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, 2003

                                       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

<Page>

     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, 2003, the registrant had outstanding 7,648,727 Ordinary
Shares, NIS 0.04 nominal value per share. 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 which financial statement item the Registrant has
elected to follow:

     Item 17. [_] Item 18. [X]

                                       ii
<Page>

                                TABLE OF CONTENTS

<Table>
<Caption>
                                                                                                     PAGE
                                                                                                     ----
<S>                                                                                                    <C>
INTRODUCTION......................................................................................      3

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...............................................      8
               C.   Reason for the Offer and Use of Proceeds......................................      8
               D.   Risk Factors..................................................................      8

     Item 4.   INFORMATION ON THE COMPANY.........................................................     19

               A.   History and Development of the Company........................................     19
               B.   Business Overview.............................................................     23
               C.   Organizational Structure......................................................     39
               Property, Plant and Equipment......................................................     39

     Item 5.   Operating and Financial Review and Prospects.......................................     40

               A.   Results of Operations.........................................................     40
               B.   Impact of Inflation and Devaluation...........................................     43
               C.   Liquidity and Capital Resources...............................................     44
               D.   Research and Development, Patents and Licenses, Etc...........................     44
               E.   Trend Information.............................................................     47

     Item 6.   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.........................................     49

               A.   Directors and Senior Management...............................................     49
               B.   Compensation..................................................................     51
               C.   Board Practices...............................................................     53
               D.   Employees.....................................................................     54
               E.   Share Ownership...............................................................     55

     Item 7.   MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS..................................     55

               A.   Major Shareholders............................................................     55
               B.   Related Party and Inter-Company Transactions..................................     56
               C.   Interests of Experts and Counsel..............................................     59

     Item 8.   FINANCIAL INFORMATION..............................................................     59

               A.   Consolidated Statements and other Financial Information.......................     59
               B.   Significant Changes...........................................................     60

     Item 9.   THE OFFER AND LISTING..............................................................     60

               A.   Offer and Listing Details.....................................................     60

     Item 10.  ADDITIONAL INFORMATION.............................................................     62
</Table>

<Page>

                                TABLE OF CONTENTS
                                   (CONTINUED)

<Table>
<Caption>
                                                                                                     PAGE
                                                                                                     ----
<S>                                                                                                   <C>
               A.   Share Capital.................................................................     62
               B.   Memorandum and Articles of Association........................................     62
               C.   Material Contracts............................................................     66
               D.   Exchange Controls.............................................................     70
               E.   Taxation......................................................................     70
               F.   Dividends and Paying Agent....................................................     71
               G.   Statements by Experts.........................................................     71
               H.   Documents on Display..........................................................     72
               I.   Subsidiary Information........................................................     72

     Item 11.  Quantitative and Qualitative Disclosure About Market Risk..........................     73

     Item 12.  Description of Securities other than Equity Securities.............................     73

PART II...........................................................................................     73

     Item 13.  Defaults, Dividends, Arrearages and Delinquencies..................................     73

     Item 14.  Material Modifications to the Rights of Security holders and Use of Proceeds.......     73

     Item 15.  [Reserved].........................................................................     74

     Item 16.  [Reserved].........................................................................     74

PART III..........................................................................................     75

     Item 17.  FINANCIAL STATEMENTS...............................................................     75

     Item 18.  FINANCIAL STATEMENTS...............................................................     75

     Item 19.  FINANCIAL STATEMENTS AND EXHIBITS..................................................     75

SIGNATURES........................................................................................    119
</Table>

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


<Page>

     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.

                                  INTRODUCTION

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

     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 also has a 5% interest in Procognia (UK) Ltd. which has been
involved in the design of glycobiology-based tools for drug discovery and
development and bioinformatics.

     The Company's principal stockholder is Gamida for Life B.V. ("Gamida"),
which owned approximately 65% 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 four additional indirect affiliates), which together comprise
the Healthcare group of companies. Unless the context indicates otherwise, the
term "Company" as used herein refers to Healthcare and its subsidiaries.

     On June 29, 2004 the Company signed a term sheet with ImmvaRx Inc. with
respect to a proposed transaction pursuant to which ImmvaRx is to transfer all
or a substantial part of its intellectual property (IP) to the Company in return
for shares representing a controlling interest in the Company, for more about
this transaction see: Item 4.A. "Recent Developments".

<Page>

     A schematic presentation of the Company and its interests (as of July 7,
2004) appears below:

               [See Exhibit 99.4 - Chart of Healthcare Companies]


     The Company's business activities are organized into four main functional
groups: research and development, manufacturing and worldwide marketing of
diagnostic tools; marketing and distribution to biotechnology researchers in
Israel; and marketing and distribution 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. 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.

                                      - 4 -
<Page>

     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.

     The Company is also engaged in the production and marketing, 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.

     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. For more about the mergers within the Gamidor Group see Item 4.A.
"Recent Developments". 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.

                                     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

     Not Applicable.

          A.   SELECTED FINANCIAL DATA

     The following selected consolidated financial data for the five years ended
December 31, 2003 are derived from the Consolidated Financial Statements of the
Company which have been prepared in conformity with generally accepted
accounting principles in Israel, which differ in certain respects from those
followed in the United States (see Note 18 to the Consolidated Financial
Statements). The data appearing below for the five years ended December 31, 2003
should be read in conjunction with the financial statements, related notes and
other financial information included elsewhere in this Report.

                                      - 5 -
<Page>

     The Company's consolidated figures for the year ended December 31, 2003
include Savyon's results on a proportionate consolidation basis as compared to a
full consolidation basis in 2002 as well as deconsolidation of Procognia's
results in 2003 as compared to consolidation of the first quarters' results in
2002.

     INCOME STATEMENT DATA:

     CONSOLIDATED STATEMENT OF OPERATIONS
     (in thousands of U.S. Dollars except loss per share)

<Table>
<Caption>
                                                     2003      2002     2001     2000     1999
                                                    ------   -------   ------   ------   ------
<S>                                                 <C>      <C>       <C>      <C>      <C>
Sales                                               14,636    16,676   16,013   15,456   16,583
Cost of Sales                                        8,733   10, 386    9,984   10,006   10,286
                                                    ------   -------   ------   ------   ------
Gross Profit                                         5,903     6,290    6,029    5,450    6,297
Research and development costs, net                    353       912    3,164    1,408      855
Selling and marketing expenses                       3,159     3,161    3,167    2,755    3,300
General and administrative expenses                  1,800     2,475    3,966    2,669    2,268
Amortization of goodwill                               314       471      246      196      196
                                                    ------   -------   ------   ------   ------
Operating Earnings (Loss)                              277      (729)  (4,514)  (1,578)    (322)
Financial income (expenses), net                      (120)     (491)    (311)     129      156
Other income (expenses), net                            (1)    1,482      896      754       36
                                                    ------   -------   ------   ------   ------
Earnings (Loss) before taxes                           156       262   (3,929)    (695)    (130)
Taxes on income                                         31         -        -        -        -
                                                    ------   -------   ------   ------   ------
Earnings (Loss) after taxes on income                  125       262   (3,929)    (695)    (130)
Equity in losses of an affiliate                       111         -        -        -        -
Minority interest in losses (earnings) of
   subsidiaries                                          -       206      916      204      (61)
                                                    ------   -------   ------   ------   ------
Net Earnings (Loss) for year (according to
   Israeli GAAP)                                        14       468   (3,013)    (491)    (191)
                                                    ======   =======   ======   ======   ======
Net Earnings (Loss) per NIS 1 par value of
   shares  (*)                                        0.05      1.53   (12.6)    (2.64)   (1.03)
                                                    ======   =======   ======   ======   ======
Weighted average number of shares and
   Equivalents outstanding (in thousands) (*)        7,644     7,644    5,977    4,644    4,627
                                                    ======   =======   ======   ======   ======
Net loss for year according to U.S. GAAP
   (See Note 1)                                       (523)   (1,827)  (6,046)  (2,045)    (654)
                                                    ======   =======   ======   ======   ======
Net loss per share according to U.S. GAAP (*)        (0.07)    (0.24)   (1.01)   (0.44)   (0.14)
                                                    ======   =======   ======   ======   ======
</Table>

(*) All share and per share amounts have been restated to retroactively reflect
the share consolidation.

                                      - 6 -
<Page>

Note 1: Effect of material differences between Israeli GAAP and U.S. GAAP, as
detailed in the table below.

<Table>
<Caption>
                                                          Fiscal Year Ended December 31,
                                                    -------------------------------------------
                                                     2003     2002      2001     2000     1999
                                                    ------   -------   ------   ------   ------
<S>                                                   <C>     <C>      <C>      <C>        <C>
Net income (loss) as reported according to
Israeli GAAP                                            14       468   (3,013)    (491)    (191)
                                                    ======   =======   ======   ======   ======

   Amortization of goodwill and technology            (480)     (387)  (1,046)    (463)    (463)
Compensation expenses                                  (57)      (40)    (113)     (72)       -
Minority interest in losses of Procognia                 -      (206)    (971)    (214)       -
Capital gain from decrease in holdings in
Procognia                                                -    (1,349)       -        -        -
Compensation expenses related to
conversion of convertible debentures                     -      (313)       -        -        -
Other expenses                                           -         -     (903)    (805)
                                                    ------   -------   ------   ------   ------

Net loss according to U.S. GAAP                       (523)   (1,827)  (6,046)  (2,045)    (654)
</Table>

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

<Table>
<Caption>
                                                     2003     2002      2001     2000     1999
                                                    ------   -------   ------   ------   ------
<S>                                                 <C>       <C>      <C>      <C>      <C>
Working capital                                      2,842     1,870      655    2,821    2,362
Total assets                                        10,239    10,565   12,485   15,609   14,261
Short-term credit including current maturities       1,030       849    1,160    1,837      700
Long-term liabilities, not including current
   maturities                                          759       337    1,226      670    1,123
Shareholders equity                                  4,285     4,246    3,779    6,355    6,810
Shareholders' equity according to U.S.
   GAAP (See Note 2 and Note 3)                      2,388     2,829    4,891    8,230   10,167
</Table>

Note 2: Effect of material differences between Israeli GAAP and U.S. GAAP on the
shareholders' equity, as detailed in the table below.

<Table>
<Caption>
                                                     Fiscal Year Ended December 31,
                                              --------------------------------------------
                                               2003     2002      2001     2000     1999
                                              ------   -------   ------   ------   -------
<S>                                           <C>       <C>      <C>      <C>       <C>
Shareholders' equity according to Israeli
GAAP                                          (4,285)   (4,246)  (3,779)  (6,355)   (6,810)
Goodwill and technology                       (2,864)   (3,344)  (4,005)  (2,894)   (3,357)
Deferred capital gain                              -         -        -     (903)        -
Investment in Procognia (Note 3)               4,761     4,761        -        -         -
Minority interest                                  -         -        -     (555)        -
Convertible debentures                             -         -      416        -         -
Preferred shares in a subsidiary                   -         -    2,477    2,477         -
                                              ------   -------   ------   ------   -------
Shareholders' equity according to U.S. GAAP   (2,388)   (2,829)  (4,483)  (8,230)  (10,167)
</Table>

                                      - 7 -
<Page>

Note 3: Disclosure regarding recorded investment in Procognia:

     Under US GAAP, the losses that relate to the Company's stock ownership
interest in Procognia that were previously accrued while Procognia was a
subsidiary remain as part of the carrying amount of this investment even though
the Company currently owns approximately 5% of the equity of Procognia and no
longer has the right to elect a director. Although the company does not have a
legal liability in respect of its investment in Procognia, accounting under US
GAAP requires the Company to present the investment in Procognia at its negative
balance of ($4.761 million) among long-term liabilities, which amount reduces
the stockholders equity of Healthcare under US GAAP, as compared with Israeli
GAAP.

          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 HAS SUSTAINED OPERATING LOSSES IN THE PAST, HAS AN ACCUMULATED
     DEFICIT AND MAY NOT GENERATE PROFITS FROM OPERATIONS IN THE FUTURE.

     While the Company ended 2003 with operating income of $277 thousand, for
the three fiscal years ended December 31, 2000, 2001 and 2002 the Company had
operating losses of approximately $1.6 million, $4.5 million and $0.7 million,
respectively.

     Such losses resulted principally from:

     o         expenses associated with the research, development, patenting and
          testing of the Company's products and technologies of approximately
          $0.9 million, $3.2 million and $1.4 million in 2002, 2001 and 2000
          respectively; and

     o         amortization of goodwill of approximately $471 thousand, $246
          thousand and $196 thousand in 2002, 2001 and 2000 respectively.

     The Company may incur significant operating losses in the future as it
continues its research and development efforts, 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 from operations in the future. As of December 31, 2003, the
Company's accumulated deficit was approximately $12 million.

                                      - 8 -
<Page>

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

     At December 31, 2003, the Company had working capital of $2.8 million,
including cash of $1.5 million. The Company anticipates that these funds,
together with funds from operations, will be sufficient to meet its anticipated
cash requirements for 2004. For the fiscal year 2003, the Company generated net
cash flows in operations of $84 thousand. Although the Company currently
believes that it will generate positive cash flow from operations in fiscal
2004, it is possible that it will not succeed in doing so.

     Following the Savyon Transaction described under Item 4 - "Information on
the Company --A. History and Development of the Company", additional sources of
liquidity for the Company in 2004 and thereafter are the $0.5 million remaining
as of December 31, 2003 from the $1.9 million purchase price to be paid by
Savyon to Gamidor by means of 24 consecutive monthly installments of $20
thousand each.

     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.

     Other than as described in Item 4. "Information on the Company -- A.
History and Development of the Company -- Recent Developments", 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.

     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 Lumitron (Packard) in the field of advanced laboratory
instrumentation (fluorometers, counters); DeGroot (Greiner), Geter (Corning) in
the field of bio-plastics; and Eldan (NEN), Biological Industries (Promega) and
Sigma Israel in the field of molecular biology and radiochemical 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 2003 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 Pharmtop (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 2003 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.

                                      - 9 -
<Page>

     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 $2.7 million, $2.5 million and $3 million
in 2001, 2002 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 six granted patents that it utilizes
in producing its products. 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 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, two 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 2003 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 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.

     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:

     o         the pending patent application 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;

     o         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;

     o         the Company may not be able to develop additional proprietary
          technologies that are patentable;

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

     o         other companies may challenge patents licensed or issued to the
          Company;

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

     o         other companies may independently develop similar or alternative
          technologies or duplicate the Company's technologies;

                                     - 10 -
<Page>

     o         other companies may design around technologies the Company has
          licensed or developed; and

     o         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.

     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 $1million 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:

                                     - 11 -
<Page>

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

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

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

     o         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 but is awaiting CE certification for products first launched during
2004.

     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 approximately 88% 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 does not have an employment
agreement. 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.

     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. As a
result, in fiscal 2002 and 2003, approximately 22% and 12% respectively of the
Company's revenues were derived from the sales efforts of these sales agents,
distributors and dealers.

                                     - 12 -
<Page>

     Sales to the Company's distributors in France, BMD -- Biomedical
Diagnostics, and Germany, Hain Lifescience GMBH, accounted respectively for
approximately 6% and 4% of annual sales in fiscal 2002 and approximately 4% and
2% in 2003, respectively . The Company has written distribution agreements with
BMD and Hain that grant these companies the exclusive right to distribute the
Company's products in France and Germany respectively 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 2002 and 2003, purchases from one of Danyel's suppliers, Amersham
Biosciences ("Amersham"), which was acquired by General Electric during October
of 2003, accounted for 28% and 30% respectively of the Company's annual cost of
sales. In addition, during 2002 and 2003, purchases from one of the Gamidor
Group's suppliers, Dade Behring, accounted for 11% and 16% respectively of the
Company's annual cost of sales. A failure of such suppliers to continue to
supply products to the Company 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. The
agreement had an initial five year term ending December 31, 2003, but is subject
to automatic renewal for successive three year periods unless either party
elects to terminate the agreement upon not less than 12 months' notice prior to
the expiration of the current term. No such termination notice was given prior
to December 31, 2003. The Agreement may be terminated by Amersham for, among
other reasons Danyel's failure to meet the 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
agreement may be terminated by Dade Behring if, among other reasons, Gamidor
fails to meet the minimum sales requirements.

     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.

                                     - 13 -
<Page>

     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 & Meuhedet
(collectively "the Sick Funds") accounted respectively for 6%, 11% and 5% of the
Company's annual sales during 2002, and 9%, 12% and 6% of such sales in 2003.
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. 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.

     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.

                                     - 14 -
<Page>

     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:

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

     o         diversion of management from daily operations;

     o         inability to obtain required financing on favorable terms;

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

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

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

     o         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 approximately 88% 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.

                                     - 15 -
<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 2001, 2002 and 2003, the
annual rate of inflation was approximately 1.4%,6.5% and (1.8)% respectively,
while the NIS was devalued (appreciated) against the U.S. Dollar by
approximately 9.3%, 7.3% and (7.6)% respectively. Consequently, during calendar
years 2001, 2002 and 2003 the annual rate of inflation as adjusted for
devaluation (appreciation) was approximately 10.7%, 13.8% and (9.4)%
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 LAW MAY DELAY, PREVENT OR MAKE DIFFICULT AN
     ACQUISITION OF THE COMPANY, WHICH COULD PREVENT A CHANGE OF CONTROL AND
     THEREFORE DEPRESS THE PRICE OF THE COMPANY'S SHARES.

     Certain provisions of Israeli corporate and tax law may have the effect of
delaying, preventing or making more difficult a merger or other acquisition of
the Company. The Israeli Companies Law, which governs Israeli corporations, does
not contain provisions that deal specifically with a merger that allows for the
elimination of minority shareholders. Various provisions that deal with
"arrangements" between a company and its shareholders have been used, however,
to effect squeeze-out mergers. These generally require that the merger be
approved by at least 75 percent of the shareholders present and voting on the
proposed merger, at a shareholders' meeting that has been called on at least 21
days' advance notice. In addition to shareholder approval, court approval of the
merger may be required, which entails further delay and the need to obtain a
discretionary approval. Moreover, a merger may not be completed unless at least
70 days have passed from the time that the requisite approvals of the merger by
each of the merging entities have been filed with the Israeli Registrar of
Companies. Alternatively, the acquirer can cause minority shareholders to sell
their shares if it acquires at least 90 percent of all outstanding shares
(excluding shares held by the acquirer prior to the acquisition) and none of the
minority shareholders successfully seeks to block the acquisition in court.

                                     - 16 -
<Page>

     The Israeli Companies Law also 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 Israeli 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. Here
too there is an exception, if someone else is already a 50% shareholder of the
company. These rules do not apply if the acquisition is made by way of a merger
as opposed to a tender offer. Regulations promulgated under the Companies Law
provide that these tender offer requirements do not apply to companies whose
shares are listed for trading outside Israel if, according to the law of the
country in which the shares are traded, including the rules and regulations of
the stock exchange on which the shares are traded, there is either a limitation
on acquisition of any level of control of the company, or 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 acquirer may not acquire shares tendered if, by doing
so, the acquirer would own more than 90% of the shares of the target company.

     Finally, Israeli tax law treats certain acquisitions, particularly
share-for-share swaps between an Israeli company and a non-Israeli company, less
favorably than United States tax law. Israeli tax law may, for instance, subject
an Israeli resident shareholder who exchanges his shares in Healthcare for
shares in a non-Israeli corporation to immediate taxation.

                 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 $1.9 and a low sales price of $0.25 during 2003 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:

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

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

     o         changes in United States and other countries' government
          regulations relating to approval of the Company's products;

     o         results of regulatory inspections;

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

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

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

     o         additions or departures of key personnel; and

     o         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.

                                     - 17 -
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     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 65% 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.

     In May and June 2002, Gamida pledged 3,891,259 of its shares in the Company
to United Mizrahi Bank as security for a loan from the Bank to Gamida. In
general, the pledge agreement grants Gamida the right to direct the voting of
the pledged shares, except to the extent that the Bank determines in its
reasonable discretion that a matter to be voted on would impair the value of the
pledged shares. 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.

     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 the Company's management
and directors and their affiliates, aggregating approximately 5 million shares,
are restricted securities under Federal Law. The Company has registered
4,111,612 shares for sale by its principal stockholder, Gamida as well as Diamed
AG, DMI Investments BV and Dr. Nir Navot. 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 SmallCap 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 SmallCap Market. If the Company's
ordinary shares are delisted from the NASDAQ SmallCap 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 SmallCap 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".

                                     - 18 -
<Page>

Item 4.   INFORMATION ON THE COMPANY

          A.   HISTORY AND DEVELOPMENT OF THE COMPANY

GENERAL

     The Company is an Israeli public company that is subject to the Israeli
Companies Law, 1999 (the "Companies Law") and the Israeli Companies Ordinance -
1983 ("the Companies Ordinance").

     The Company's principal executive offices are located at 3 Habosem Street,
Kiryat Minrav, Ashdod 77610, Israel (tel. no. 011-972-8856-2920).

IMPORTANT EVENTS IN THE DEVELOPMENT OF THE COMPANY'S BUSINESS

     The Company was incorporated in May 1988 under the name "Istec Healthcare
Technologies Ltd." and changed its name to "Healthcare Technologies Ltd." in
December 1988.

     In March 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.

     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 Diagnostics Ltd. ("Pronto").

     In March 1993, the Company established a 51% indirectly-owned Israeli
subsidiary, Savyon Yaron Diagnostics Marketing Ltd. ("Savyon Yaron"), in order
to distribute medical diagnostic products produced by the Company and by other
manufacturers. The Company's 51% interest was issued to Pronto, the other 49% of
the shares being held by Yaron Chemicals Ltd. Pronto transferred its entire 51%
shareholding to Gamidor for nil consideration in October 2000. Then, in July
2001, Gamidor acquired the whole of Yaron Chemicals Ltd.'s 49% interest, again
for nil consideration. Gamidor has since undertaken the business of Savyon
Yaron, which as a result has become a dormant company.

     In June 1993, the Company acquired Immunotech Corp. ("Immunotech"), a
privately-owned medical diagnostic kits manufacturer located in Boston,
Massachusetts. The Company subsequently changed the corporate name of Immunotech
to Diatech Diagnostics Inc. ("Diatech Inc.").

     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 June 1998, the Company sold the majority of Diatech Inc.'s medical
diagnostic product lines to an Irish company and subsequently discontinued
Diatech Inc.'s operations. Diatech Inc. was dissolved effective December 31,
1998.

     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.

                                     - 19 -
<Page>

     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).

     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 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, subject to certain conditions, which
did not materialize, to guarantee $270,000 of GamidaGen's obligations to an
Israeli bank included in the above sum of third party debts. 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 (see above - "D. Risk Factors - Risks
Related To The Company's Ordinary Shares"), 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."

     PROCOGNIA FINANCING

     In January 2000, the Company established Procognia (Israel) (formerly known
as Glycodata) 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, payable in installments, 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.

In April 2002, Procognia Israel secured $14.3 million in a second round of
financing, of which $1.25 million was through the conversion of existing
shareholders' loans. $0.75 million of this financing was used to repay further
such shareholders' loans. For the purposes of this financing, a newly organized
company registered in England, Procognia Ltd., 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.

                                     - 20 -
<Page>

During December 2002, Procognia entered into an agreement to acquire another
company, Sense Proteomic Ltd., in a share exchange transaction. In connection
with this acquisition, Procognia completed a $4 million round of financing from
certain of its shareholders other than Healthcare. Following the completion of
these transactions, the Company's ownership interest in Procognia decreased from
14.4% to 11.5%, on a fully diluted basis. Healthcare had the right to nominate
one of Procognia's seven directors.

     As a result of such financing of Procognia, Healthcare recorded a capital
gain for the second quarter of fiscal 2002 of approximately $1.4 million.

     In January 2004, Procognia completed another round of financing from
certain of its shareholders in which the Company did not participate, thus
diluting the Company's ownership interest in Procognia to approximately 5%.
Owing to this dilution, the Company has lost its right to nominate a director on
Procognia's board. Moreover, under US GAAP, the losses that relate to our stock
ownership interest in Procognia that were previously accrued while Procognia was
a subsidiary of ours remain as part of the carrying amount of this investment
even though we currently own less than 5% of the equity of this company and no
longer have the right to elect a director. Although the company does not have a
legal liability in respect of its investment in Procognia, accounting under US
GAAP requires the Company to present the investment in Procognia at its negative
balance of ($4.761 million) among long-term liabilities, which amount reduces
the stockholders equity of Healthcare under US GAAP, as compared with Israeli
GAAP.

     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 LLC ("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. As of December 31, 2003, the remaining $0.5
million of the $1.9 million purchase price are to be paid by Savyon to Gamidor
by means of 24 consecutive monthly installments of $20 thousand each.

     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 of between Pronto and
GamidaGen was cancelled.

                                     - 21 -
<Page>

RECENT DEVELOPMENTS

     SAVYON

     Effective as of January 1, 2003, the results of Savyon as newly established
are included in the Company's consolidated financial statements on a
proportionate consolidation basis.

     GAMIDOR GROUP MERGERS

     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.

     AFFERIX

     In August 2003, Pronto, which has since merged into Gamidor, invested in
Afferix Ltd., 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. According to the bridge loan agreement, Pronto was to loan Afferix an
aggregate of $300,000 in installments, convertible into approximately 40% of the
share capital of Afferix. The bridge loan agreement entitled Pronto to designate
up to three directors to the Afferix board of directors and to designate
Afferix's managing director. It also entitled Pronto to certain veto rights
regarding certain board and shareholders resolutions, and to certain pre-emptive
rights, rights of first refusal, co-sale and bring along rights.

     In December 2003, Pronto and Afferix amended the bridge loan agreement to
the effect that Pronto is no longer required to loan to Afferix more than the
$180,000 already advanced to Afferix. Moreover it is now agreed that Pronto is
entitled to either convert or demand repayment of the loan subject to certain
provisions of the bridge loan agreement, provided that Pronto shall not be able
to demand repayment before December 31, 2004. The amendment stipulated that in
the event Pronto converts the loan into shares, the number of shares to be
issued to Pronto shall equal 60% of the number of shares that would have been
issued to Pronto under the original agreement had Pronto advanced to Afferix the
full amount of $300,000. The amendment further stipulates that Pronto shall only
be entitled to designate one director to the Afferix board of directors.

     IMMVARX

     On June 29, 2004 the Company signed a term sheet with ImmvaRx Inc. for the
transfer by ImmvaRx to the Company of ImmvaRx's allergy therapies business. The
term sheet provides ImmvaRx with the right to commence a tender offer for all
outstanding shares of the Company no later than 30 months following the closing
of the transaction at a price of $1.60 per share. ImmvaRx will be issued 350,000
shares of the Company, a two year warrant to purchase up to 1,000,000 shares of
the Company at an exercise price ranging from $1.00 to $1.25 per share and a 30
month warrant to be issued 14,650,000 ordinary shares of the Company with a
nominal exercise price per share which may only be exercised following the
completion of the tender offer. The parties also agreed to negotiate the
transfer of ImmvaRx's cancer diagnostics and therapies business to the Company
against additional shares.

     Gamida for Life, the Company's largest shareholder has agreed to tender its
shares in this tender offer. Following completion of the tender offer, ImmvaRx
will have the right to exercise its warrant to purchase 14,650,000 shares of the
Company and Gamida for Life will have the right to purchase all of Healthcare's
subsidiaries and affiliates for an aggregate of $7.2 million.

     The proposed transaction is subject to the negotiation and execution of a
definitive agreement and to customary closing conditions, including the receipt
of all governmental and other consents and approvals and the approval of
Healthcare's Audit Committee, Board of Directors and stockholders. There can be
no assurance as to whether the transaction will occur.

                                     - 22 -
<Page>

PRINCIPAL CAPITAL EXPENDITURES AND DIVESTITURES

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

<Table>
<Caption>
                                in thousands of U.S. Dollars
                                ----------------------------
                                   2003     2002     2001
                                  ------   ------   ------
<S>                                  <C>      <C>      <C>
Fixed Assets                        349      840      834
Patents, know-how, trademarks        20
Total                               369      840      834
</Table>

     For information concerning material acquisitions and divestitures of
business interests by the Company since the beginning of fiscal 2001, 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 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.

     In addition, through the Company's investment in Procognia (Israel), the
Company has been involved in the design of glycobiology-based tools for
treatment discovery and development and bioinformatics.

     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.

     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 LLC ("LF"), controlled by Dr. Martin Lee to establish Savyonas
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."

                                     - 23 -
<Page>

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 $2.7
million, $2.5 million and $3 million in 2001, 2002 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 and purchases packaging and reagents for its kits from outside
suppliers. 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.

     Following the acquisition of GamidaGen in January 2001, Savyon has also
been 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. Under the terms of a licensing agreement
between Gamidor and Pronto Diagnostics Ltd. ("PDL") of exclusive rights for
exploitation of the Pronto(TM) product range outside Israel, the manufacture of
the products for PDL continues to be assigned to Savyon, subject to certain
conditions.

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.

                                     - 24 -
<Page>

     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.

     Savyon also markets a panel of SeroHSV kits, which include the
SeroHSV1(TM), SeroHSV2(TM), SeroHSV(TM) IgG and SeroHSV(TM) IgM diagnostic kits.
Such panel includes ELISA based assays designed to enable the detection of
antibodies to the herpes simplex virus (HSV), a widely spread pathogen
associated with a variety of diseases (SeroHSV(TM) IgG, SeroHSV(TM) IgM). Such
panel also includes highly specific self-confirmatory assays designed to enable
semi-quantitative determination of antibodies of HSV type 1 (SeroHSV1(TM)) also
known as herpes labialis, associated with "cold sores", and antibodies of HSV
type 2 (SeroHSV2(TM)) commonly known as herpes genitalis.

     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.

                                     - 25 -
<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.

     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.

     In addition, Savyon manufactures and markets a rapid test for the detection
of HIV 1 & 2 antibodies in serum or plasma based on the AIDS virus protein,
produced by genetic engineering technology.

     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.

     Savyon developed and manufactured the Diaslide(R) for the culturing of
bacteria from urine and identification of urinary tract infections (UTIs). In
September 2002, Savyon sold the Diaslide manufacturing line for a purchase price
of approximately $300,000 and recorded a capital gain of approximately $83,000
from this sale.

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

                      SEXUALLY TRANSMITTED DISEASES (STDS)

<Table>
<Caption>
PRODUCT                                        DESCRIPTION
--------------------------   ---------------------------------------------------
<S>                          <C>
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
Chlamydia IgG,               IgG or IgM or IgA antibodies specific to C.
IgM, IgA                     trachomatis, C. pneumoniae and C. psittaci in human
                             serum.

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

SeroHSV(TM) IgG              An enzyme-linked immunosorbent assay for the
                             semi-quantitative determination of specific IgG
                             antibodies to herpes simplex virus type 1 and/or 2
                             in human serum.

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.

SeroHSV1(TM)                 A competition based enzyme-linked immunosorbent
                             assay for the qualitative detection of specific
                             antibodies to herpes simplex virus type 1 in human
                             serum.

SeroHSV2(TM)                 A competition based enzyme-linked immunosorbent
                             assay for the qualitative detection of specific
                             antibodies to herpes simplex virus type 2 in human
                             serum.
</Table>

                                     - 26 -
<Page>

                      SEXUALLY TRANSMITTED DISEASES (STDs)

<Table>
<Caption>
PRODUCT                                        DESCRIPTION
--------------------------   ---------------------------------------------------
<S>                          <C>
HIVSav 1&2 Rapid             A rapid test for the qualitative detection of
SeroTest(TM)                 antibodies to human immunodeficiency virus (HIV)
                             1&2 in human serum or plasma.
</Table>

                       RESPIRATORY TRACT INFECTIONS (RTIs)

<Table>
<Caption>
PRODUCT                                        DESCRIPTION
--------------------------   ---------------------------------------------------
<S>                          <C>
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.

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

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

     *    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)

<Table>
<Caption>
PRODUCT                                        DESCRIPTION
--------------------------   ---------------------------------------------------
<S>                          <C>
URISCREEN(TM)                A rapid UTI screening test for bacteria and the
                             presence of somatic cells in human urine.
</Table>

                                 QUICKSTRIPE(TM)

<Table>
<Caption>
PRODUCT                                        DESCRIPTION
--------------------------   ---------------------------------------------------
<S>                          <C>
Strep A                      A rapid, visual assay for the detection of
                             streptococcal Group A antigen from throat swabs.
</Table>

                                     - 27 -
<Page>

                                 QUICKSTRIPE(TM)

<Table>
<Caption>
PRODUCT                                        DESCRIPTION
--------------------------   ---------------------------------------------------
<S>                          <C>
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).

H. Pylori                    A rapid, two-step assay for the detection of
                             antibodies to helicobacter pylori (a bacterium
                             correlated with the development of stomach ulcers
                             and stomach cancer) in human serum, plasma or whole
                             blood.

Dengue IgG                   A rapid, visual assay for the detection of IgG
                             antibodies to dengue in human serum, plasma or
                             whole blood.

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

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).

                                     - 28 -
<Page>

     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, exclusive rights
for the exploitation of the Pronto(TM) product range outside Israel have now
been licensed to PDL, a company founded by Dr. Nir Navot, formerly 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 PDL as
well as 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

<Table>
<Caption>
PRODUCT                                   ASSOCIATED DISEASE GENE
-----------------------------   -----------------------------------------------------
<S>                             <C>
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

4 GeneScreen                    Canavan, BLM, FACC, FD

Tay Sachs                       Tay Sachs (hexosaminidase)
</Table>

                       GENETIC PRE-DISPOSITION TO DISEASE

<Table>
<Caption>
PRODUCT                                   ASSOCIATED DISEASE GENE
-----------------------------   ------------------------------------------------------------------
<S>                             <C>
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
</Table>

                                     - 29 -
<Page>

                       GENETIC PRE-DISPOSITION TO DISEASE

<Table>
<Caption>
PRODUCT                                   ASSOCIATED DISEASE GENE
-----------------------------   ------------------------------------------------
<S>                             <C>
MTHFR                           Increased risk of thrombosis

Factor II / Prothrombin         Increased risk of thrombosis

Hemochromatosis                 Hemochromatosis\ iron overload (HFE)
</Table>

                                 DNA EXTRACTION

<Table>
<Caption>
PRODUCT                                          USAGE
-----------------------------   ------------------------------------------------
<S>                             <C>
DNA extraction kit (from        Rapid DNA extraction for use in diagnostics and
human whole blood)              research laboratories
</Table>

RESEARCH AND DEVELOPMENTS -SAVYON

     The Company, through Savyon, is engaged in certain research and development
activities as detailed below. These activities include, certain new projects in
the diagnostic field.

     During 2003, the Company's research and development expenditures decreased
by approximately 60% as compared to 2002, primarily as a result of the
deconsolidation of Procognia's activities starting April 1, 2002 and the
proportionate consolidation of Savyon's activities starting April 1, 2003.
However, Savyons total net research and development expenditures for 2003 were
$706 thousand as compared to $422 thousand in 2002, this increase being due to
Savyon's efforts 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.

     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 six granted patents that it utilizes
in producing its products. 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 Pronto(TM) genetic test products line. Three of
the granted patents are registered in Israel , two are registered in the United
States and one is registered in Europe (national phase). All of them expire
between 2012 to 2014.

                                     - 30 -
<Page>

     In the serologic field, during 2003 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, 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 Life Sciences,
Pharmacia & Upjohn Diagnostics and Ventana. 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.

     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. Since it commenced such arrangements, an aggregate of
approximately 71 instruments have been so provided, mainly to certain public
healthcare institutions and hospitals in Israel. Other than in respect of such
transactions, the Gamidor Group does not normally enter into long-term written
agreements with its customers for supplies of its product lines.

                                     - 31 -
<Page>

     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 -

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

          o    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;

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

          o    Danyel Biotech Services (DBS) - DNA sequencing and SNPs analysis

     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.

     It represents and distributes products manufactured by leading companies
from around the world, including Amersham, BiaCore, Ciphergen, Dynal, Nunc,
Perkin Elmer Life Sciences and 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.

     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.

                                     - 32 -
<Page>

     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 now
been licensed to PDL.

     MAJOR SUPPLIERS

     During 2002 and 2003, purchases from one of Danyel's suppliers accounted
for 28% and 30% for each year respectively of Healthcare's annual cost of sales.
In addition, during both 2002 and 2003, purchases from one of Gamidor's
suppliers accounted for 11% and 16% respectively of Healthcare's annual cost of
sales. A failure of such suppliers to continue to supply products to the Company
will adversely affect the Company's business and financial results.

     MAJOR DISTRIBUTORS

     Sales to the Company's distributors in France, BMD - Biomedical
Diagnostics, and Germany, Hain Lifescience GMBH, accounted respectively for
approximately 6% and 4% of annual sales in fiscal 2002 and approximately 4% and
2% in 2003, respectively. The Company has written distribution agreements with
BMD and Hain that grant these companies the exclusive right to distribute its
products in France and Germany respectively for periods of one year, subject to
automatic renewal 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.

     MAJOR CUSTOMERS

     Sales to three sick funds in Israel, namely Maccabi, Clalit & Meuhedet
(collectively, "the Sick Funds") accounted respectively for 6%, 11% and 5% of
the Company's annual sales during 2002, and 9%, 12% and 6% of such sales in
2003. A significant decrease in the level of the Company's sales to these
customers could adversely affect the Company's business and financial results.

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. Although the Company is not aware of any
published industry market share statistics the Company estimates, based upon its
knowledge of the industry, that in fiscal 2003 Savyon accounted for a
significant portion of the worldwide market for serology chlamydia test kits,
with Savyon's remaining kits representing a much smaller portion of the overall
market for such products.

                                     - 33 -
<Page>

     Savyon's Sero HSV line of products competes with products produced by
companies such as Meridian (USA), MRL (USA) and Dade Behring (Germany).

     The principal competition to Savyon's Uriscreen(TM) products among rapid
screens for the point of care and over-the-counter markets comes from the
"urinary dipsticks"; however, these tend to suffer from poor sensitivity and a
second confirmatory test is often recommended.

     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.

     Savyon's HIVSav products are amongst a multitude of technologies and
products characterizing the HIV diagnostics market. The HIVSav, addressing the
needs of emergency rooms, urgent medical care, point of care testing and
doctors' offices, competes with several other rapid tests, such as those of
Abbot Test PAK, Cambridge Biotech, DuPont, Orgenics, EY Lab, Saliva Diagnostics
Systems, Trinity Biotech and 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, other than the Israeli market for genetic predisposition tests
for gaucher and cystic fibrosis of which it has a significant share.

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 Lumitron (Packard) in the field of advanced laboratory
instrumentation (fluorometers, counters); DeGroot (Greiner), Geter (Corning) in
the field of bio-plastics; and Eldan (NEN), Biological Industries (Promega) and
Sigma Israel in the field of molecular biology and radiochemical 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 2003 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 Pharmtop (Sorin) for microbiology
products; Travenol (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 2003 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.

                                     - 34 -
<Page>

     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 in the USA. 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 HIVSav kits and QuickStripe(TM) 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.

     Furthermore, the Company's Uriscreen(TM) product is well suited to the
rapidly growing doctors' office market, point of care locations and
over-the-counter marketing as well as to use in laboratories and clinics.

GOVERNMENT REGULATIONS

     The FDA in the United States as well as European and Canadian regulatory
authorities impose substantial regulation on the manufacture of diagnostic and
therapeutic products and must approve 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 many diagnostic and therapeutic products.

     The conduct of both animal and 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, such approvals would prevent or
delay the commercial development of such products and could have a material
adverse effect on the business of the Company. If the FDA and comparable
regulatory bodies of other jurisdictions approve the sale of a product, their
regulations will apply to the manufacturing and marketing of such product,
including product labeling. Regulatory approvals are not required for the
manufacture or marketing of the Company's diagnostic products in Israel. The
Company is not aware of any Israeli obligatory standard applicable to its
diagnostic products, although the Company does not anticipate difficulties in
complying with such a standard should it be found or become applicable.

                                     - 35 -
<Page>

     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 in other countries and regions have
substantial regulations applying to the testing, marketing (including export)
and manufacturing of products to be used for the diagnosis of disease. In the
United States, many diagnostic products may be accepted by the FDA pursuant to a
"510(k)" notification. Such application must contain information 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.

     Most of the Company's diagnostic products are CE certified, which allows
Savyon to sell them throughout Europe. The Company has also received FDA
approval for marketing certain of those products in the United States, including
approvals pursuant to the Section 510(k) application process, and is actively
pursuing such approvals for additional products. As of December 31, 2003, all
products sold in Europe are CE certified

     Given the high proportion of its sales to countries of the European Union
(EU), the Company has undertaken the necessary steps to comply with the EU
In-Vitro Diagnostic Directive (IVDD). The Company expects all of its kits to be
compliant with the relevant aspects of the EU IVDD by September 2003 and thus to
be able to apply the "CE Mark" to most of its in vitro diagnostics and medical
devices as mandated by the EU.

     The HIV IVD products have also been evaluated by the World Health
Organization, as well as by certain national institutes (including the Russia
AIDS Center and the People's Republic Of China's Ministry of Health), with
satisfactory results.

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

<Table>
<Caption>
                                                         FDA
                                                      APPROVED
     CATALOG NO.               PRODUCT                  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

       A152-01     SeroHSV(TM) IgM                                    Approved

       A151-01     SeroHSV(TM) IgG                                    Approved

       A240-01     SeroHSV1(TM)                                       Approved

       A250-01     SeroHSV2(TM)                                       Approved

       A111-01     SeroELISA(TM) Chlamydia IgG         K915281/A      Approved
</Table>

                                     - 36 -
<Page>

<Table>
<Caption>
                                                         FDA
                                                      APPROVED
     CATALOG NO.               PRODUCT                  510K      CE EUROPE 98/79
     -----------   --------------------------------   ---------   ---------------
<S>                <C>                                 <C>            <C>
       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 IgA                                   Approved

       A293-01     SeroCP Quant IgG                                   Approved

       A231-01     SeroPertussis(TM) IgA/IgM                          Approved

       A233-01     SeroPertussis(TM) IgG                              Approved

       101-01      URISCREEN(TM)                       K981084        Approved

       4120-01     QuickStripe(TM) Strep A                            Approved

       4130-01     QuickStripe(TM) H. Pylori                          Approved

       FF9911      PRONTOTM BRCA                                      Approved

        F9903      PRONTOTM ApoE                                      Approved

        F9905      PRONTOTM Factor V                                  Approved
</Table>

                                     - 37 -
<Page>

<Table>
<Caption>
                                                         FDA
                                                      APPROVED
     CATALOG NO.               PRODUCT                  510K      CE EUROPE 98/79
     -----------   --------------------------------   ---------   ---------------
<S>                <C>                                <C>             <C>
        F9910      PRONTOTM MTHFR                                     Approved

        F9909      PRONTOTM Prothrombin (Factor II)                   Approved

        F9923      PRONTOTM ThromboRiskTM                             Approved

        F9949      PRONTOTM Hemochromatosis                           Approved

        F9904      PRONTOTM FMF Basic                                 Approved

        F9946      PRONTOTM CF Euro I                                 Approved

         9900      Gaucher                                            Approved

         9953      4GeneScreen                                        Approved

         9906      Canavan                                            Approved

         9931      Bloom/Fanconi                                      Approved

         9948      FD                                                 Approved

         9963      FD Screen                                          Approved

         9954      2GeneScreen                                        Approved

         9960      ML4                                                Approved

         9961      Niemann Pick                                       Approved

         9901      CF Basic                                           Approved

         9920      CF Open                                            Approved

         9945      CFTR 5T                                            Approved

         9925      DNA Extraction Kit                                 Approved
</Table>

     Currently, there are no pending applications for approvals by the FDA, but
the Company is awaiting CE certification of products first launched during 2004

                                     - 38 -
<Page>

     WHO APPROVAL

     HIVSav 1&2 Rapid SeroTest(TM)

     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.

          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
Ashdod, Petach-Tikva and Rehovot in Israel.

     The Ashdod facilities are held by Savyon under the terms of a lease
agreement from 1993, which as of August 1, 2004 will be extended for an
additional three to five years, pursuant to which Savyon leases approximately
1,600 square meters of space at an annual rental fee of approximately $135,000,
linked to the Israeli consumer price index. Savyon's obligations under the terms
of this lease are secured by a bank guarantee of approximately $120,000. 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

     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.
The Company leases 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 parking 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 its lease of a warehouse in Petach Tikva of approximately 300 square
meters for an annual rental fee of approximately $29,000 for an additional
period of 2 years until September 2005. 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, commencing June 1, 2000. In
addition, during 2003 Danyel extended its lease of a warehouse of approximately
270 square meters for an annual rental fee of approximately $16,000 for a period
of five additional years, ending June 30, 2008.

                                     - 39 -
<Page>

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 company's consolidated figures for the year ended December 31, 2003
include Savyon's results on a proportionate consolidation basis as compared to a
full consolidation basis in 2002 as well as deconsolidation of Procognia's
results in 2003 as compared to consolidation of the first quarters' results in
2002.

          A.   RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2003 COMPARED TO THE YEAR ENDED DECEMBER 31, 2002

     Revenues for 2003 were $14.6 million compared to $16.7 million in 2002.
Gross profit was $5.9 million as compared to $6.3 million for 2002, representing
a 7% increase in the gross profit percentage, which was due to more efficient
production as well as a focus on the selling of more profitable product lines.

     Net research and development costs for the year of 2003 decreased by
approximately 60% as compared to 2002, primarily as a result of the
deconsolidation of Procognia's activities starting April 1, 2002 and the
proportionate consolidation of Savyon's activities starting April 1, 2003.
However, Savyon's total net research and development expenditures for 2003 were
$706 thousand as compared to $422 thousand in 2002, this increase being due to
Savyon's efforts in developing new products.

     Selling, general and administrative expenses decreased by approximately 12%
in 2003 and were approximately $4.96 million compared to approximately $5.63
million in 2002. This decrease in selling, general and administrative expenses
is the result of the continued implementation of the cutbacks initiated during
2002. For the first time since 1993, the Company reports an operating profit for
the period of approximately $0.3 million as compared to an operational loss of
approximately $0.7 million for 2002.

     Net profit for fiscal 2003 was $14 thousand or $0.002 per share, as
compared to a net profit of $0.47 million, or $0.06 per share for fiscal 2002.
The net profit for 2003 includes financing costs of $0.12 million compared to
$0.49 million in 2002 that are mainly due to a devaluation of approximately 20%
of the US Dollar against the Euro and an equity loss of $0.11 million from an
investment in an affiliate.

YEAR ENDED DECEMBER 31, 2002 COMPARED TO THE YEAR ENDED DECEMBER 31, 2001

     For the year ended December 31, 2002, the Company's sales were
approximately $16.7 million, which represented an increase of approximately 4%
compared to sales of approximately $16.0 million for the year ended December 31,
2001. The growth in sales for the period in relation to fiscal 2001 was mostly
due to increased turnover of Danyel, which experienced an increase in its sales
of laboratory equipment for research purposes amounting to approximately $350
thousand, and of the Gamidor Group, which experienced a 22% increase in its
sales of genetic products amounting to approximately $400 thousand.

     The gross profit for the year ended December 31, 2002 was approximately
$6.29 million, which represented an increase of approximately 4% compared to the
gross profit of approximately $6.03 million for the year ended December 31,
2001. The increase in the Company's gross profit in fiscal 2002 as compared to
fiscal 2001 primarily reflected a 33% increase in Savyon's gross profit figures
resulting from the successful implementation of a comprehensive cut back aimed
at increasing the efficiency of Savyon's management, production, quality control
and assurance departments. The cut backs involved replacement of Savyon's chief
executive officer and two executives as well as the dismissal of a number of
employees and a reduction of space leased by Savyon.

                                     - 40 -
<Page>

     Research and development costs for the year ended December 31, 2002
decreased by 70% to approximately $0.9 million compared to approximately $3.1
million for the previous year. This decrease was due to both the dilution of the
Company's ownership interest in Procognia to a level of 11.5% by December 2002,
(as a result of several third party financings also discussed above in Item 4 -
"Information on the Company --A. History and Development of the Company") and a
55% decrease in Savyon's research and development expenditure as compared to
last year, primarily as a result of the completion of certain research and
development projects as well as certain personnel changes which were implemented
prior to the Savyon Transaction .

     Amortization of goodwill was approximately $0.47 million for 2002.

     Selling, general and administrative expenses decreased by approximately 20%
in the year 2002 compared to the previous year and were approximately $5.6
million compared to approximately $7.13 million in 2001. This decrease was due
to both the dilution of the Company's ownership interest in Procognia described
above, which accounted for approximately $1 million in 2001, and the
reorganizational cutbacks in the Company also detailed above.

     As a result of the Company's improved performance during fiscal 2002 in
terms of gross profit, research and development as well as selling and general
and administrative expenses, the operational loss for the period was
approximately $0.7 million as compared to an operating loss of $4.5 million in
2001. This includes approximately $0.7 million of Procognia (Israel)'s expenses,
which ceased to be consolidated with the Company's results during 2002.

     Net financial expenses increased to $490 thousand compared with financial
expenses of approximately $310 thousand for 2001. The increase in the net
financial expenses was due mainly to the devaluation of the Israeli NIS against
the U.S. and European currencies.

     During 2002, Healthcare realized a capital gain of $1.3 million from a
third party investment in Procognia.

     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 Israel, which differ in certain respects from those followed in the
United States (see Note 18 to the consolidated financial statements). The
Company's critical accounting policies are described in Note 2 to the Company's
financial statements. Starting January 2004, the Company, which has been
reporting in accordance with the Israeli GAAP, has begun to report the financial
statement in accordance with the U.S. GAAP. This change is due to new
regulations which have become effective in Israel. The major impact of this
change for the first quarter of 2004 has to do with the method of reporting
Savyon's operational performance which, under Israeli GAAP used to be
consolidated using the proportionate consolidation method, and is currently
accounted for under the U.S. GAAP in accordance with the equity method. The
Company reviews the accounting policies applied in reporting its financial
results on a regular basis. The preparation of these financial statements
requires the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses and related disclosure of
contingent assets and liabilities. On an ongoing basis, the Company evaluates
its estimates, including those related to product returns, accounts receivable,
inventories, investments, intangible assets, warranty obligations,
restructuring, contingencies and litigation. The Company bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable in the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Results may differ from these estimates as
a result of actual outcomes being different from those on which the Company
based its assumptions. These estimates and judgments are reviewed by management
on an ongoing basis, and by the board of directors at the end of each quarter
prior to the public release of the Company's financial results. The Company
believes the following critical accounting policies affect its more significant
judgments and estimates used in the preparation of the consolidated financial
statements.

                                     - 41 -
<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 IDENTIFIABLE INTANGIBLES

     The Company assesses the impairment of goodwill and other identifiable
intangibles whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Some factors the Company considers
important which could trigger an impairment review include the following:

          o    significant underperformance relative to expected historical or
               projected future operating results;

          o    significant changes in the manner of the Company's use of the
               acquired assets or the strategy for its overall business; and

          o    significant negative industry or economic trends.

     When the Company determines that the carrying value of goodwill and other
identified intangibles may not be recoverable based upon the existence of one or
more of the above indicators of impairment, the Company measures any impairment
based on a projected discounted cash flow method using a discount rate
determined by management to be commensurate with the risk inherent in the
Company's current business model. In accordance with SFAS No. 142, "Goodwill and
Other Intangible Assets", the Company, as from January 1, 2002, under the U.S.
GAAP, ceased amortizing goodwill arising from acquisitions completed prior to
July 1, 2001. In lieu of amortization, the Company performs an initial
impairment review of its goodwill in 2002 and an annual impairment review
thereafter.

     If the Company determines through the impairment review process that
goodwill has been impaired, it will record the impairment charge in its
statement of operations. According with accounting principles generally accepted
in Israel, goodwill and other intangible assets will continue to be amortized
over their useful lives, after the impairment review.

     ADDITIONAL RECENT ACCOUNTING PRONOUNCEMENTS

     In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). The objective of FIN 46 is to improve
financial reporting by companies involved with variable interest entities. A
variable interest entity is a corporation, partnership, trust, or any other
legal structure used for business purposes that either (a) does not have equity
investors with voting rights or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its activities. FIN 46
requires a variable interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable interest
entity's activities or entitled to receive a majority of the entity's residual
returns or both. FIN 46 also requires disclosures about variable interest
entities that the company is not required to consolidate but in which it has a
significant variable interest. The consolidation requirements of FIN 46 apply
immediately to variable interest entities created after January 31, 2003. The
consolidation requirements apply to older entities in the first fiscal year or
interim period ending after March 15, 2004. Certain of the disclosure
requirements apply in all financial statements issued after January 31, 2003,
regardless of when the variable interest entity was established.

                                     - 42 -
<Page>

     As of December 31, 2003, the Company does not expect the adoption of FIN 46
to have a material impact on its consolidated financial statements. In April
2003, the FASB issued SFAS No. 149 ("SFAS 149"), "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS 149 amends and clarifies
(1) the accounting guidance on derivative instruments (including certain
derivative instruments embedded in other contracts) and (2) hedging activities
that fall within the scope of FASB Statement No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities." SFAS 149 amends SFAS 133 to
reflect decisions made (1) as part of the Derivatives Implementation Group
("DIG") process that effectively required amendments to SFAS 133, (2) in
connection with other projects dealing with financial instruments, and (3)
regarding implementation issues related to the application of the definition of
a derivative. SFAS 149 is effective (1) for contracts entered into or modified
after June 30, 2003, with certain exceptions, and (2) for hedging relationships
designated after June 30, 2003. The guidance is to be applied prospectively.

     Generally, SFAS 149 improves financial reporting by (1) requiring that
contracts with comparable characteristics be accounted for similarly and (2)
clarifying when a derivative contains a financing component that warrants
special reporting in the statement of cash flows. SFAS 149 is not expected to
have a material impact on the Company's financial statements.

     In May 2003, the FASB issued SFAS 150, "Accounting For Certain Financial
Instruments with Characteristics of Both Liabilities and Equity" which
establishes standards for how an issuer of financial instruments classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances) if, at
inception, the monetary value of the obligation is based solely or predominantly
on a fixed monetary amount known at inception, variations in something other
than the fair value of the issuer's equity shares or variations inversely
related to changes in the fair value of the issuer's equity shares. This
Statement is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption of SFAS 150 is not expected
to have a material impact on the Company's financial position or results of
operations.

     In December 2003, the SEC issued Staff Accounting Bulletin ("SAB") No. 104,
"Revenue Recognition," ("SAB No. 104") which revises or rescinds certain
sections of SAB No. 101, "Revenue Recognition," in order to make this
interpretive guidance consistent with current authoritative accounting and
auditing guidance and SEC rules and regulations. The changes noted in SAB No.
104 did not have a material effect on the Company's consolidated results of
operations, consolidated financial position or consolidated cash flows.

          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 a 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.

                                     - 43 -
<Page>

     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.

          C.   LIQUIDITY AND CAPITAL RESOURCES

     At December 31, 2003, the Company had working capital of approximately $2.8
million and shareholders' equity of approximately $4.3 million. During the year
ended December 31, 2003, the cash flows provided by operating activities were
approximately $0.6 million and the Company used approximately $ 0.5 million of
net cash flows in investing activities. The net cash flows used in investing
activities consisted mainly of purchase of fixed assets.

     At December 31, 2003, the Company had short-term bank credit of
approximately $1 million (including current maturities of long term bank loans)
and long-term liabilities of $0.8 million. The Company believes that revenues
from the sale of its medical diagnostic kit products, revenues from contract
manufacturing, contract research and development and other activities, 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.

     Additional sources of liquidity for the Company in 2003 and thereafter,
following the Savyon Transaction described under Item 4 - "Information on the
Company --A. History and Development of the Company" and thereafter are the $1.2
million invested by Dr. Lee, the $0.5 million remaining as of December 31, 2003
from the $1.9 million purchase price for the Transaction are to be paid by
Savyon to Gamidor by means of 24 consecutive monthly installments of $20
thousand each.

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

     The Company 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 six granted patents that it utilizes
in producing its products. 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 Pronto(TM) genetic test products line. Three of
the granted patents are registered in Israel, two are registered in the United
States and one is registered in Europe (national phase). All of them expire
between 2012 to 2014.

                                     - 44 -
<Page>

     In the serologic field, during 2003 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 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 the Company:

<Table>
<Caption>
                                                                         Year ended December 31,
                                                                     ------------------------------
                                                                       2003       2002       2001
                                                                     --------   --------   --------
                                                                     (in thousands of U.S. Dollars)
<S>                                                                     <C>      <C>        <C>
Gross research and development expenses ..........................      471      1,070      3,164
Portion funded by the European Union's 5th Framework Program
   (FP5) ("The CHEMAG Project" - detailed below) .................      118        158          -
                                                                        ---      -----      -----
Net research and development expenses ............................      353        912      3,164
                                                                        ===      =====      =====
</Table>

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
1998) related to such products.

     The terms of these grants prohibit 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.

     To date, the Company has received approximately $4.3 million in grants for
over 20 different projects for the development of serological and genetic
diagnostic kits, of which eight projects have produced commercial products. The
Company's contingent obligations based upon all OCS projects are approximately
$3.1 million. Of this sum, the Company's contingent obligations based on future
sales of commercial products is approximately $1.2 million. As at December 31,
2003 the Company had paid the Chief Scientist approximately $1.2 million in
royalties at a royalty rate of 3.5%.

     BIRD-F

     In accordance with an agreement between the BIRD-F, the Company and
International Remote Imaging Systems Inc. ("IRIS") dated March 1994 for a twelve
month project aimed at developing kits for the direct detection of chlamydia in
urine Savyon was obligated to pay royalties to the BIRD-F on sales (or other
commercial exploitation) of any products which were developed as a result of the
research covered by such agreement. As no products have resulted from the
development of technology pursuant to such agreement, no payments are currently
due by the Company under the agreement.

     In accordance with an agreement with the BIRD-F, GamidaGen and Cygnus
Technologies Inc. (as successor to Diatech Inc.) dated August 1997 for a twelve
month project aimed at developing piezoelectric biosensors for clinical
diagnosis of sexually transmitted diseases, drugs of abuse and cardiac markers
GamidaGen was obligated to pay royalties to the BIRD-F on sales (or other
commercial exploitation) of any products which are developed as a result of the
research covered by that agreement. As no products have resulted from the
development of technology pursuant to such agreement, no payments were due by
the Company under the agreement.

                                     - 45 -
<Page>

     In accordance with an agreement with the BIRD-F, GamidaGen and Becton
Dickinson and Co. ("BD") dated January 2000 for an eighteen month project aimed
at developing integrated gene analysis tools GamidaGen was obligated to pay
royalties to the BIRD-F on sales (or other commercial exploitation) of any
products which were developed as a result of the research covered by that
agreement. The agreement was subject to early termination for material breach
having not been remedied by the party in default within 30 days of receipt of
notice. As of the date of this report, no payments are due by the Company under
the agreement. Early in 2001, BD decided to terminate its participation in the
BIRD-F funded project and thereafter the project was terminated. The Company
does not currently expect to further develop and produce products based on the
project and thus does not anticipate the payment of any royalties to the BIRD-F
relating to this project. Further, the Company believes that it has satisfied
all of its obligations under the grant and will not be liable for the repayment
of the grant. Based upon communications with BIRD-F, the Company believes that
BIRD-F agrees with this position.

     At December 31, 2003, the Company had a remaining contingent obligation to
BIRD-F in the amount of $262 thousand.

     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, 2003 the
Company had received (euro)263,000 and expects to have received approximately
(euro)200,000 by the end of 2005.

     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.

                                     - 46 -
<Page>

          E.   TREND INFORMATION

     Starting January 2004, the Company, which has been reporting in accordance
with the Israeli GAAP, has begun to report its financial statements in
accordance with the U.S.GAAP. This change is due to new regulations which have
become effective in Israel. The major impact of this change for the first
quarter of 2004 has to do with the method of reporting Savyon's operational
performance which, under Israeli GAAP used to be consolidated using the
proportionate consolidation method, and is currently accounted for under the US
GAAP in accordance with the equity method.

     Under US GAAP, the losses that relate to the Company's stock ownership
interest in Procognia that were previously accrued while Procognia was a
subsidiary of Company remain as part of the carrying amount of this investment
even though Company currently owns approximately 5% of the equity of this
company and no longer have the right to elect a director. Although the company
does not have a legal liability in respect of its investment in Procognia,
accounting under US GAAP requires the Company to present the investment in
Procognia at its negative balance of ($4.761 million) among long-term
liabilities, which amount reduces the stockholders equity of Healthcare under US
GAAP, as compared with Israeli GAAP.

     The first quarter financial reports of 2004 demonstrate a continued
improvement in the Company's gross and operating profit performance. While
revenues for the period were 15% lower than in the first quarter of 2003 at
$2.96 million, gross profit was 4% higher than in the corresponding period at
$1.26 million. Likewise, the operating profit of $220 thousand for the quarter,
compared to an operating loss of $127 thousand for the corresponding period of
2003 is consistent with the Company's continuing efforts to improve operational
efficiency. Net income for the period was $228 thousand compared to a loss of
$106 thousand for the corresponding period last year.

     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.

<Table>
<Caption>
Geographic Market   Product Category         2003      2002     2001
-----------------   --------------------   -------   -------   -------
                                           in thousand of U.S. Dollars
                                           ---------------------------
<S>                 <C>                     <C>       <C>       <C>
Israel              Reagents and systems
                    for the molecular
                    biology industry         5,061      4983     5,634

                    Reagents and systems
                    for clinical
                    laboratories             7,433      8369     6,901

SUB-TOTAL                                   12,494    13,352    12,535

Europe              Serology                 1,615     2,475     2,612

                    Genetic products            86        76        32

                    Microbiology                81        33        60
</Table>

                                     - 47 -
<Page>

<Table>
<Caption>
Geographic Market   Product Category         2003      2002     2001
-----------------   --------------------   -------   -------   -------
<S>                 <C>                     <C>       <C>       <C>
SUBTOTAL                                     1,781     2,584     2,704

United States       Serology                    33        67       129

                    Microbiology                13       158        72

SUB TOTAL                                       46       225       201

Other               Serology                   169       399       428

                    Microbiology               146       115       138

                    Genetic products             -         1         7

SUBTOTAL                                       315       515       573

TOTAL                                       14,636    16,676    16,013
</Table>

          F.   OFF-BALANCE SHEET ARRANGEMENTS

               Not Applicable

          G.   TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

<Table>
<Caption>
                                                    Payments due by period
                                                     in thousands of USD
                                      -----------------------------------------------
        Contractual Obligations        Total   less than   1 - 3    3 - 5   more than
                                                1 year     years    years    5 years
<S>                                   <C>        <C>       <C>       <C>        <C>
        Long-Term Debt Obligations     1,621     1,001         29    591        -

        Operating Lease Obligations      464       234        222      8        -

        Purchase Obligations (1)      13,184     2,002     11,182      -        -
                                      ------     -----     ------    ---       ---

        Total                         15,269     3,237     11,433    599
                                      ======     =====     ======    ===       ===
</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.

                                     - 48 -
<Page>

Item 6.   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

          A.   DIRECTORS AND SENIOR MANAGEMENT

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

<Table>
<Caption>
     Name                 Age    Position with the Company
     ----------------     ---    ---------------------------------------------------
<S>                       <C>    <C>
     Daniel Kropf         56     Chairman  of the Board of  Directors  and  Director
                                 (Class D)

     Moshe Reuveni        48     Chief Executive Officer and Director (Class A)
     Eran Rotem           36     Chief Financial Officer
     Yacob Ofer           55     Director (Class D)
     Rolando Eisen        62     Director (Class C)
     Eliezer Helfan       60     Director (Class C)
     Israel Amir          62     Director (Class B)
     Ethan Rubinstein     62     Director (Class A)
     Varda Rotter         57     External Director
     Elan Penn            53     External Director
</Table>

     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, is a life-time member of the ADL National Commission in the USA and
chairman of MILA in Jerusalem (Non Violent Communication Center - Israel). He
also serves as Chairman of two, not-for-profit organisations based in Holland,
the Education for Life Foundation and the Universal Education 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: Savyon, 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"). Mr. Rotem was previously a senior manager in Ernst & Young,
Certified Public Accountants, where he served 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.

                                     - 49 -
<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.

     Mr. Eliezer Helfan has served as a director of the Company since March
1998. Mr. Helfan received his LL.B. in Jurisprudence from the Hebrew University,
Jerusalem, has been a member of the Israeli Bar since 1967 and has been
practicing law in Israel since 1969.

     Mr. Israel Amir has served as a director of the Company since January 2000.
Mr. Amir has also served as an external director in the Israeli public company
Adumim Chemicals Ltd. since February 1998 and as a member of the boards of
directors of several private Israeli companies (A.T & T (Israel), TNS Teleseker
Ltd., Teleseker-Policy Ltd., Superpanel Ltd., Signal Source Research (Israel
1999) Ltd. and Tele-Gal Ltd.). Mr. Amir has been practicing 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 currently serves as a member of the board of Agis Ltd. and 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.

     Dr. Elan Penn was appointed 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. 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.

                                     - 50 -
<Page>

SENIOR MANAGEMENT AND EMPLOYEES

SAVYON

     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.

DANYEL

     Mr. Luly Gurevich has, since 1999, served as the General Manager of Danyel.
Prior to this appointment, he was Director of Marketing and subsequently
Director General of Gamida-Gen Marketing. Prior to that, Mr. Gurevich was the
marketing specialist for Dexmor Ltd. He started his career with 6 years'
experience as a technician for Sigma Israel Ltd. (Bio Makor), where he was
involved in protein separation and characterization.

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.

          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 2003
fiscal year and in respect of such year was approximately $915,000, 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."

COMPENSATION OF INDIVIDUAL DIRECTORS

Included in the aggregate directors' and officer s' compensation figure for 2003
set forth above were amounts paid pursuant to the following individual
compensation arrangements:

     Mr. Daniel Kropf: In 2003, 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 serves as a director of the Company for which he
received approximately $5,000 per month in consulting fees in 2003. During 2003
Mr. Amir received a total of $38,000 thousand in bonuses in accordance with his
consulting agreement.

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

                                     - 51 -
<Page>

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.

     In 2000, the Company issued to each of the following employees, Orna
Pollack and Luly Gurevich, options to purchase 30,000 Ordinary Shares of the
Company, each option exercisable during a 60-month period as of the date of
grant, in accordance with the provisions of the 2000 Plan, into one Ordinary
Share of the Company, NIS 0.04 nominal value, at an exercise price of $1.00,
subject to a vesting schedule of three years, 1/3 on each of March 1, 2001, 2002
and 2003. The options granted to Orna Pollack have expired unexercised following
her departure from the Company. In addition, in 2000, the Company granted to
each of Professors Ruth Arnon and Ethan Rubinstein options to purchase 10,000
Ordinary Shares of the Company and to Mr. Eliezer Helfan options to purchase
20,000 Ordinary Shares of the Company, each option exercisable during a 60-month
period as of the date of grant, in accordance with the provisions of the 2000
Plan, into one Ordinary Share of the Company, NIS 0.04 nominal value, at an
exercise price of $1.00, subject to a vesting schedule of three years, 1/3 on
each of March 1, 2001, 2002 and 2003. Professors Arnon's options were forfeited
with the end of her tenure as a director of the Company.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. In
accordance with the terms and conditions imposed by Section 102 of the Israel
Income Tax Ordinance, grantees (excluding controlling shareholders of the
Company or those who are not employees, office holders or directors of the
Company) that receive certain options under the plan are afforded certain tax
benefits. The Company has elected the benefits available under the "capital
gains" alternative. There are various conditions that must be met in order to
qualify for these benefits, including registration of the options in the name of
a trustee (the "Trustee") for each of the employees who is granted options. Each
option, and any ordinary shares acquired upon the exercise of the option, must
be held by the Trustee for a period commencing on the date of grant and ending
no earlier than 24 months after the end of the tax year in which the option was
granted and deposited in trust with the Trustee. Options that are not exercised
will become available for further grant by the Board.

     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, into one Ordinary Share of the Company, NIS 0.04 nominal
value, at an exercise price of $0.35, subject to a vesting schedule of four
years, 1/4 on each of February 1, 2004, 2005, 2006 and 2007. Mr. Rotem's options
are exercisable in accordance with the provisions of the 2000 Plan, into one
Ordinary Share of the Company, NIS 0.04 nominal value, at an exercise price of
$0.38, subject to a vesting schedule of five years, 1/5 on each of May 20, 2003,
2004, 2005, 2006 and 2007. Following the option issuance to Messers Reuveni and
Rotem during 2003 the remaining number of options is 177,500 ordinary shares.

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

                                     - 52 -
<Page>

          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.

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. 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. Any committee of the Board of Directors which is authorized to
exercise any function of the board must include at least one external director.

     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.

     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.

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 $4,000 per person in 2003 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 2003 were Professors. Varda Rotter and Ethan
Rubinstein and Messers. Rolando Eisen andEliezer Helfan. Another non-executive
director, Mr. Hillel Doudai, submitted his resignation as an External Director
and member of the audit committee in May 2003 for personal reasons and, in
December 2003, the Company's shareholders appointed Mr. Elan Penn to replace
him.

                                     - 53 -
<Page>

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 Company's audit committee is comprised of Professors Varda Rotter,
Ethan Rubinstein and Mr. Eliezer Helfan and Dr. Elan Penn.

          D.   EMPLOYEES

     As of December 31, 2003, the Company (directly and through its
subsidiaries) employed at its facilities 105 persons, of whom 30 were employed
in production, 8 in research and development and 67 in marketing, administration
and management.

<Table>
<Caption>
                                                YEAR ENDED DECEMBER 31,
                                                -----------------------
                                                  2003   2002   2001
                                                  ----   ----   ----
<S>                                                <C>    <C>    <C>
         Number of Employees employed by the
         Company in:

         Management, sales and marketing            67     84     70

         Research and development                    8      8      5

         Production                                 30     27     25
                                                  ----   ----   ----

         Total                                     105    119    100
                                                  ====   ====   ====
</Table>

     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.

     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%. 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.

                                     - 54 -
<Page>

          E.   SHARE OWNERSHIP

     As of December 31, 2003, 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 December 31, 2003, 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>
Luly Gurevich         30,000         $ 1.00       The earlier of the date on which he ceases to
                                                  serve as Danyel's Chief Executive Officer or
                                                  60 months*

Eliezer Helfan        20,000         $ 1.00       January 2005

Ethan Rubinstein      10,000         $ 1.00       January 2005

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 ***
</Table>

*    the options were granted on March 1, 2000.

**   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.

Item 7.   MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

          A.   MAJOR SHAREHOLDERS

     The following table sets forth, as of July 7, 2004, 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)(4)
Drentestraat 24BG
1083 HK Amsterdam
The Netherlands                          4,944,745                        65%
</Table>

----------
1.   Based on 7,648,727 ordinary shares NIS 0.04 outstanding on July 7, 2004.
     Also see (2) below.

                                     - 55 -
<Page>

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. As of June 20, 2003, Gamida's share ownership had increased by
     18% from 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). Approximately 80% of Gamida's holdings in the
     Company are held by the Trust Company of United Mizrahi Bank as security
     for a loan advanced to Gamida by the Bank. In general, the pledge agreement
     grants Gamida the right to direct the voting of the pledged shares, except
     to the extent that the Bank determines in its reasonable discretion that a
     matter to be voted on would impair the value of the pledged shares. 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.

4.   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.

     As of July 7,, 2004, there were 7,648,727 ordinary shares outstanding, 89
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.

                                     - 56 -
<Page>

SERVICES ARRANGEMENTS

     GAMIDA GROUP

     Following approval by the Company's board of directors and audit committee
in November 1999 and March 2000, 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. The Fees shall be paid on a
monthly basis, plus VAT at the rate legally applicable at the time of payment.
The services and payment of the Fees shall be mutually terminable upon ninety
(90) days' prior written notice by either the Company or Gamida Israel. The Fees
are paid in respect of Mr. Kropf's services commencing as of October 1, 1999.
The fees for the period from October 1999 - January 2003 have been 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 in 2003 received payment amounting to an annual sum of approximately
$72,000 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 2003, Mr. Keene
provided such legal services at a cost amounting to approximately $44,000.

     YACOB OFER

     With effect from January 2001, Mr. Ofer serves as the Chief Executive
Officer of the Gamidor Group in consideration of a monthly fixed fee of $13,000
with customary social benefits.

     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.

     In March and May of 2004, the Company's audit committee and board of
directors, respectively, approved an aggregate payment to Professor Rubinstein
of approximately $2000 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. Final approval of such payment is still subject to shareholder
approval, which has yet to be obtained.

     ISRAEL AMIR

     Mr. Amir serves as a director of the Company. He receives approximately
$5,000 per month from the Company as consultancy fees. According to Mr. Amir's
arrangement with the Company, he shall continue to provide services and receive
the monthly consulting fees through December 2005, provided however that either
the Company or Mr. Amir may terminate the arrangement with three months' prior
written notice to the other party. Mr. Amir shall also be entitled to bonus
payments in amounts equal to 1 to 2% of the consideration paid in transactions
involving the merger of the Company or its subsidiaries with another entity, the
purchase or sale of all or a substantial portion of the share capital or assets
of the Company or its subsidiaries, or the acquisition by the Company of all or
a substantial portion of the share capital or assets of another entity (a
"Transaction"), provided (a) Mr. Amir has played an instrumental role in
securing the Transaction, (b) the exact amount of the bonus shall be determined
by the Chairman of the board of directors of the Company, at his discretion; and
(c) the actual payment of the bonus shall be contingent upon approval by the
Company's board of directors and, if Mr. Amir is serving as a director at such
time, also by the audit committee and the Company's shareholders.

                                     - 57 -
<Page>

     ELIEZER HELFAN

     Mr. Helfan serves as a director and as a member of the Company's audit
committee. Mr. Helfan has also provided the Company with certain consulting
services. In May 2001, the Company's audit committee and board of directors
approved an aggregate payment of approximately $22,000, mainly in respect of his
services in relation to Savyon's acquisition of GamidaGen. In March and May of
2004, the Company's audit committee and board of directors, respectively,
approved an aggregate payment of approximately $6,000 for the provision of legal
services regarding the Company's investment in Procognia and the dilution of the
Company's holdings following the recent round of investments in Procognia. Final
approval of such payment is still subject to shareholder approval, which has yet
to be obtained.

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."

FINANCING ARRANGEMENTS

     In October 1999, the Company's board of directors approved Pronto's
acceptance of a loan from Bank Leumi Le Israel in an amount in Swiss Francs
equivalent to $190,000 for a period of three years to be repaid in monthly
installments. Pronto transferred such loan to the Gamidor Group, which undertook
to repay the loan directly to the bank and execute a guarantee in favor of the
bank for the sums owed by Pronto within a limit of $190,000, subject to certain
other terms and conditions. The loan was repaid on June 5, 2003.

     The Company's board of directors and audit committee have in January 2000
further approved the granting of certain loans to certain of the Company's
subsidiaries in an aggregate amount of $500,000, which loans were converted into
capital notes on May 31, 2000.

     During October 2001, Gamida invested $1.58 million in return for 2 million
of the Company's ordinary shares. (as detailed in: 'Item 4 - History and
Development of the Company')

SALE OF CERTAIN DISTRIBUTION ACTIVITIES OF THE COMPANY

     Following the acquisition of Gamida-Gen Marketing, which was subsequently
merged into Gamidor, most of its direct activities were, from time to time,
assigned and transferred to other Healthcare subsidiaries (Danyel and Gamidor).
The remaining activities of Gamida-Gen Marketing consisted mainly of the
distribution of chemicals and consumable laboratory products. In March 2000, the
Company's board of directors resolved that, in light of the poor results
obtained by Gamida-Gen Marketing in 1999 from its remaining business (losses of
$0.21 million from sales of approximately $0.95 million), and having regard to
the fact that such remaining business deviated from the Company's main fields of
activity (medical diagnostics and biotechnology), that business was deemed to
constitute a cumbersome asset which generated losses rather than profit. In view
of there being no skilled management personnel for such business available
within the Healthcare group and since any recruitment of the same was likely to
require substantial investment, the board approved the sale of Gamida-Gen
Marketing's activities to Gamida Biochem Ltd., a subsidiary of Gamida.

                                     - 58 -
<Page>

ACQUISITION OF GAMIDAGEN

     In January 2001, the Company acquired all of the issued and outstanding
shares of GamidaGen in exchange for the issuance to the GamidaGen shareholders
of an aggregate of 1,000,000 ordinary shares of the Company. The acqusition
agreement provided for the registration of these shares under the Securities Act
of 1933, which registration is effective as of August 19, 2003. In addition,
GamidaGen's shareholders waived all claims against GamidaGen (other than with
respect to one of the shareholders' employment agreement with GamidaGen, and
with respect to a guarantee of up to $270,000 of GamidaGen's debts towards an
Israeli commercial bank provided by DMI Investments B.V., which was to be
assumed by Healthcare subject to certain conditions which were not met.) Pronto
waived GamidaGen's debts in respect of services and rent aggregating
approximately $300,000. The major shareholder of GamidaGen was Gamida, which
owned 88% of GamidaGen's issued and outstanding share capital (including 15%
that Gamida acquired for $320,000 from certain other shareholders of GamidaGen
following the execution of the acquisition agreement with the Company). The
remaining 12% of GamidaGen was owned by shareholders who were unaffiliated with
the Company's shareholders.

     GamidaGen's aggregate outstanding debt to third parties (including banks)
as of the date of the transaction was approximately $0.7 million, of which
approximately $130,000 constituted debts to Gamida in respect of certain
management and other services rendered.

     In January 2001, the Company transferred all of the GamidaGen shares to its
wholly owned subsidiary, Pronto, in consideration for $750,000. Such transfer
was effected primarily in order to facilitate a focused management structure and
control. By the end of 2001 the Company had merged GamidaGen into Pronto. The
merger was cancelled during 2003 on account of the Savyon Transaction described
in Item 4. "Information on the Company -- A. History and Development of the
Company".

          C.   INTERESTS OF EXPERTS AND COUNSEL

     Not Applicable.

Item 8.   FINANCIAL INFORMATION

          A.   CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

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

EXPORT SALES

The following table sets forth the total amount of export sales from Israel by
the Company in the past three fiscal years and the percentage of export sales in
the total amount of the Company's sales volume:

<Table>
<Caption>
          Year      Export (in millions)      Export as a percentage
          ----      --------------------      ----------------------
<S>                         <C>                         <C>
          2001              $ 3.5                       22%

          2002                3.3                       20%

          2003              $ 1.7*                      12%
</Table>

* - represents 50% of Savyon's export sales for the period amounting to $3.4
million in total.

                                     - 59 -
<Page>

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 material 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 SmallCap 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.

     (i)  Annual high and low market prices for the last five fiscal years:

<Table>
<Caption>
                         Fiscal Year    High    Low
                         -----------   ------   ----
<S>                                    <C>      <C>
                         1999          1.5000   0.75

                         2000          3.8438   0.78

                         2001          1.0300   0.48

                         2002            0.68    0.2

                         2003             1.9   0.25
</Table>

                                     - 60 -
<Page>

     (ii) High and low market prices for each full financial quarter for the two
          most recent fiscal years:

<Table>
<Caption>
                                             High     Low
                                             ----     ----
<S>                                          <C>      <C>
                         2002
                         First Quarter       0.60     0.42
                         Second Quarter      0.68     0.38
                         Third Quarter       0.51     0.34
                         Fourth Quarter      0.67      0.2
</Table>

<Table>
<Caption>
                                             High     Low
                                             ----     ----
<S>                                          <C>      <C>
                         2003
                         First Quarter       0.54     0.25
                         Second Quarter      0.78     0.25
                         Third Quarter       1.76      0.5
                         Fourth Quarter       1.9     1.02
</Table>

     (iii) High and low market prices each month for the most recent six months.

<Table>
<Caption>
                         Month               High     Low
                         --------------      ----     ----
<S>                                          <C>      <C>
                         January, 2004       1.5      1.14
                         February, 2004      1.43     1.05
                         March, 2004         1.4      1.06
                         April, 2004         1.52     1.13
                         May, 2004           1.13     0.76
                         June, 2004          1.2      0.72

</Table>

                                     - 61 -
<Page>

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 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.

     INTERESTED PARTY REQUIREMENTS

     Under the Israeli Companies Law, 1999 ("Companies Law") which, effective as
of February 1, 2000, replaced the Companies Ordinance (New Version), 1983
("Companies Ordinance") (other than certain specific sections), Israeli
companies whose securities are publicly held are required to appoint at least
two external directors (the "External Directors") elected at a General Meeting
of a company's shareholders by a prescribed majority intended to allow
non-affiliates to influence such election. Such companies whose securities are
listed for trade on stock exchanges outside of Israel may, by resolution of the
board of directors (without shareholder approval), deem a director who is
presently serving on such company's board of directors to be an External
Director provided that such director qualifies under certain requirements of the
Companies Law.

     The Companies Law details certain standards for the independence of
External Directors. These directors must be residents of Israel and 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 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.

     An External Director shall be appointed for a period of three consecutive
years and may be re-appointed for one additional three-year period only. Under
the Companies Law, any committee of the board of directors must include at least
one External Director, and the audit committee must include all of the External
Directors.

     In July 2000, the Company's shareholders appointed Mr. Hillel Doudai as an
External Director of the Company. Mr. Dudai served for approximately three years
and resigned from the Company's board and audit committee effective May 27, 2003
for personal reasons.

     In October 2001, the Company's shareholders appointed Prof. Varda Rotter as
an External Director. 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.

     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.

                                     - 62 -
<Page>

     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 forseeable 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.

     The Companies Law requires disclosure by an Office Holder to the company in
the event that an Office Holder has a direct or indirect personal interest in
transactions to which the company intends to be a party. An "Office Holder" is
defined in the Companies Law as a director, managing director, chief business
manager, executive vice president, vice president, other manager directly
subordinate to the managing director and any other person assuming the
responsibilities of any of the foregoing positions without regard to such
person's title.

     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).

     Arrangements with directors regarding their service (including their
indemnification and/or insurance), extraordinary transactions between a public
company and controlling shareholders, a private placement to a principal
shareholder (a holder of 5% or more of a company's issued share capital or
voting rights) or due to which a shareholder will become a principal shareholder
and, in certain circumstances, the other matters enumerated above, may also
require shareholder approval.

                                     - 63 -
<Page>

     Office Holders (including directors) with respect to whom the foregoing
matters are brought for board or audit committee approval are not entitled to be
present during discussions of, nor participate in the vote for approval of such
matters at board and/or audit committee meetings, unless a majority of audit
committee or board members, as the case may be, have a personal interest in such
matter or the matter involves non-extraordinary transactions between the company
and either an Office Holder or a third party in which an Office Holder has a
personal interest. The Companies Law further provides that, in the event that a
majority of board members have a personal interest in such a matter, it also
requires shareholder approval.

     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.

     As of December 31, 2003, the Company's authorized share capital consisted
of 40,000,000 ordinary shares, NIS 0.04 nominal value. As of December 31, 2003,
there were 7,648,727 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, more than 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.

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     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 transactions which require
               shareholder approval.

     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.

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     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.

     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, 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

     ADVANCED PRODUCTS AGREEMENT: Under an agreement dated October 1983 with
B.G. Negev Technologies and Application Ltd., formerly Advanced Products
Beer-Sheva Ltd. ("Advanced Products") as agent for Ben-Gurion University, the
Company is the exclusive licensee for the know-how regarding enzymatic and
radioimmuno methods for the determination of specific antibodies of the types
IgA, IgG and IgM to certain infectious diseases (which know-how is a substantial
part of the technology underlying the Company's diagnostic kits for certain
infectious diseases), including improvements thereto and the right of first
refusal for innovations.

     The term of the license is at least seven years commencing with the start
of sales of each product produced under the license or, if there be a patent in
any country for the original know-how or any improvement of the know-how, for
the life of the patent. Royalties are payable under the agreement for a period
of at least seven years, commencing with the start of sales of each product
produced under the license or, if there is a patent, for the life of the patent.
Where there is no patent registration, the term of the license may be unlimited.
Royalties range from 7% on annual sales up to $200,000, decreasing to 4% for
annual sales volume exceeding $2,000,000. Although minimum sales quantities are
required to maintain the license, minimum royalties of $25,000 per year may be
paid in lieu thereof. The Agreement has been amended with regard to the
SeroELISA Chlamydia series of products, providing for royalties on sales of such
products at rates varying between 3.5% to 4% of sales until December 31, 2001,
and with respect to the IPAzyme series of products, providing for royalties on
sales of such products, commencing January 1, 1995, at a rate of 4% of sales
until the earlier of June 30, 1998 or the last date of sales of such products.
The agreement requires the consent of the appropriate authorities of the
University to sub-license production rights except to sub-contractors of the
Company. If the Company decides not to market the products utilizing the
know-how, the license will terminate and thereafter the Company will be
restricted from engaging in research or marketing relating to the know-how for a
period of three years. The Company has the right to terminate the agreement at
any time, in which event it would have no further rights to the know-how.

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     SAVYON-YISSUM AGREEMENTS On March 20, 1996, the Company entered into an
agreement with Yissum Development Corporation of the Hebrew University in
Jerusalem ("Yissum") for conducting research with respect to Piezoelectric
electrodes for human medical diagnostic applications. Royalties were to be
payable under the agreement at a rate of 4-6% of sales and 38% of sub-license
fees. In addition, the Company agreed to pay Yissum non-refundable minimum
royalties of $12,000 per year, commencing January 1, 1999, which were to
constitute an advance on royalties subsequently becoming due. The agreement
provided that Yissum would retain all proprietary rights to the results of the
relevant research and that the Company would be the exclusive licensee for
utilizing the know-how developed in such research for the development of
products based on that know-how. In January 2002, the Company formally notified
Yissum of its wish to terminate the agreement and to surrender to Yissum all of
its rights and licenses thereunder.

     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, 2003 the
Company had received (euro)263,000 and expects to have received approximately
(euro)200,000 by the end of 2005.

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     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 FANILY LLC / DR. MARTIN LEE: On December 31, 2002,
the Company and Pronto, entered into agreements with the Levine Family LLC
("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. As of December 31, 2003, the
remaining $0.5 million of the $1.9 million purchase price are to be paid by
Savyon to Gamidor by means of 24 consecutive monthly installments of $20
thousand each.

     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 products by Savyon and its affiliates.

     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.

     HEALTHCARE, SAVYON AND PROCOGNIA

     PROCOGNIA (ISRAEL) SERIES A INVESTMENT: In September 2000, Procognia
(Israel) signed a share purchase agreement with Koor Corporate Venture Capital
I.P. ("Koor") and Israel Discount Capital Markets and Investments Ltd.
("Discount"). Pursuant to such agreement, Koor and Discount undertook, except in
certain circumstances, to purchase convertible debentures of Procognia (Israel)
for $3,000,000 no later than September 10, 2001. According to an agreement
subsequently signed in September 2001, both Koor and Discount (collectively, the
"Series A Investors") invested a sum amounting to $2,000,000 in convertible
debentures. The latter investment was made in four installments and completed in
March 2002.

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     PROCOGNIA SERIES B INVESTMENT: Effective April 29, 2002, certain new
investors (the "Series B Investors") have contributed $13.05 million of new
financing to the Procognia business. In addition, $1.25 million of the existing
loans from the Series A Investors have been converted to equity (at a conversion
price representing a 20% discount from the price per share in the Series B
round), while $0.75 million of the new investment has been employed to clear the
balance of Koor's loan.

     Prior to such new investment, Procognia (Israel) reorganized its corporate
structure by forming a new parent company registered in England, Procognia Ltd.
("Procognia"), pursuant to an agreement whereby all the existing shareholders of
Procognia (Israel) undertook to transfer to Procognia their entire shareholdings
in Procognia (Israel) in consideration of the issue to them of equivalent
shareholdings in Procognia, so that the shareholdings in Procognia immediately
following the reorganization would mirror the shareholdings in Procognia
(Israel) immediately prior to such transaction. Upon completion of the
transaction, Healthcare and another existing Procognia (Israel) shareholder
received ordinary shares in Procognia, whereas the Series A Investors and the
Series B Investors received preferred shares carrying certain dividend and
liquidation preferences and veto rights. After taking account of a new Employee
Share Option Scheme and certain anti-dilution provisions existing in favour of
the Series A Investors, Healthcare's 59% holding in Procognia (Israel) prior to
the transaction was reduced to one of 14.4% in Procognia upon its completion
(all on a fully diluted basis).

     In January 2004, Procognia completed another round of financing from
certain of its shareholders in which Healthcare did not participate, thus
diluting the Company's ownership interest in Procognia to approximately 5%. Due
to this dilution the Company lost its right to nominate a director on
Procognia's board. Moreover, under US GAAP, the losses that relate to our stock
ownership interest in Procognia that were previously accrued while Procognia was
a subsidiary of ours remain as part of the carrying amount of this investment
even though we currently own less than 5% of the equity of this company and no
longer have the right to elect a director. Although the company does not have a
legal liability in respect of its investment in Procognia, accounting under US
GAAP requires the Company to present the investment in Procognia at its negative
balance of ($4.761 million) among long-term liabilities, which amount reduces
the stockholders equity of Healthcare under US GAAP, as compared with Israeli
GAAP.

     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 agreement 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 which 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
as of January 1999. The Company acknowledges Mr. Gurevich's entitlement to
specific terms of an employment agreement as of January 1, 1997 (see below). The
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.

     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

     Mr. Gurevich's service agreement includes, a fixed fee, entitlement to
options to purchase Company shares, as well as to receive 3% of Danyel's annual
profits. The agreement is for a period of five years commencing October 1998,
automatically renewed every two years thereafter. Either party may decided not
to extend the agreement upon six months prior written notice.

                                     - 69 -
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     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.

     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

GENERAL CORPORATE TAX STRUCTURE

     Effective January 1, 1996 and thereafter, Israeli companies are generally
subject to Company Tax at a rate of 36% of taxable income. The effective rate
payable by a company in respect of income derived from an "Approved Enterprise"
(as further discussed below) may be considerably less.

CAPITAL GAINS TAX

     Israeli law imposes a Capital Gains Tax on the sale of certain securities
and other capital assets. Israeli Capital Gains Tax applies to non-residents of
Israel when the gain is derived from the sale of an asset located in Israel or
of an asset located outside of Israel which constitutes a right, directly or
indirectly, to an asset located in Israel. The law distinguishes between a "Real
Gain" and an "Inflationary Amount". Real Gain is the excess of the total capital
gain over the Inflationary Amount, computed on the basis of the increase in the
Israeli consumer price index (CPI) (or, at the election of a non-resident of
Israel, the Israeli currency devaluation in relation to the foreign currency
with which the shares were purchased) between the date of purchase and the date
of sale. The Inflationary Amount accumulated until December 31, 1993 is taxed at
a rate of 10% for residents of Israel (reduced to no tax for non-residents if
calculated according to the exchange rate of the foreign currency in which the
asset was purchased instead of the CPI), while the Inflationary Amount
accumulated from and after December 31, 1993 is exempt from any capital gains
tax. Real Gain is added to ordinary income which is taxed at the applicable
ordinary rates for individuals and 36% for corporations. There is currently an
exemption from Israeli Capital Gains Tax for the sale of shares of an
"Industrial Company" or an "Industrial Holding Company", as such terms are
defined under Israeli law, which are listed for trade on a stock exchange or
traded over-the-counter. To the extent the Company qualifies as an Industrial
Company or as an Industrial Holding Company, the above-mentioned exemption,
while applicable, will apply to the sale of its shares under certain
circumstances. The Company currently does not expect to qualify as an Industrial
Company or as an Industrial Holding Company.

TAXATION OF NON-RESIDENTS

     Non-residents of Israel are subject to a graduated income tax on income
derived from sources in Israel. On distributions of dividends other than bonus
shares (stock dividends), income tax at the rate of 25% is withheld at source
(subject to international treaties between Israel and other countries).
Dividends distributed from taxable income accrued during the benefit period of
an Approved Enterprise and attributable to programs designated as such are
taxable at the rate of 15%.

     For this provision to apply, the dividends must be paid within the
seven-year benefit period or within a further twelve-year period thereafter,
unless such dividends are distributed from income of a Foreign Investors'
Company, in which case the period is unlimited. Residents of the United States
generally will have withholding tax in Israel deducted at source.

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     Under the Israel-US treaty relating to relief from double taxation (the
"Treaty"), the maximum tax on dividends paid to a holder of ordinary shares who
is a resident of the United States within the meaning of the Treaty and who is
entitled to claim the benefits afforded thereunder (a "Treaty U.S. Resident") is
25%. Dividends derived from income of an Israeli Company from an Approved
Enterprise will generally be subject to a 15% withholding tax. Pursuant to the
Treaty, subject to certain conditions, a Treaty U.S. Resident will not be
subject to Israeli Capital Gains Tax on sale, exchange or disposition of Shares
(unless he holds, directly or indirectly, 10% of the voting power of the Company
during any part of the 12-month period preceding such transaction) if, subject
to Israeli Capital Gains tax, such Treaty U.S. Resident would be permitted under
the Treaty to claim a credit for such taxes against the U.S. income tax imposed
with respect to such sale, exchange or disposition, subject to certain
limitations.

EFFECTIVE CORPORATE TAX RATE

     Savyon is a mixed enterprise - in part qualifying as an "Approved
Enterprise" under the Law for the Encouragement of Capital Investments,
5719-1959, as amended (the "Investment Law"). Savyon is currently the subject of
an assessment of the percentage of enterprise that is "approved" as opposed to
the percentage "unapproved" under the Investment Law. The Investment Law
provides that capital investments in production facilities (or other eligible
facilities) may, upon application to the Israel Investment Center, be designated
as an Approved Enterprise. Each certificate of approval for an Approved
Enterprise relates to a specific investment program delineated both by its
financial scope, including its capital sources and its physical characteristics,
i.e. the equipment to be purchased and utilized pursuant to the program. The tax
benefits derived from any such certificate of approval relate only to taxable
profits attributable to the specific program.

     The principal tax benefits under the Investment Law include: (i) reduced
Company Tax rates (25% or less, depending on the percentage of foreign
investment in the Company's share capital, until a tax rate of 10%, rather than
the prevailing Company Tax rate, or, in a "mixed enterprise", a weighted
combination of the various applicable rates) for a period of seven to ten years
commencing with the year in which the Approved Enterprise first generated
taxable income (limited to twelve years from commencement of production or
fourteen years from the date of approval, whichever is earlier); (ii) certain
government grants, or, at the company's election to forgo such grants, an
alternative package of tax benefits (the "Alternative Package") in which the
company's undistributed income derived from an Approved Enterprise will be
exempt from Company Tax for a period of between two and ten years generally
(depending on geographic location), and eligibility for other benefits under the
Investment Law for the remainder of the Benefits Period; (iii) reduced tax rates
on dividends (generally 15%), derived from income of an Approved Enterprise
during the Benefits Period, if paid during the Benefits Period or at any time
during twelve years thereafter (and in the case of dividends distributed from
income of a Foreign Investors' Company, such period is unlimited); and (iv)
charging accelerated depreciation in respect of machinery and equipment used by
the Approved Enterprise.

     Incentives received by a company in accordance with the Investment Law
remain subject to final ratification by the Israel Investment Center, such
ratification being conditional upon fulfillment of all terms of the approved
program. Failure to comply with all such terms may require the return of such
grants and incentives (inclusive of interest as of the date of the grant).

     Savyon's production facilities in Ashdod are being assessed as a hybrid
enterprise, with in part "Approved Enterprise" status under the Investment Law,
entitling Savyon to a tax exemption period of four years. Savyon has elected to
enjoy the "Alternative Package" discussed above, but has not yet fully benefited
from such status, since it has not yet generated taxable income. A final
investment report was filed by Savyon with the Israel Investment Center during
May 1999. Savyon received approval for the investments it had made until 1995
and submitted a request in 2001 for the approval of further investments made
since.

          F.   DIVIDENDS AND PAYING AGENT

     Not Applicable

          G.   STATEMENTS BY EXPERTS

     Not Applicable

                                     - 71 -
<Page>

          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.

          I.   SUBSIDIARY INFORMATION

     Not Applicable.

                                     - 72 -
<Page>

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, 2003, the Company had long-term loans payable carrying
fluctuating interest rates in the amount of approximately $1.62 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 long-term loans would increase by approximately $160 thousand.

FOREIGN CURRENCY EXCHANGE RISK

     At December 31, 2003, the Company had non U.S. Dollar denominated assets
(i.e. cash and cash equivalents, trade receivables, etc.) in the amount of
approximately $5.4 million and liabilities (i.e. short-term credit, trade
payable, long term loans, etc.) in the amount of approximately $5.2 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
non-U.S. Dollar denominated liabilities over assets would increase by
approximately $10 thousand.

Item 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

     Not Applicable

                                    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

                                     - 73 -
<Page>

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 have been no significant changes in Company's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of the evaluation thereof. Therefore, no corrective actions with regard
to significant deficiencies and material weaknesses were taken.


Item 16.

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 directos.

          B.   CODE OF ETHICS

     The Company's Board of Directors has adopted a code of ethics that applies
to the Chief Executive Officer, the Chief Financial Officer, the Principal
Accounting Officer or Controller and any persons performing similar functions,
if any, of the Company. A copy of this code is filed as an exhibit to this
annual 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 2002 and 2003 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 2002 and 2003:

<Table>
<Caption>
                         Year Ended December 31, 2003   Year Ended December 31, 2002
                         ----------------------------   ----------------------------
                             Amount   Percentage            Amount   Percentage
                             ------   ----------            ------   ----------
<S>                          <C>         <C>                <C>         <C>
Audit Fees (1)               $  85        64%               $  98        71%
Audit-Related Fees (2)       $   9         7%               $   2         1%
Tax Fees (3)                 $  38        29%               $  40        28%
                             -----       ---                -----       ---
Total                        $ 132       100%               $ 140       100%
                             -----       ---                -----       ---
</Table>

(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) "Tax fees" are fees for consulting services rendered by the Company's
auditors with respect to employee tax services, tax benefits under the Israeli
law for encouragement of investment and tax aspects of restructuring.

     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.

                                     - 74 -
<Page>

                                    PART III

Item 17.  FINANCIAL STATEMENTS

     Not applicable.

Item 18.  FINANCIAL STATEMENTS

     Attached. See Item 19(a).

Item 19.  FINANCIAL STATEMENTS AND EXHIBITS

     (a)  Consolidated Financial Statements


                                     - 75 -
<PAGE>



                HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES


                        CONSOLIDATED FINANCIAL STATEMENTS


                             AS OF DECEMBER 31, 2003


                                 IN U.S. DOLLARS




                                      INDEX



<TABLE>
<CAPTION>

                                                  PAGE
                                                 -----
<S>                                              <C>
REPORT OF INDEPENDENT AUDITORS                     2

CONSOLIDATED BALANCE SHEETS                       3-4

CONSOLIDATED STATEMENTS OF OPERATIONS              5

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY      6

CONSOLIDATED STATEMENTS OF CASH FLOWS             7-9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS       10-51
</TABLE>




                                  - - - - - -

<PAGE>


                         REPORT OF INDEPENDENT AUDITORS

                             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, 2003
and 2002, 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, 2003. 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) and with auditing standards
generally accepted in Israel, including those prescribed by the Israeli
Auditors' Regulations (Auditor's Mode of Performance), 1973. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits 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, 2003 and 2002, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 2003, in conformity with accounting
principles generally accepted in Israel, which differ in certain respects from
those followed in the United States, (see Note 18 to the consolidated financial
statements).


<TABLE>
<CAPTION>

<S>                                                                      <C>
Tel-Aviv, Israel                                                           KOST FORER GABBAY & KASIERER
March 25, 2004                                                           A Member of Ernst & Young Global
(except for Notes 1c, 2u, 17 and 18a, dated June 29, 2004)
</TABLE>


                                     F - 2
<PAGE>


                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

<TABLE>
<CAPTION>

                                                                                DECEMBER 31,
                                                                            -------------------
                                                                             2003        2002
                                                                            -------     -------
<S>                                                                         <C>         <C>
    ASSETS

CURRENT ASSETS:
  Cash and cash equivalents (Note 3)                                        $ 1,490     $ 1,153
  Trade receivables (net of allowance for doubtful accounts of $ 54 and
    $ 57 as of December 31, 2003 and 2002, respectively)                      3,944       4,131
  Other accounts receivable and prepaid expenses (Note 4)                       760       1,127
  Inventories (Note 5)                                                        1,843       1,441
                                                                            -------     -------

TOTAL current assets                                                          8,037       7,852
                                                                            -------     -------

LONG-TERM INVESTMENTS:
  Investment in an affiliate                                                    100           -
  Long-term receivables                                                         142         240
                                                                            -------     -------

TOTAL long-term investments                                                     242         240
                                                                            -------     -------

PROPERTY AND EQUIPMENT, NET (Note 6)                                          1,519       1,705
                                                                            -------     -------

OTHER ASSETS, NET (Note 7)
  Goodwill, net                                                                 225         373
  Technology, net                                                                 -         166
  Other intangible assets, net                                                  216         229
                                                                            -------     -------

TOTAL other assets                                                              441         768
                                                                            -------     -------

TOTAL assets                                                                $10,239     $10,565
                                                                            =======     =======
</TABLE>



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


                                     F - 3
<PAGE>


                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

<TABLE>
<CAPTION>

                                                                                  DECEMBER 31,
                                                                             ----------------------
                                                                               2003          2002
                                                                             --------      --------
<S>                                                                          <C>           <C>
    LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Short-term bank credit (Note 8)                                            $     29      $     58
  Current maturities of long-term bank loans (Note 10)                          1,001           791
  Trade payables                                                                2,838         3,295
  Other accounts payable and accrued expenses (Note 9)                          1,327         1,838
                                                                             --------      --------

TOTAL current liabilities                                                       5,195         5,982
                                                                             --------      --------

LONG-TERM LIABILITIES:
  Long-term loans, net of current maturities (Note 10)                            620            91
  Accrued severance pay, net                                                      139           246
                                                                             --------      --------

TOTAL long-term liabilities                                                       759           337
                                                                             --------      --------


COMMITMENTS AND CONTINGENT LIABILITIES (Note 11)

SHAREHOLDERS' EQUITY (Note 12):
  Share capital:
    Ordinary shares of NIS 0.04 par value - Authorized: 40,000,000 as of
      December 31, 2003 and 2002; Issued and Outstanding: 7,648,727 and
      7,643,727 as of December 31, 2003 and 2002, respectively                     99            99
  Additional paid-in capital                                                   16,198        16,266
  Cumulative foreign currency translation adjustments                             (25)         (118)
  Accumulated deficit                                                         (11,987)      (12,001)
                                                                             --------      --------

TOTAL shareholders' equity                                                      4,285         4,246
                                                                             --------      --------

                                                                             $ 10,239      $ 10,565
                                                                             ========      ========
</TABLE>


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



March 25, 2004
----------------               -------------                   ----------
Date of approval               Moshe Reuveni                   Eran Rotem
                              CEO and Director          Chief Financial Officer


                                     F - 4
<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,
                                                                   ------------------------------------
                                                                     2003          2002          2001
                                                                   --------      --------      --------

<S>                                                                <C>           <C>           <C>
Sales (Note 16)                                                    $ 14,636      $ 16,676      $ 16,013
Cost of sales                                                         8,733        10,386         9,984
                                                                   --------      --------      --------

Gross profit                                                          5,903         6,290         6,029
                                                                   --------      --------      --------

Research and development costs, net (Note 14a)                          353           912         3,164
Selling and marketing expenses                                        3,159         3,161         3,167
General and administrative expenses                                   1,800         2,475         3,966
Amortization of goodwill                                                314           471           246
                                                                   --------      --------      --------

                                                                      5,626         7,019        10,543
                                                                   --------      --------      --------

Operating profit (loss)                                                 277          (729)       (4,514)
Financial expenses, net (Note 14b)                                     (120)         (491)         (311)
Other income (expenses), net (Note 14c)                                  (1)        1,482           896
                                                                   --------      --------      --------

                                                                        156           262        (3,929)
Taxes on income                                                          31             -             -
                                                                   --------      --------      --------

Income (loss) after taxes on income                                     125           262        (3,929)
Equity in losses of an affiliate                                       (111)            -             -
Minority interest in losses of a subsidiary                               -           206           916
                                                                   --------      --------      --------

Net income (loss)                                                  $     14      $    468      $ (3,013)
                                                                   ========      ========      ========

Net earnings (loss) per NIS 1 par value of shares (in U.S.
dollars)                                                           $   0.05      $   1.53      $  (12.6)
                                                                   ========      ========      ========

Weighted average number of shares used in computing basic net
  earnings (loss) per NIS 1 par value of shares (in thousands)     $  7,644         7,644         5,977
                                                                   ========      ========      ========
</TABLE>




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


                                     F - 5
<PAGE>


                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


<TABLE>
<CAPTION>



                                                                             NUMBER
                                                                           OF SHARES                 ADDITIONAL
                                                                              (IN        SHARE        PAID-IN
                                                                           THOUSANDS)   CAPITAL       CAPITAL
                                                                           --------     --------     --------

<S>                                                                           <C>       <C>          <C>
Balance at January 1, 2001                                                    4,644     $     71     $ 15,715
Issuance of shares, net                                                       2,000           18        1,534
Issuance of shares in respect of the acquisition of Gamida Gen                1,000           10          740
Capital surplus in respect of a transaction between the Company and a
  controlling shareholder, in respect of the acquisition of Gamida Gen            -            -       (1,749)
Foreign currency translation adjustments                                          -            -            -
Net loss                                                                          -            -            -
                                                                           --------     --------     --------

Balance at December 31, 2001                                                  7,644           99       16,240

Issuance expenses                                                                 -            -         (108)
Capital surplus in respect of sale of operations to Savyon                        -            -          134
Foreign currency translation adjustments                                          -            -            -
Net income                                                                        -            -            -
                                                                           --------     --------     --------

Balance at December 31, 2002                                                  7,644           99       16,266

Exercise of options                                                               5          (*-            2
Issuance expenses                                                                 -            -          (70)
Foreign currency translation adjustments                                          -            -            -
Net income                                                                        -            -            -
                                                                           --------     --------     --------

Balance at December 31, 2003                                                  7,649     $     99     $ 16,198
                                                                           ========     ========     ========

</TABLE>


<TABLE>
<CAPTION>
                                                                         CUMULATIVE
                                                                          FOREIGN
                                                                          CURRENCY     ACCUMULATE      TOTAL
                                                                         TRANSLATION        D       SHAREHOLDERS'
                                                                         ADJUSTMENTS     DEFICIT       EQUITY
                                                                           --------      --------      --------
<S>                                                                        <C>           <C>           <C>
Balance at January 1, 2001                                                 $     25      $ (9,456)     $  6,355
Issuance of shares, net                                                           -             -         1,552
Issuance of shares in respect of the acquisition of Gamida Gen                    -             -           750
Capital surplus in respect of a transaction between the Company and a
  controlling shareholder, in respect of the acquisition of Gamida Gen            -             -        (1,749)
Foreign currency translation adjustments                                       (116)            -          (116)
Net loss                                                                          -        (3,013)       (3,013)
                                                                           --------      --------      --------

Balance at December 31, 2001                                                    (91)      (12,469)        3,779

Issuance expenses                                                                 -             -          (108)
Capital surplus in respect of sale of operations to Savyon                        -             -           134
Foreign currency translation adjustments                                        (27)            -           (27)
Net income                                                                        -           468           468
                                                                           --------      --------      --------

Balance at December 31, 2002                                                   (118)      (12,001)        4,246

Exercise of options                                                               -             -             2
Issuance expenses                                                                 -             -           (70)
Foreign currency translation adjustments                                         93             -            93
Net income                                                                        -            14            14
                                                                           --------      --------      --------

Balance at December 31, 2003                                               $    (25)     $(11,987)     $  4,285
                                                                           ========      ========      ========
</TABLE>



*) Represents an amount lower than $ 1.

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


                                     F - 6
<PAGE>


                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

<TABLE>
<CAPTION>

                                                                      YEAR ENDED DECEMBER 31,
                                                                 ---------------------------------
                                                                  2003         2002         2001
                                                                 -------      -------      -------
<S>                                                              <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                              $    14      $   468      $(3,013)
  Adjustments required to reconcile net income (loss) to net
  cash  provided by (used in) operating activities (a)              (628)        (217)          34
                                                                 -------      -------      -------

Net cash provided by (used in) operating activities                 (614)         251       (2,979)
                                                                 -------      -------      -------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Investment in an affiliate                                        (211)           -            -
  Proceeds from sale of property and equipment                        82          329          126
  Purchase of property and equipment                                (349)        (840)        (834)
  Investment in other assets                                         (20)           -            -
  Proceeds from realization of Gamida Diagnostic U.K                   -           13            -
  Realization of investments in Procognia (c)                          -         (353)           -
  Marketable securities, net                                           -            -          352
  Investment in restricted cash                                        -            -          (86)
  Proceeds from withdrawal of restricted cash                          -           86            -
  Collection of long-term receivables                                698            -            -
                                                                 -------      -------      -------

Net cash provided by (used in) investing activities                  200         (765)        (442)
                                                                 -------      -------      -------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Short-term bank credit, net                                        (31)        (333)      (1,200)
  Proceeds from long-term loans                                    1,267          556          463
  Principal payment of long-term loans                              (469)        (606)        (795)
  Exercise of options                                                  2            -            -
  Issuance expenses                                                  (70)        (108)           -
  Proceeds from issuance of shares, net                                -            -        1,552
  Proceeds from issuance of convertible debentures in a
  subsidiary                                                           -        1,000        1,000
                                                                 -------      -------      -------

Net cash provided by financing activities                            699          509        1,020
                                                                 -------      -------      -------

Effect of exchange rate changes on cash and cash equivalents          52          (19)         (40)
                                                                 -------      -------      -------

Increase (decrease) in cash and cash equivalents                     337          (24)      (2,441)
Cash and cash equivalents at the beginning of the year             1,153        1,177        3,618
                                                                 -------      -------      -------

Cash and cash equivalents at the end of the year                 $ 1,490      $ 1,153      $ 1,177
                                                                 =======      =======      =======
</TABLE>




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


                                     F - 7
<PAGE>


                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

<TABLE>
<CAPTION>

                                                                     YEAR ENDED DECEMBER 31,
                                                                 ---------------------------------
                                                                  2003         2002         2001
                                                                 -------      -------      -------
<S>                                                              <C>          <C>          <C>
  (a) ADJUSTMENTS REQUIRED TO RECONCILE NET INCOME (LOSS) TO
      NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:

      Equity in losses of an affiliate                           $   111      $     -      $     -
      Depreciation and amortization                                  845        1,530        1,426
      Erosion of long-term investments and bank loans,
          net                                                       (116)         (11)           5
      Capital loss (gain) on sale of property and
        equipment                                                     16          (76)           7
      Minority interest in losses of subsidiaries                      -         (206)        (916)
      Accrued interest on convertible debentures                       -           38           16
      Accrued severance pay, net                                    (109)         (42)         149
      Capital gain from realization of Gamidor
        Diagnostics U.K                                                -          (13)           -
      Gain on marketable securities                                    -            -           (6)
      Capital gain from decrease in holdings in Procognia              -       (1,349)        (903)
      Decrease (increase) in trade receivables                       388          310         (351)
      Decrease in other accounts receivable and prepaid
          expenses                                                   564           51           47
      Decrease (increase) in inventories                            (937)          64         (266)
      Increase (decrease) in trade payables                         (624)        (273)         245
      Increase (decrease) in other accounts payable and
        accrued expenses                                            (766)        (240)         581
                                                                 -------      -------      -------

                                                                 $  (628)     $  (217)     $    34
                                                                 =======      =======      =======

(b) INVESTMENT IN GAMIDA GEN:
    Net fair value of assets acquired and liabilities
      assumed
      At the date of acquisition:

      Working capital deficiency, net (excluding cash and
        cash equivalents)                                        $     -      $     -      $(1,508)
      Property and equipment                                           -            -           22
      Technology                                                       -            -          493
      Accrued severance pay                                            -            -           (6)
      Capital surplus in respect of transaction with a
        controlling shareholder                                        -            -        1,749
      Issuance of shares in consideration for the
        acquisition                                                    -            -         (750)
                                                                 -------      -------      -------

                                                                 $     -      $     -      $     -
                                                                 =======      =======      =======
</TABLE>




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


                                     F - 8
<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


<TABLE>
<CAPTION>

                                                                  YEAR ENDED DECEMBER 31,
                                                            --------------------------------------
                                                                2003           2002         2001
                                                            -------------     -------      -------
<S>                                                           <C>             <C>       <C>
(c) REALIZATION OF INVESTMENT IN PROCOGNIA

    Working capital deficiency, net (excluding cash and
       cash equivalents)                                      $         -     $  (504)  $        -
    Property and equipment                                              -         391            -
    Long-term bank loans                                                -        (145)           -
    Minority interest in a subsidiary                                   -         612            -
    Convertible debentures in subsidiary                                -      (2,044)           -
    Accrued severance pay                                               -         (12)           -
    Capital gain from decrease in holdings in Procognia                 -       1,349            -
                                                            -------------     -------      -------

                                                              $         -     $  (353)  $        -
                                                            =============     =======      =======

(d) SALE OF OPERATIONS TO A JOINTLY CONTROLLED ENTITY

    Working capital deficiency, net (excluding cash)          $         -     $  (427)  $        -
    Long-term receivables                                               -        (240)           -
    Property and equipment                                              -         253            -
    Other assets                                                        -         280            -
    Capital surplus in respect of sale of operations to
       Savyon                                                                     134
                                                            -------------     -------      -------


                                                            $           -     $     -     $      -
                                                            =============     =======      =======

    SUPPLEMENTAL DISCLOSURE OF CASH FLOWS ACTIVITIES:
      Cash paid during the year for:
        Interest                                            $           -     $   131      $   160
                                                            =============     =======      =======
</TABLE>



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


                                     F - 9
<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 Israel market. As for geographic markets and major customers, see
          Note 15.

          Pronto Diagnostics Ltd. ("Pronto") and Gamida Gen, a wholly-owned
          subsidiary of Pronto, are an 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"), a jointly controlled entity, 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.

          In a board of directors meeting held on May 20, 2004, it was resolved
          that, effective January 1, 2004, the Company would report the
          financial statements in accordance with U.S. GAAP.

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

     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.


                                     F - 10
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                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 1:- BUSINESS AND ORGANIZATION (CONT.)

     c.   Investment in Procognia Ltd.:

          In January 2000, the Company established a 98%-owned subsidiary,
          Procognia (Israel) Ltd. ("Procognia"). Procognia develops certain
          products and technologies in the Glycomolecular field and in the
          Biochemistry of sugar.

          During the year 2000, Procognia effected a private placement of its
          equity securities, raising an aggregate amount of $ 2,477, as a result
          of which the Company's holdings in the share capital of Procognia
          decreased to approximately 70.08%. In addition, the investors
          undertook to purchase, except in certain circumstances, convertible
          debentures for an aggregate amount of $ 2,500 within a year. As of
          April 2002, an amount of $ 2,000 was received. The conversion of the
          debentures shall entitle the investors to additional shares.

          According to Statement No. 68 of the Institute of Certified Public
          Accountants in Israel, gain from issuance of the subsidiary's shares
          to a third party in a development stage company, is recorded as a
          deferred capital gain and amortized according to the highest of (i) a
          three-year period; (ii) the Company's interest in the subsidiary's
          losses.

          As a result of the placement, the Company recorded in 2000 a deferred
          capital gain in the amount of $ 1,708, of which $ 805 was charged to
          the statement of operations during 2000 and $ 903 was charged to the
          statements of operations during 2001.

          In April 2002, Procognia's shareholders exchanged their shares in
          Procognia with shares in a newly formed U.K. company ("Procognia
          U.K."). Following the share exchange, Procognia U.K. raised $ 14,300
          (out of which $ 1,250 were derived from the conversion of a portion of
          the convertible debentures). In December 2002, Procognia U.K. acquired
          all of the shares of Sense Proteomic Ltd., in a share exchange
          transaction. In respect of this transaction, Procognia U.K. completed
          another financing round, in which $ 4,000 was raised. In addition, as
          a result of these transactions, the Company's voting rights declined
          from 70.08% to 11.6% as of December 31, 2002 and, consequently,
          Procognia's financial statements are no longer consolidated with those
          of the Company. As a result of the decline in voting rights the
          Company recorded a capital gain in the amount of $ 1,349. The
          previously accrued losses that relate to the share retained by the
          investor were reversed and the carrying amount of the investment in
          Procognia was reduced to zero.

          In January 2004, Procognia completed another financing round, upon
          which the Company's voting rights were reduced to approximately 5%.
          Consequently, the Company no longer retains the right to appoint
          directors in Procognia and has no obligation to finance Procognia's
          operations.


                                     F - 11
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                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 1:- BUSINESS AND ORGANIZATION (CONT.)

     d.   Acquisition of Gamida Gen Ltd.:

          On January 17, 2001, the Company acquired all the shares of Gamida
          Gen, in consideration for the issuance of 1,000,000 shares of the
          Company to the shareholders of Gamida Gen, of which 500,000 shares
          were held in escrow for a period of one year from the transaction
          date. During 2002, the shares were released from escrow. The
          acquisition cost amounted to $ 750. Gamida for Life BV, a principal
          shareholder of the Company, was also the principal shareholder of
          Gamida Gen.

          As part of the acquisition, the Company agreed, subject to certain
          conditions, which have not yet been materialized, to release the
          former shareholder's guarantee totaling $ 270 to the bank.

          The Company transferred all Gamida Gen shares to its wholly-owned
          subsidiary, Pronto.

          The operations of Gamida Gen are included in the consolidated
          financial statements from the date of acquisition.

          The transaction was accounted for in accordance with the purchase
          method of accounting. The allocation of the purchase price of Gamida
          Gen acquisition is based on the fair value of the assets acquired and
          liabilities assumed. The excess of the fair value of the shares issued
          over the carrying amount of the investment in the amount of $ 2,242,
          was recorded accordingly:

          1.   The excess of the fair value of the shares issued to the
               controlling shareholder over the carrying amount of the
               investment in the amount of $ 1,749, was charged to additional
               paid-in capital.

          2.   The excess of the investment in Gamida Gen, which was acquired
               from the other shareholders over the equity upon acquisition,
               amounted to $ 493, was assigned and recorded as technology and is
               amortized over 3 years.

     e.   Acquisition of Savyon Yaron's Diagonistics Marketing Ltd. ("Savyon
          Yaron'") minority:

          Gamidor acquired on July 1, 2001 all the shares of Savyon Yaron held
          by the minority, in consideration for the waiver of the guarantee
          provided by the minority to Savyon Yaron in respect of its
          liabilities. Savyon Yaron ceased its operations in December 2001. The
          balance of the minority in the amount of $ 55 was recorded as minority
          interest in losses of subsidiaries in 2001.

     f.   Sale of Gamidor Diagnostics UK:

          In February 2002, the Company sold its investment in Gamidor
          Diagnostics UK, in consideration of $ 13. As a result, the Company
          recorded a capital gain in the amount of $ 13.


                                     F - 12
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                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 1:- BUSINESS AND ORGANIZATION (CONT.)

     g.   Establishment of Savyon:

          On December 31, 2002, the Company entered into an agreement with the
          Levin Family LLP. for the establishment of a new jointly owned entity,
          Savyon. At the same date, Savyon purchased from Pronto certain assets,
          inventory, patent rights and know how related to the diagnosis of
          infectious diseases in consideration of $ 1,900 to be paid as follows:
          $ 770 on January 1, 2003, $ 430 in April 2003 and additional 35
          monthly installments of $ 20 each. In connection with the transaction,
          the Levin family agreed to loan Savyon an amount of $ 1,200 to be used
          to pay a portion of the consideration to Pronto. The terms of the
          repayment of the loan have not yet been determined. According to
          Israeli GAAP, since the transaction was financed by a loan, the
          assets, inventory, patent rights and know how that were transferred to
          Savyon, were recorded in Savyon's books according to their book value
          as it appeared in Pronto's books prior to the sale. The excess of the
          purchase price over the book value of the assets and know-how that
          were transferred, was recorded as additional paid-in capital. In
          addition, the investment in Savyon would be accounted for according to
          the proportionate consolidations method (i.e., 50% of the balances and
          results of Savyon are consolidated with the Company's financial
          statements).

     h.   In January 2003, Gamida Gen Marketing sold certain distribution rights
          to a third party, in consideration of $ 60, which have been received
          in 12 equal monthly installments. Such consideration was recorded as
          revenues.

     i.   Definitions:

<TABLE>
<CAPTION>

<S>                       <C> <C>
The Company     -   Healthcare Technologies Ltd.

The Group       -   The Company and its subsidiaries.

Subsidiaries    -   Companies whose accounts are consolidated with those-of the
                    Company.

Related parties -   As defined in Opinion 29 of the Institute of Certified
                    Public Accountants in Israel. The Group companies transact
                    with companies, which are related parties in the ordinary
                    course of business. Balances and transactions with related
                    parties are presented in Note 16.

Controlling     -   As defined in Israeli Securities Regulations (Presenting
shareholder         Transactions Between a Company and its Controlling
                    Shareholder in Financial Statements), 1996.

Affiliate       -   A company that is presented under the equity method.

Consumer        -   The Israeli Consumer Price Index ("CPI") published by the
Price Index         the central Bureau of Statistics.

Jointly         -   A company owned by several entities among which there is a
controlled          contractual agreement for joint control, and whose financial
entity              statements are consolidated with those of the Company, using
                    the proportionate consolidation method.

Other company   -   A company that is presented under the cost method.
</TABLE>


                                     F - 13
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                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 1:- BUSINESS AND ORGANIZATION (CONT.)

          The following is a list of the subsidiaries affiliates and other
          companies:

<TABLE>
<CAPTION>

                                                             PERCENTAGE OF HOLDING
                                                                 AND OWNERSHIP
                                                                 -------------
COMPANY                                                           DECEMBER 31,
                                                                 -------------
                                                                 2003     2002
                                                                 ----     ----
<S>                                                              <C>      <C>
Pronto Diagnostics Ltd. (formerly: Savyon Diagnostics Ltd.)
 ("Pronto")                                                      100%     100%
Danyel Biotech Ltd. ("Danyel")                                    80%      80%
Gamida Gen Marketing (1979) Ltd. (formerly - Gamidor)            100%     100%
Gamidor Diagnostics Ltd. ("Gamidor") (1)                         100%     100%
Procognia (Israel) Ltd. ("Procognia")                            11.6%    11.6%
Savyon-Yaron Diagnostics Marketing Ltd. ("Savyon-Yaron") (1)     100%     100%
Gamida Gen (3)                                                   100%     100%
Savyon Diagnostics Ltd. ("Savyon")                                50%      50%
Diatech Diagnostics Ltd. ("Diatech") (4)                         100%     100%
Afferix Ltd. ("Afferix") (5)                                       -        -
</TABLE>


          (1)  A wholly-owned subsidiary of Gamida Gen Marketing Ltd.
          (2)  Inactive company since December 2001.
          (3)  A wholly-owned subsidiary of Pronto.
          (4)  Inactive company since December 1999.
          (5)  See Note 2t.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

     These consolidated financial statements have been prepared in conformity
     with generally accepted accounting principles in Israel, which differ in
     certain respects from those followed in the United States, as described in
     Note 18.

     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:

          Since the Company's shares are traded on NASDAQ in the United States,
          the Company elected to adjust its financial statements according to
          the changes in the exchange rate of the U.S. dollar, in conformity
          with Section 29b to Statement No. 36 of the Institute of Certified
          Public Accountants in Israel. Thus, the reporting currency of the
          Company is the U.S. dollar. Accordingly, monetary accounts maintained
          in currencies other than the dollar are remeasured to U.S. dollar
          using the foreign exchange rate at balance sheet date. Operational
          accounts and non-monetary balance sheet accounts are measured and
          recorded at the exchange rate in effect at the date of the
          transaction. The effects of foreign currency remeasurement are
          reported in the statements of operations, as financial income or
          expenses, as appropriate.


                                     F - 14
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                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          Certain subsidiaries of the Company, which operate independently of
          the Company, prepare their financial statements in a functional
          currency other than the U.S. dollar. The functional currency of these
          companies was determined based on their economic environment and on
          the currency in which the majority of their sales are made and costs
          are incurred. The financial statements of these companies, whose
          functional currency is not the U.S. dollar, have been translated into
          U.S. dollars, in accordance with Interpretation 8 to Statement 36 of
          the Institute of Certified Public Accountants in Israel. 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 exchange rate at the balance sheet date.

          The resulting difference between the investment and the remeasurement
          of shareholders' equity, in respect of the said companies, and
          according to changes in the exchange rates of the different functional
          currencies, is carried to a separate item among the statement of
          changes in shareholders' equity, "Cumulative foreign currency
          translation adjustments".

     c.   Principles of consolidation:

          1.   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 and since
               the minority has not provided any guarantee.

          2.   Consolidation of financial statements of jointly controlled
               entities:

               In accordance with Opinion 57 of the Institute of Certified
               Public Accountants in Israel, the financial statements of
               companies that are jointly controlled are included in the
               Company's consolidated financial statements according to the
               proportionate consolidation method (consolidating 50% of the
               balances and results of Savyon in the Company's financial
               statements).

     d.   Cash equivalents:

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


                                     F - 15
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                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     e.   Marketable securities:

          Marketable securities invested for the short-term are presented at
          market value as of the balance sheet date. Changes in their value are
          reflected in the statement of operations as financial income or
          expenses in accordance with Opinion No. 44 of the Institute of
          Certified Public Accountants in Israel.

     f.   Inventories:

          Inventories are stated at the lower of cost or market value. Inventory
          write-offs are provided to cover risks arising from slow-moving items
          or technological obsolescence. In the years ended December 31, 2003,
          2002 and 2001 the Group wrote-off slow-moving items in the amounts of
          $ 0, $ 0 and $ 54, 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.

     g.   Investment in other company:

          The investment in Procognia in which the Company holds 11.6% is stated
          at cost, since the Company does not have the ability to exercise
          significant influence over operating and financial policies of this
          investee, the investment is presented at zero (see Note 1c).

     h.   Long-term receivables:

          Long-term receivables are recorded at estimated present values
          determined based on current rates of interest and reported at the net
          amounts in the accompanying financial statements.

     i.   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.


                                     F - 16
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                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          Annual rates of depreciation are as follows:

<TABLE>
<CAPTION>

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

<S>                                                   <C>
Laboratory manufacturing and medical equipment        10 - 33 (mainly 20)
Office furniture and equipment                         6 - 33 (mainly 6)
Motor vehicles                                                 15
Leasehold improvements                             Over the term of the lease
</TABLE>



          The Company and its subsidiaries assess the recoverability of the
          carrying amount of property and equipment and provide for any possible
          impairment loss based upon the fair value of such assets.

          As of December 31, 2003, no impairment losses have been identified.

     j.   Other assets:

          1.   Goodwill represents the excess of the cost of acquisition in
               subsidiaries over their carrying value upon acquisition. Goodwill
               is amortized over a period of 10 years, using the straight-line
               method.

          2.   Costs incurred for the registration of patents, trademarks and
               know-how are amortized at an annual rate of 10%. Grants received
               in respect thereof are deducted from costs.

          3.   Distribution rights are amortized using the straight-line method
               over their useful life, which is 8 years.

          4.   Technology is amortized using the straight-line method over its
               useful life, which is 3 years.

          On January 1, 2003, the Company adopted Accounting Standard No. 15,
          "Impairment of Assets". This Standard prescribes the accounting
          treatment and disclosures required in the event of impairment of
          assets. The Standard applies to all assets recognized in the balance
          sheet other than inventories, assets generated by construction
          contracts, assets generated by employee benefits, deferred tax assets
          and financial assets (except investments in investees that are not
          subsidiaries). According to the new Standard, whenever there is an
          indication that an asset may be impaired, the Company should determine
          if there has been an impairment of the asset by comparing the carrying
          amount of the asset to its recoverable amount. The recoverable amount
          is the higher of an asset's net selling price or value in use, which
          is determined based on the present value of estimated future cash
          flows expected to be generated by the continuing use of an asset and
          by its disposal at the end of its useful life. If the carrying amount
          of an asset exceeds its recoverable amount, the impairment to be
          recognized is measured by the amount by which the carrying amount of
          the asset exceeds its fair value. An impairment loss recognized should
          be reversed only if there has been changes in the estimates used to
          determine the asset's recoverable amount since the impairment loss was
          recognized.


                                     F - 17
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                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     k.   Deferred income taxes:

          Deferred income taxes are computed in respect of temporary differences
          between the amounts included in these financial statements, and those
          to be considered for tax purposes.

          Deferred tax balances are computed at the tax rate that will be in
          effect when those taxes are released to the statement of operations.

          Taxes that would apply in the event of the realization of investments
          in subsidiaries have not been taken into account in computing the
          deferred taxes, as it is the Company's intention to hold these
          investments. Similarly, taxes that would apply in the event of the
          distribution of earnings by subsidiaries as dividends have not been
          taken into account in computing deferred taxes, since the distribution
          of dividends does not involve an additional tax liability.

     l.   Revenue recognition:

          Revenues are recognized in accordance with Staff Accounting Bulletin
          No. 104, "Revenue Recognition in Financial Statements" ("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"),
          accordingly, based on the Company's management experience, no
          provisions for returns were recorded for the years ended December 31,
          2003, 2002 and 2001.

     m.   Research and development costs:

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

     n.   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. Research and development grants amounted to $
          118, $ 158, and $ 0 in 2003, 2002 and 2001, respectively. Total
          royalties paid amounted to $ 35, $ 99 and $ 125 in 2003, 2002 and
          2001, respectively, and were recorded as part of the cost of goods.

          The Company also received non-royalty bearing grants from a European
          fund. These grants are recognized at the time the Company is entitled
          to such grants on the basis of costs incurred and included as a
          deduction of research and development costs.


                                     F - 18
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                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     o.   Advertising costs:

          Advertising costs are charged to expenses as incurred. Advertising
          expenses for the years ended December 31, 2003, 2002 and 2001, were
          approximately $ 12, $ 22 and $ 43, respectively.

     p.   Basic and diluted net loss per share:

          Net loss per share is computed in accordance with Statement 55 of the
          Institute of Certified Public Accountants in Israel, based on the
          weighted average number of Ordinary shares and share equivalents
          outstanding during each period.

          The dilutive effect of options is included in the computation of basic
          net earnings per share only if their exercise is considered to be
          probable, based on the ordinary relationship between the market price
          of the shares issuable upon the exercise or conversion of the options,
          and the discounted present value of the future proceeds derived from
          the exercise of such options.

     q.   Concentrations of credit risk:

          Financial instruments that potentially subject the Group to
          concentrations of credit risk consist principally of cash and cash
          equivalents, restricted cash and long-term trade receivables. Cash and
          cash equivalents and restricted cash 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, Europe and the United States. 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.

     r.   Fair value of financial instruments:

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


                                     F - 19
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                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          The carrying amounts of cash and cash equivalents, restricted cash,
          short-term 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 long-term receivables approximate their fair
          value. The fair value was determined based on current rates of
          interest.

          The carrying amounts of the Group's long-term borrowings and
          convertible debentures in a subsidiary 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.

     s.   Severance pay:

          The liability of the Company and its Israeli subsidiaries for
          severance pay is computed based on the most recent salary of the
          employees multiplied by the number of years of employment as of the
          balance sheet date and is presented on the undiscounted basis. The
          liability is covered by an accrual, amounts deposited with severance
          pay funds, insurance policies and Mivtahim Social Insurance
          Institution Ltd. ("Mivtahim"). The amounts accumulated with the
          insurance company and Mivtahim are not under the Company's management
          control and are, therefore, not reflected in the balance sheet. The
          amounts in the severance pay fund are available for withdrawal under
          the provisions of the Severance Pay Law, 1963.

          Severance expenses for the years ended December 31, 2003, 2002 and
          2001 were $ 107, $ 54 and $ 155, respectively.

     t.   Investment in an affiliate:

          The investment in an affiliate is accounted for by the equity method.
          The Company generally evaluates the fair value of its investment in
          each reporting period and whenever changes in circumstances or
          occurrence of other events indicate a decline in value that is other
          than temporary. As of December 31, 2003, no impairment losses have
          been identified.

     u.   Effects of new accounting standards on the financial statements:

          During October 2001, the Israel Accounting Standards Board published
          Accounting Standard No. 12 with respect to the discontinuation of the
          adjustment of financial statements, and Accounting Standard No. 13
          with respect to the effect of the changes in the exchange rates for
          foreign currencies. In December 2002, Accounting Standard No. 17 was
          published with respect to the deferral of the implementation of
          Accounting Standards No. 12 and No. 13 until January 1, 2004.


                                     F - 20
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                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          Accounting Standard No. 13 and No. 17 prescribe principles with
          respect to the accounting for the effect of the changes in the
          exchange rates of foreign currency. These Standards replaces
          interpretation No. 8 and interpretation No. 9 to Opinion No. 36 of the
          Institute of Certified Public Accountants in Israel, which are void
          with the discontinuation of the adjustment of financial statements.
          The Standards deal with the translation of transactions in foreign
          currency and the translation of financial statements of foreign
          operations in order to integrate them into the financial statements of
          the reporting company. The translation principles of Accounting
          Standard No. 13 are different from those implemented to date.
          Accounting Standard No. 13 will apply to financial statements for
          periods commencing after December 31, 2003.

          In accordance with the provisions of Accounting Standard No. 13, it is
          possible to continue adjusting the financial statements pursuant to
          the changes in the foreign currency exchange rates in accordance with
          section 29(a) to Opinion No. 36 of the Institute of Certified Public
          Accountants in Israel up until the date on which the Accounting
          Standards Board will publish a new Standard regarding this issue. This
          Standard requires disclosure with respect to the reasons for
          presenting the financial statements in foreign currency. In addition,
          this Standard requires disclosure with respect to any change
          whatsoever in the reporting currency.

          The Company does not meet certain conditions under this provision. In
          a board of directors meeting held on May 20, 2004, it was resolved
          that, effective January 1, 2004, the Company would report the
          financial statements in accordance with U.S. GAAP.


                                     F - 21
<PAGE>


                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 3:-      CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>

                                                                             DECEMBER 31,
                                                                          -----------------
                                                                           2003       2002
                                                                          ------     ------
<S>                                                                       <C>        <C>
                Cash                                                      $1,475     $1,140
                Short-term bank deposits                                      15         13
                                                                          ------     ------

                                                                          $1,490     $1,153
                                                                          ======     ======


NOTE 4:- OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

                Government authorities                                    $   85     $   68
                Unbilled receivables                                         186          -
                Prepaid expenses                                             160        156
                Related parties (1)                                          129        142
                Receivable on account of sale of operations to Savyon
                  (see Note 1g)                                              120        720
                Other                                                         80         41
                                                                          ------     ------
                                                                          $  760     $1,127
                                                                          ======     ======
</TABLE>



          (1)  The balance is linked to CPI and bears annual interest at the
               rate of 4%.


NOTE 5:- INVENTORIES

<TABLE>
<CAPTION>

                                             DECEMBER 31,
                                          -----------------
                                           2003       2002
                                          ------     ------
<S>                                       <C>        <C>
Raw materials and packaging materials     $  139     $  196
Finished goods                             1,704      1,245
                                          ------     ------

                                          $1,843     $1,441
                                          ======     ======
</TABLE>


                                     F - 22
<PAGE>


                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 6:- PROPERTY AND EQUIPMENT, NET

     a.   Composition of assets and accumulated depreciation, and the changes
          therein during the reported year, are classified as follows:

<TABLE>
<CAPTION>

                                          LABORATORY,               OFFICE
                                         MANUFACTURING             FURNITURE
                                         AND MEDICAL  LEASEHOLD       AND        MOTOR
                                          EQUIPMENT  IMPROVEMENTS  EQUIPMENT    VEHICLES       TOTAL
                                          -------      -------      -------      -------      -------
<S>                                       <C>          <C>          <C>          <C>          <C>
COST:
Balance at January 1, 2003                $ 4,305      $   388      $   882      $   619      $ 6,194
Additions during the year                     229           18           55           47          349
Disposals during the year                    (115)         (10)         (26)         (43)        (194)
Translation adjustments                       234           13           41           35          323
                                          -------      -------      -------      -------      -------

Balance at December 31, 2003                4,653          409          952          658        6,672
                                          -------      -------      -------      -------      -------

ACCUMULATED DEPRECIATION:
Balance at January 1, 2003                  3,442          158          647          242        4,489
Additions during the year                     222           98           77           94          491
Disposals during the year                     (42)         (10)         (11)         (33)         (96)
Translation adjustments                       214            9           31           15          269
                                          -------      -------      -------      -------      -------

Balance at December 31, 2003                3,836          255          744          318        5,153
                                          -------      -------      -------      -------      -------

Depreciated cost at December 31, 2003     $   817      $   154      $   208      $   340      $ 1,519
                                          =======      =======      =======      =======      =======

Depreciated cost at December 31, 2002     $   863      $   230      $   235      $   377      $ 1,705
                                          =======      =======      =======      =======      =======
</TABLE>


          Depreciation expenses amounted to $ 491, $ 920 and $ 1,007 for the
          years ended December 31, 2003, 2002 and 2001, respectively.

     b.   As for charges, see Note 11e.

NOTE 7:- OTHER ASSETS, NET

<TABLE>
<CAPTION>

                                                        PATENTS,
                                                        KNOW-HOW
                                                          AND     DISTRIBUTION
                                  GOODWILL  TECHNOLOGY TRADEMARKS   RIGHTS      TOTAL
                                    -----      -----    -------      -----      -----
<S>                                 <C>        <C>      <C>          <C>        <C>
Balance as of January 1, 2003       $ 373      $ 166    $   122      $ 107      $ 768
Additions during the year               -          -         20          -         20
Amortization during the year         (148)      (166)       (16)       (24)      (354)
Translation adjustments                 -          -          -          7          7
                                    -----      -----    -------      -----      -----

Balance as of December 31, 2003     $ 225   $      -    $ *)126      $  90      $ 441
                                    =====      =====    =======      =====      =====
</TABLE>



     *)   Net of grants from the OCS, in the amount of $ 59.

     Amortization expenses amounted to $ 354, $ 610 and $ 419 for the years
     ended December 31, 2003, 2002 and 2001, respectively.


                                     F - 23
<PAGE>


                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 8:- SHORT-TERM BANK CREDIT

     Weighted average interest rate of short-term credit in unlinked NIS as of
     December 31, 2003 and 2002 is 7.8% and 10%, respectively.

     The Group has an authorized credit line in the amount of $ 600 as of
     December 31, 2003. For amounts overdrawn in excess of the Group's
     authorized credit line, the Group is subject to an annual average interest
     rate of 8% on the outstanding amount.

     As of December 31, 2003, the Group has $ 571 of unutilized credit line.

     As for charges, see Note 11e(1).


NOTE 9:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

<TABLE>
<CAPTION>

                                     DECEMBER 31,
                                   -----------------
                                    2003       2002
                                   ------     ------
<S>                                <C>        <C>
Royalties payable                  $   27     $  122
Employees and payroll accruals        495        655
Government authorities                 66         67
Customer advances                     201        163
Accrued expenses                      175        272
Related parties (1)                    35        112
Other                                 328        447
                                   ------     ------

                                   $1,327     $1,838
                                   ======     ======
</TABLE>


     (1)  The balance is linked to the Israeli CPI and bears annual interest at
          the rate of 4%.


                                     F - 24
<PAGE>


                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 10:- LONG-TERM LOANS

     a.   Composed as follows:


<TABLE>
<CAPTION>

                                                                                      DECEMBER 31,
                                                  INTEREST       ----------------------------------------------------------------
                                                    RATE                    2003                          2002
                                             -----------------   ------------------------    ------------------------------------
                                                                            NIS                          NIS      IN
                                                                   IN    LINKED TO             IN     LINKED TO  FOREIGN
                                              2003      2002   U.S. DOLLAR  CPI    TOTAL   U.S. DOLLAR   CPI    CURRENCY  TOTAL
                                             -------   -------   ------   ------   ------    ------     ------   ------   ------
                                                     %
                                             -----------------

<S>                                          <C>       <C>       <C>      <C>      <C>       <C>        <C>      <C>      <C>
    Loans from banks                         3.2-6.2   3.2-6.2   $  116   $  915   $1,031    $  200     $  659   $   23   $  882
    Loan from a shareholder of a
      proportionate consolidated             LIBOR
      subsidiary (*)                         +1.75%          -      590        -      590
    Less - current maturities                                        99      902    1,001       109        659       23      791
                                                                 ------   ------   ------    ------     ------   ------   ------

                                                                 $  607   $   13   $  620    $   91     $    -   $    -   $   91
                                                                 ======   ======   ======    ======     ======   ======   ======

*)   Savyon received a shareholders' loan in the amount of $ 1,200. The
     repayment date has not yet been determined.

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

    First year (current maturities)                              $   99   $  902   $1,001    $  109     $  659   $   23   $  791
                                                                 ------   ------   ------    ------     ------   ------   ------

    Second year                                                       8       12       20        91          -        -       91
    Third year                                                        8        1        9         -          -        -        -
    Fourth year and after                                            31        -       31         -          -        -        -
    Not yet determined                                              560        -      560         -          -        -        -
                                                                 ------   ------   ------    ------     ------   ------   ------

                                                                    607       13      620        91          -        -       91
                                                                 ------   ------   ------    ------     ------   ------   ------

                                                                 $  706   $  915   $1,621    $  200     $  659   $   23   $  882
                                                                 ======   ======   ======    ======     ======   ======   ======
</TABLE>


                                     F - 25
<PAGE>


                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 11:- COMMITMENTS AND CONTINGENT LIABILITIES

     a.   Royalty commitments:

          1.   Savyon, Pronto and Gamida Gen are 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 1998. 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 Savyon, Pronto and Gamida Gen
               amounted to $ 35, $ 99 and $ 125 in 2003, 2002 and 2001,
               respectively (includes 100% of the amount paid by Savyon).

               At December 31, 2003, Savyon, Pronto and Gamida Gen have
               remaining contingent obligation to the Government of Israel in
               the amount of $ 3,035 (includes 100% of the remaining contingent
               obligation of Savyon).

          2.   Savyon and Gamida Gen are obligated to pay royalties to the
               Israel-United States Bi-National Industrial Research and
               Development Foundation ("BIRD-F") and companies related to
               certain universities in Israel, at rate of 3% to 7% on sales
               proceeds from products in accordance with the terms of the
               respective agreement. The maximum amount of royalties payable to
               BIRD-F is limited to 150% of the grants received linked to the
               dollar and to the U.S. CPI.

               No royalties were paid or accrued during the years 2003, 2002 and
               2001.

               At December 31, 2003, Savyon and Gamida Gen have a remaining
               contingent obligation to BIRD-F in the amount of $ 261 (includes
               100% of the remaining contingent obligation of Savyon). .

          3.   At December 31, 2003, Savyon has a contingent obligation to
               certain universities in Israel in the minimum annual amount of $
               12 (100% of the annual amount). In addition, Savyon is obligated
               to pay to the universities up to 50% of revenues received, for
               any sub-license, with respect to the aforementioned products.

     b.   Lease commitments:

          The Group has leased several buildings, offices and warehouses under a
          few 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
          December 2005.


                                     F - 26
<PAGE>


                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 11:- COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)

          Future lease commitments under non-cancelable operating leases are as
          follows (includes 100% of lease commitments of Savyon):
<TABLE>
<CAPTION>

<S>     <C>
 2004   $234
 2005    102
 2006     66
 2007     54
 2008      8
        ----
        $464
        ====
</TABLE>


          Total rent expenses for the years ended December 31, 2003, 2002 and
          2001, were approximately $ 436, $ 490 and $ 536, respectively
          (includes 100% of rent expenses of Savyon).

          As for charges, see Note 11e(2).

     c.   The Company has entered into a service agreement with Gamida for Life
          Israel, a related company, 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.

     d.   In January 1999, the Company established an 80% - owned subsidiary -
          Danyel Biotech Ltd. The remaining 20% are owned by L.C. Tech Ltd., a
          company held by the general manager of the subsidiary. 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 market 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 market value as determined by a third
               party valuation at the termination date.

          Since the occurrence of the first event is not under control of the
          Company, and the purchase price upon the occurrence of such event is
          the fair market value of the shares and the occurrence of the second
          event, which is under the control of the Company, is considered by
          management to be remote, no accounting implications are deemed to be
          necessary.

     e.   Charges (assets pledged) and guarantees:

          1.   As collateral for credit line provided to the Group, totaling $
               600 as of December 31, 2003, the Group has placed unlimited fixed
               and floating charges on certain assets and share capital, in
               favor of the bank.


                                     F - 27
<PAGE>


                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 11:- COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)

          2.   In connection with the building lease agreement, Savyon has
               provided guarantees for the fulfillment of its commitments in
               respect of the abovementioned rental agreement. Total guarantee
               as of December 31, 2003 was approximately $ 120 (100% of the
               guarantee).

     f.   The Company is obligated to pay to one of its consultants a bonus at
          the rate of 1%-2% of the consideration paid in certain transactions.

     g.   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.

     h.   Danyel is obligated to pay its CEO 5% of Danyel's annual profits.

NOTE 12:- SHAREHOLDERS' EQUITY

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

     b.   In January 2001, the Company issued 1,000,000 Ordinary shares as a
          consideration for the purchase of all Gamida Gen's shares (see also
          Note 1d).

     c.   In 2001, the Company issued to a controlling shareholder 2,000,000
          Ordinary shares for a net consideration of $ 1,552 (issuance expenses
          amounted to $ 204).

     d.   Under the Company's 2000 and 2003 Incentive Stock Option Plans ("the
          Plans"), 500,000 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.

          As of December 31, 2003, an aggregate of 177,500 options are still
          available for future grants. Each option granted under the plan is
          exercisable for a period of 5 years from the date of the grant of the
          option or 180 days from termination date. The exercise price of the
          options granted under the plan may not be less than the nominal value
          of the shares into which such options are exercised. The options vest
          primarily over 5 years. Any options, which are canceled or forfeited
          before expiration become available for future grant.


                                     F - 28
<PAGE>


                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 12:- SHAREHOLDERS' EQUITY (CONT.)

     e.   Dividends:

          Dividends, when declared, will be paid in NIS. Dividends paid to
          shareholders outside Israel will be converted into dollars, on the
          basis of the exchange rate prevailing at the date of payment.


NOTE 13:- TAXES ON INCOME

     a.   Tax benefits under the Law for the Encouragement of Capital
          Investments, 1959:

          Under the law, certain of the production facilities of Savyon have
          been granted "Approved Enterprise" status in 1994. Income derived from
          "Approved Enterprise" is tax exempt for a period of four years out of
          the ten-year period of benefits. Income derived during the remaining 6
          years of benefits is taxable at the rate of 25%. The period of
          benefits is limited to 12 years from the commencement of production or
          14 years from the date of approval, whichever is earlier and will
          expire in 2008.

          The entitlement to the abovementioned benefits is conditional upon
          Savyon's fulfillment of conditions stipulated in the abovementioned
          law, regulations published thereunder, and the letters of approval for
          the specific investments in "Approved Enterprises". In the event of
          failure to comply with these conditions, the benefits may be canceled
          and Savyon may be required to refund the amount of the benefits, in
          whole or in part, including interest. As of December 31, 2003,
          management believes that Savyon is meeting all of the aforementioned
          conditions.

          The Law grants entitlement to claim accelerated depreciation on
          equipment used by the "Approved Enterprise" during five tax years.

          Should Savyon derive income from sources other than the "Approved
          Enterprise" during the periods of benefits, such income shall be taxed
          at the regular corporate tax rate of 36%.

          The benefits are not yet utilized since Savyon did not generate
          taxable income.

     b.   Tax laws applicable to the companies:

          The provisions of the Income Tax (Inflationary Adjustments) Law, 1985
          apply to the Company and certain of its Israeli investees. According
          to the law, the results for tax purposes are measured based on the
          changes in Israel's CPI. In November 2001, an amendment to the Income
          Tax (Inflationary Adjustments) Law (Amendment No. 14), 2001 was passed
          by the "Knesset" (Israeli parliament), pursuant to which until
          February 28 of the year following the reported tax year, the Minister
          of Finance, with the approval of the finance committee of the Knesset,
          is entitled to determine by an order that the provisions of the
          aforesaid law, in whole or in part, will not apply with respect to a
          certain tax year if Israel's CPI in that year did not increase by more
          than 3%. In February 2004, the Minister of Finance and the finance
          committee decided that the Inflationary Adjustments Law will be
          implemented with respect to 2003.


                                     F - 29
<PAGE>


                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 13:- TAXES ON INCOME (CONT.)

          The tax liability for 2003 is computed according to the law, while
          taking into account the decrease in the Israeli CPI in that year.

     c.   Carryforward tax losses:

          As of December 31, 2003, losses for Israeli tax purposes of the Group
          totaled approximately $ 8,500.

          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.   Tax benefits under the Law for the Encouragement of Industry (Taxes),
          1969:

          Savyon is an "industrial company", as defined by this law and, as
          such, is entitled to certain tax benefits, mainly the accelerated
          depreciation of machinery and equipment, as prescribed by regulations
          published under the Inflationary Adjustments Law and amortization of
          patents and other intangible property rights, as a deduction for tax
          purposes for a period of three to eight years.

     e.   Deferred income taxes

          Due to the Group's history of losses, management currently believes
          that it is more likely than not that the deferred tax assets regarding
          loss carryforwards and other temporary differences will not be
          realized, therefore, no deferred taxes were recorded.

     f.   All income before taxes is domestic.

     g.   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 and the effect of approved enterprise.

     h.   On January 1, 2003, a comprehensive tax reform took effect in Israel.
          Pursuant to the reform, resident companies are subject to Israeli tax
          on income accrued or derived in Israel or abroad. The tax reform also
          substantially changed the system of taxation of capital gains.


                                     F - 30
<PAGE>


                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 14:- SELECTED STATEMENTS OF OPERATIONS DATA

     a.   Research and development costs, net:
<TABLE>
<CAPTION>

                                                   YEAR ENDED DECEMBER 31,
                                                 -----------------------------
                                                  2003       2002       2001
                                                 -------    -------    -------

<S>                                              <C>        <C>        <C>
   Expenses incurred                             $   471    $ 1,070    $ 3,164
   Less - participations                             118        158          -
                                                 -------    -------    -------

                                                 $   353    $   912    $ 3,164
                                                 =======    =======    =======

b. Financial expenses, net:

   Expenses:
     Interest and others                         $   (91)   $   (65)   $  (155)
     Expenses with respect to short-term bank
       credits, long-term loans and charges          (53)       (77)      (133)
     Foreign currency translation adjustments       (182)      (476)      (100)
                                                 -------    -------    -------

                                                    (326)      (618)      (388)
                                                 -------    -------    -------
   Income:
     Interest on bank deposits                        23         20         71
     Foreign currency translation adjustments        183        107          -
     Gain on marketable securities                     -          -          6
                                                 -------    -------    -------

                                                     206        127         77
                                                 -------    -------    -------

                                                 $  (120)   $  (491)   $  (311)
                                                 =======    =======    =======

c. Other income (expenses), net:

   Expenses:
   Capital loss on sale of property and
     equipment                                   $   (16)   $     -    $    (7)
                                                 -------    -------    -------

   Income:
   Capital gain on sale of property and
     equipment                                         -         76          -
   Capital gain from realization of Gamidor
     Diagnostics UK                                    -         13          -
   Gain from decrease in holdings in Procognia         -      1,349        903
   Other income                                       15         44          -
                                                 -------    -------    -------

                                                      15      1,482        903
                                                 -------    -------    -------

                                                 $    (1)   $ 1,482    $   896
                                                 =======    =======    =======
</TABLE>


                                     F - 31
<PAGE>


                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 15:- 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 Group's business.

          This data is presented in accordance with Accounting Standard No. 14.
          The Group attributes revenues based on the end customers' location.

          The following presents total revenues and long-lived assets for the
          years ended and as of December 31, 2003, 2002 and 2001:

<TABLE>
<CAPTION>

                2003               2002                2001
         -----------------   -----------------   -----------------
          TOTAL  LONG-LIVED   TOTAL  LONG-LIVED    TOTAL LONG-LIVED
         REVENUES  ASSETS    REVENUES  ASSETS    REVENUES  ASSETS
         -------   -------   -------   -------   -------   -------
<S>      <C>       <C>       <C>       <C>       <C>       <C>
Israel   $12,494   $ 1,960   $13,352   $ 2,473   $12,535   $ 4,350
Europe     1,782         -     2,584         -     2,704         -
Other        360         -       740         -       774         -
         -------   -------   -------   -------   -------   -------

         $14,636   $ 1,960   $16,676   $ 2,473   $16,013   $ 4,350
         =======   =======   =======   =======   =======   =======
</TABLE>


     b.   Major customer data (percentage of total sales):

<TABLE>
<CAPTION>

        YEAR ENDED DECEMBER 31,
        ----------------------
        2003     2002     2001
        ----     ----     ----
                   %
        ----------------------

<S>      <C>      <C>      <C>
A        8.7      6.2      7.3
B        3.6      5.7      5.2
C       11.5     11.0     10.9
D        6.0      5.0      4.7
</TABLE>


                                     F - 32
<PAGE>


                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 16:- BALANCES AND TRANSACTIONS WITH RELATED PARTIES

     a.   Balances with related parties:

<TABLE>
<CAPTION>

                                                                 DECEMBER 31,
                                                               ---------------
                                                                2003    2002
                                                               ------  ------
<S>                                                            <C>      <C>
Assets:
Other accounts receivable and prepaid expenses -
  subsidiaries and affiliates of Gamida for Life B.V. (the
  "Parent Company")                                            $249     $862
                                                               ====     ====

Liabilities:
Other accounts payable and accrued expenses - subsidiaries
  and affiliates of Gamida for Life B.V. (the "Parent
  Company")                                                    $ 35     $112
                                                               ====     ====
</TABLE>


     b.   Expenses (income):


<TABLE>
<CAPTION>

                                             YEAR ENDED DECEMBER 31,
                                             ----------------------
                                             2003     2002     2001
                                             ----     ----     ----
<S>                                          <C>      <C>      <C>
Management fees and reimbursement of
  expenses to a related company              $120     $124     $290
Consulting fees related to research and
  development paid to directors              $  -     $  -     $ 88
Directors' salaries                          $ 20     $ 30     $ 29

Benefits to related parties:
Wages and salaries to related parties
  employed by the Company (directors)        $190     $144     $289
Number of directors to whom the benefits
  are related                                   1        1        2
</TABLE>


          The transactions with related parties are made in the ordinary course
          of business and at fair market value.


NOTE 17:- SUBSEQUENT EVENTS

     On June 29, 2004 the Company signed a term sheet with ImmvaRx Inc. for the
     transfer by ImmvaRx to the Company of ImmvaRx's allergy therapies business.
     The term sheet provides ImmvaRx with the right to commence a tender offer
     for all outstanding shares of the Company no later than 30 months following
     the closing of the transaction at a price of $ 1.60 per share. ImmvaRx will
     be issued 350,000 shares of the Company, a two year warrant to purchase up
     to 1,000,000 shares of the Company at an exercise price ranging from $ 1.00
     to $ 1.25 per share and a 30 month warrant to be issued 14,650,000 ordinary
     shares of the Company with a nominal exercise price per share which may
     only be exercised following the completion of the tender offer. The parties
     also agreed to negotiate the transfer of ImmvaRx's cancer diagnostics and
     therapies business to the Company against additional shares.


                                     F - 33
<PAGE>


                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 17:- SUBSEQUENT EVENTS (CONT.)

     Gamida for Life, the Company's largest shareholder has agreed to tender its
     shares in this tender offer. Following completion of the tender offer,
     ImmvaRx will have the right to exercise its warrant to purchase 14,650,000
     shares of the Company and Gamida for Life will have the right to purchase
     all of Healthcare's subsidiaries and affiliates for an aggregate of
     $7,200,000.

     The proposed transaction is subject to the negotiation and execution of a
     definitive agreement and to customary closing conditions, including the
     receipt of all governmental and other consents and approvals and the
     approval of Healthcare's Audit Committee, Board of Directors and
     stockholders. There can be no assurance as to whether or when the
     transaction will occur.


NOTE 18:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP ON
          THE CONSOLIDATED FINANCIAL STATEMENTS

     a.   The Company's consolidated financial statements are prepared in
          accordance with generally accepted accounting principles in Israel
          ("Israeli GAAP"), which differ in certain respects from those
          generally accepted in the United States of America ("U.S. GAAP"). The
          differences as they apply to the Company and the necessary adjustments
          are summarized below. In a board of directors meeting held on May 20,
          2004, it was resolved that, effective January 1, 2004, the Company
          would report the financial statements in accordance with U.S. GAAP.

          1.   Functional currency translation:

               According to U.S. GAAP, financial statements of companies whose
               functional currency is not the reporting entity's currency are
               translated into the reporting currency in accordance with
               Statement of Financial Accounting Standard No. 52 "Foreign
               Currency Translation" ("SFAS No. 52").

               The functional currency of the Company is the U.S. dollar, as the
               U.S. 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 the Israeli expenses
               are currently paid in U.S. dollars. Financing and investing
               activities, equity transactions and cash investments, are made in
               U.S. dollars.

               Accordingly, monetary accounts maintained in currencies other
               than the dollar are remeasured into U.S. dollars. All
               transactions 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.


                                     F - 34
<PAGE>


                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 18:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP ON
          THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

               The financial statements of certain subsidiaries whose functional
               currency is not the U.S. dollar, have been translated into U.S.
               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 loss.

               According to Israeli GAAP, the financial statements of these
               companies, whose functional currency is not the U.S. dollar, have
               been translated into U.S. dollars, in accordance with
               Interpretation 8 to Statement 36 of the Institute of Certified
               Public Accountants in Israel. 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 exchange rate at the balance sheet date.

               The resulting difference between the investment and the
               remeasurement of shareholders' equity, in respect of the said
               companies, and according to changes in the exchange rates of the
               different functional currencies, is carried to a separate item
               among the statement of changes in shareholders' equity,
               "Cumulative foreign currency translation adjustments".

               There was no material effect of the differences between Israeli
               and U.S. GAAP.

          2.   Accounting for stock-based compensation:

               According to U.S. GAAP, 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 applies SFAS No. 123 and EITF 96-18
               "Accounting for Equity Instruments that are Issued to Other than
               Employees for Acquiring, or in Conjunction with Selling, Goods or
               Services" with respect to options issued to non-employees. SFAS
               No.123 requires use of an option valuation model to measure the
               fair value of the options on the grant date.

               Pro forma information regarding net loss and net loss per share
               is required by SFAS No. 123, and has been determined assuming the
               Company had accounted for options under the fair value method
               prescribed by that Statement. The fair value for these options
               was estimated at the date of grant using the Black-Scholes option
               pricing model, with the following weighted-average assumptions
               for 2003: risk-free interest rate of 1%; dividend yield of 0%,
               volatility factor of the expected market price of the Company's
               Ordinary shares of 1.223 and a weighted-average expected life of
               the option of 4 years.


                                     F - 35
<PAGE>


                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 18:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP ON
          THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

               The following table illustrates the effect on net loss and net
               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,
                                            -------------------------------------
                                              2003           2002           2001
                                            ---------      ---------      -------
                                                  U.S. DOLLARS IN THOUSANDS
                                                 (EXCEPT PER SHARE AMOUNTS)
                                            -------------------------------------
<S>                                         <C>            <C>            <C>
Net loss, according to U.S. GAAP
  (see Note 18b.1)                          $    (523)     $  (1,827)     $(6,046)
                                            =========      =========      =======

Add: stock-based employee compensation
  expense included in reported net loss     $      57      $      40      $   113
                                            =========      =========      =======

Deduct: stock-based employee
  compensation expense determined under
  fair value-based method                   $     (62)     $     (49)     $  (139)
                                            =========      =========      =======

Pro forma net loss                          $    (528)     $  (1,836)     $(6,072)
                                            =========      =========      =======

Pro forma basic and diluted net loss
  per share                                 $   (0.07)     $   (0.24)     $ (1.02)
                                            =========      =========      =======
</TABLE>


               According to Israeli GAAP, the benefit component of stock options
               issued to employees is not recognized in the financial
               statements.

               See also Notes 18b.1.3, 18b.1.4 and 18b.1.5, for the related
               expenses.

               The following is additional disclosure information required by
               U.S. GAAP:

               A summary of the Company's stock option activity and related
               information is as follows:


<TABLE>
<CAPTION>

                                             YEAR ENDED DECEMBER 31,
                       ----------------------------------------------------------------
                               2003                   2002                 2001
                       ------------------     ------------------     ------------------
                                     WEIGHTED              WEIGHTED               WEIGHTED
                                     AVERAGE               AVERAGE                AVERAGE
                       AMOUNT       EXERCISE   AMOUNT      EXERCISE   AMOUNT      EXERCISE
                      OF OPTIONS     PRICE   OF OPTIONS   OF PRICE   OPTIONS       PRICE
                       --------      ----     --------      ----     --------      ----
                                       $                      $                      $
                                     ----                   ----                   ----
<S>                     <C>          <C>       <C>          <C>       <C>          <C>
Outstanding at the
  beginning of the
  year                  122,500      1.38      177,500      1.84      217,500      1.69
Granted                 200,000      0.36            -         -            -         -
Exercised                (5,000)     0.38            -         -            -         -
Canceled                (62,500)     1.75      (55,000)     2.86      (40,000)     1.00
                       --------               --------               --------

Outstanding at the
  end of the year       255,000      0.51      122,500      1.38      177,500      1.84
                       ========      ====     ========      ====     ========      ====

Exercisable at the
  end of the year       114,583      0.69      102,500      1.65      117,500      2.27
                       ========      ====     ========      ====     ========      ====
</TABLE>


                                     F - 36
<PAGE>


                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 18:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP ON
          THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

     The options outstanding as of December 31, 2003, have been classified by
     exercise price, as follows:

<TABLE>
<CAPTION>

                                                                                   WEIGHTED
                                     WEIGHTED                                       AVERAGE
                       OPTIONS        AVERAGE       WEIGHTED        OPTIONS         EXERCISE
                     UTSTANDING AS   REMAINING      AVERAGE     EXERCISABLE AS OF    PRICE
EXERCISE             F DECEMBER 31, CONTRACTUAL     EXERCISE       DECEMBER 31,    OF OPTIONS
PRICE                    2003          LIFE          PRICE           2003         EXERCISABLE
----------             -------         -----         ------         -------         -----
                                     IN MONTHS
                                       -----

<S>                    <C>             <C>           <C>            <C>             <C>
$ 0.35 - 0.38          195,000            43         $ 0.36          54,583         $0.36
$           1           60,000         *) 12         $    1          60,000         $   1
                       -------                                      -------

                       255,000                       $0.516         114,583         $0.69
                       =======                       ======         =======         =====
</TABLE>


     *)   The earlier of date of termination or January 2005.

          Where the Company had recorded deferred stock compensation for options
          issued with an exercise price below the fair value of the Ordinary
          shares, the deferred compensation is recorded and amortized as
          compensation expense, ratably over the vesting period of the options.

          Compensation expenses recognized by the Company related to its
          stock-based employee compensation awards amounted to $ 57, $ 40 and $
          55, for the years ended December 31, 2003, 2002 and 2001, respectively
          (see Note 18b.1.3).

          The weighted average fair values of options granted during the year
          2003 were:

<TABLE>
<CAPTION>

                                         EXCEEDS             EQUALS          LESS THAN
                                       MARKET PRICE       MARKET PRICE     MARKET PRICE
                                        ----------         ----------         ------
<S>                                     <C>                <C>                <C>
Weighted average exercise price         $        -         $        -         $ 0.36
                                        ==========         ==========         ======
Weighted average fair value on
  grant date                            $        -         $        -         $1.135
                                        ==========         ==========         ======
</TABLE>


          Compensation expenses recognized by Procognia related to its
          stock-based employee compensation award amounted to $ 0, $ 0 and $ 20
          for the years ended December 31, 2003, 2002 and 2001, respectively
          (see Note 18b.1.4).


                                     F - 37
<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 18:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP ON
          THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

          In respect of options granted to consultants in 2001, Procognia
          accounted for compensation expenses. Procognia had accounted for its
          options to consultants under the fair value method of SFAS No. 123 and
          EITF 96-18. The fair value for these options was estimated at the date
          of grant, using the Black - Scholes Options Valuation method, with the
          following weighted-average assumptions for the years ended December
          31, 2001; risk-free interest rate of 4%; dividend yield of 0%
          rolatility of 0.5 and a weighted-average contractual life of the
          option of three years (see Note 18b.1.5).

          According to Israeli GAAP, compensation expenses in respect of options
          granted to consultants are not recognized in the financial statements.

     3.   Accrued severance pay:

          According to U.S. GAAP, accrued severance pay is included in the
          balance sheet at the total liabilities amount and total amounts funded
          through provident funds and insurance policies. Income from earnings
          on amounts funded is added to severance pay fund.

          According to Israeli GAAP, accrued severance pay is included in the
          balance sheets net, and income from earnings on amounts funded is
          netted from the severance pay expenses.

          See Note 18b.2.1 for the related presentation in the balance sheets.

     4.   The accounting treatment for the purchase of a newly consolidated
          subsidiary:

          Effective April 1, 1997, the Company acquired 100% of Gamida Gen
          Marketing's shares from a director and from a related party who had
          the ability to direct the Company's activities and prior to the
          acquisition, held less than 50% of the voting rights in the Company.

          Effective January 1, 2001, the Company acquired 100% of Gamida Gen's
          shares, 78%, of which were acquired from a related party who had the
          ability to direct the Company's activities and prior to the
          acquisition held less than 50% of the voting rights in the Company.


                                     F - 38
<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 18:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP ON
          THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

          According to Israeli GAAP, pursuant to the directives of the
          Securities Regulations (Presentation of Transactions Between the
          Company and a Controlling Party Therein in the Financial Statements,
          1996), control is defined as the ability to direct a Company's
          activities. Accordingly, the assets and liabilities of Gamida Gen
          Marketing and Gamida Gen were consolidated in the Company's
          consolidated financial statements in accordance with their carrying
          value as it appeared in Gamida Gen Marketing's and Gamida Gen's books.
          The excess amounts of the cost over carrying value of the assets
          acquired amounted to $ 4,923 and $ 2,242 in respect of Gamida Gen
          Marketing and Gamida Gen, respectively. The excess of $ 4,923 was
          divided as follows: an amount of $ 4,630 was carried to additional
          paid-in capital and an amount of $ 293 was recorded as goodwill. The
          excess of $ 2,242 was divided as follows: an amount of $1,749 was
          carried to additional paid-in capital and an amount of $ 493 was
          recorded as technology.

          According to U.S. GAAP, these transactions would not be accounted for
          as transaction between companies under common control as defined in
          Interpretation No. 39 to Accounting Principles Board Opinion No. 16,
          "Business Combinations". The transactions were accounted for by the
          purchase method of accounting and the excess of the cost over the fair
          value of the acquired assets was carried to goodwill and technology:
          an amount of $4,923, which relates to the acquisition of Gamida Gen
          Marketing, was carried to goodwill and an amount of $2,242, which
          relates to the acquisition of Gamida Gen, was carried to technology.
          Goodwill was amortized 10% per year until December 31, 2001, and
          technology was amortized over its useful life, which is three years.
          Accordingly, the assets and liabilities of Gamida Gen Marketing and
          Gamida Gen were consolidated based on their fair values.

          Amortization of goodwill for the year ended December 31, 2001 was $
          463.

          Amortization of technology for the years ended December 31, 2003, 2002
          and 2001, were $ 480, $ 387 and $ 583, respectively.

          "Intangible assets subject to amortization arose from acquisitions
          prior July 1, 2001, are being amortized on a straight-line basis over
          their useful life in accordance with APB Opinion No. 17, "Intangible
          Assets"("APB No. 17"). Acquired technology is amortized over 3 years.

          In accordance with the U.S. GAAP, as prescribed by SFAS No. 142
          "Goodwill and Other Intangible Assets", goodwill arising from
          acquisitions would not be amortized. The Company is required to
          perform an annual impairment review of goodwill impairment. The
          Company will also assess the impairment of goodwill whenever events or
          changes in circumstances indicate that the carrying value may not be
          recoverable.

          The unaudited results of operations presented below for the three
          years ended December 31, 2003, 2002 and 2001, respectively, reflect
          the operations had the


                                     F - 39
<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 18:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP ON
          THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

          Company adopted the non-amortization provisions of SFAS No. 142
          effective January 1, 2001:

<TABLE>
<CAPTION>

                                                YEAR ENDED DECEMBER 31,
                                        -------------------------------------
                                         2003           2002            2001
                                        -------       ---------       -------
<S>                                     <C>           <C>             <C>
 Reported net loss                      $  (523)      $  (1,827)      $(6,046)
 Goodwill amortization                        -               -           709
                                        -------       ---------       -------

 Adjusted net loss                      $  (523)      $  (1,827)      $(5,337)
                                        =======       =========       =======
 Basic and diluted loss per share:
   Reported net income                  $ (0.07)      $   (0.24)      $ (1.02)
   Goodwill amortization                                      -          0.12
                                        -------       ---------       -------

Adjusted net loss                       $ (0.07)      $   (0.24)      $  (0.9)
                                        =======       =========       =======
</TABLE>


          See Notes 18b.1. and 18b.1.(2) for the related expenses and Note
          18b2.(2) for the related presentation in the balance sheet.

     5.   Convertible debentures of a subsidiary:

          When a parent company holds shares in a subsidiary and the subsidiary
          issues convertible debentures, a change in the holding percentage will
          take place upon conversion of such convertible debentures. The
          decrease in the ownership of the parent company in its subsidiary may
          result either in gain or loss. According to Israeli GAAP, when a
          conversion of convertible debentures is deemed probable (computation
          of probability is based on the ratio between the market price of the
          shares and the present value of the price of the exercising warrants
          into shares or the present value of the payments for conversion of the
          debentures into shares), a loss in respect of this dilution is
          recognized, and a provision for this loss should be recorded
          immediately and not only upon the conversion of the debentures.

          Under U.S. GAAP, such a loss in the parent company is recorded when
          the conversion of the debenture actually occurs in the subsidiary.

          Procognia was a subsidiary of the Company until April 2002. During
          2003, Procognia raised $ 18,300 and, as a result, the Company's
          holding in Procognia declined to 11.6%. As a result, Procognia's
          financial statements are no longer consolidated with those of the
          Company (see Note 1c). All of the convertible debentures were
          converted into equity or repaid in 2002 (see also Note 1c).
          Accordingly there was no effect of the difference between Israeli and
          U.S. GAAP on the financial statements as of December 31, 2003.


                                     F - 40
<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 18:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP ON
          THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

     6.   Treatment of deferred income taxes:

          a)   Under U.S. GAAP, paragraph 9(f) of SFAS No. 109, "Accounting for
               Income Taxes", creates an exception which prohibits the
               recognition of deferred tax liabilities or assets that arise from
               differences between the financial reporting and tax bases of
               assets and liabilities that are remeasured from the local
               currency into U.S. dollars using historical exchange rates and
               that result from (i) changes in exchange rates or (ii) indexing
               for tax purposes.

               Under Israeli GAAP, companies reporting in U.S. dollar or
               currencies linked to the U.S. dollar provide deferred income
               taxes on differences between the financial reporting and tax
               bases of assets and liabilities.

               No deferred taxes were recorded under Israeli GAAP, and therefore
               there is no effect of the differences between Israeli and U.S.
               GAAP.

          b)   Under U.S. GAAP, deferred tax assets are reduced by a valuation
               allowance if based on the weight of available evidence, it is
               more likely than not that some portion or all of the deferred tax
               assets will not be realized.

               Under Israeli GAAP, deferred tax assets are not recognized when
               it is not probable that the deferred tax assets will be realized.

               All deferred tax assets under U.S. GAAP were fully reduced by a
               valuation allowance and therefore there is no effect of the
               difference between Israeli and U.S. GAAP.

               A valuation allowance has been recorded against the deferred tax
               assets as follows:

<TABLE>
<CAPTION>

                                              DECEMBER 31,
                                           ------------------
                                            2003       2002
                                           -------    -------
<S>                                        <C>        <C>
Carryforward losses                        $ 3,060    $ 3,960
Provision for vacation and severance pay       183        193
                                           -------    -------

Net deferred tax assets before valuation
  allowance                                  3,243      4,153
Valuation allowance                         (3,243)    (4,153)
                                           -------    -------

Net deferred tax assets                    $     -    $     -
                                           =======    =======
</TABLE>


               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 over the past three
               years. Management currently believes that it is more likely than
               not that the deferred taxes will not be realized.


                                     F - 41
<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 18:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP ON
          THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

     7.   Earnings per share:

          According to U.S. GAAP 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 is 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 Standard
          No. 128, "Earnings Per Share".

          According to Israeli GAAP (Opinion No. 55), the dilutive effect of
          options is included in the computation of basic net earnings per share
          only if their exercise is considered to be probable, based on the
          relationship between the market price of the shares issuable upon the
          exercise of the options and the discounted present value of the future
          proceeds derived from the exercise of such options and convertible
          debentures. The exercise of the options is not considered to be
          probable, therefore the options were not included in the computation
          of the basic and dilutive net earnings per share.

          The following table sets forth the computation of the basic and
          diluted net loss per share, according to U.S. GAAP:

<TABLE>
<CAPTION>

                                                YEAR ENDED DECEMBER 31,
                                             -----------------------------
                                              2003       2002       2001
                                             -------    -------    -------
<S>                                          <C>        <C>        <C>
Numerator:

Numerator for basic and diluted net loss
   per share - loss available to
   shareholders                              $  (523)   $(1,827)   $(6,046)
                                             =======    =======    =======

Denominator:

Denominator for basic and diluted net loss
   per share - weighted average shares
   used for computation of basic and
   diluted net loss per share (in
   thousands)                                  7,644      7,644      5,977
                                             =======    =======    =======

Basic and diluted net loss per share
   according to U.S. GAAP                    $ (0.07)   $ (0.24)   $ (1.01)
                                             =======    =======    =======
</TABLE>


          All outstanding options have been excluded from the calculation of the
          diluted net loss per share because all such securities are
          anti-dilutive for all periods presented. The total weighted average
          number of shares related to the outstanding options excluded from the
          calculations of diluted net loss per share were 255,000, 122,500 and
          177,500 for the years ended December 31, 2003, 2002 and 2001,
          respectively.


                                     F - 42
<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 18:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP ON
          THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

     8.   Comprehensive income:

          Under U.S. GAAP, SFAS No. 130, "Reporting Comprehensive Income", the
          Company should include and display specific income component as part
          of shareholders equity.

          Under Israeli GAAP, foreign currency translation adjustment are
          recorded in the Company's statements of changes in shareholders equity
          as cumulative foreign currency translation adjustments.

          See below for the related comprehensive income presentation in the
          statements of shareholders' equity under U.S. GAAP.


                                     F - 43
<PAGE>



                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 18:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP ON
          THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

<TABLE>
<CAPTION>

                                                                                ACCUMULATED
                                             TOTAL                 ADDITIONAL     OTHER                   ACCUMULATE     TOTAL
                                         COMPREHENSIVE   SHARE      PAID-IN   COMPREHENSIVE   DEFERRED        D       SHAREHOLDERS'
                                             LOSS       CAPITAL     CAPITAL   INCOME (LOSS) COMPENSATION   DEFICIT       EQUITY
                                            --------    --------    --------     --------     --------     --------     --------
<S>                                         <C>         <C>         <C>          <C>          <C>          <C>          <C>
Balance at January 1, 2001                              $     71    $ 20,825     $     25     $   (162)    $(12,529)    $  8,230
Net loss                                    $ (6,046)          -           -            -            -       (6,046)      (6,046)
Other comprehensive loss:
Foreign currency translation adjustments        (116)          -           -         (116)           -            -         (116)
                                            --------
Other comprehensive loss                        (116)
                                            --------
Total comprehensive loss                    $ (6,162)
                                            ========
Forfeiture of options granted to
  employees                                                    -         (28)           -           28            -            -
Issuance of shares, net                                       28       2,274            -            -            -        2,302
Amortization of deferred stock
  compensation                                                 -          38            -           75            -          113
                                                        --------    --------     --------     --------     --------     --------

Balance at December 31, 2001                                  99      23,109          (91)         (59)     (18,575)       4,483
Net loss                                    $ (1,827)          -           -            -            -       (1,827)      (1,827)
Other comprehensive loss:
Foreign currency translation adjustments         (27)          -           -          (27)           -            -          (27)
                                            --------
Other comprehensive loss                         (27)
                                            --------
Total comprehensive loss                    $ (1,854)
                                            ========
Issuance expenses                                              -        (108)           -            -            -         (108)
Forfeiture of options granted to
  employees                                                    -         (15)           -           15            -            -
Capital surplus                                                -         268            -            -            -          268
Amortization of deferred stock
  compensation                                                 -           -            -           40            -           40
                                                        --------    --------     --------     --------     --------     --------

Balance at December 31, 2002                                  99      23,254         (118)          (4)     (20,402)       2,829
Net loss                                    $   (523)          -           -            -            -         (523)        (523)
Other comprehensive loss:
Foreign currency translation adjustments          93           -           -           93            -            -           93
                                            --------
Other comprehensive loss                          93
                                            --------
Total comprehensive loss                    $   (430)
                                            ========
Exercise of options                                           *)           2            -            -            -            2
Issuance expenses                                              -         (70)           -            -            -          (70)
Deferred stock compensation                                    -         184            -         (184)           -            -
Amortization of deferred stock
  compensation                                                 -           -            -           57            -           57
                                                        --------    --------     --------     --------     --------     --------

Balance at December 31, 2003                            $     99    $ 23,370     $    (25)    $   (131)    $(20,925)    $  2,388
                                                        ========    ========     ========     ========     ========     ========
</TABLE>


*)   Less than 1.


                                     F - 44
<PAGE>


                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 18:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP ON
          THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

     9.   Gain from issuance of subsidiary's shares to a third party:

          In 2000, the Company recorded gain from issuance of Procognia's
          Preferred shares to a third party in the amount of $ 1,708 (see Note
          1c).

          According to U.S. GAAP gain from issuance of a development stage
          subsidiary's Ordinary shares to a third party, is recorded as an
          additional paid-in capital. In case the subsidiary issues Preferred
          shares to a third party, no gain from such issuance will be recorded.

          According to Israeli GAAP, gain from issuance of a subsidiary's shares
          which is in the development stage to a third party, was recorded as a
          deferred capital gain and amortized according to the highest of (i)
          three years period (ii) the Company's interest in the subsidiary's
          losses. The Company recorded capital gain of $ 903 in 2001, in regard
          to the issuance of shares in Procognia.

          Procognia was a subsidiary of the Company until April 2002. During
          2002, Procognia raised $ 18,300 and, as a result, the Company's
          holding in Procognia declined to 11.6%. As a result, Procognia's
          financial statements are no longer consolidated with those of the
          Company (see Note 1c). Accordingly, there was no effect of the
          difference between Israeli GAAP and U.S. GAAP on the financial
          statements as of December 31, 2003.

          See table in Note 18b.1.(6) for the elimination of the related gain.

     10.  Preferred shares of a subsidiary:

          During the year 2000, Procognia effected a private placement of its
          equity securities, raising an aggregate amount of $ 2,500, as a result
          of which the Company's holdings in the share capital of Procognia
          decreased to approximately 70.08%.

          According to U.S. GAAP, the issuance of subsidiary's Preferred shares
          to a third party, should be accounted for as a separate component of
          minority interest, Preferred shares in a subsidiary that does not
          participate in the losses of the subsidiary. An amount of $ 2,477 is
          attributed to Preferred shares in Procognia held by a minority.


                                     F - 45
<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 18:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP ON
          THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

          According to Israeli GAAP in accordance with Statement of Opinion No.
          57 of the Institute of Certified Public Accountants in Israel, a
          subsidiary's losses are attributed to the minority interest, according
          to the ownership level. For the years ended December 31, 2002 and
          2001, an amount of $ 206 and $ 971, respectively, was attributed to
          the holders of Preferred shares of the subsidiary and was recorded as
          a minority interest in earnings or losses of a subsidiary.

          See Note 18b.1(7) for the related elimination of minority interest in
          losses of a subsidiary and Note 18b.2(5) for the related presentation
          in the balance sheet.

     11.  Proportionate consolidation:

          On December 31, 2002, the Company entered into an agreement with the
          Levin Family LLC. for the establishment of a new jointly owned entity,
          Savyon. At the same date, Savyon purchased from Pronto certain assets,
          inventory, patent rights and know how related to the diagnosis of
          infectious diseases in consideration of $ 1,900.

          Under U.S. GAAP, investments in jointly controlled entities are
          accounted for by the equity method.

          Under Israeli GAAP, jointly controlled entities are included in the
          Company's financial statements, using the proportionate consolidation
          method.

          However, proportionate consolidation is permitted by the regulations
          of the Securities and Exchange Commission that are applicable to
          foreign private issuers.

          The following is summarized financial information regarding the effect
          of the proportionate consolidation:
<TABLE>
<CAPTION>

                                   YEAR ENDED DECEMBER 31, 2003
                                 -----------------------------------
                               AS REPORTED
                                IN THESE      EFFECT OF       AS ON
                                FINANCIAL   PROPORTIONATE  THE EQUITY
                                STATEMENTS  CONSOLIDATION     BASIS
                                 -------       -------       -------
<S>                              <C>           <C>           <C>
BALANCE SHEET:
Current assets                   $ 8,037       $  (505)      $ 7,532
  Long-term investments              242             -           242
Equity investment                      -          (126)         (126)
Property and equipment, net        1,519          (213)        1,306
Other assets, net                    441          (271)          170
Current liabilities               (5,195)          443        (4,752)
Long-term liabilities               (759)          672           (87)
                                 -------       -------       -------

Shareholders' equity             $(4,285)      $     -       $(4,285)
                                 =======       =======       =======
</TABLE>


                                     F - 46
<PAGE>


                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 18:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP ON
          THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

<TABLE>
<CAPTION>

                                              YEAR ENDED DECEMBER 31, 2003
                                           --------------------------------------
                                          AS REPORTED
                                           IN THESE       EFFECT OF        AS ON
                                           FINANCIAL    PROPORTIONATE    THE EQUITY
                                          STATEMENTS    CONSOLIDATION      BASIS
                                           --------       --------       --------
<S>                                        <C>            <C>            <C>
STATEMENT OF OPERATIONS:
Sales                                      $ 14,636       $ (2,224)      $ 12,412
Gross profit                                  5,903         (1,131)         4,772
Operating loss                                 (277)          (238)          (515)
                                           --------       --------       --------

Net loss                                   $   (523)      $      -       $   (523)
                                           ========       ========       ========

STATEMENT OF CASH FLOWS:
Net cash provided by operating
  activities                               $     84       $   (659)      $   (604)
Net cash used in investing activities          (498)           116           (353)
Net cash used in financing activities           699            583          1,282
Effect of exchange rate changes on
  cash and cash equivalents                      52              -             52
                                           --------       --------       --------

Increase in cash and cash equivalents      $    337       $     40       $    377
                                           ========       ========       ========
</TABLE>


<TABLE>
<CAPTION>

                                    YEAR ENDED DECEMBER 31, 2002
                                 -----------------------------------
                                AS REPORTED
                                 IN THESE      EFFECT OF       AS ON
                                FINANCIAL    PROPORTIONATE   THE EQUITY
                                STATEMENTS   CONSOLIDATION     BASIS
                                 -------       -------       -------
<S>                              <C>           <C>           <C>
BALANCE SHEET:
Current assets                   $ 7,852       $  (283)      $ 7,569
  Long-term investments              240             -           240
Equity investment                      -          (134)         (134)
Property and equipment, net        1,705          (253)        1,452
Other assets, net                    768          (280)          488
Current liabilities               (5,982)          710        (5,272)
Long-term liabilities               (337)          240           (97)
                                 -------       -------       -------

Shareholders' equity             $ 4,246       $     -       $ 4,246
                                 =======       =======       =======
</TABLE>


          Statements of operations and cash flows for the year ended December
          31, 2002, were not provided due to the fact that the establishment of
          Savyon took place in December 31, 2002.

     12.  Decrease in holdings of voting rights resulting from issuance of an
          investee or, a subsidiary evolving into an investee, Preferred shares
          to a third party:

          In April 2002, Procognia U.K. issued Preferred B and B1 shares in a
          private placement upon which an amount of approximately $ 14,300 was
          raised. In December 2002, Procognia acquired all of the shares of
          Sense Proteomic Ltd., in an exchange of issuance of Ordinary shares.
          In respect of this transaction, Procognia issued Preferred "B" shares
          in a private placement, in which $ 4,000 was raised. As a result, the
          Company's voting rights declined from 70% to 11.6% as of December 31,
          2002 and, consequently, Procognia has now become an affiliate (rather
          than a subsidiary). As a result, Procognia's financial statements are
          no longer consolidated with those of the Company.


                                     F - 47
<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 18:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP ON
          THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

          According to Israeli GAAP, a decrease in holdings of voting rights in
          an investee, derived from the issuance of any type of shares, would
          result in a gain. The Company recorded in 2002 a capital gain in the
          amount of $1,349. The previous losses that relate to the stock
          retained by the investor that were previously accrued, were reversed
          and the carrying amount of the investment was reduced to zero.

          According to U.S. GAAP, a decrease in holdings of voting rights in an
          investee, derived from the issuance of other than Ordinary shares
          (Preferred shares), would not result in a gain. The previous losses
          that relate to the stock retained by the investor that were previously
          accrued, remained as part of the carrying amount of the investment.
          The Company recorded the investment in this investee, formerly a
          subsidiary, in its negative balance of $ (4,761) (see Note 18b.2.5 for
          the related presentation in the balance sheet and Note 18b.1.8).

          In January 2004, Procognia completed another financing round, upon
          which the Company's voting rights were reduced to approximately 5%.
          Consequently, although the investment in this investee is presented in
          its negative balance of $ (4,761) among long-term liabilities, the
          Company has no obligation to finance Procognia's operations.

     13.  Beneficial conversion feature on convertible securities:

          As part of the capital raise in the parent of Procognia, in April
          2002, Procognia U.K. converted a portion of its convertible debentures
          in the amount of $ 1,250.

          According to Israeli GAAP, the beneficial conversion feature component
          is not recognized in the financial statements.

          According to U.S. GAAP, EITF 98-5, "Accounting for Convertible
          Securities with Beneficial Conversion Features or Contingently
          Adjustable Conversion Ratios" and EITF 00-27, "Application of Issue
          No. 98-5 to Certain Convertible Instruments" ("EITF 00-27"), determine
          that embedded beneficial conversion features present in convertible
          securities should be valued separately at issuance. The embedded
          beneficial conversion feature should be recognized and measured by
          allocating a portion of the proceeds equal to the intrinsic value of
          that feature to additional paid-in capital. That amount should be
          calculated at the commitment date as the difference between the
          conversion price and the fair value of the Ordinary shares or other
          securities into which the security is convertible, multiplied by the
          number of shares into which the security is convertible (intrinsic
          value). In circumstances under which (a) the convertible securities
          become convertible only upon the occurrence of a future event outside
          the control of the holder and (b) a security that is convertible from
          inception but contains conversion term that change upon the occurrence
          of future event, the Task Force reached a consensus that any
          contingent beneficial conversion feature should be measured at the
          commitment date but not recognized in earnings until the contingency
          is resolved. In addition, Issue 2 of EITF 00-27 states that changes to
          the conversion terms that would be triggerd by future events not
          controlled by the issuer should be accounted for as contingent
          conversion options, and the intrinsic value of such conversion options
          would not be recognized until and unless the triggering event occurs.


                                     F - 48
<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 18:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP ON
          THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

          As the conversion terms of two convertible debentures issued by
          Procognia would have been trigged only by a future event, the
          intrinsic value of such conversion options had not been recognized in
          earnings at the issuance date or until the conversion occurred in
          2002. The Company recorded in 2002 an expense in the amount of $ 313
          in that regard (see Note 18b.1.9).

     14.  Sale of assets from Pronto to Savyon:

          Under Israeli GAAP, the transaction between Savyon and Levin Family
          LLP was financed with a loan provided by the Levin Family LLP to
          Savyon, which terms have not yet been determined. Accordingly, assets,
          inventory, patent rights and know how that were transferred to Savyon,
          were recorded in Savyon's books according to their book value as it
          appeared in Pronto books. The excess of the purchase price over the
          book value of the assets and know-how, in the amount of $ 268, that
          were transferred, was recorded as additional paid-in capital.

          Under U.S. GAAP, the assets that were transferred to Savyon comprise a
          business based on EITF 98-3, "Determining Whether a Non-monetary
          Transaction Involves Receipt of Productive Assets or of a Business".
          However, Savyon qualifies as a joint venture, as defined in EITF 01-2,
          "Interpretations of APB Opinion No. 29". The Company holds a 50%
          equity interest in Savyon and has equal risks and rewards with the
          other investor. Under U.S GAAP, the property and equipment, inventory,
          patent rights and know-how sold to Savyon were recorded in Savyon
          books according to the Company's carrying value with respect to its
          50% in the joint venture. The excess of 50% of the purchase price over
          the carrying amount of 50% the net assets deemed sold to Savyon in the
          amount of $ 134 was allocated to acquired technology. Such technology
          is amortized over a three year period. The excess of the other 50% of
          the purchase price over the carrying amount of the other 50% of net
          assets, which were sold to Savyon should have been recorded as a gain.
          The Company did not recognize this gain amounting to the difference
          between 50% the purchase price and the book value in the amount of $
          134, as Savyon is a highly leveraged entity and realization of gain is
          not assured. Such difference was carried to additional paid-in capital
          (see Note 18b2.4 for the balance sheet presentation).


                                     F - 49
<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 18:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP ON
          THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

     15.  Recently issued accounting pronouncements in the U.S.

          In January 2003, the FASB issued Interpretation No. 46, "Consolidation
          of Variable Interest Entities" ("FIN 46"). The objective of FIN 46 is
          to improve financial reporting by companies involved with variable
          interest entities. A variable interest entity is a corporation,
          partnership, trust, or any other legal structure used for business
          purposes that either (a) does not have equity investors with voting
          rights or (b) has equity investors that do not provide sufficient
          financial resources for the entity to support its activities. FIN 46
          requires a variable interest entity to be consolidated by a company if
          that company is subject to a majority of the risk of loss from the
          variable interest entity's activities or entitled to receive a
          majority of the entity's residual returns or both. FIN 46 also
          requires disclosures about variable interest entities that the company
          is not required to consolidate but in which it has a significant
          variable interest. The consolidation requirements of FIN 46 apply
          immediately to variable interest entities created after January 31,
          2003. The consolidation requirements apply to older entities in the
          first fiscal year or interim period ending after March 15, 2004.
          Certain of the disclosure requirements apply in all financial
          statements issued after January 31, 2003, regardless of when the
          variable interest entity was established.

          As of December 31, 2003, the Company does not expect the adoption of
          FIN 46 to have a material impact on its consolidated financial
          statements.

          In April 2003, the FASB issued SFAS No. 149 ("SFAS 149"), "Amendment
          of Statement 133 on Derivative Instruments and Hedging Activities."
          SFAS 149 amends and clarifies (1) the accounting guidance on
          derivative instruments (including certain derivative instruments
          embedded in other contracts) and (2) hedging activities that fall
          within the scope of FASB Statement No. 133 ("SFAS 133"), "Accounting
          for Derivative Instruments and Hedging Activities." SFAS 149 amends
          SFAS 133 to reflect decisions made (1) as part of the Derivatives
          Implementation Group ("DIG") process that effectively required
          amendments to SFAS 133, (2) in connection with other projects dealing
          with financial instruments, and (3) regarding implementation issues
          related to the application of the definition of a derivative. SFAS 149
          is effective (1) for contracts entered into or modified after June 30,
          2003, with certain exceptions, and (2) for hedging relationships
          designated after June 30, 2003. The guidance is to be applied
          prospectively.

          Generally, SFAS 149 improves financial reporting by (1) requiring that
          contracts with comparable characteristics be accounted for similarly
          and (2) clarifying when a derivative contains a financing component
          that warrants special reporting in the statement of cash flows. SFAS
          149 is not expected to have a material impact on the Company's
          financial statements.


                                     F - 50
<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 18:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP ON
          THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

          In May 2003, the FASB issued SFAS 150, "Accounting For Certain
          Financial Instruments with Characteristics of Both Liabilities and
          Equity" which establishes standards for how an issuer of financial
          instruments classifies and measures certain financial instruments with
          characteristics of both liabilities and equity. It requires that an
          issuer classify a financial instrument that is within its scope as a
          liability (or an asset in some circumstances) if, at inception, the
          monetary value of the obligation is based solely or predominantly on a
          fixed monetary amount known at inception, variations in something
          other than the fair value of the issuer's equity shares or variations
          inversely related to changes in the fair value of the issuer's equity
          shares. This Statement is effective for financial instruments entered
          into or modified after May 31, 2003, and otherwise is effective at the
          beginning of the first interim period beginning after June 15, 2003.
          The adoption of SFAS 150 is not expected to have a material impact on
          the Company's financial position or results of operations.

          In December 2003, the SEC issued Staff Accounting Bulletin ("SAB") No.
          104, "Revenue Recognition," ("SAB No. 104") which revises or rescinds
          certain sections of SAB No. 101, "Revenue Recognition," in order to
          make this interpretive guidance consistent with current authoritative
          accounting and auditing guidance and SEC rules and regulations. The
          changes noted in SAB No. 104 did not have a material effect on the
          Company's consolidated results of operations, consolidated financial
          position or consolidated cash flows.


                                     F - 51
<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 18:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP ON
          THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

     b.   The effect of the material differences between Israeli and U.S. GAAP
          of the aforementioned items on the financial statements is as follows:

          1.   On statement of operations items:

<TABLE>
<CAPTION>

                                                                    YEAR ENDED DECEMBER 31,
                                                             -----------------------------------
                                                              2003          2002          2001
                                                             -------       -------       -------
<S>                                                          <C>           <C>           <C>
Net income (loss) as reported according to Israeli
  GAAP                                                       $    14       $   468       $(3,013)
Amortization of goodwill (1)                                     148           196          (463)
Additional amortization of technology (2)                       (628)         (583)         (583)
Healthcare's stock-based compensation expenses (3)               (57)          (40)          (55)
Procognia's stock-based compensation expenses (4)                  -             -           (20)
Procognia's compensation expenses related to
  consultants (5)                                                  -             -           (38)
Gain from issuance of shares in Procognia (6)                      -             -          (903)
Minority interest in earnings of Procognia (7)                     -          (206)         (971)
Capital gain from decrease in holdings in Procognia (8)            -        (1,349)            -
Beneficial conversion feature expenses related to
  conversation of convertible debentures in
  Procognia (9)                                                    -          (313)            -
                                                             -------       -------       -------

Net loss according to U.S. GAAP                              $  (523)      $(1,827)      $(6,046)
                                                             =======       =======       =======
</TABLE>


          (1)  Amortization expense of goodwill (see Note 18a.4).
          (2)  Amortization expense of technology (see Note 18a.4 and 18.a.14).
          (3)  Recognition of stock based compensation (see Note 18a.2).
          (4)  Recognition of stock based compensation in subsidiary (see Note
               18a.2).
          (5)  Recognition of compensation for non-employees in a subsidiary
               (see Note 18a.2).
          (6)  Elimination of capital gain from issuance of Preferred shares in
               a development stage subsidiary (see Note 18a.9).
          (7)  Elimination of losses attributed to the holders of Preferred
               shares of a subsidiary (see Note 18a.10).
          (8)  Elimination of capital gain (see Note 18a.12).
          (9)  Recognition of beneficial conversion feature upon conversion of
               the debentures (see Note 18a.13).


                                     F - 52
<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 18:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP ON
          THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

     2.   On balance sheet items:

<TABLE>
<CAPTION>
                                           DECEMBER 31, 2003                           DECEMBER 31, 2002
                               --------------------------------------       --------------------------------------
                                 AS PER                       AS PER          AS PER                       AS PER
                                ISRAELI                        U.S.          ISRAELI                        U.S.
                                 GAAP        ADJUSTMENT        GAAP           GAAP        ADJUSTMENT        GAAP
                               --------       --------       --------       --------       --------       --------
<S>                            <C>            <C>            <C>            <C>            <C>            <C>
Severance pay fund (1)         $      -       $    960       $    960       $      -       $    819       $    819
Goodwill (2)                   $    225       $  2,775       $  3,000       $    373       $  2,627       $  3,000
Technology (3) (4)             $      -       $     89       $     89       $    166       $    717       $    883

Total assets                   $ 10,337       $  3,824       $ 14,161       $ 10,565       $  4,163       $ 14,728

Investment in
  Procognia (5)                $      -       $ (4,761)      $ (4,761)      $      -       $ (4,761)      $ (4,761)
Accrued severance pay (1)      $   (139)      $   (960)      $ (1,099)      $   (246)      $   (819)      $ (1,065)
Shareholders' equity (2)       $ (4,285)      $  1,897       $ (2,388)      $ (4,246)      $  1,417       $ (2,829)

Total liabilities and
  shareholders' equity         $(10,337)      $ (3,824)      $(14,161)      $(10,565)      $ (4,163)      $(14,728)
</TABLE>


          (1)  Amounts funded in regard to severance pay are presented under
               Israeli GAAP as a deduction from the liabilities whereas under
               U.S. GAAP, they are presented as long-term assets (see Note
               18a.3).

          (2)  An additional goodwill, in the amount of $ 4,630, arising upon
               the acquisition of Gamida Gen Marketing Ltd. (acquired from
               controlling party) (net of accumulated amortization of $ 2,003 as
               of December 31, 2003 and 2002) (see Note 18a.4).

          (3)  An additional technology, in the amount of $ 1,749, arising upon
               the acquisition of Gamida Gen Ltd. (acquired from controlling
               party) (net of accumulated amortization of $ 1,749 and $ 1,166 as
               of December 31, 2003 and 2002, respectively) (see Note 18a.4).

          (4)  Technology, in the amount of $ 134, arising from the sale of
               assets from Pronto to Savyon (net of accumulated amortization of
               $ 45 and $ 0 as of December 31, 2003 and 2002, respectively) (see
               Note 18a.14).


                                     F - 53
<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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


NOTE 18:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP ON
          THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

          (5)  Investment in Procognia (see Note 18a.12). In January 2004,
               Procognia completed another financing round, upon which the
               Company's voting rights in the investee is presented in its
               negative balance of $ (4,761) among long-term liabilities, the
               Company has no obligation to finance Procognia's operations.

     3.   Statement of cash flows:

          Pursuant to Israeli GAAP investment in marketable securities is
          classified as an investment activity.

          Pursuant to U.S. GAAP the aforementioned investment is classified as
          an operating activity:

<TABLE>
<CAPTION>

                                            YEAR ENDED DECEMBER 31, 2001
                                           -----------------------------
                                            AS PER                 AS PER
                                           ISRAELI                 U.S.
                                            GAAP     ADJUSTMENT    GAAP
                                           -----       -----       -----
<S>                                        <C>         <C>         <C>
Net cash provided by (used in)
   operating activities                    $ 310       $(337)      $ (27)
                                           =====       =====       =====

Net cash used in investing activities      $(971)      $ 337       $(634)
                                           =====       =====       =====
</TABLE>

                                     F - 54
<PAGE>



EXH. NO. INCORP. BY REF. TO

1.1              1.1(8)       Memorandum of Association of the Registrant, as
                              amended.

1.2              (15)         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.

4.12             2.19(9)      Asset Purchase Agreement dated October 7, 1998
                              between Gamidor Limited (Gamidor UK) and Gamidor
                              Diagnostics UK.

                                     - 76 -
<Page>

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             (15)         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.

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             (15)         Term Sheet for ImmvaRx transaction.

8.               99.5         Subsidiaries of the Registrant.

11               (15)         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.

                                     - 77 -
<Page>

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)         Consent of Kost Forer& Gabbay.

99.4             (15)         Chart of Healthcare Companies

                 --------------
                 (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.

                                     - 78 -
<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:  July 7, 2004

                                     - 79 -