 31, 2005 and
      2004, respectively)                                   3,381         3,960
   Other accounts receivable and
      prepaid expenses (Note 3)                               706           576
   Inventories (Note 4)                                     1,970         1,658
                                                      -----------    ----------

TOTAL current assets                                        6,756         7,145
                                                      -----------    ----------

LONG-TERM INVESTMENTS:
   Investments in affiliates (Note 2f)                        289             -
   Long-term receivables                                       29            35
   Severance pay fund (Note 2r)                               805           774
                                                      -----------    ----------

TOTAL long-term investments                                 1,123           809
                                                      -----------    ----------

PROPERTY AND EQUIPMENT, NET (Note 5)                        1,599         1,112
                                                      -----------    ----------
INTANGIBLE ASSETS (Note 2i)
   Goodwill                                                 2,854         2,854
   Other intangible assets, net                                42            68
                                                      -----------    ----------

TOTAL intangible assets                                     2,896         2,922
                                                      -----------    ----------

TOTAL assets                                          $    12,374    $   11,988
                                                      ===========    ==========

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

                                     - 64 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

                                                             DECEMBER 31,
                                                      -------------------------
                                                          2005          2004
                                                      -----------    ----------
      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
   Short-term bank credit (Note 6)                    $       777    $      839
   Current maturities of long-term bank loans
      (Note 8)                                                163            86
   Trade payables                                           2,672         2,329
   Other accounts payable and accrued expenses
      (Note 7)                                                946         1,059
                                                      -----------    ----------

TOTAL current liabilities                                   4,558         4,313
                                                      -----------    ----------

LONG-TERM LIABILITIES:
   Long-term bank loans, net of current maturities
      (Note 8)                                                174           142
   Investment in other company                                  -         4,761
   Investment in an affiliate (Note 2f)                         -            28
   Accrued severance pay (Note 2r)                            851           842
                                                      -----------    ----------

TOTAL long-term liabilities                                 1,025         5,773
                                                      -----------    ----------

COMMITMENTS AND CONTINGENT LIABILITIES (Note 9)

SHAREHOLDERS' EQUITY (Note 10):
   Share capital:
      Ordinary shares of NIS 0.04 par value -
         Authorized: 40,000,000 as of December 31,
         2005 and 2004; Issued and Outstanding:
         7,702,832 as of December 31, 2005 and
         2004.                                                100           100
   Additional paid-in capital                              28,044        23,267
   Accumulated other comprehensive loss                      (319)         (114)
   Deferred stock-based Compensation                          (49)          (90)
   Accumulated deficit                                    (20,985)      (21,261)
                                                      -----------    ----------

TOTAL shareholders' equity                                  6,791         1,902
                                                      -----------    ----------

                                                      $    12,374    $   11,988
                                                      ===========    ==========

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

                                     - 65 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                      --------------------------------------
                                                          2005          2004         2003
                                                      -----------    ----------   ----------
<S>                                                   <C>            <C>          <C>
Sales (Note 13)                                       $    12,053    $   12,130   $   12,412
Cost of sales                                               7,684         7,925        7,640
                                                      -----------    ----------   ----------

Gross profit                                                4,369         4,205        4,772
                                                      -----------    ----------   ----------

Amortization of technology (Note 2i)                            -             -          749
Research and development costs, net                             -            95           94
Selling and marketing expenses                              2,508         2,760        2,896
General and administrative expenses                         1,751         1,805        1,396
Impairment of an investment in Afferix (Note 2f)                -           100          111
                                                      -----------    ----------   ----------

                                                            4,259         4,760        5,246
                                                      -----------    ----------   ----------

Operating income (loss)                                       110          (555)        (474)
Financial expenses, net (Note 12a)                            (19)         (145)         (41)
Other income, net (Note 12b)                                   18           288           49
                                                      -----------    ----------   ----------

                                                              109          (412)        (466)
Taxes on income                                                 -             -           20
                                                      -----------    ----------   ----------

Income (loss) after taxes on income                           109          (412)        (486)
Equity in earnings (losses) of an affiliate                   167            53          (14)
                                                      -----------    ----------   ----------

Net income (loss)                                     $       276    $     (359)  $     (500)
                                                      ===========    ==========   ==========

Basic and diluted net earnings (loss) per share
   (in U.S dollars)                                   $      0.04    $    (0.05)  $    (0.07)
                                                      ===========    ==========   ==========

Weighted average number of shares used in
   computing basic net earnings (loss) per
   share (in thousands)                                     7,703         7,667        7,644
                                                      ===========    ==========   ==========

Weighted average number of shares used in
   computing diluted net earnings (loss) per
   share (in thousands)                                     7,768         7,667        7,644
                                                      ===========    ==========   ==========
</TABLE>

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

                                     - 66 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                         NUMBER                          ACCUMULATED
                            TOTAL      OF SHARES            ADDITIONAL      OTHER        DEFERRED                     TOTAL
                        COMPREHENSIVE     (IN       SHARE     PAID-IN   COMPREHENSIVE   STOCK-BASED  ACCUMULATED  SHAREHOLDERS'
                             LOSS      THOUSANDS)  CAPITAL    CAPITAL        LOSS      COMPENSATION     DEFICIT       EQUITY
                        -------------  ----------  -------  ----------  -------------  ------------  -----------  -------------
<S>                     <C>            <C>         <C>      <C>         <C>            <C>           <C>          <C>
Balance at January 1,
   2003                                     7,644  $    99  $   23,188  $        (118) $         (4) $   (20,402) $       2,763
Net loss                $        (500)          -        -           -              -             -         (500)          (500)
Other comprehensive
   income-
Foreign currency
   translation
   adjustments                     93           -        -           -             93             -            -             93
                        -------------
Total comprehensive
   loss                 $        (407)
                        =============
Exercise of options                             5        *)          1              -             -            -              1
Issuance expenses                               -        -         (70)             -             -            -            (70)
Deferred stock
   compensation                                 -        -         184              -          (184)           -              -
Amortization of
   deferred stock
   based compensation                           -        -           -              -            57            -             57
                                       ----------  -------  ----------  -------------  ------------  -----------  -------------
Balance at December
   31, 2003                                 7,649       99      23,303            (25)         (131)     (20,902)         2,344
Net loss                $        (353)          -        -           -              -             -         (359)          (359)
Other comprehensive
   loss-                                                             -
Foreign currency
   translation
   adjustments                    (89)          -        -           -            (89)            -            -            (89)
                        -------------
Total comprehensive
   loss                 $        (442)
                        =============
Issuance of shares                             54        1          34              -             -            -             35
Issuance expenses                               -        -         (70)             -             -            -            (70)
Amortization of
   deferred stock
   based compensation                           -        -           -              -            41            -             41
                                       ----------  -------  ----------  -------------  ------------  -----------  -------------
Balance at December
   31, 2004                                 7,703      100      23,267           (114)          (90)     (21,261)         1,902
Net income              $         276                                                                        276            276
Other comprehensive
   loss-
Foreign currency
   translation
   adjustments                   (205)          -        -           -           (205)             -            -          (205)
                        -------------
Total comprehensive
   income               $          71
                        =============
Capital surplus in
   respect of
   transaction
   between related
   parties                                      -        -       4,771              -             -            -          4,771
Amortization of
   deferred stock
   based compensation                           -        -           -              -            41            -             41
Compensation related
   to options granted
   to consultants                               -        -           6              -             -            -              6
                                       ----------  -------  ----------  -------------  ------------  -----------  -------------
Balance at December
   31, 2005                                 7,703  $   100  $   28,044  $        (319) $        (49) $   (20,985) $       6,791
                                       ==========  =======  ==========  =============  ============  ===========  =============
</TABLE>

*)    Represents an amount lower than 1.

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

                                     - 67 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31,
                                                                             -------------------------
                                                                              2005     2004      2003
                                                                             -----   -------   -------
<S>                                                                          <C>     <C>       <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                                          $ 276   $  (359)  $  (500)
  Adjustments required to reconcile net income ( loss) to net cash
    provided by (used in) operating activities:
    Impairment of an investment in an affiliate                                  -       100       111
    Equity in losses (earnings) of an affiliate                               (167)      (53)       14
    Depreciation and amortization                                              325       464     1,168
    Exchange rate of foreign currency of long-term bank loans, net             (11)       60      (135)
    Exchange rate of foreign currency of long-term receivable, net               3         -         -
    Capital loss (gain) on sale of property and equipment                      (18)       10       (34)
    Amortization of deferred stock based compensation                           41        41        57
    Amortization of compensation related to options granted to consultants       6         -         -
    Other income (see Note 1f)                                                   -      (235)        -
    Accrued severance pay, net                                                 (19)       10      (191)
    Decrease (increase) in trade receivables                                   367      (283)      688
    Decrease (increase) in other accounts receivable and prepaid
      expenses                                                                (653)      363       405
    Increase in inventories                                                   (395)     (146)     (266)
    Increase (decrease) in trade payables                                      451      (488)     (759)
    Increase (decrease) in other accounts payable and accrued expenses         147       173      (269)
                                                                             -----   -------   -------

Net cash provided by (used in) operating activities                            353      (343)      289
                                                                             -----   -------   -------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of property and equipment                                 110        78       132
  Purchase of property and equipment                                          (936)     (313)     (293)
  Collection of long-term receivables, net                                     240       227       240
  Investment in affiliate                                                     (150)        -      (211)
  Proceeds from sale of Procognia                                               10         -         -
                                                                             -----   -------   -------

Net cash used in investing activities                                         (726)       (8)     (132)
                                                                             -----   -------   -------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Short-term bank credit, net                                                  (23)      799       (37)
  Proceeds from long-term loans                                                273       195       667
  Principal payment of long-term loans                                        (142)   (1,061)     (459)
  Exercise of options                                                            -         -         2
  Issuance expenses                                                              -       (70)      (70)
                                                                             -----   -------   -------

Net cash provided by (used in) financing activities                            108      (137)      103
                                                                             -----   -------   -------

Effect of exchange rate changes on cash and cash equivalents                    13       (11)       37
                                                                             -----   -------   -------

Increase (decrease) in cash and cash equivalents                              (252)     (499)      297
Cash and cash equivalents at the beginning of the year                         951     1,450     1,153
                                                                             -----   -------   -------

Cash and cash equivalents at the end of the year                             $ 699   $   951   $ 1,450
                                                                             =====   =======   =======

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS ACTIVITIES:
  Cash paid during the year for:
    Interest                                                                 $  81   $    64   $    77
                                                                             =====   =======   =======
</TABLE>

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

                                     - 68 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 1:-    BUSINESS AND ORGANIZATION

            a.    General:

                  Healthcare Technologies Ltd. ("the Company"), an Israeli
                  corporation, is a holding company. The Company and its
                  subsidiaries (collectively, "the Group"), are engaged in the
                  development, manufacturing and marketing of medical diagnostic
                  kits and provide service tools and materials to diagnostic and
                  biotech research professionals in laboratory and point of care
                  sites in Israel and worldwide. The Group is also engaged in
                  the production and marketing of molecular biology based
                  gene-screening tools for the detection of certain
                  gene-associated disorders in humans. The Group's major sales
                  market is the Israeli market. As for geographic markets and
                  major customers, see Note 13.

                  Pronto Technologies Ltd. ("Pronto") and Gamida Gen, a
                  wholly-owned subsidiary of Pronto, are Israeli biotechnology
                  companies engaged in the production and marketing of molecular
                  biology-based gene screening tools for the detection of
                  certain gene related disorders in humans.

                  Savyon Diagnostics Ltd. ("Savyon"), an affiliate, is engaged
                  in the serology field, and manufactures sophisticated
                  microplate-based enzyme immuno assays for detection of
                  antibodies.

                  The Company's subsidiaries, Danyel Biotech Ltd. ("Danyel"),
                  Gamida Gen Marketing (1979) Ltd. ("Gamida Gen Marketing")
                  (formerly - Gamidor Ltd.) and Gamidor Diagnostic Ltd.
                  ("Gamidor") distribute medical diagnostic kits, reagents and
                  chemicals for research, industrial and clinical uses.

                  Gamida Gen Marketing, Gamidor and Pronto filed an application
                  to the Israeli Tax Authorities and the Companies' Registrar to
                  merge their operations as of December 31, 2003, and are
                  currently awaiting such approvals. Such merger has no
                  accounting implications.

                  The Company's shares are traded on the National Association of
                  Securities Dealers' Quotation System ("NASDAQ") in the United
                  States.

                  As for the Company's list of subsidiaries, affiliates and
                  other companies refer to Appendix I.

                                     - 69 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 1:-    BUSINESS AND ORGANIZATION (CONT.)

            b.    Concentration of risks that may have a significant impact on
                  the Group are as follows:

                  The Group currently buys certain products from a limited group
                  of suppliers. Management believes that other suppliers could
                  provide similar products on comparable terms. A change in
                  suppliers, however, could cause a delay in manufacturing and a
                  possible loss of sales, which would adversely affect operating
                  results and financial position.

                  The Group sales to two customers account for a significant
                  portion of the Group's total sales and loss of these customers
                  could have a material adverse effect on the Group's business
                  and financial results (see also Note 13b).

            c.    The ImmvaRx Inc. ("ImmvaRx") transaction:

                  On June 29, 2004, the Company signed a term sheet with ImmvaRx
                  Inc. for the transfer by ImmvaRx to the Company of all of
                  ImmvaRx's assets, including its intellectual property, in
                  exchange for up to an approximate 87% interest in the Company.
                  In addition, ImmvaRx may conduct a tender offer for the
                  purchase of all of the Company's shares.

                  On January 30, 2006 for various reasons, including, without
                  limitation, that the Closing (as defined in the purchase
                  assets agreement) did not and would not take place on or
                  before January 31, 2006, the parties entered into a
                  termination agreement according to which: 1) the original
                  purchase agreement is terminated effective as of January 31,
                  2006; 2) As of January 30, 2006, each party expressly releases
                  and forever discharges the other parties from and against any
                  and all actions, cause of action, claims, demands, sums of
                  money, other obligations whatsoever in connection with the
                  original purchase assets agreement.

                  All costs related to the transaction incurred by the Company
                  were recorded in income statement.

            d.    Investment in Procognia:

                  In January 2000, the Company established a 98% - owned
                  subsidiary, Procognia (Israel) Ltd. ("Procognia Israel"). In
                  April 2002, Procognia Israel's shareholders exchanged their
                  shares in Procognia Israel with shares in a newly formed U.K.
                  company ("Procognia"). Procognia develops certain products and
                  technologies in the Glycomolecular field and in the
                  Biochemistry of sugar.

                  As a result of certain investment transactions in Procognia's
                  shares, the Company's voting rights declined to 11.6% as of
                  December 31, 2002 and, consequently, Procognia's financial
                  statements were no longer consolidated with those of the
                  Company.

                  During 2004, Procognia completed additional two financing
                  rounds, upon which the Company's voting rights were reduced to
                  approximately 4%. Consequently, the Company no longer retains
                  the right to appoint directors in Procognia and has no
                  obligation to finance Procognia's operations and the
                  investment was stated at cost.

                                     - 70 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 1:-    BUSINESS AND ORGANIZATION (CONT.)

                  The investment in Procognia is stated at cost, since the
                  Company does not have the ability to exercise significant
                  influence over operating and financial policies of those
                  investees. The Company's investments in Procognia is reviewed
                  for impairment whenever events or changes in circumstances
                  indicate that the carrying amount of the investment may not be
                  recoverable, in accordance with APB No. 18.

                  On March 31, 2005, the Board of Directors and Audit Committee
                  had approved the sale of all the Company's shares in Procognia
                  to the Company's principal shareholder, Gamida for life BV
                  ("Gamida"). On May 29, 2005, the shareholders of the Company
                  approved the sale. The Company sold and transferred an
                  aggregate amount of 6,255,000 Ordinary Shares of Procognia to
                  Gamida in consideration for an initial payment of $ 10 and the
                  additional payments as follows:

                  i.    In the event that the ImmvaRx transaction will be
                        executed, Gamida shall pay the Company an additional $
                        420.

                  ii.   In the event that the ImmvaRx transaction is not
                        executed, or in event it is executed but ImmvaRx's
                        option to execute the tender offer expires before
                        consummation thereof, Gamida will pay the Company, upon
                        Gamida's sale of the Procognia shares to third party,
                        all amounts received in consideration therefore
                        equivalent to an amount no greater than $ 420, plus, if
                        any, 30% of the remaining consideration.

                  iii.  In the event that within one year of the execution date
                        of the agreement, Gamida will sell the shares and the
                        sale occurs prior to the consummation of the ImmvaRx
                        transaction, Gamida will pay the Company all amounts
                        received in consideration therefore up to $ 420, plus,
                        if any, 80% of the remaining consideration.

                  The transaction was with a controlling shareholder and
                  therefore the Company has not recorded any gain in the
                  statements of operations. An amount of $ 4,771 (and any
                  additional proceeds that the Company will receive for the sale
                  of Procognia's shares) was recorded as additional paid-in
                  capital.

                  Since ImmvaRx transaction was cancelled only option 2 is
                  applicable.

            e.    Investment in Afferix:

                  In August 2003, the Group invested in Afferix Ltd., by way of
                  a convertible bridge loan in an amount of $ 211. Afferix is
                  developing a diagnostic kit for the identification of free
                  iron in the blood stream. The bridge loan agreement entitled
                  the Group to designate one director to the Afferix board of
                  directors.

                  It was agreed that the Group is entitled to either convert or
                  demand repayment of the loan subject to certain provisions of
                  the bridge loan agreement, provided that the Group shall not
                  be able to demand repayment before December 31, 2004.

                                     - 71 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 1:-    BUSINESS AND ORGANIZATION (CONT.)

                  In the beginning of 2005, the loan was converted into shares
                  representing approximately 27% of the issued and outstanding
                  share capital of Afferix. Currently, the Group is entitled to
                  designate one director to the Afferix board of directors.
                  Since the Company has the ability to exercise significant
                  influence over operating and financial policies of Afferix,
                  the Company applies the equity method to its investment. The
                  affiliate has a negative equity and since the Company did not
                  provide any guarantees to subsidize the affiliate's losses,
                  the Company ceased to take the affiliate's loss when its
                  shareholders' equity becames negative.

                  The Company's investment in Afferix is reviewed for impairment
                  whenever events or changes in circumstances indicate that the
                  carrying amount of an investment may not be recoverable, in
                  accordance with Accounting Principle Board Opinion No.18 "The
                  Equity Method of Accounting for Investments in Common Stock",
                  ("APB No.18"). As of December 31, 2005 2004 and 2003, based on
                  managements' most recent analyses, impairment losses have been
                  identified in the amount of $ 0, $ 100 and $ 111,
                  respectively.

            f.    The DMI guarantee:

                  As part of the acquisition of Gamida Gen Ltd. in January 2001,
                  the Company agreed to assume a guarantee of up to $ 270 of
                  Gamida Gen's debts in favor of an Israeli commercial bank
                  provided by DMI Investments B.V. ("DMI"). DMI had been
                  required by the bank to discharge its obligations pursuant to
                  its guarantee and the Company recorded a liability in the
                  amount of $ 270. In September 2004, the Company entered into
                  an agreement by and among DMI, the Company and Gamida Gen
                  pursuant to which the Company issued to DMI, 54,105 Ordinary
                  shares of the Company in consideration of DMI fully and
                  finally releasing the Company of any obligation which it may
                  have in connection with DMI's demands to be reimbursed for the
                  amount of approximately $ 270. The Company has recorded the
                  issuance of shares at their fair value of $ 35 on the issuance
                  date and the remainder $ 235 was recorded as other income.

NOTE 2:-    SIGNIFICANT ACCOUNTING POLICIES

                  These consolidated financial statements have been prepared in
                  conformity with generally accepted accounting principles in
                  the United States ("U.S. GAAP").

            a.    Use of estimates:

                  The preparation of financial statements in conformity with
                  generally accepted accounting principles requires management
                  to make estimates and assumptions that affect the amounts
                  reported in the financial statements and accompanying notes.
                  Actual results could differ from those estimates.

                                     - 72 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 2:-    SIGNIFICANT ACCOUNTING POLICIES (CONT.)

            b.    Financial statements in U.S. dollars:

                  The functional currency of the Company is the U.S. dollar
                  ("dollar"), as the dollar is the primary currency of the
                  economic environment in which the Company has operated and
                  expects to continue to operate in the foreseeable future. The
                  Company's operations are currently conducted in Israel and
                  most of its expenses are currently paid in dollars. Financing
                  and investing activities, equity transactions and cash
                  investments, are made in dollars.

                  Accordingly, monetary accounts maintained in currencies other
                  than the dollar are remeasured into dollars. All transaction
                  gains and losses of the remeasurement of monetary balance
                  sheet items are reflected in the statements of operations as
                  financial income or expenses as appropriate.

                  The financial statements of the subsidiaries, whose functional
                  currency is not the dollar, have been translated into dollars.
                  All balance sheet accounts have been translated using the
                  exchange rates in effect at the balance sheet date. Statement
                  of operations amounts have been translated using the average
                  exchange rate for the period. The resulting translation
                  adjustments are reported as a component of shareholders'
                  equity accumulated other comprehensive income or loss.

            c.    Principles of consolidation:

                  The consolidated financial statements include the accounts of
                  the Company and its subsidiaries. Intercompany transactions
                  and balances have been eliminated upon consolidation. Losses
                  applicable to the minority in Danyel are allocated to the
                  Company, since it solely finances Danyel's operations.

            d.    Cash equivalents:

                  The Group considers all highly liquid investments originally
                  purchased with maturities of three months or less to be cash
                  equivalents.

            e.    Inventories:

                  Inventories are stated at the lower of cost or market value.
                  Inventory provisions for write-offs are provided to cover
                  risks arising from slow-moving items or technological
                  obsolescence. In the years ended December 31, 2005, 2004 and
                  2003, the Company provided for write-off in the amounts of $
                  6, $ 4 and $ 0, respectively, which are included in cost of
                  sales.

                  Cost is determined as follows:

                  -     Raw materials and packaging materials - at average cost.

                  -     Finished goods - on the basis of computed manufacturing
                        costs, which include raw materials, labor and direct and
                        indirect manufacturing costs. Purchased goods are stated
                        at the lower of cost or market value.

                                     - 73 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 2:-    SIGNIFICANT ACCOUNTING POLICIES (CONT.)

            f.    Investments in affiliated companies:

                  Affiliated companies are companies held to the extent of 20%
                  or more (which are not subsidiaries), or companies less than
                  20% held, which the Company can exercise significant influence
                  over operating and financial policy of the affiliate.

                  The Company's investment in 50% of Savyon shares is accounted
                  for by the equity method.

                  Following is condensed data from Savyon's balance sheets as of
                  December 31, 2005 and 2004 and statements of operations for
                  the years ended December 31, 2005 and 2004:

                                                            DECEMBER 31,
                                                    ----------------------------
                                                        2005           2004
                                                    ------------   ------------

                  Current assets                    $      2,075   $      1,441
                  Non-current assets                       1,543            791
                  Current liabilities                      1,648            992
                  Non-current liabilities                  1,970            200
                  Net sales                                5,103          3,915
                  Gross profit                             2,394          1,775
                  Net income                                 336            106

                  The Company applies EITF 99-10, "Percentage Used to Determine
                  the Amount of Equity Method Losses" ("EITF No. 99-10").
                  Accordingly, losses of the investee are recognized based on
                  the ownership level of the particular investee security held
                  by the Company.

            g.    Property and equipment:

                  Property and equipment are stated at cost, net of accumulated
                  depreciation. Depreciation is computed using the straight-line
                  method over the estimated useful lives of the assets.

                  Annual rates of depreciation are as follows:

                                                                 %
                                                    ---------------------------

                  Laboratory and medical equipment       10 - 33 (mainly 20)
                  Office furniture and equipment          6 - 33 (mainly 6)
                  Motor vehicles                                 15
                  Leasehold improvements               Over the shorter of the
                                                      lease term or useful life

                                     - 74 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 2:-    SIGNIFICANT ACCOUNTING POLICIES (CONT.)

            h.    Impairment of long-lived assets:

                  The Group's long-lived assets and certain identifiable
                  intangibles are reviewed for impairment in accordance with
                  Statement of Financial Accounting Standard No. 144,
                  "Accounting for the Impairment or Disposal of Long-Lived
                  Assets" ("SFAS No. 144"), whenever events or changes in
                  circumstances indicate that the carrying amount of an asset
                  may not be recoverable. Recoverability of assets to be held
                  and used is measured by a comparison of the carrying amount of
                  an asset to the future undiscounted cash flows expected to be
                  generated by the assets. If such assets are considered to be
                  impaired, the impairment to be recognized is measured by the
                  amount by which the carrying amount of the assets exceeds the
                  fair value of the assets. As of December 31, 2005, 2004 and
                  2003, no impairment losses have been identified.

            i.    Intangible assets:

                  Intangible assets acquired are amortized over their useful
                  lives using a method of amortization that reflects the pattern
                  in which the economic benefits of the intangible assets are
                  consumed or otherwise used up, in accordance with Statement of
                  Financial Accounting Standards No. 142 "Goodwill and Other
                  Intangible Assets", ("SFAS No. 142").

                  Distribution rights are amortized over 8 years and technology
                  was amortized over 3 years. The Company recorded amortization
                  expenses during 2005, 2004 and 2003, in the amount of $ 22, $
                  25 and $ 771, respectively.

                  Goodwill represents excess of the costs over the fair value of
                  the net assets of businesses acquired. Pursuant to Statement
                  of Financial Accounting Standard No. 142, "Goodwill and Other
                  Intangible Assets" ("SFAS No. 142") goodwill is presented at
                  cost and not being amortized annually, rather goodwill is
                  tested for impairment at least annually or between annual
                  tests in certain circumstances, and written down when
                  impaired, rather than being amortized. Goodwill attributable
                  to the reporting unit is tested for impairment by comparing
                  the fair value of the reporting unit with its carrying value.
                  Fair value is determined using discounted cash flows, market
                  multiples and market capitalization. Significant estimates
                  used in the methodologies include estimates of future cash
                  flows, future short-term and long-term growth rates, weighted
                  average cost of capital and estimates of market multiples for
                  the reportable unit. As of December 31, 2005, 2004 and 2003,
                  no impairment losses have been identified.

                                     - 75 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 2:-    SIGNIFICANT ACCOUNTING POLICIES (CONT.)

            j.    Income taxes:

                  The Company and its subsidiaries account for income taxes in
                  accordance with Statement of Financial Accounting Standards
                  No. 109, "Accounting for Income Taxes" ("SFAS No.109"). This
                  Statement prescribes the use of the liability method whereby
                  deferred tax assets and liability account balances are
                  determined based on differences between financial reporting
                  and tax bases of assets and liabilities and are measured using
                  the enacted tax rates and laws that will be in effect when the
                  differences are expected to reverse. The Company and its
                  subsidiaries provide a valuation allowance, if necessary, to
                  reduce deferred tax assets to their estimated realizable
                  value.

            k.    Revenue recognition:

                  Revenues are recognized in accordance with Staff Accounting
                  Bulletin No. 104, "Revenue Recognition" ("SAB No. 104"), upon
                  delivery of the products when the collection of the receivable
                  is probable, persuasive evidence of an agreement exists, no
                  significant obligations remain and the price is fixed or
                  determinable. The Group follows Statement of Financial
                  Accounting Standard No. 48, "Revenue Recognition when Right of
                  Return Exists" ("SFAS No. 48"). Based on the Company's
                  management experience, no provisions for returns were recorded
                  for the years ended December 31, 2005, 2004 and 2003.

            l.    Research and development costs:

                  Research and development costs, net of participations and
                  grants received, are charged to expenses as incurred.

            m.    Royalty and non-royalty-bearing grants:

                  Royalty-bearing grants from the Government of Israel and The
                  Israel-United States Bi-national Industrial Research and
                  Development Foundation for funding approved research and
                  development projects are recognized at the time the Company is
                  entitled to such grants, on the basis of the costs incurred
                  and included as a deduction of research and development costs.
                  There were no grants for the years 2005, 2004 and 2003. Total
                  royalties paid amounted to $ 23, $ 21 and $ 22 in 2005, 2004
                  and 2003, respectively. The royalties were recorded in cost of
                  sales.

            n.    Basic earnings and diluted net earnings (loss) per share:

                  Basic net earnings (loss) per share is computed based on the
                  weighted average number of Ordinary shares outstanding during
                  each year. Diluted net earnings per share are computed based
                  on the weighted average number of Ordinary shares outstanding
                  during each year, plus dilutive potential Ordinary shares
                  considered outstanding during the year, in accordance with
                  Statement of Financial Accounting Standard No. 128, "Earnings
                  Per Share".

                                     - 76 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 2:-    SIGNIFICANT ACCOUNTING POLICIES (CONT.)

                  The total weighted average number of shares related to the
                  outstanding options excluded from the calculations of diluted
                  earnings (loss) per share, since they would have an
                  anti-dilutive effect, were 147,500, 297,500 and 255,000, for
                  the years ended December 31, 2005, 2004 and 2003,
                  respectively.

            o.    Accounting for stock based compensation:

                  The Company has elected to follow Accounting Principles Board
                  Opinion No. 25, "Accounting for Stock Issued to Employees"
                  (APB No. 25) and FASB Interpretation No. 44 "Accounting for
                  Certain Transactions Involving Stock Compensation" ("FIN No.
                  44") in accounting for its employee stock option plans. Under
                  APB No. 25, when the exercise price of the Company's stock
                  option is less than the market price of the underlying shares
                  on the date of grant, compensation expense is recognized.

                  The Company adopted the disclosure provisions of SFAS No. 148,
                  "Accounting for Stock-Based Compensation - transition and
                  disclosure", which amended certain provision of SFAS No. 123,
                  "Accounting for Stock-Based Compensation" ("SFAS No. 123") to
                  provide alternative methods of transition for an entity that
                  voluntarily changes to the fair value based method of
                  accounting for stock-based employee compensation, effective as
                  of the beginning of 2003. The Company continues to apply the
                  provisions of APB No. 25 in accounting for stock-based
                  compensation.

                  Pro forma information regarding net income and net earnings
                  per share is required by SFAS No. 123 and has been determined
                  as if the Company had accounted for its employee stock options
                  under the fair value method of SFAS No. 123. The fair value
                  for these options is amortized over their vesting period and
                  estimated at the date of grant using a Black-Scholes Option
                  Valuation Model with the following weighted-average
                  assumptions for 2005, 2004 and 2003: risk-free interest rates
                  of 4.37%, 2.78% and 1.0%, respectively; dividend yields of 0%
                  for each year; volatility factors of the expected market price
                  of the Company's Ordinary shares of 151%, 96% and 122%,
                  respectively; and an expected life of the option of 3 to 5
                  years for each year.

                                     - 77 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 2:-    SIGNIFICANT ACCOUNTING POLICIES (CONT.)

                  The following table illustrates the effect on net income
                  (loss) and earning (loss) per share, assuming that the Company
                  has applied the fair value recognition provision of SFAS No.
                  123 on its stock-based employee compensation:

<TABLE>
<CAPTION>
                                                    YEAR ENDED DECEMBER 31,
                                                  --------------------------
                                                   2005      2004      2003
                                                  ------    ------    ------
                                                  U.S. DOLLARS IN THOUSANDS
                                                  (EXCEPT PER SHARE AMOUNTS)
                                                  --------------------------
<S>                                               <C>       <C>       <C>
Net income (loss) as reported                     $  276    $ (359)   $ (500)
                                                  ======    ======    ======

Add: stock-based employee compensation expense
  included in reported net income (loss)          $   41    $   41    $   57
                                                  ======    ======    ======

Deduct: stock-based employee compensation
  expense determined under fair value-based
  method                                          $  (65)   $  (55)   $  (62)
                                                  ======    ======    ======

Pro forma net income (loss)                       $  252    $ (373)   $ (505)
                                                  ======    ======    ======

Earning per share:

Basic and diluted net earnings (loss) per share
  (in U.S dollars), as reported                   $ 0.04    $(0.05)   $(0.07)
                                                  ======    ======    ======

Basic and diluted pro forma net earnings (loss)
  per share (in U.S dollars)                      $ 0.03    $(0.05)   $(0.07)
                                                  ======    ======    ======
</TABLE>

            p.    Concentrations of credit risk:

                  Financial instruments that potentially subject the Group to
                  concentrations of credit risk consist principally of cash and
                  cash equivalents, and trade receivables. Cash and cash
                  equivalents are deposited in major banks in Israel. Management
                  believes that the financial institutions that hold the Group's
                  investments are financially sound, and, accordingly, minimal
                  credit risk exists with respect to these investments. The
                  Group's trade receivables derive mainly from sales to numerous
                  customers in Israel. The Group has adopted credit policies and
                  standards intended to accommodate industry growth and inherent
                  risk. Management believes that credit risks are moderated by
                  the diversity of its end customers. The Group performs ongoing
                  credit evaluations of its customers' financial condition and
                  to date has not experienced any material losses. An allowance
                  for doubtful accounts is determined with respect to those
                  amounts that the Group has determined to be doubtful of
                  collection.

                  The Company has no off-balance-sheet concentration of credit
                  risk such as foreign exchange contracts, option contracts or
                  other foreign hedging arrangements.

                                     - 78 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 2:-    SIGNIFICANT ACCOUNTING POLICIES (CONT.)

            q.    Fair value of financial instruments:

                  The following methods and assumptions were used by the Group
                  in estimating its fair value disclosures for financial
                  instruments:

                  The carrying amounts of cash and cash equivalents, trade
                  receivables, short-term bank credit and trade payables
                  approximate their fair value due to the short-term maturity of
                  such instruments.

                  The carrying amounts of the Group's long-term borrowings
                  approximate their fair value. The fair value was estimated
                  using discounted cash flows analyses, based on the Group's
                  incremental borrowing rates for similar type of borrowing
                  arrangements.

            r.    Severance pay:

                  The Company's liability for severance pay is calculated
                  pursuant to Israel's Severance Pay Law based on the most
                  recent salary of the employees multiplied by the number of
                  years of employment, as of the balance sheet date. Employees
                  are entitled to one month's salary for each year of
                  employment, or a portion thereof. The Company's liability for
                  all of employees, is fully provided by monthly deposits with
                  severance pay funds, insurance policies and by an accrual. The
                  value of these policies is recorded as an asset in the
                  Company's consolidated balance sheet.

                  The deposited funds include profits accumulated up to the
                  balance sheet date. The deposited funds may be withdrawn only
                  upon the fulfillment of the obligation pursuant to Israel's
                  Severance Pay Law or labor agreements. The value of the
                  deposited funds is based on the cash surrendered value of
                  these policies, and includes immaterial profits.

                  Severance expenses for the years ended December 31, 2005, 2004
                  and 2003 amounted to $ 65, $ 111 and $ 123, respectively.

            s.    Comprehensive income:

                  The Company accounts for comprehensive income in accordance
                  with SFAS No. 130, Reporting Comprehensive Income. This
                  statement establishes standards for the reporting and display
                  of comprehensive income and its components in a full set of
                  general purpose financial statements. Comprehensive income
                  generally represents all changes in stockholders' equity
                  during the period except those resulting from investments by,
                  or distributions to, stockholders.

                                     - 79 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 2:-    SIGNIFICANT ACCOUNTING POLICIES (CONT.)

            t.    Impact of recently issued accounting standards:

                  In December 2004, the Financial Accounting Standards Board
                  issued Statement No. 123 (revised 2004), "Share-Based Payment"
                  ("SFAS No. 123(R)"), which replaces SFAS 123 and supersedes
                  APB 25. SFAS No. 123(R) requires all share-based payments to
                  employees, including grants of employee stock options and
                  shares issued under the ESPP to be recognized in the financial
                  statements based upon their fair values, beginning with the
                  first interim or annual period after December 15, 2005, with
                  early adoption encouraged. The Company has the option to
                  choose either the modified prospective or modified
                  retrospective method. The Company currently expects to adopt
                  SFAS No. 123(R), using the modified prospective method of
                  adoption which requires that compensation expense be recorded
                  over the expected remaining life of all unvested stock options
                  and restricted stock and for any new grants thereof at the
                  beginning of the first quarter of adoption of SFAS No. 123(R).
                  The Company is currently evaluating the impact SFAS No. 123(R)
                  will have on the Company's financial statements, and based on
                  its preliminary analysis, expects that the adoption of the
                  SFAS No. 123(R) fair value method will not have a significant
                  impact on the consolidated results of operations, although it
                  will have no impact on the Company's overall consolidated
                  financial position or consolidated cash flows.

                        In May 2005, the FASB issued SFAS No. 154, "Accounting
                  Changes and Error Corrections", a replacement of APB No. 20,
                  "Accounting Changes" and SFAS No. 3, "Reporting Accounting
                  Changes in Interim Financial Statements". SFAS No. 154
                  provides guidance on the accounting for and reporting of
                  accounting changes and error corrections. APB No. 20
                  previously required that most voluntary changes in accounting
                  principles be recognized by including in net income for the
                  period of the change, the cumulative effect of changing to the
                  new accounting principle. SFAS No. 154 requires retroactive
                  application to prior periods' financial statements of a
                  voluntary change in accounting principles unless it is
                  impracticable. SFAS 154 is effective for accounting changes
                  and corrections of errors made in fiscal years beginning after
                  December 15, 2005. As of December 31, 2005, adoption of SFAS
                  No. 154 will not have a material impact on the Company's
                  financial position or results of operations.

                                     - 80 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 3:-    OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

                                                             DECEMBER 31,
                                                          ------------------
                                                            2005       2004
                                                          --------   -------

            Government authorities                        $     89   $    75
            Accounts receivable                                128        66
            Prepaid expenses                                    81        85
            Related parties (1)                                320        41
            Receivable on account of sale of
               operations to Savyon                              -       240
            Shareholder                                         35        35
            Other                                               53        34
                                                          --------   -------

                                                          $    706   $   576
                                                          ========   =======

            (1)   The majority of the balance is linked to the U.S. dollars.

NOTE 4:-    INVENTORIES

            Raw materials                                 $      1   $     9
            Finished goods                                   1,969     1,649
                                                          --------   -------

                                                          $  1,970   $ 1,658
                                                          ========   =======

NOTE 5:-    PROPERTY AND EQUIPMENT, NET

            a.    Composition of property and equipment is as follows:

                  Cost:
                    Laboratory and medical equipment      $  1,897   $ 1,716 *)
                    Motor vehicles                             783       620 *)
                    Office furniture and equipment             545       785 *)
                    Leasehold improvements                     175       225 *)
                                                          --------   -------

                                                             3,400     3,346 *)
                                                          --------   -------
                  Accumulated depreciation:
                    Laboratory and medical equipment           995     1,356 *)
                    Motor vehicles                             173       561 *)
                    Office furniture and equipment             528       192 *)
                    Leasehold improvements                     105       125 *)
                                                          --------   -------

                  Accumulated depreciation                   1,801     2,234 *)
                                                          --------   -------

                  Depreciated cost                        $  1,599   $ 1,112
                                                          ========   =======

                  *)     Reclassified

                                     - 81 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

NOTE 5:-    PROPERTY AND EQUIPMENT, NET (CONT.)

            b.    Depreciation expenses for the years ended December 31, 2005,
                  2004 and 2003, amounted to $ 302, $ 439 and $ 397,
                  respectively. (As for impairment, see Note 2h).

                  As for charges, see Note 9e(1).

NOTE 6:-    SHORT-TERM BANK CREDIT

                                    INTEREST RATE                DECEMBER 31,
                                   ---------------   LINKAGE   ---------------
                                    2005     2004     TERMS     2005     2004
                                   ------   ------   -------   ------   ------

            Short-term bank loans   6.8%     6.5%      NIS     $  777   $  839
                                                               ======   ======

            The Group has an authorized credit line in the amount of $ 275 as of
            December 31, 2005. For amounts overdrawn in excess of the Group's
            authorized credit line, the Group is subject to an annual average
            interest rate of approximately 8.25 % on the outstanding amount.

            As of December 31, 2005, the Group has $ 275 of unutilized credit
            line.

            As for charges, see Note 9e(1).

NOTE 7:-    OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

                                                                 DECEMBER 31,
                                                              -----------------
                                                                2005      2004
                                                              -------   -------

            Royalties payable                                 $    14   $    11
            Employees and payroll accruals                        379       366
            Government authorities                                 34       120
            Customer advances                                     159       182
            Accrued expenses                                      250       314
            Related parties                                        88         -
            Other                                                  22        66
                                                              -------   -------

                                                              $   946   $ 1,059
                                                              =======   =======

                                     - 82 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSAND (EXCEPT SHARE DATA)

NOTE 8:-    LONG-TERM LOANS

            a.    Composed as follows:

<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                      INTEREST        -------------------------------------------------------
                                        RATE                     2005                         2004
                                  -----------------   --------------------------   --------------------------
                                                        IN        NIS                IN        NIS
                                                       U.S.    LINKED TO            U.S.    LINKED TO
                                   2005      2004     DOLLAR      CPI      TOTAL   DOLLAR      CPI      TOTAL
                                  ------   --------   ------   ---------   -----   ------   ---------   -----
                                          %
                                  -----------------
<S>                               <C>      <C>        <C>      <C>         <C>     <C>      <C>         <C>
Loans from banks                  5-10.8   3.2-6.25   $   10   $     327   $ 337   $   18   $     210   $ 228
Less - current maturities                                  7         156     163        8          78      86
                                                      ------   ---------   -----   ------   ---------   -----

                                                      $    3   $     171   $ 174   $   10   $     132   $ 142
                                                      ======   =========   =====   ======   =========   =====
</TABLE>

            b.    Maturities of long-term
                  loans subsequent to the balance
                  sheet date are as follows:

<TABLE>
<S>                                                   <C>      <C>         <C>     <C>      <C>         <C>
First year (current maturities)                       $    7   $     156   $ 163   $    8   $      78   $  86
                                                      ------   ---------   -----   ------   ---------   -----

Second year                                                3         140     143        8          81      89
Third year                                                 -          31      31        2          51      53
                                                      ------   ---------   -----   ------   ---------   -----

                                                           3         171     174       10         132     142
                                                      ------   ---------   -----   ------   ---------   -----

                                                      $   10   $     327   $ 337   $   18   $     210   $ 228
                                                      ======   =========   =====   ======   =========   =====
</TABLE>

                  As for charges, see Note 9e(1).

            c.    Covenants:

                  One of the Company's subsidiaries has a bank covenant
                  provision which includes, amongst others, fulfillment of
                  different financial ratios and other provisions. As of
                  December 31, 2005, the subsidiary fulfilled all such
                  provisions.

                                     - 83 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSAND

NOTE 9:-    COMMITMENTS AND CONTINGENT LIABILITIES

            a.    Royalty commitments:

                  The group is obligated to pay royalties to the Government of
                  Israel through the Office of the Chief Scientist ("OCS"), at
                  rates of 3% to 5% on sales proceeds from products financed by
                  the OCS. The maximum amount of royalties payable to the
                  Government of Israel is limited to 100% of the grants
                  received, linked to the dollar and bears interest at the LIBOR
                  rate from 1999. The obligation to pay these royalties is
                  contingent on actual sales of the products and in the absence
                  of such sales no payment is required.

                  Total royalties accrued or paid by the group amounted to $ 23,
                  $ 21 and $ 22 in 2005, 2004 and 2003, respectively.

                  At December 31, 2005, the group has remaining contingent
                  obligation to the OCS in the amount of $ 507 (excluding
                  accrued interest).

            b.    Lease commitments:

                  The Group has leased several buildings, offices, warehouses
                  under several operating lease agreements that expire on
                  various dates the latest of which is June 30, 2008, and motor
                  vehicles under various operating leases that expire on various
                  dates, the latest of which is in May 2009.

                  Future lease commitments under non-cancelable operating leases
                  are as follows:

                  2006               $ 223
                  2007                 163
                  2008                  52
                                     -----

                                     $ 438
                                     =====

                  Total rent expenses for the years ended December 31, 2005,
                  2004 and 2003, were approximately $ 182, $ 187 and $ 160,
                  respectively.

            c.    The Company is engaged in a service agreement with Gamida for
                  Life Israel, a company related to the Company's controlling
                  shareholder, according to which the Company is obligated to
                  pay management fees of $ 10 per month. The service agreement
                  is automatically renewed for successive one-year terms, unless
                  terminated by either party subject to a three-month
                  notification.

                                     - 84 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSAND (EXCEPT SHARE DATA)

NOTE 9:-    COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)

            d.    In January 1999, the Company established an 80% - owned
                  subsidiary - Danyel. The remaining 20% are owned by L.C. Tech
                  Ltd., a company held by the general manager of Danyel.
                  According to the incorporation agreement, the general manager
                  can require the Company to acquire his 20% under two
                  alternatives:

                  1.    In the event that the general manager ceases his role by
                        reason of death or incapability. In such event, the
                        purchase price will be the fair value as determined by a
                        third party valuation at the termination date.

                  2.    In the event of termination without cause, the purchase
                        price will be 90% of the fair value as determined by a
                        third party valuation at the termination date.

                  In addition, Danyel is obligated to pay its general manager 5%
                  of Danyel's annual net income.

            e.    Charges (assets pledged) and guarantees:

                  1.    As collateral for credit line and loans provided to the
                        Group, totaling $ 1,390 as of December 31, 2005, the
                        Group has placed unlimited fixed and floating charges on
                        certain assets and share capital, in favor of the bank.

                  2.    The Company guaranties 50% of Savyon credit line in the
                        bank, amounting to $ 100.

            f.    A former employee filed a claim against the Company in the
                  amount of $ 166. The Company's management believes that the
                  Company will not be required to make any material payment in
                  excess of the provisions presented in the financial
                  statements, in respect of this claim.

NOTE 10:-   SHAREHOLDERS' EQUITY

            a.    Ordinary shares confer upon their holders voting rights and
                  the right to receive dividends, if declared.

            b.    In September 2004, the Company issued 54,105 Ordinary shares
                  as a consideration for fully and finally releasing the Company
                  of any obligation which it may have in connection with DMI's
                  demands (see Note 1f).

            c.    Under the Company's 2000 and 2003 Incentive Stock Option Plans
                  ("the Plans"), 377,500 options may be granted to employees,
                  directors and consultants of the Company and its subsidiaries.

                  In 2003, the Company granted 200,000 options to purchase
                  Ordinary shares at an exercise price of $ 0.35 - $ 0.38 per
                  share. In 2004, the Company granted 62,500 options to purchase
                  Ordinary shares at an exercise price of $ 0.86 per share.
                  During 2005, the Company granted 85,000 options to purchase
                  Ordinary shares at an exercise price of $ 0.72 Per share.

                                     - 85 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSAND (EXCEPT SHARES DATA)

NOTE 10:-   SHAREHOLDERS' EQUITY (CONT.)

                  As of December 31, 2005, an aggregate of 90,000 options are
                  still available for future grants. Each option granted under
                  the plan is exercisable for a period of 60-180 days from
                  termination of employment date. The options vest primarily
                  over 3 to 5 years. Any options, which are canceled or
                  forfeited before expiration become available for future grant.

            d.    A summary of the Company's stock option activity (except
                  options to consultants) and related information is as follows:

<TABLE>
<CAPTION>
                                                 YEAR ENDED DECEMBER 31,
                          ---------------------------------------------------------------------
                                   2005                    2004                    2003
                          ---------------------   ---------------------   ---------------------
                                       WEIGHTED                WEIGHTED                WEIGHTED
                                       AVERAGE                  AVERAGE                 AVERAGE
                            AMOUNT     EXERCISE     AMOUNT     EXERCISE     AMOUNT     EXERCISE
                          OF OPTIONS     PRICE    OF OPTIONS     PRICE    OF OPTIONS     PRICE
                          ----------   --------   ----------   --------   ----------   --------
                                           $                       $                       $
                                       --------                --------                --------
<S>                       <C>          <C>        <C>          <C>        <C>          <C>
Outstanding at the
  beginning of the year      297,500       0.54      255,000       0.51      122,500       1.38
Granted                       50,000       0.72       62,500       0.86      200,000       0.36
Exercised                          -          -            -          -       (5,000)      0.38
Forfeited                    (40,000)      1.00      (20,000)      1.00      (62,500)      1.75
                          ----------              ----------              ----------

Outstanding at the end
  of the year                307,500       0.51      297,500       0.55      255,000       0.51
                          ==========   ========   ==========   ========   ==========   ========

Exercisable at the end
  of the year                125,833       0.45      100,000       0.62       80,000       0.69
                          ==========   ========   ==========   ========   ==========   ========
</TABLE>

            e.    The options outstanding as of December 31, 2005, have been
                  classified by exercise price, as follows:

<TABLE>
<CAPTION>
                                       WEIGHTED                                      WEIGHTED
                      OPTIONS          AVERAGE     WEIGHTED        OPTIONS            AVERAGE
                   OUTSTANDING AS     REMAINING    AVERAGE    EXERCISABLE AS OF   EXERCISE PRICE
    EXERCISE       OF DECEMBER 31,   CONTRACTUAL   EXERCISE      DECEMBER 31,       OF OPTIONS
     PRICE              2005            LIFE        PRICE            2005          EXERCISABLE
----------------   ---------------   -----------   --------   -----------------   --------------
                                      IN MONTHS
                                     -----------
<S>                <C>                   <C>       <C>        <C>                <C>
$      0.35-0.38           195,000        *)       $   0.37             105,000   $         0.37
$           0.86            62,500        *)       $   0.86              20,833   $         0.86
$           0.72            50,000       **)       $   0.72                   -   $            -
                   ---------------                 --------   -----------------

                           307,500                 $   0.53             125,833   $         0.45
                   ===============                 ========   =================   ==============
</TABLE>

                  *)    180 days from the date of termination of employment
                        agreement.

                  **)   60 days from the date of termination of employment
                        agreement.

                  Compensation expenses recognized by the Company related to its
                  stock-based employee compensation awards amounted to $ 41, $
                  41 and $ 57, for the years ended December 31, 2005, 2004 and
                  2003, respectively.

                                     - 86 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSAND (EXCEPT SHARE DATA)

NOTE 10:-   SHAREHOLDERS' EQUITY (CONT.)

            f.    The weighted average fair values of options granted were:

<TABLE>
<CAPTION>
                                     FOR EXERCISE PRICES ON THE DATE OF GRANT THAT
                            ---------------------------------------------------------------
                                                                       ARE LESS THAN MARKET
                            EQUAL MARKET PRICE   EXCEED MARKET PRICE           PRICE
                            ------------------   -------------------   --------------------
                              2005      2004       2005       2004        2005       2004
                            --------   -------   --------   --------   ---------   --------
<S>                         <C>        <C>       <C>        <C>        <C>         <C>
Weighted average exercise
  prices                    $      -   $     -   $   0.72   $   0.86   $       -   $      -
                            ========   =======   ========   ========   =========   ========
Weighted average fair
  value of the options on
  grant date                $      -   $     -   $   0.53   $   0.44   $       -   $      -
                            ========   =======   ========   ========   =========   ========
</TABLE>

            g.    Options issued to consultants:

                  The Company's outstanding options to consultants as of
                  December 31, 2005, are as follows:

<TABLE>
<CAPTION>
                                NUMBER OF
                IN CONNECTION    OPTIONS      OPTIONS     EXERCISE PRICE   EXERCISABLE
ISSUANCE DATE       WITH         GRANTED    EXERCISABLE      PER SHARE       THROUGH
-------------   -------------   ---------   -----------   --------------   -----------
<S>             <C>                <C>           <C>      <C>                    <C>
24/07/2005      Consultants        35,000        -        $         0.72         *)
</TABLE>

                  *)    60 days from the date of termination.

                  Expenses recognized by the Company related to its consultants
                  compensation awards amounted to $ 6, $ 0 and $ 0, for the
                  years ended December 31, 2005, 2004 and 2003, respectively.

NOTE 11:-   TAXES ON INCOME

            a.    Measurement of results for tax purposes under the Income Tax
                  Law (Inflationary Adjustments), 1985:

                  Results for tax purposes are measured in terms of earnings in
                  NIS after certain adjustments for increases in Israel's
                  Consumer Price Index ("CPI"). As explained in Note 2b, the
                  financial statements are measured in U.S. dollars. The
                  difference between the annual change in the CPI and in the
                  NIS/dollar exchange rate causes a difference between taxable
                  income and the income before taxes shown in the financial
                  statements. In accordance with paragraph 9(f) of SFAS No. 109,
                  the Company has not provided deferred income taxes in respect
                  of the difference between the reporting currency and the tax
                  bases of assets and liabilities.

            b.    Tax rates applicable:

                  Taxable income of Israeli companies is subject to tax at the
                  rate of 34% in 2005, 31% in 2006, 29% in 2007, 27% in 2008,
                  26% in 2009 and 25% in 2010 and thereafter.

                                     - 87 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSAND

NOTE 11:-   TAXES ON INCOME (CONT.)

            c.    Carryforward tax losses:

                  As of December 31, 2005, losses for Israeli tax purposes of
                  the Group totaled approximately $ 11,000.

                  Under Israeli law, these losses may be carried forward and
                  offset against taxable income in the future for an indefinite
                  period. Under the inflationary adjustments law, carryforward
                  tax losses and deductions for inflation are linked to the CPI.

            d.    Deferred income taxes:

                  Deferred income taxes reflect the net tax effects of temporary
                  differences between the carrying amounts of assets and
                  liabilities for financial reporting purposes and the amounts
                  used for income tax purposes. Significant components of the
                  Groups' deferred tax assets are as follows:

                                                                 DECEMBER 31,
                                                            -------------------
                                                              2005       2004
                                                            --------   --------

                  Carryforward losses                       $  3,364   $  3,750
                  Provision for vacation and
                    severance pay                                 66         89
                                                            --------   --------

                  Net deferred tax assets before
                    valuation allowance                        3,430      3,839

                  Valuation allowance                         (3,430)    (3,839)
                                                            --------   --------

                  Net deferred tax assets                   $      -   $      -
                                                            ========   ========

                  The Group provided valuation allowances in respect of deferred
                  tax assets resulting from losses carryforward and other
                  temporary differences, since it has a history of losses and
                  thus, management currently believes that it is more likely
                  than not that the deferred taxes will not be realized in the
                  foreseeable future.

            e.    All income before taxes is domestic.

            f.    The main reconciling items between the statutory tax rate of
                  the Company and the effective tax rate are the non-recognition
                  of tax benefits from accumulated net operating losses
                  carryforward among the subsidiaries due to the uncertainty of
                  the realization of such tax benefits.

                                     - 88 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSAND

NOTE 12:-   SELECTED STATEMENTS OF OPERATIONS DATA

            a.    Financial expenses, net:

                                                      YEAR ENDED DECEMBER 31,
                                                     --------------------------
                                                      2005       2004     2003
                                                     -------   -------   ------
                  Expenses:
                     Interest and others             $   (24)  $   (63)  $  (91)
                     Expenses with respect to
                       short-term bank credits,
                       long-term loans and bank
                       charges                           (76)      (66)     (53)
                     Foreign currency translation
                       adjustments                       (61)      (41)    (103)
                                                     -------   -------   ------

                                                        (161)     (170)    (247)
                                                     -------   -------   ------
                  Income:
                     Interest on bank deposits             9         7       23
                     Foreign currency translation
                       adjustments                       133        18      183
                                                     -------   -------   ------

                                                         142        25      206
                                                     -------   -------   ------

                                                     $   (19)  $  (145)  $  (41)
                                                     =======   =======   ======

            b.    Other income, net:

                  Expenses:

                  Capital loss on sale of
                    property and equipment           $    (7)  $   (10)  $    -
                                                     -------   -------   ------

                  Income:
                  Capital gain on sale of
                    property and equipment                25         -       34
                  Other income (include $ 235
                    from DMI transaction in 2004,
                    see note 1g)                           -       298       15
                                                     -------   -------   ------

                                                          25       288       49
                                                     -------   -------   ------

                                                     $    18   $   288   $   49
                                                     =======   =======   ======

NOTE 13:-   MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION

            a.    Summary information about geographic areas:

                  The Group manages its business on the basis of one reportable
                  segment. See Note 1a for a brief description of the Company's
                  business. The following data is presented in accordance with
                  Statement of Financial Accounting Standard No. 131 ("SFAS No
                  131"), "Disclosures about Segments of an Enterprise and
                  Related Information". Total revenues are attributed to
                  geographical areas based on location of end customers.

                  Total revenues and long-lived assets for the years ended and
                  as of December 31, 2005, 2004 and 2003, were generated and
                  located in Israel.

                                     - 89 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSAND

NOTE 13:-   MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION (CONT.)

            b.    Major customer data (percentage of total sales):

                                                      YEAR ENDED DECEMBER 31,
                                                     --------------------------
                                                       2005     2004      2003
                                                     -------   -------   ------
                                                                  %
                                                     --------------------------
                  A                                     16        14       14
                  B                                     12         8        5

NOTE 14:-   BALANCES AND TRANSACTIONS WITH RELATED PARTIES

            a.    Balances with related parties:

                                                                 DECEMBER 31,
                                                               ----------------
                                                                2005      2004
                                                               -------   ------
                  Assets:
                  Other accounts receivable and
                    prepaid expenses -
                    subsidiaries and affiliates
                    of Gamida for Life B.V. (the
                    "Parent Company")                          $   320   $   41
                                                               =======   ======

                  Receivable on account of sale
                    of operations to Savyon                          -      240
                                                               =======   ======

                  Liabilities:
                  Other accounts payable and
                    accrued expenses -
                    subsidiaries and affiliates
                    of Gamida for Life B.V. (the
                    "Parent Company")                          $    88   $    -
                                                               =======   ======

            b.    Transactions:

                  Expenses:


                                                       YEAR ENDED DECEMBER 31,
                                                     --------------------------
                                                      2005       2004     2003
                                                     -------   -------   ------
                  Management fees and
                    reimbursement of expenses to
                    a related company                $   120   $   120   $  120
                                                     =======   =======   ======

                  Rental expenses to a related
                    company                          $    38   $    38   $   18
                                                     =======   =======   ======

                  Income:
                  Management fees from non
                    consolidated companies
                    (included in general and
                    administrative expenses)         $   262   $   296   $  307
                                                     =======   =======   ======

                                     - 90 -

<PAGE>

APPENDIX I

The following is a list of Healthcare Technologies Ltd's subsidiaries affiliates
and other companies:

<TABLE>
<CAPTION>
                                                                          PERCENTAGE OF HOLDING AND
                                                                                 OWNERSHIP
                                                                          -------------------------
COMPANY                                                                          DECEMBER 31,
                                                                          -------------------------
                                                                              2005          2004
                                                                          ------------   ----------
<S>                                                                           <C>           <C>
Danyel Biotech Ltd. ("Danyel")                                                 80%           80%
Gamida Gen Marketing (1979) Ltd. (formerly - Gamidor)                         100%          100%
Gamida Gen (3)                                                                100%          100%
Gamidor Diagnostics Ltd. ("Gamidor") (1)                                      100%          100%
Savyon Diagnostics Ltd. ("Savyon")                                             50%           50%
Pronto Technologies Ltd. (formerly: Savyon Diagnostics Ltd.) ("Pronto")       100%          100%
Afferix Ltd. ("Afferix")                                                       27%            -
Procognia U.K. Ltd. ("Procognia")                                               -             4%
Diatech Diagnostics Ltd. ("Diatech") (2)                                      100%          100%
Savyon-Yaron Diagnostics Marketing Ltd. ("Savyon-Yaron") (1,2)                100%          100%
</TABLE>

      (1)   A wholly-owned subsidiary of Gamida Gen Marketing Ltd.

      (2)   Inactive company.

      (3)   A wholly-owned subsidiary of Pronto.

                          - - - - - - - - - -

<PAGE>

                             SAVYON DIAGNOSTICS LTD

                              FINANCIAL STATEMENTS

                             AS OF DECEMBER 31, 2005

                                 IN U.S. DOLLARS

                                      INDEX

                                                                         PAGE
                                                                       ---------

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                    93

BALANCE SHEET                                                           94 - 95

STATEMENT OF INCOME                                                        96

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY                               97

STATEMENT OF CASH FLOWS                                                    98

NOTES TO FINANCIAL STATEMENTS                                           99 - 113

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

                                     - 92 -

<PAGE>

[ERNST & YOUNG LOGO]

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

                             TO THE SHAREHOLDERS OF

                             SAVYON DIAGNOSTICS LTD.

      We have audited the accompanying balance sheet of Savyon Diagnostics Ltd.
("the Company") as of December 31, 2005, and the related statements of
operations, changes in shareholders' equity and cash flows for each of the year
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 audit.

      We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged to
perform an audit of the Company's internal control over financial reporting. An
audit includes 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, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above, present
fairly, in all material respects, the financial position of the Company as of
December 31, 2005 and the results of their operations and their cash flows for
the year ended December 31, 2005, in conformity with U.S generally accepted
accounting principles.

Tel-Aviv, Israel                                    KOST FORER GABBAY & KASIERER
June 29, 2006                                   A Member of Ernst & Young Global

                                     - 93 -

<PAGE>

                                                         SAVYON DIAGNOSTICS LTD.

BALANCE SHEET
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

                                                                    DECEMBER 31,
                                                                        2005
                                                                    ------------
   ASSETS

CURRENT ASSETS:
   Cash and cash equivalents                                        $        217
   Trade receivables                                                         793
   Other accounts receivable and prepaid expenses (Note 3)                   311
   Inventories (Note 4)                                                      754
                                                                    ------------

TOTAL current assets                                                       2,075
                                                                    ------------
LONG-TERM INVESTMENTS:
   Deferred taxes (Note 11b)                                                  33
   Severance pay fund                                                        381
                                                                    ------------

TOTAL long-term investments                                                  414
                                                                    ------------
PROPERTY AND EQUIPMENT, NET (Note 5)                                         679
                                                                    ------------
INTANGIBLE ASSETS (Note 2g):
   Goodwill                                                                  102
   Other intangible assets, net                                              348
                                                                    ------------
TOTAL intangible assets                                                      450
                                                                    ------------
TOTAL assets                                                        $      3,618
                                                                    ============

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

                                     - 94 -

<PAGE>

                                                         SAVYON DIAGNOSTICS LTD.
BALANCE SHEET
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

                                                                  DECEMBER 31,
                                                                      2005
                                                                  ------------

   LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
   Current maturities of long-term bank loans                     $         97
   Trade payables                                                          371
   Other accounts payable and accrued expenses (Note 6)                    473
   Management fees to shareholders                                         787
                                                                  ------------

TOTAL current liabilities                                                1,728
                                                                  ------------

LONG-TERM LIABILITIES:
   Accrued severance pay (Note 2o)                                         537
   Long-term bank loans, net of current maturities                          31
   Long-term loans from a shareholder                                      744
                                                                  ------------

TOTAL long-term liabilities                                              1,312
                                                                  ------------

COMMITMENTS AND CONTINGENT LIABILITIES (Note 7)

SHAREHOLDERS' EQUITY (Note 10):
   Share capital:
      Ordinary shares of NIS 0.01 par value - Authorized:
         4,000,000 as of December 31, 2005; Issued and Outstanding:
         100,002 as of December 31, 2005.                                     *)
   Additional paid-in capital                                              141
   Retained earnings                                                       437
                                                                  ------------

TOTAL shareholders' equity                                                 578
                                                                  ------------
                                                                  $      3,618
                                                                  ============

*)    Represents an amount lower than 1.

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

                                     - 95 -

<PAGE>

                                                         SAVYON DIAGNOSTICS LTD.

STATEMENT OF INCOME
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE AND PER SHARE DATA)

                                                                   YEAR ENDED
                                                                  DECEMBER 31,
                                                                      2005
                                                                  ------------

Sales                                                             $      5,103
Cost of sales                                                            2,709
                                                                  ------------

Gross profit                                                             2,394
                                                                  ------------

Research and development costs, net (Note 12)                              570
Selling and marketing expenses                                             597
General and administrative expenses                                        855
                                                                  ------------

                                                                         2,022
                                                                  ------------

Operating income                                                           372
Financial expenses, net (Note 12)                                           68
Other income, net                                                            1
                                                                  ------------

                                                                           305
Taxes on income                                                            (31)
                                                                  ------------

Net income                                                        $        336
                                                                  ============

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

                                     - 96 -

<PAGE>

                                                         SAVYON DIAGNOSTICS LTD.

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                           ADDITIONAL                 TOTAL
                                NUMBER                      PAID-IN     RETAINED   SHAREHOLDERS'
                               OF SHARES   SHARE CAPITAL     CAPITAL    EARNINGS      EQUITY
                               ---------   -------------   ----------   --------   -------------
<S>                            <C>         <C>             <C>          <C>        <C>
Balance at January 1, 2005       100,000   $        *) -   $     (159)  $    101   $         (58)

Issuance of shares, net                2            *) -          300          -             300
Net income                             -               -            -        336             336
                               ---------   -------------   ----------   --------   -------------

Balance at December 31, 2005     100,002   $        *) -   $      141   $    437             578
                               =========   =============   ==========   ========   =============
</TABLE>

*)    Represents an amount lower than 1.

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

                                     - 97 -

<PAGE>

                                                         SAVYON DIAGNOSTICS LTD.

STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

                                                                   YEAR ENDED
                                                                  DECEMBER 31,
                                                                      2005
                                                                  ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                     $        336
   Adjustments required to reconcile net income to net cash
      provided by operating activities:
      Depreciation and amortization                                        170
      Exchange rate of foreign currency of long-term loans, net             51
      Capital gain on sale of property and equipment                        (1)
      Accrued severance pay, net                                           (44)
      Decrease in trade receivables                                         14
      Increase in other accounts receivable and prepaid expenses           (62)
      Decrease in deferred tax asset                                       (33)
      Decrease in trade payables                                          (261)
      Increase in other accounts payable and accrued expenses               62
      Increase in management fees to shareholders                           97
                                                                  ------------

Net cash provided by operating activities                                  301
                                                                  ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from sale of property and equipment                              8
   Purchase of property and equipment                                     (367)
   Investment in other assets                                              (35)
                                                                  ------------

Net cash used in investing activities                                     (394)
                                                                  ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from long-term loans                                            53
   Principal payment of long-term bank loans                                (4)
   Principal payment of long-term loans from shareholder                  (193)
   Issuance of shares, net                                                 150
                                                                  ------------

Net cash provided by financing activities                                    6
                                                                  ------------

Decrease in cash and cash equivalents                                      (87)
Cash and cash equivalents at the beginning of the year                     304
                                                                  ------------

Cash and cash equivalents at the end of the year                  $        217
                                                                  ============

NON-CASH FINANCING ACTIVITIES:

Issuance of Common shares upon conversion of long-term loans      $        150
                                                                  ============

CASH PAID DURING THE YEAR FOR:

   Interest                                                       $         43
                                                                  ============
   Taxes                                                          $         59
                                                                  ============

Theaccompanying notes are an integral part of the financial statements.

                                     - 98 -

<PAGE>

                                                         SAVYON DIAGNOSTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSAND

NOTE 1:-    BUSINESS AND ORGANIZATION

            a.    General:

                  Savyon Diagnostics Ltd. ("Savyon" or "Company") is engaged in
                  the serology field, and manufactures sophisticated
                  microplate-based enzyme immuno assays for detection of
                  antibodies development, manufacturing and marketing of medical
                  diagnostic kits to laboratories and point of care sites in
                  Israel and worldwide. The Company is also engaged in the
                  production of molecular biology based gene-screening tools for
                  the detection of certain gene-associated disorders in humans.
                  A separate line of products is based on lateral flow immuno-
                  chromatography technology.

                  Savyon manufactures and sells pregnancy tests and ovulation
                  kits to 6 distributors around the world, mainly in north
                  America.

                        Savyon's newest over the counter (OTC) and point of care
                  (POC) product, the SavvyCheck test, which has recently
                  received CE registration, is for the diagnosis of Vaginal
                  Yeast Infections. The SavvyCheck test will be sold worldwide
                  through newly established distribution channels to pharmacies,
                  health clinics, and physicians.

            b.    Concentration of risks that may have a significant impact on
                  the Company are as follows:

                  The Company currently buys certain products from a limited
                  company of suppliers. Management believes that other suppliers
                  could provide similar products on comparable terms. A change
                  in suppliers, however, could cause a delay in manufacturing
                  and a possible loss of sales, which would adversely affect
                  operating results and financial position.

                  The Company sales to one customer account for a significant
                  portion of the Company's total sales and a loss of this
                  customer could have a material adverse affect on the Company's
                  business and financial results (see also Note 13c).

NOTE 2:-    SIGNIFICANT ACCOUNTING POLICIES

                  These financial statements have been prepared in conformity
                  with generally accepted accounting principles in the United
                  States ("U.S. GAAP").

            a.    Use of estimates:

                  The preparation of financial statements in conformity with
                  generally accepted accounting principles requires management
                  to make estimates and assumptions that affect the amounts
                  reported in the financial statements and accompanying notes.
                  Actual results could differ from those estimates.

            b.    Financial statements in U.S. dollars:

                  The Company's revenues are generated in U.S. dollars
                  ("dollar"). In addition, over 90% of the Company's costs are
                  incurred in dollars. The Company's management believes that
                  the dollar is the primary currency of the economic environment
                  in which the Company operates. Thus, the functional and
                  reporting currency of the Company is the dollar.


                                     - 99 -
<PAGE>

                                                         SAVYON DIAGNOSTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSAND

NOTE 2:-    SIGNIFICANT ACCOUNTING POLICIES (CONT.)

                  Accordingly, monetary accounts maintained in currencies other
                  than the dollar are remeasured into dollars. All transaction
                  gains and losses of the remeasurement of monetary balance
                  sheet items are reflected in the statements of operations as
                  financial income or expenses as appropriate.

            c.    Cash equivalents:

                  The Company considers all highly liquid investments originally
                  purchased with maturities of three months or less to be cash
                  equivalents.

            d.    Inventories:

                  Inventories are stated at the lower of cost or market value.
                  Inventory provisions for write-offs are provided to cover
                  risks arising from slow-moving items or technological
                  obsolescence. In the years ended December 31, 2005, the
                  Company provided for write-off in the amounts of $ 40, which
                  are included in cost of sales.

                  Cost is determined as follows:

                  -     Raw materials and packaging materials - at average cost.

                  -     Finished goods - on the basis of computed manufacturing
                        costs, which include raw materials at average cost,
                        labor and direct and indirect manufacturing costs.

            e.    Property and equipment:

                  Property and equipment are stated at cost net of accumulated
                  depreciation. Depreciation is computed using the straight-line
                  method over the estimated useful lives of the assets.

                  Annual rates of depreciation are as follows:

                                                                %
                                                   ----------------------------

                  Production & Laboratory
                    equipment                           10 - 33 (mainly 20)
                  Motor vehicles                                15
                  Office furniture and equipment         6 - 33 (mainly 6)
                  Leasehold improvements           Over the shorter of the lease
                                                        term or useful life

                                     - 100 -

<PAGE>

                                                         SAVYON DIAGNOSTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSAND

NOTE 2:-    SIGNIFICANT ACCOUNTING POLICIES (CONT.)

            f.    Impairment of long-lived assets:

                        The Group's long-lived assets and certain identifiable
                  intangibles are reviewed for impairment in accordance with
                  Statement of Financial Accounting Standard No. 144,
                  "Accounting for the Impairment or Disposal of Long-Lived
                  Assets" ("SFAS No. 144"), whenever events or changes in
                  circumstances indicate that the carrying amount of an asset
                  may not be recoverable. Recoverability of assets to be held
                  and used is measured by a comparison of the carrying amount of
                  an asset to the future undiscounted cash flows expected to be
                  generated by the assets. If such assets are considered to be
                  impaired, the impairment to be recognized is measured by the
                  amount by which the carrying amount of the assets exceeds the
                  fair value of the assets. As of December 31, 2005, no
                  impairment losses have been identified.

            g.    Intangible assets:

                        Intangible assets acquired are amortized over their
                  useful lives using a method of amortization that reflects the
                  pattern in which the economic benefits of the intangible
                  assets are consumed or otherwise used up, in accordance with
                  Statement of Financial Accounting Standards No. 142 "Goodwill
                  and Other Intangible Assets", ("SFAS No. 142").

                  Goodwill represents excess of the costs over the fair value of
                  the net assets of businesses acquired. Pursuant to Statement
                  of Financial Accounting Standard No. 142, "Goodwill and Other
                  Intangible Assets" ("SFAS No. 142") goodwill is presented at
                  cost and not being amortized annually, rather goodwill is
                  tested for impairment at least annually or between annual
                  tests in certain circumstances, and written down when
                  impaired, rather than being amortized. Goodwill attributable
                  to the reporting unit is tested for impairment by comparing
                  the fair value of the reporting unit with its carrying value.
                  Fair value is determined using discounted cash flows, market
                  multiples and market capitalization. Significant estimates
                  used in the methodologies include estimates of future cash
                  flows, future short-term and long-term growth rates, weighted
                  average cost of capital and estimates of market multiples for
                  the reportable unit. As of December 31, 2005, no impairment
                  losses have been identified.

            h.    Income taxes:

                  The Company accounts for income taxes in accordance with
                  Statement of Financial Accounting Standards No. 109,
                  "Accounting for Income Taxes" ("SFAS No.109"). This Statement
                  prescribes the use of the liability method whereby deferred
                  tax assets and liability account balances are determined based
                  on differences between financial reporting and tax bases of
                  assets and liabilities and are measured using the enacted tax
                  rates and laws that will be in effect when the differences are
                  expected to reverse. The Company provides a valuation
                  allowance, if necessary, to reduce deferred tax assets to
                  their estimated realizable value.

                                     - 101 -

<PAGE>

                                                         SAVYON DIAGNOSTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSAND

NOTE 2:-    SIGNIFICANT ACCOUNTING POLICIES (CONT.)

            i.    Revenue recognition:

                  Revenues are recognized in accordance with Staff Accounting
                  Bulletin No. 104, "Revenue Recognition" ("SAB No. 104"), upon
                  delivery of the products when the collection of the receivable
                  is probable, persuasive evidence of an agreement exists, no
                  significant obligations remain and the price is fixed or
                  determinable. The Company follows Statement of Financial
                  Accounting Standard No. 48, "Revenue Recognition when Right of
                  Return Exists" ("SFAS No. 48"). Based on the Company's
                  management experience, no provisions for returns were recorded
                  for the year ended December 31, 2005.

            j.    Research and development costs:

                  Research and development costs are charged to expenses as
                  incurred.

            k.    Royalty and non-royalty-bearing grants

                  Royalty-bearing grants from the Government of Israel for
                  funding approved research and development projects are
                  recognized at the time the Company is entitled to such grants,
                  on the basis of the costs incurred and included as a deduction
                  of research and development costs. There were no grants for
                  the year 2005. Total royalties paid to the Government of
                  Israel in the year ended December 31, 2005 amounted to $ 27
                  and were recorded in cost of sales.

                  Non-royalty bearing grants from participation in European
                  Union programs are recognized at the time that the Company is
                  entitled to such grants, on the basis of the costs incurred
                  and included as a deduction of research and development costs.
                  The Company recorded $ 75 as a participation in the year ended
                  December 21, 2005.

            l.    Concentrations of credit risk:

                  Financial instruments that potentially subject the Company to
                  concentrations of credit risk consist principally of cash and
                  cash equivalents, and trade receivables. Cash and cash
                  equivalents are deposited in major banks in Israel. Management
                  believes that the financial institutions that hold the
                  Company's investments are financially sound, and, accordingly,
                  minimal credit risk exists with respect to these investments.
                  The Company's trade receivables derive mainly from sales to
                  numerous customers in Israel. The Company has adopted credit
                  policies and standards intended to accommodate industry growth
                  and inherent risk. Management believes that credit risks are
                  moderated by the diversity of its end customers. The Company
                  performs ongoing credit evaluations of its customers'
                  financial condition and to date has not experienced any
                  material losses. An allowance for doubtful accounts is
                  determined with respect to those amounts that the Company has
                  determined to be doubtful of collection.

                  The Company has no off-balance-sheet concentration of credit
                  risk such as foreign exchange contracts, option contracts or
                  other foreign hedging arrangements.

                                     - 102 -

<PAGE>

                                                         SAVYON DIAGNOSTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSAND

NOTE 2:-    SIGNIFICANT ACCOUNTING POLICIES (CONT.)

            m.    Fair value of financial instruments:

                  The following methods and assumptions were used by the Company
                  in estimating its fair value disclosures for financial
                  instruments:

                  The carrying amounts of cash and cash equivalents, trade
                  receivables and trade payables approximate their fair value
                  due to the short-term maturity of such instruments. The
                  carrying amounts of the Company's long-term borrowings
                  approximate their fair value. The fair value was estimated
                  using discounted cash flows analyses, based on the Company's
                  incremental borrowing rates for similar type of borrowing
                  arrangements.

            n.    Severance pay:

                  The Company's liability for severance pay is calculated
                  pursuant to Israel's Severance Pay Law based on the most
                  recent salary of the employees multiplied by the number of
                  years of employment, as of the balance sheet date. Employees
                  are entitled to one month's salary for each year of
                  employment, or a portion thereof. The Company's liability for
                  all of employees, is fully provided by monthly deposits with
                  severance pay funds, insurance policies and by an accrual. The
                  value of these policies is recorded as an asset in the
                  Company's consolidated balance sheet.

                  The deposited funds include profits accumulated up to the
                  balance sheet date. The deposited funds may be withdrawn only
                  upon the fulfillment of the obligation pursuant to Israel's
                  Severance Pay Law or labor agreements. The value of the
                  deposited funds is based on the cash surrendered value of
                  these policies, and includes immaterial profits.

                  Severance income for the year ended December 31, 2005,
                  amounted to net $ 44.

            o.    Impact of recently issued accounting standards:

                  In November 2004, the FASB issued Statement of Financial
                  Accounting Standard No. 151, "Inventory Costs, an amendment of
                  ARB No. 43, Chapter 4." ("SFAS 151"). SFAS 151 amends
                  Accounting Research Bulletin ("ARB") No. 43, Chapter 4, to
                  clarify that abnormal amounts of idle facility expense,
                  freight handling costs and wasted materials (spoilage) should
                  be recognized as current-period charges. In addition, SFAS 151
                  requires that allocation of fixed production overheads to the
                  costs of conversion be based on normal capacity of the
                  production facilities. SFAS 151 is effective for inventory
                  costs incurred during fiscal years beginning after June 15,
                  2005. The Company does not expect that the adoption of SFAS
                  151 will have a material effect on its financial position or
                  results of operations.

                  In May 2005, the FASB issued SFAS No. 154, "Accounting Changes
                  and Error Corrections", a replacement of APB No. 20,
                  "Accounting Changes" and SFAS No. 3, "Reporting Accounting
                  Changes in Interim Financial Statements". SFAS No. 154
                  provides guidance on the accounting for and reporting of
                  accounting changes and error corrections. APB No. 20
                  previously required that most voluntary changes in accounting
                  principles be recognized by including in net income for the
                  period of the change, the cumulative effect of changing to the
                  new accounting principle. SFAS No. 154 requires retroactive
                  application to prior periods' financial statements of a
                  voluntary change in accounting principles unless it is
                  impracticable. SFAS 154 is effective for accounting changes
                  and corrections of errors made in fiscal years beginning after
                  December15, 2005. As of December 31, 2005, adoption of SFAS
                  No. 154 will not have a material impact on the Company's
                  financial position or results of operations.

                                     - 103 -

<PAGE>

                                                         SAVYON DIAGNOSTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSAND

NOTE 3:-    OTHER ACCOUNTS RECEIVABLE AND PREPAID  EXPENSES

                                                                   DECEMBER 31,
                                                                      2005
                                                                   ------------

            Government authorities                                 $        122
            Accounts receivable                                              28
            Prepaid expenses                                                118
            Deferred taxes                                                   43
                                                                   ------------

                                                                   $        311
                                                                   ============

NOTE 4:-    INVENTORIES

            Raw materials                                          $        245
            Finished goods                                                  509
                                                                   ------------

                                                                   $        754
                                                                   ============

NOTE 5:-    PROPERTY AND EQUIPMENT, NET

            a.    Composition of property and equipment is as follows:

                  Cost:
                     Production & Laboratory equipment             $        419
                     Motor vehicles                                          91
                     Office furniture and computer equipment                179
                     Leasehold improvements                                 399
                                                                   ------------

                                                                           1088
                                                                   ------------
                  Accumulated depreciation:
                     Production & Laboratory equipment                       92
                     Motor vehicles                                           5
                     Office furniture and equipment                          62
                     Leasehold improvements                                 250
                                                                   ------------

                  Accumulated depreciation                                  409
                                                                   ------------

                  Depreciated cost                                 $        679
                                                                   ============

            b.    Depreciation expenses for the year ended December 31, 2005
                  amounted to $ 146.

                  As for charges, see Note 7c.

                                     - 104 -

<PAGE>

                                                         SAVYON DIAGNOSTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSAND

NOTE 6:-    OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

                                                                   DECEMBER 31,
                                                                       2005
                                                                   ------------
            Royalties payable                                      $         78
            Employees and payroll accruals                                  187
            Government authorities                                           43
            Accrued expenses                                                 76
            Other                                                            89
                                                                   ------------

                                                                   $        473
                                                                   ============

            (1)   The majority of the balance is linked to the U.S. dollars.

NOTE 7:-    COMMITMENTS AND CONTINGENT LIABILITIES

            a.    Royalty commitments:

                  The Company is obligated to pay royalties to the Government of
                  Israel through the Office of the Chief Scientist ("OCS"), at
                  rates of 3% to 5% on sales proceeds from products developed by
                  the OCS. The maximum amount of royalties payable to the
                  Government of Israel is limited to 100% of the grants
                  received, linked to the dollar and bears interest at the LIBOR
                  rate from 1999. The obligation to pay these royalties is
                  contingent on actual sales of the products and in the absence
                  of such sales no payment is required.

                  Total royalties accrued or paid by the Company amounted to
                  $ 27 in 2005. At December 31, 2005, the Company has remaining
                  contingent obligation to the OCS in the amount of $ 576
                  (excluding accrued interest).

            b.    Lease commitments:

                  The Company has leased several buildings, offices, warehouses
                  under an operating lease agreement that expire on 2014, and
                  motor vehicles under various operating leases that expire on
                  various dates, the latest of which is in 2008.

                  Future lease commitments under non-cancelable operating leases
                  are as follows:

                  2006                $    329
                  2007                     294
                  2008                     260
                  2009                     237
                                      --------

                                      $  1,120
                                      ========

                  Total rent expenses for the year ended December 31, 2005, was
                  approximately $ 276.

                                     - 105 -

<PAGE>

                                                         SAVYON DIAGNOSTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSAND

NOTE 7:-    COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)

            c.    Charges (assets pledged) and guarantees:

                  As collateral for credit line and loans provided to the
                  Company, totaling $ 48 as of December 31, 2005, the Company
                  has placed unlimited fixed and floating charges on certain
                  assets and share capital, in favor of the bank.

            d.    NACBO Project:

                  In May 2004, Savyon entered into a consortium agreement with
                  various other entities for the purpose of submitting a
                  proposal to be awarded a project under the 6th Framework
                  Program of the European Union (2002 - 2006) regarding the
                  novel and improved nanomaterials, chemistries and apparatus
                  for nanobiotechnology ("NACBO Project"). The consortium
                  agreement and the terms of the project, if awarded, set forth
                  various provisions regarding the parties' (including Savyon)
                  rights and obligations with respect to the intellectual
                  property developed by each party throughout the project
                  ("Project IP") and certain pre-existing intellectual property
                  of each party thereto ("Pre-existing IP"). Among others, each
                  party is required, under certain conditions, to grant the
                  other parties to the consortium agreement licenses and/or
                  other user rights regarding the Project IP that they own, and
                  regarding certain of their Pre-existing IP, which the parties
                  are required to identify and list in an annex to the
                  agreement. During 2005, the Company received from the project
                  an aggregate amount of $ 17 thousand. There is no obligation
                  to repay the grants received.

            e.    The Company has been granted a worldwide non-exclusive license
                  to make, have made, market, distribute and sell products which
                  use certain licensed rights or know-how relating to diagnostic
                  methods for the detection of Chlamydia pneumoniae in a defined
                  field of use. According to the license agreement, the Company
                  is obligated to pay royalties at the rate of 5.5% and an
                  annual license fee of $ 7. The agreement is for a term of 17
                  years from its execution, or until the last remaining patent
                  rights thereunder expire, whichever is later. Other than for
                  termination upon breach and bankruptcy/insolvency, the Company
                  may terminate the agreement upon 60 days' written notice.

            f.    Savyon is a member of a consortium ("CHEMAG Consortium")
                  engaged in a research and development project into "novel
                  paramagnetic materials, surface activiation and nucleic acid
                  modification chemistries for application in biology,
                  chemistry, health/medicine/diagnostics and the environment"
                  ("CHEMAG Project"). There is no obligation to repay grants
                  received.

            g.    A shareholder has assigned the Company various patents with
                  respect to methods for producing diagnostic kits and has
                  undertaken to assist Savyon in their exploitation. In
                  consideration thereof, the shareholder is entitled to receive
                  royalties of 4% of all net sales of the relevant future
                  products by the Company.

                                     - 106 -

<PAGE>

                                                         SAVYON DIAGNOSTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSAND

NOTE 8:-    LONG-TERM BANK LOANS

                  a.    Composed as follows:

                                                   INTEREST   DECEMBER 31, 2005
                                                     rate     -----------------
                                                     2005     NIS         TOTAL
                                                   --------   ---         -----

                  Loans from banks                    5.1      48            48
                  Less - current maturities                    17            17
                                                              ---         -----

                                                               31            31
                                                              ===         =====

                  b.    Maturities of long-term loans subsequent to the balance
                        sheet date are as follows:

                  First year (current maturities)              17            17
                                                              ---         -----

                  Second year                                  17            17
                  Third year                                   16            16
                                                              ---         -----

                                                               31            31
                                                              ---         -----

                                                               48            48
                                                              ===         =====

                  c.    Covenants:

                  The Company has a bank covenant provision which includes,
                  amongst others, fulfillment of different financial ratios and
                  other provisions. As of December 31, 2005, the Company
                  fulfilled all such provisions.

NOTE 9:-    LONG-TERM LOAN FROM A SHAREHOLDER

            In January 2003, the Company received a loan in the amount of $ 1.2
            million. The loan bears an annual interest rate of LIBOR+1.75%.
            According to the agreement the entire shareholders will determine
            the repayment date.

            The loan will be converted into shares immediately upon liquidation.

            During the year ended December 31, 2005, the Company repaid a sum of
            $ 191 from the loan, and $ 150 were converted into shares (see also
            Note 10).

NOTE 10:-   SHAREHOLDERS' EQUITY

            a.    Ordinary shares confer upon their holders voting rights and
                  the right to receive dividends, if declared.

            b.    In January 2005, the Company issued 2 Ordinary shares to its
                  shareholders in consideration for $ 300.

                                     - 107 -

<PAGE>

                                                         SAVYON DIAGNOSTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSAND

NOTE 11:-   TAXES ON INCOME

            a.    Measurement of results for tax purposes under the Income Tax
                  Law (Inflationary Adjustments), 1985:

                  Results for tax purposes are measured in terms of earnings in
                  NIS after certain adjustments for increases in Israel's
                  Consumer Price Index ("CPI"). As explained in Note 2b, the
                  financial statements are measured in U.S. dollars. The
                  difference between the annual change in the CPI and in the
                  NIS/dollar exchange rate causes a difference between taxable
                  income and the income before taxes shown in the financial
                  statements. In accordance with paragraph 9(f) of SFAS No. 109,
                  the Company has not provided deferred income taxes in respect
                  of the difference between the reporting currency and the tax
                  bases of assets and liabilities.

                  1.    Corporate tax structure:

                        Taxable income of Israeli companies is subject to tax at
                        the rate of 34% in 2005, 31% in 2006 and 29% in 2007,
                        27% in 2008, 26% in 2009 and 25% in 2010 and thereafter.

                  2.    Tax benefits under the Israeli Law for the Encouragement
                        of Capital Investments, 1959 (the "Law"):

                        A portion of the Company's production facilities have
                        been granted the status of an "Approved Enterprise",
                        according to the Law under two investment programs (the
                        "Programs").

                        In accordance with the Law, the Company has chosen the
                        alternative system of benefits. Accordingly, taxable
                        income derived from the "Approved Enterprise" is tax
                        exempt for a period of two to four years and is liable
                        to a reduced corporate tax rate of up to 15% for an
                        additional period of six to eight years, based on the
                        percentage of foreign investment in the Company. The
                        abovementioned tax benefits are scheduled to gradually
                        expire through 2006 for the first program and 2015 for
                        the second program.

                        The benefit period for each of the Programs is limited
                        to twelve years from the year in which the enterprise
                        began operations, or fourteen years from the year in
                        which the approval was granted, whichever is earlier.

                        The entitlement to the above benefits is conditioned
                        upon the fulfillment of the conditions stipulated by the
                        Law, regulations published thereunder and the
                        instruments of approval for the specific investments in
                        an "Approved Enterprise". In the event of failure to
                        comply with these conditions, the benefits may be
                        canceled and the Company may be required to refund the
                        amount of the benefits, in whole or in part, including
                        interest.

                        The tax-exempt income attributable to the "Approved
                        Enterprise" can be distributed to shareholders without
                        subjecting the Company to taxes only upon the complete
                        liquidation of the Company. Through December 31, 2005,
                        approximately $ 21 of the Company's net income has been
                        derived from tax-exempt income. The Company has decided
                        not to declare dividends out of such tax-exempt income.
                        Accordingly, no deferred income taxes have been provided
                        on income attributable to the Company's "Approved
                        Enterprises".

                        If the net retained tax-exempt income is distributed in
                        a manner other than in the complete liquidation of the
                        Company, it would be taxed at the corporate tax rate
                        applicable to such profits as if the Company had not
                        elected the alternative system of benefits and an income
                        tax liability of approximately $ 3 would be incurred as
                        of December 31, 2005.

                                     - 108 -

<PAGE>

                                                         SAVYON DIAGNOSTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSAND

NOTE 11:-   INCOME TAXES (CONT.)

                        Income from sources other than the "Approved Enterprise"
                        during the benefit period will be subject to tax at the
                        statutory tax rate.

                        On April 1, 2005, an amendment to the Law came into
                        effect ("the Amendment") that has significantly changed
                        the provisions of the Law. The Amendment limits the
                        scope of enterprises that may be approved by the
                        Investment Center by setting criteria for the approval
                        of a facility as a Privileged Enterprise, such as
                        provisions generally requiring that at least 25% of the
                        Privileged Enterprise's income will be derived from
                        export. Additionally, the Amendment enacted major
                        changes in the manner in which tax benefits are awarded
                        under the Law so that companies no longer require
                        Investment Center approval in order to qualify for tax
                        benefits.

                        However, the Law provides that terms and benefits
                        included in any certificate of approval already granted
                        will remain subject to the provisions of the Law as they
                        were on the date of such approval. Therefore, the
                        Company's existing Approved Enterprise will generally
                        not be subject to the provisions of the Amendment.
                        Tax-exempt income that will be generated under the
                        provisions of the new Law, will subject the Company to
                        taxes upon distribution or liquidation and the Company
                        may be required to record deferred tax liability with
                        respect to such tax-exempt income

                  3.    Tax benefits under the Israeli Law for the Encouragement
                        of Industry (Taxation), 1969:

                        The Company is an "industrial company", as defined by
                        this law and, as such, is entitled to certain tax
                        benefits, including accelerated depreciation and
                        deduction of public issuance expenses in three equal
                        annual installments.

            b.    Deferred taxes:

                  Deferred taxes reflect the net tax effect of temporary
                  differences between the carrying amounts of assets and
                  liabilities for financial reporting purposes and the amounts
                  used for income tax purposes. Significant components of the
                  Company's deferred tax assets and liabilities are as follows:

                                                                   DECEMBER 31,
                                                                       2005
                                                                   ------------

                  Deferred tax assets:
                     Reserves and allowances                       $         88
                                                                   ------------

                  Total deferred tax asset                                   88
                                                                   ------------

                  Deferred tax liabilities:
                     Property and equipment                                 (10)
                                                                   ------------

                  Net deferred tax assets                          $         78
                                                                   ============

                                     - 109 -

<PAGE>

                                                         SAVYON DIAGNOSTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSAND

NOTE 11:-   INCOME TAXES (CONT.)

            c.    A reconciliation between the theoretical tax expenses,
                  assuming all income is taxed at the statutory tax rate
                  applicable to income of the Company, and the actual tax
                  expense as reported in the consolidated statements of income,
                  is as follows:

                                                                    YEAR ENDED
                                                                   DECEMBER 31,
                                                                       2005
                                                                   ------------
                  Income before income taxes, as reported in the
                    statement of income                            $        305
                                                                   ============

                  Tax based on statutory tax rate in Israel
                    (34% in 2005)                                           103
                                                                   ------------

                  Decrease in taxes resulting from effect of
                    "Approved Enterprise" benefits                           (6)
                  Non-deductible expenses                                  (103)
                  Deductible expense for tax purposes only                   10
                  Taxes in respect of prior years                           (10)
                  Other                                                     (25)
                                                                   ------------

                                                                   $       (134)
                                                                   ------------

                  Actual income tax                                $        (31)
                                                                   ============

            d.    The provision for income taxes is comprised as follows:

                  Current taxes                                    $         47
                  Deferred taxes                                            (78)
                                                                   ------------

                                                                   $        (31)
                                                                   ============

                                     - 110 -

<PAGE>

                                                         SAVYON DIAGNOSTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSAND

NOTE 12:-   SELECTED STATEMENTS OF OPERATIONS DATA

            a.    Research and development, net:

                                                                    YEAR ENDED
                                                                   DECEMBER 31,
                                                                       2005
                                                                   ------------
                  Materials                                        $         36
                  Wages and related benefits                                333
                  Depreciation and amortization                              40
                  Rent, maintenance and motor vehicle expenses               93
                  Consulting                                                 86
                  Travel expenses                                            27
                  Other                                                      30
                                                                   ------------

                                                                            645
                  Less - grants and participations                           75
                                                                   ------------

                                                                   $        570
                                                                   ============
            b.    Financial expenses, net:

                  Expenses:
                    Interest and others                            $         46
                    Expenses with respect to long-term loans and
                      bank charges                                           25
                                                                   ------------

                                                                   $         71
                                                                   ============

NOTE 13:-   MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION

            a.    Summary information about geographic areas:

                  The Company manages its business on the basis of one
                  reportable segment. See Note 1a for a brief description of the
                  Company's business. The following data is presented in
                  accordance with Statement of Financial Accounting Standard No.
                  131 ("SFAS No 131"), "Disclosures about Segments of an
                  Enterprise and Related Information". Total revenues are
                  attributed to geographical areas based on location of end
                  customers.

                                     - 111 -

<PAGE>

                                                         SAVYON DIAGNOSTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSAND

NOTE 13:-   MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION (CONT.)

            b.    The following data presents total revenues for the year ended
                  December 31, 2005:

                                                     LONG-LIVED
                                                       ASSETS     TOTAL REVENUES
                                                     ----------   --------------
                  Israel                                  1,129   $          451
                  Western Europe                              -            1,183
                  France                                      -            1,377
                  Eastern Europe                              -              291
                  Asia                                        -              365
                  United States                               -              568
                  Germany                                     -              671
                  Other                                       -              197
                                                     ----------   --------------

                                                          1,129   $        5,103
                                                     ==========   ==============

            c.    Major customer data (percentage of total sales):

                                                                   YEAR ENDED
                                                                  DECEMBER 31,
                                                                      2005
                                                                  -------------

                  A                                                          27%
                  B                                                          13%

NOTE 14:-   BALANCES AND TRANSACTIONS WITH RELATED PARTIES

            a.    Balances with related parties:

                                                                   DECEMBER 31,
                                                                       2005
                                                                  --------------
                  Assets:
                  Trade receivables (on account of
                     purchases from the Company)                  $           70
                                                                  ==============
                  Liabilities:
                  Management fees to shareholders                 $          787
                                                                  ==============

                  Long-term loans from a shareholder
                     ( see Note 9 )                               $          824
                                                                  ==============

                                     - 112 -

<PAGE>

                                                         SAVYON DIAGNOSTICS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSAND

NOTE 14:-   BALANCES AND TRANSACTIONS WITH RELATED PARTIES (CONT.)

            b.    Transactions:

                                                                    YEAR ENDED
                                                                   DECEMBER 31,
                                                                       2005
                                                                   ------------
                  Expenses:
                    Management fees and reimbursement of
                      expenses to sharholders                      $        396
                                                                   ============

                  Interest on a long-term loan from a
                    shareholder ( see Note 9 )                     $         48
                                                                   ============

                  Income:
                    Income from manufacturing and sales to a
                      related party                                $        325
                                                                   ============

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

                                     - 113 -

<PAGE>


(B)  EXHIBITS

EXH. NO. INCORP. BY REF. TO

1.1    1.1(8)       Memorandum of Association of the Registrant, as amended.

1.2    (16)         Articles of Association, restated to include all amendments
                    in effect as of the date of this Report

2.1    2.1(1)       Debenture Purchase Agreement, dated as of May 14, 1991,
                    among Healthcare, Rosebud, Evergreen-Canada Israel
                    Investment and Company Ltd. et. al.

4.1    2.3(1)       Agreement dated February 21, 1991 between Savyon and New
                    Horizons Diagnostic Corp.

4.2    2.4(1)       Agreement dated August 1, 1986 between Diatech Ltd. and
                    Diamotek Ltd.

4.3    2.5(1)       Agreement dated February 22, 1987 between Diatech Ltd. and
                    Yissum University.

4.4    2.6(1)       Agreement dated September 9, 1987 between Diatech Ltd. and
                    Ramot University Authority for Applied Research & Industrial
                    Development Ltd.

4.5    2.7(1)       Agreement dated July 15, 1989 between Diatech Ltd. and
                    Yissum University.

4.6    2.8(1)       Agreement dated January 1, 1991 between Diatech Ltd. and
                    Yeda.

4.7    2.9(1)       Distributorship Agreement between Savyon and Toshin, dated
                    March 3, 1986.

4.8    2.11(4)      Lease Agreement for Savyon's Facilities in Ashdod, Israel,
                    dated March 29, 1993.

4.9    2.13(4)      Agreement between the Company and Savyon dated October 10,
                    1994.

4.10   2.15(6)      Agreement dated January 23, 1995 between the Company,
                    Eriphyle Trading Ltd. and Gamida-Gen Marketing Ltd., for the
                    acquisition by the Company of shares of Gamida-Gen Marketing
                    Limited (Gamidor).

4.11   2.17(7)      Agreement dated April 10, 1997 between the Company, Gamida
                    for Life BV, Yacob Ofer, Gamida-Gen Marketing Ltd. and
                    Gamidor Diagnostics (1984) Ltd., for the acquisition by the
                    Company of ordinary shares of Gamida-Gen Marketing Ltd.

                                     - 114 -

<PAGE>


4.12   2.19(9)      Asset Purchase Agreement dated October 7, 1998 between
                    Gamidor Limited (Gamidor UK) and Gamidor Diagnostics UK.

4.13   2.20(9)      Agreement dated December 23, 1998 between the Company,
                    Gamida Trading Ltd., Gamida for Life BV and Gamidor Limited
                    (Gamidor UK).

4.14   2.21(9)      Heads of Agreement dated October 1, 1998 between Gamidor
                    Diagnostics (1994) Ltd. and the principal shareholder in
                    Yaron Chemicals Ltd.

4.15   2.22(9)      Agreement dated February 7, 1999 between Healthcare
                    Technologies Ltd., Hadasit Medical Research Services &
                    Development Limited and others.

4.16   2.23(9)      Agreement between Luly Gurevich and Entity as adopted by
                    Healthcare Technologies Ltd. in June 1999.

4.17   (16)         The Company's amended year 2000 Incentive Share Option Plan.

4.18   2.25(11)     Share Purchase Agreement dated August 21, 2000, by and
                    between Healthcare Technologies Ltd., Glycodata Ltd., Mr.
                    Ofer Markman, Mr. Yeshayahu Yakir and certain investors,
                    including Form of Convertible Debenture attached as Exhibit
                    B thereto.

4.19   2.26(11)     Share Purchase Agreement dated October 2, 2000 between
                    Healthcare Technologies Ltd., Gamida For Life BV (and other
                    shareholders of GamidaGen Ltd.) and GamidaGen Ltd.

4.20   2.27(11)     Assignment and Transfer Agreement dated December 1, 2000
                    between Healthcare Technologies Ltd. and Savyon Diagnostics
                    Ltd.

4.21   2.28(11)     Asset Transfer and Assignment Agreement dated December 30,
                    2000 between Diatech Diagnostics Inc, Diatech Diagnostics
                    Ltd. and Savyon Diagnostics Ltd.

4.22   2.29(11)     Share Sale and Assignment Agreement dated December 31, 2000
                    between Diatech Diagnostics Inc, Diatech Diagnostics Ltd.
                    and Healthcare Technologies Ltd.

4.23   2.30(11)     Agreement dated January 21, 2001 between Healthcare
                    Technologies Ltd and Savyon Diagnostics Ltd.

4.24   2.31(12)     Share Exchange Agreement dated April 29, 2002 between
                    Procognia Ltd., Glycodata Ltd., Healthcare Technologies Ltd.
                    and the other shareholders of Glycodata Ltd.

                                     - 115 -

<PAGE>


4.25   2.32(12)     Subscription and Shareholders' Agreement relating to
                    Procognia Ltd. dated April 29, 2002 between certain
                    investors, executives and additional subscribers, Healthcare
                    Technologies Ltd., Procognia Ltd. and Glycodata Ltd.

4.26   99.1(13)     Distribution Agreement between Dade Behring Marburg GmbH and
                    Gamidor Diagnostics

4.27   99.2(13)     Distribution Agreement between Amersham Pharmacia Biotech AB
                    and Danyel Biotech Ltd.

4.28   99.3(13)     Deal Structure Document for Savyon 2003 Transaction.

4.29   10(14)       Agreement between Biodiagnostic (Savyon) and Advance
                    Products (B.G. Negev Technologies and Applications) Ltd.
                    dated October 31, 1983.

4.30   4.30         Agreement dated October 26, 1994 with the Washington
                    Research Foundation.

4.31   14           Assignment Agreement Amersham - dated August 2, 2001.

4.32   16           Term Sheet for ImmvaRx transaction.

4.33   17           Audit Committee Charter.

4.34   17           Agreement for the sale of the Company's shares in Procognia
                    to Gamida.

8.     99.5         Subsidiaries of the Registrant.

11     17           Code of Ethics

12.1   15           Certification of Chief Executive Officer pursuant to 18
                    U.S.C. Section 1350 as adopted pursuant to Section 906 of
                    the Sarbanes-Oxley Act Of 2002.

12.2   15           Certification of Chief Financial Officer pursuant to 18
                    U.S.C. Section 1350 as adopted pursuant to Section 906 of
                    the Sarbanes-Oxley Act Of 2002.

12.3   15           Certification of Chief Executive Officer pursuant to Rule
                    13a-14(a) of the Securities Exchange Act of 1934, as
                    amended.

12.4   15           Certification of Chief Financial Officer pursuant to Rule
                    13a-14(a) of the Securities Exchange Act of 1934, as
                    amended.

23     15           Consents of Kost Forer& Gabbay.

                                     - 116 -

<PAGE>


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

       1            Incorporated by reference to the Registrant's Registration
                    Statement on Form F-1 (File No. 44811)

       2            Incorporated by reference to the Registrant's Registration
                    Statement on Form F-1 (File No. 33-22868)

       3            Incorporated by reference to the Registrant's Registration
                    Statement on Form F-1 (File No. 33-54190)

       4            Incorporated by reference to the Registrant's Registration
                    Statement on Form F-2 (File No. 33-85144)

       5            Incorporated by reference to the Registrant's Annual Report
                    on Form 20-F for the Fiscal year ended December 31, 1994.

       6            Incorporated by reference to the Registrant's Annual Report
                    on Form 20-F for the Fiscal year ended December 31, 1995.

       7            Incorporated by reference to the Registrant's Annual Report
                    on Form 20-F for the Fiscal year ended December 31, 1996.

       8            Incorporated by reference to the Registrant's Annual Report
                    on Form 20-F for the Fiscal year ended December 31, 1997.

       9            Incorporated by reference to the Registrant's Annual Report
                    on Form 20-F for the Fiscal year ended December 31, 1998.

       10           Incorporated by reference to the Registrant's Annual Report
                    on Form 20-F for the Fiscal year ended December 31, 1999.

       11           Incorporated by reference to the Registrant's Annual Report
                    on Form 20-F for the Fiscal year ended December 31, 2000.

       12           Incorporated by reference to the Registrant's Annual Report
                    on Form 20-F for the fiscal year ended December 31, 2001, as
                    amended.

       13           Incorporated by reference to Registrant's Registration
                    Statement on form F-3 (SEC File No. 333-99601).

       14           Incorporated by reference to Registrant's Registration
                    Statement on Form F-3 (SEC File No. 33-22868).

       15           Filed herewith.

       16           Incorporated by reference to the Registrant's Annual Report
                    on Form 20-F for the Fiscal year ended December 31, 2003.

       17           Incorporated by reference to the Registrant's Annual Report
                    on Form 20-F for the Fiscal year ended December 31, 2004.

                                     - 117 -

<PAGE>


                                   SIGNATURES

      The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.

                                 HEALTHCARE TECHNOLOGIES LTD.

                                 By: /s/ Daniel Kropf
                                     ----------------------------------------
                                     Daniel Kropf
                                     Chairman of the Board of Directors

Date: June 28, 2006

                                     - 118 -

<PAGE>

Exhibit 12.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C.
SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002

Exhibit 12.2 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C.
SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002

Exhibit 12.3 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

Exhibit 12.4 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED