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(HEALTHCARETECHNOLOGIES LOGO)

FORM 20-F

SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

oREGISTRATION STATEMENT
PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934

OR

xANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2004

OR

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

Commission
File No. 0-17788

Healthcare Technologies Ltd.(Exact name of registrant as specified in its charter
and translation of Registrants Name into English)

ISRAEL(Jurisdiction of incorporation or organization)

Beit
Amargad, 32 Shaham Street,
Kiryat Matalon, Petach Tikva, Israel, 49170(Address of principal executive offices)

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

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

Ordinary
Shares, NIS 0.04 par value per share(Title of Class)

Securities
for which there is a reporting obligation pursuant
to Section 15(d) of the Act:
None

Indicate
the number of outstanding shares of each of the issuers classes of capital or
common stock as of the close of the period covered by the annual report:

As
of December 31, 2004, the registrant had outstanding 7,702,832 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 o

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

Item
17. o   Item
18. x

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TABLE OF CONTENTS

|             |                                                         |                                                           |   
|------------ | ------------------------------------------------------- | --------------------------------------------------------- | --
|             |                                                         | Page                                                     
|             |                                                         |                                                          
|INTRODUCTION | 2                                                      
|             |                                                        
|PART I       |                                                         |                                                           | 5 
|             |                                                         |                                                           |   
|Item
  1.    | IDENTITY OF DIRECTORS, SENIOR
  MANAGEMENT AND ADVISERS | 5                                                        
|             |                                                         |                                                           |   
|Item
  2.    | OFFER STATISTICS AND EXPECTED
  TIMETABLE               | 5                                                        
|             |                                                         |                                                           |   
|Item
  3.    | KEY INFORMATION                                         | 5                                                        
|             |                                                         |                                                           |   
|             | A.                                                      | Selected Financial Data                                   | 5 
|             | B.                                                      | Capitalization and Indebtedness                           | 5 
|             | C.                                                      | Reason for the Offer and Use of
  Proceeds                | 6 
|             | D.                                                      | Risk Factors                                              | 6 
|             |                                                         |                                                           |   
|Item
  4.    | INFORMATION ON THE COMPANY                              | 17                                                       
|             |                                                         |                                                           |   
|             | A.                                                      | History and Development of the
  Company                  | 17
|             | B.                                                      | Business Overview                                         | 21
|             | C.                                                      | Organizational Structure                                  | 33
|             | D.                                                      | Property, Plant and Equipment                             | 33
|             |                                                         |                                                           |   
|Item
  5.    | Operating and Financial Review and
  Prospects          | 34                                                       
|             |                                                         |                                                           |   
|             | A.                                                      | Results of Operations                                     | 34
|             | B.                                                      | Impact of Inflation and Devaluation                       | 36
|             | C.                                                      | Liquidity and Capital Resources                           | 37
|             | D.                                                      | Research and Development, Patents
  and Licenses, Etc.    | 37
|             | E.                                                      | Trend Information                                         | 39
|             | F.                                                      | Off-Balance Sheet Arrangements                            | 40
|             | G.                                                      | Tabular Disclosure of Contractual
  Obligations           | 40
|             |                                                         |                                                           |   
|Item
  6.    | DIRECTORS, SENIOR MANAGEMENT AND
  EMPLOYEES            | 41                                                       
|             |                                                         |                                                           |   
|             | A.                                                      | Directors and Senior Management                           | 41
|             | B.                                                      | Compensation                                              | 43
|             | C.                                                      | Board Practices                                           | 44
|             | D.                                                      | Employees                                                 | 46
|             | E.                                                      | Share Ownership                                           | 47
|             |                                                         |                                                           |   
|Item
  7.    | MAJOR SHAREHOLDERS AND RELATED PARTY
  TRANSACTIONS     | 48                                                       
|             |                                                         |                                                           |   
|             | A.                                                      | Major Shareholders                                        | 48
|             | B.                                                      | Related Party and Inter-Company
  Transactions            | 48
|             | C.                                                      | Interests of Experts and Counsel                          | 51
|             |                                                         |                                                           |   
|Item
  8.    | FINANCIAL INFORMATION                                   | 51                                                       
|             |                                                         |                                                           |   
|             | A.                                                      | Consolidated Statements and other
  Financial Information | 51
|             | B.                                                      | Significant
  Changes                                     | 52
|             |                                                         |                                                           |   
|Item
  9.    | THE OFFER AND LISTING                                   | 52                                                       

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Table of Contents
(continued)

|           |                                                                                |                                                                          |   
|---------- | ------------------------------------------------------------------------------ | ------------------------------------------------------------------------ | --
|           |                                                                                | Page                                                                    
|           |                                                                                |                                                                         
|           | A.                                                                             | Offer and Listing Details                                                | 52
|           |                                                                                |                                                                          |   
|Item
  10. | ADDITIONAL INFORMATION                                                         | 53                                                                      
|           |                                                                                |                                                                          |   
|           | A.                                                                             | Share Capital                                                            | 53
|           | B.                                                                             | Memorandum and Articles of
  Association                                 | 53
|           | C.                                                                             | Material Contracts                                                       | 57
|           | D.                                                                             | Exchange Controls                                                        | 60
|           | E.                                                                             | Taxation                                                                 | 60
|           | F.                                                                             | Dividends and Paying Agent                                               | 62
|           | G.                                                                             | Statements by Experts                                                    | 62
|           | H.                                                                             | Documents on Display                                                     | 62
|           | I.                                                                             | Subsidiary Information                                                   | 62
|           |                                                                                |                                                                          |   
|Item
  11. | Quantitative and Qualitative
  Disclosure About Market Risk                    | 62                                                                      
|           |                                                                                |                                                                          |   
|Item
  12. | Description of Securities other than
  Equity Securities                       | 63                                                                      
|           |                                                                                |                                                                          |   
|PART II    |                                                                                |                                                                          | 63
|           |                                                                                |                                                                          |   
|Item
  13. | Defaults, Dividends, Arrearages and
  Delinquencies                            | 63                                                                      
|           |                                                                                |                                                                          |   
|Item
  14. | Material Modifications to the Rights
  of Security holders and Use of Proceeds | 63                                                                      
|           |                                                                                |                                                                          |   
|Item
  15. | Controls and Procedures                                                        | 63                                                                      
|           |                                                                                |                                                                          |   
|Item
  16. | [Reserved]                                                                     | 63                                                                      
|           |                                                                                |                                                                          |   
|           | A.                                                                             | Audit Committee Financial Expert                                         | 63
|           | B.                                                                             | Code of Ethics                                                           | 63
|           | C.                                                                             | Principal Accountant Fees and
  Services                                 | 64
|           | D.                                                                             | Exemption from listing standards for
  Audit Committee                   | 64
|           | E.                                                                             | Purchases of Equity Securities by
  the issuer and affiliated purchasers | 64
|           |                                                                                |                                                                          |   
|PART III   |                                                                                |                                                                          | 64
|           |                                                                                |                                                                          |   
|Item
  17. | FINANCIAL STATEMENTS                                                           | 64                                                                      
|           |                                                                                |                                                                          |   
|Item
  18. | FINANCIAL STATEMENTS                                                           | 64                                                                      
|           |                                                                                |                                                                          |   
|Item
  19. | FINANCIAL STATEMENTS AND EXHIBITS                                              | 64                                                                      

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Table of Contents
(continued)

|           |     |      | 
|---------- | --- | ---- | 
|           |     | Page
|           |     |     
|SIGNATURES | 100

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

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

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

The
Companys consolidated financial statements appearing in this annual report are
prepared in U.S. dollars and in accordance with generally accepted accounting
principles in the United States, or US GAAP. Commencing January 1, 2004, the
Company adopted U.S. GAAP for the preparation of its consolidated financial
statements. Previously, its consolidated financial statements were prepared in
accordance with generally accepted accounting principles in Israel, or Israeli
GAAP, and included a note describing the major differences between Israeli GAAP
and US GAAP, as applicable to the Company. The consolidated financial
statements for all prior periods presented have been restated and are presented
in accordance with U.S. GAAP.

All
references in this Annual Report to dollars or $ are to U.S. dollars and
all references in this Annual Report to NIS are to New Israeli Shekels. The
representative exchange rate between the NIS and the dollar as published by the
Bank of Israel on December 31, 2004 was NIS 4.308 per $1.00.

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

- 2
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The
following is a schematic presentation of the Company and its subsidiaries and
affiliates (as of June 29, 2005) :

(SCHEMATIC PRESENTATION)

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.

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.

- 3 -

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

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

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

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

- 4
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PART I

Item
1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not
Applicable.

Item
2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not
Applicable

Item
3. KEY INFORMATION

A.      Selected Financial Data

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

INCOME
STATEMENT DATA:

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

|                                                                               |  |      |        |      |  |        |  |      |        |      |  |        |  |  |        | 
|------------------------------------------------------------------------------ |  | ---- | ------ | ---- |  | ------ |  | ---- | ------ | ---- |  | ------ |  |  | ------ | 
|                                                                               |  | 2004 |        | 2003 |  | 2002   |  | 2001 |        | 2000 | 
|                                                                               |  |      |        |      |  |        |  |      |        |      | 
|                                                                              
|Sales                                                                          |  |      | 12,130 |      |  | 12,412 |  |      | 16,676 |      |  | 16,013 |  |  | 15,456 | 
|Gross Profit                                                                   |  |      | 4,205  |      |  | 4,023  |  |      | 5,432  |      |  | 5,171  |  |  | 5,450  | 
|Operating Loss                                                                 |  |      | 555    |      |  | 474    |  |      | 1,156  |      |  | 5,673  |  |  | 2,604  | 
|Net Loss for year                                                              |  |      | 359    |      |  | 500    |  |      | 1,827  |      |  | 6,046  |  |  | 2,045  | 
|                                                                               |  |      |        |      |  |        |  |      |        |      |  |        |  |  |        | 
|Net Loss per NIS 1 par value of shares in $                                    |  |      | 0.05   |      |  | 0.07   |  |      | 0.24   |      |  | 1.01   |  |  | 0.44   | 
|                                                                               |  |      |        |      |  |        |  |      |        |      |  |        |  |  |        | 
|Weighted average number of shares and Equivalents
  outstanding (in thousands) |  |      | 7,667  |      |  | 7,644  |  |      | 7,644  |      |  | 5,977  |  |  | 4,644  | 
|                                                                               |  |      |        |      |  |        |  |      |        |      |  |        |  |  |        | 

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

|                                                          |  |      |        |      |  |        |  |  |  |  |  |  |  |  |  | 
|--------------------------------------------------------- |  | ---- | ------ | ---- |  | ------ |  |  |  |  |  |  |  |  |  | 
|                                                          |  | 2004 |        | 2003 |  |        |  |  |  |  |  |  |  | 
|                                                          |  |      |        |      |  |        |  |  |  |  |  |  |  | 
|                                                         
|Working capital                                           |  |      | 2,832  |      |  | 2,660  |  |  |  |  |  |  |  |  |  | 
|Total assets                                              |  |      | 11,988 |      |  | 12,742 |  |  |  |  |  |  |  |  |  | 
|Short-term credit including current maturities            |  |      | 925    |      |  | 1,024  |  |  |  |  |  |  |  |  |  | 
|Long-term liabilities, not including current
  maturities |  |      | 142    |      |  | 30     |  |  |  |  |  |  |  |  |  | 
|Shareholders equity *)                                   |  |      | 1,902  |      |  | 2,344  |  |  |  |  |  |  |  |  |  | 

*) Following the closing
of the Procognia transaction on May 29th 2005, shareholders equity
increased by $4.8 million.  [See Item 4A
History and Development of the Company  The Procognia Investment..]

B.      Capitalization and Indebtedness

Not
Applicable.

- 5
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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 Net
  Losses, Has An Accumulated Deficit And May Not Generate Profits In The
  Future.                                                             
| |                                                                                                                                                                               |                                                                                                                                                                    
| | For the three fiscal years ended December 31, 2004,
  2003 and 2002 the Company had net losses of approximately $0.36 million, $0.5
  million and $1.8 million, respectively.
| |                                                                                                                                                                               |                                                                                                                                                                    
| | Such losses resulted principally from:                                                                                                                                       
| |                                                                                                                                                                               |                                                                                                                                                                    
| |                                                                                                                                                                              | Expenses associated with the ImmvaRx transaction of
  $104 thousand in the year 2004.                                                                              
| |                                                                                                                                                                               |                                                                                                                                                                    
| |                                                                                                                                                                              | Equity loss on investment in Afferix of $100
  thousands and $111 thousands in the years 2004 and 2003.                                                            
| |                                                                                                                                                                               |                                                                                                                                                                    
| |                                                                                                                                                                              | Expenses associated with the research, development,
  patenting and testing of the Companys products and technologies of
  approximately $0.9 million in 2002; and
| |                                                                                                                                                                               |                                                                                                                                                                    
| |                                                                                                                                                                              | amortization of goodwill and technology of
  approximately $749 thousand and  $858
  thousands  in 2003 and 2002
  respectively.                                   

The
Company may incur significant losses in the future as it continues its research
and development efforts mainly by Savyon, expands its marketing, sales and
distribution activities, develops strategies for competing with other manufacturers,
and scales up its research and development and manufacturing capabilities.  There can be no assurance that the Company
will be able to generate profits in the future.  As of December 31, 2004, the Companys accumulated deficit was
approximately $21 million.

If The Company Cannot Maintain Adequate
Operating
Capital, Its Business Will Suffer.

On
December 31, 2004, the Company had working capital of $2.8 million, including
cash of $0.95 million. The Company anticipates that these funds, together with
funds from operations and the $240 thousand remaining balance of the purchase
price from the Savyon transaction, will be sufficient to meet its anticipated
cash requirements for 2005.  For the
fiscal year 2004, the Company used net cash flows of $343 thousand for
operating activities.  Although the
Company currently believes that it will generate positive cash flow from
operations in fiscal 2005, it is possible that it will not succeed in doing so.

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

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

- 6
-

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The Success Of Competitive Products Could Have
An
Adverse Effect On The Companys Business.

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

Danyel
Biotechs principal competitors in the distribution of reagents and systems to
the biotechnology market in Israel include: Biorad Israel, Eldan
(Agilent), Medtechnica (Waters) in the field of chromatography; Pharmatec
(Tecan) and Saifan (Pe Life Science) in the field of advanced laboratory
instrumentation (fluorometers, counters); DeGroot (Greiner), Geter
(Corning)  in the field of bio-plastics; and Saifan (Pe Life Sciences
NEN-), Biological Industries (Promega), Dinco Renihum (Invitrogen) and Sigma
Israel in the field of molecular biology and Biology Reagents.  Although the Company is not aware of any
published industry market share statistics, it estimates, based upon its
knowledge of the industry, that in fiscal 2004 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 2004 the Gamidor Group accounted for
a significant portion of the Israeli pathology,  genetics, hemostasis products market and a lesser portion of the
Israeli market for the Groups other products.

Savyons
serology test kits for chlamydia compete with serology tests produced by
companies such as Hitachi (Japan), Medac (Germany), Orgenics (Israel), MRL
(USA) and LabSystems (Finland).
Savyons SeroMP (microplasma pneumoniae) products compete in the field
of serology testing with products produced by companies such as Fujirebio in
Japan.  The Company believes that Savyon
is a leader in the serological diagnosis of chlamydial infections. This belief
is based on a study conducted by Froste & Salive, which indicated that
Savyon supplied approximately 30% of the worldwide market for serology based
chlamydia diagnostic kits in 1999.  The
belief is further based on the fact that the Companys sales in the worldwide
serology based chlamydia market since 1999 have remained stable at
approximately $3.6 million, $3.0 million and $2.5 million in 2004, 2003 and
2002 respectively and, to the best of Savyons knowledge from both current
sales figures and a network of over 60 worldwide distributors, the worldwide
serology based chlamydia market has not undergone any material changes since
1999, thereby leaving Savyons market share relatively unchanged. Savyons
remaining kits represent a much smaller portion of the overall market for such
products.

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

The
Companys Patents May Not Protect Its Products From Competition

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

In
the serologic field, during 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.

- 7
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Although
several patents have been issued to the Company, there can be no assurance that
any additional patents will be issued to the Company, or that any patents that
are issued to it will provide it with meaningful patent protection.  In addition, there can be no assurance that
others will not successfully challenge the validity or enforceability of any
patent issued to the Company.  The costs
required to uphold the validity and prevent infringement of any patent issued
to the Company could be substantial, and it might not have the resources
available to defend its patent rights.

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

| |   |                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the pending patent 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;                                      
| |   |                                                                                                                                                                                                                                         
| |  | the claims of any patents which are issued may be
  more limited than those in the Companys patent applications as filed and may
  not provide meaningful protection;                                                                  
| |   |                                                                                                                                                                                                                                         
| |  | the Company may not be able to develop additional
  proprietary technologies that are patentable;                                                                                                                                       
| |   |                                                                                                                                                                                                                                         
| |  | the patents licensed or issued to the Company may
  not provide a competitive advantage;                                                                                                                                                
| |   |                                                                                                                                                                                                                                         
| |  | other companies may challenge patents licensed or
  issued to the Company;                                                                                                                                                              
| |   |                                                                                                                                                                                                                                         
| |  | patents issued to other companies may substantially
  impair the Companys ability to conduct its business;                                                                                                                             
| |   |                                                                                                                                                                                                                                         
| |  | other companies may independently develop similar or
  alternative technologies or duplicate the Companys technologies;                                                                                                                
| |   |                                                                                                                                                                                                                                         
| |  | other companies may design around technologies the
  Company has licensed or developed; and                                                                                                                                             
| |   |                                                                                                                                                                                                                                         
| |  | certain countries such as the Peoples Republic of
  China, in which the Company may seek to sell its patented products in the
  future, may not protect its patent rights to the same extent as the United
  States, Europe and Israel.

| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | The
Value Of The Companys Proprietary Technology And Know-how May Depend On Its
Ability To Protect Trade Secrets.

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

| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company May Infringe The
  Intellectual Property Rights Of Third Parties And May Become Involved In
  Expensive Intellectual Property Litigation.

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

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

- 8
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If
A Product The Company Sells Results In Injury To A User, The Company Could Be
Subject To Product Liability Exposure.

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

If
The Company Does Not Receive Certain Regulatory Approvals, It Will Not Be
Permitted To Sell Its Products.

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

| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | the Company will incur the expense and delay
  inherent in seeking FDA approval of new products;                
| |   |                                                                                                                 
| |  | a product that is approved may be subject to
  restrictions on use;                                             
| |   |                                                                                                                 
| |  | the FDA can recall or withdraw approval of a product
  if problems arise; and                                   
| |   |                                                                                                                 
| |  | the Company will face similar regulatory issues in
  other countries, including countries of the European Union.

Currently,
the Company does not have any pending applications for approvals by the FDA 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 most of its sales, the reimbursement rates of third party health
care reimbursement organizations range widely from 100% of certain products
such as the hematology kits PT Innovin, PTT Calcium and PTT Actin FS to nothing
for other products such as the genetic kits Gaucher 6MUT 24T and Bloom/Fanconi
48T.  Although customers are required to
pay the full price of the products regardless of whether or not they are
reimbursed for such costs, the lack of reimbursement may reduce the demand for
the Companys products. There can be no assurance that adequate health
insurance, health maintenance organization and government coverage will be
available to permit the Companys products to be sold at prices high enough for
it to generate a profit.  In certain
countries, pricing or profitability of health care products is subject to
government control.  In the United
States, there have been a number of federal and state proposals to implement
similar government controls, and new proposals are likely to be made in the
future.

The
Companys Business Could Be Adversely Affected If It Loses The Services Of The
Key Personnel Upon Whom It Depends.

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

- 9
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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 The Company has
written distribution agreements with its major distributors that grant these
companies the exclusive right to distribute the Companys products for periods
of one year, subject to automatic renewals unless the Company or the
distributor elects not to continue in either case. These agreements do not
require the distributors to purchase any minimum amounts of the Companys
products.

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

A
Significant Percentage Of Two Of The Companys Subsidiaries Products Are
Dependent On Certain Principal Suppliers

During
2003 and 2004, purchases from one of Danyels suppliers, Amersham Biosciences
(Amersham), which was acquired by General Electric during October of 2003,
accounted for 34% and 31% respectively of the Companys annual cost of sales.
In addition, during 2003 and 2004, purchases from one of the Gamidor Groups
suppliers, Dade Behring, accounted for 15% and 15% 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
June 15, 2004. 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.

- 10
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| |                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Sales To Three Customers Account
  For A Significant Portion Of The Companys Sales And The Loss Of Any One of
  These Customers Could Have A Material Adverse Affect On The Companys
  Business And Financial Results

Sales
to three sick funds in Israel, namely
Maccabi, Clalit and Meuhedet (collectively  the Sick Funds) accounted respectively for 5%, 14% and 3% of
the Companys annual sales during 2003, and 8%, 14% and 7% of such sales in
2004. The Company has a number of written agreements with the Sick Funds
covering different products.  Under
these agreements, the Company has undertaken to charge the Sick Funds a fixed
price for various products over a period of three to five years, provided that
they purchase certain minimum quantities of such products from the Company.

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

The
Company May Need Strategic Partners To Be Successful.

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

The
Genomics Industry Is Intensely Competitive And Evolving.

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

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

Many
of the Companys competitors have substantially greater capital resources,
sequencing capabilities, research and developmental staffs, facilities,
manufacturing and marketing experience, distribution channels and human
resources than it.  These competitors
may discover, characterize or develop important genes, treatment targets or
leads, treatment discovery technologies or treatments which are more effective
than those that have been developed by the Company or its customers, or may
develop techniques for genomic-based treatment discovery that are superior to
those of the Companys and render its technologies non-competitive or obsolete
even before they generate revenue, any of which could have a material adverse
effect on any of the Companys similar programs.  Moreover, these competitors may obtain patent protection or other
intellectual property rights that would limit the Companys rights or the
Companys customers ability to use the Companys products to commercialize
therapeutic, diagnostic or vaccine products.

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.

- 11
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Future
Acquisitions May Absorb Significant Resources And May Be Unsuccessful.

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

| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| |  | difficulties integrating acquired technologies and
  personnel into the Companys business;      
| |   |                                                                                                  
| |  | diversion of management from daily operations;                                                   
| |   |                                                                                                  
| |  | inability to obtain required financing on favorable
  terms;                                     
| |   |                                                                                                  
| |  | entering new markets in which the Company has little
  or no previous experience;                
| |   |                                                                                                  
| |  | potential loss of key employees or customers of
  acquired companies;                            
| |   |                                                                                                  
| |  | assumption of the liabilities and exposure to unforeseen
  liabilities of acquired companies; and
| |   |                                                                                                  
| |  | amortization of the intangible assets of the
  acquired companies.                               

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

The
Proposed Transaction With ImmvaRx May Not Be Completed, And If Completed, May
Not be Successful.

Further
to the term sheet which the Company signed with ImmvaRx Inc. on June 29, 2004,
the Company is negotiating  a
transaction for the transfer by ImmvaRx to the Company of all of ImmvaRxs
assets, including its intellectual property, in exchange for up to an
approximate 87%  interest in the
Company.  In addition, ImmvaRx may
conduct a tender offer for the purchase of all of the Companys shares. Immvarx
engages in the development of therapies and diagnostic techniques addressing the
adenocarcinoma class of cancers and certain kinds of allergies. The proposed
transaction is subject to the negotiation and execution of a definitive
agreement and to customary closing conditions, including the receipt of
governmental and other third party consents, as well as the approval of
Healthcares stockholders.  There can be
no assurance as to whether the transaction will occur.

The
current principal terms of the transaction provide that, at the closing
Healthcare will issue to ImmvaRx a two year warrant to purchase up to 1,000,000
Healthcare shares at an exercise price ranging from $1.00 to $1.25 per
share.  Within 2 1/2 years from the
closing of the transaction, but not earlier than January 1, 2006, ImmvaRx may
conduct a tender offer for all of Healthcares shares at a price of $1.60 per
share. Healthcares principal shareholder, Gamida For Life BV, must tender no
less than 4.7 million of its shares in the tender offer.  If the tender offer is completed within 2
1/2 years from the closing, ImmvaRx will have an option to sell all of its
assets to Healthcare in consideration for the issuance to ImmvaRx of 52 million
ordinary shares of Healthcare.  If
ImmvaRx does not exercise its option after completing the tender offer, or does
not conduct the tender offer or complete it within two and a half years from
closing, Healthcare shall have a call option to purchase all of the ImmvaRxs
assets for the same consideration. The structure of the transfer of ImmvaRxs
assets shall be negotiated by the parties following the exercise of either
partys option, and the transfer of ImmvaRxs assets to the Company is subject
to the qualification for tax deferred treatment and the Companys shares
continuing to be traded following the transfer of the assets.  If the tender offer is completed within 2 1/2
years from the closing, Gamida will have a call option to purchase all of
Healthcares shares in its current subsidiaries and affiliates in consideration
for $7.2 million.  If Gamida does not
exercise its call option, Healthcare will have a put option for the sale of all
of its shares in its current subsidiaries and affiliates to Gamida for the same
consideration.  As the agreement has yet
to be signed, the terms of the transaction described above may be subject to
change.

In
the event that the ImmvaRx transaction is completed, it would result in the
transfer of the Companys existing business to the Companys principal
stockholder and a change of control in the Company.  Thereafter, the success of the Company would depend upon the
Companys ability to complete the research and development and
commercialization of ImmvaRxs products and technologies in the cancer and
allergy therapeutics fields, of which there can be no assurance.

- 12 -

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Risks
Relating To Operations In Israel

The
Company Has Important Facilities And Resources Located In Israel, Which Has
Historically Experienced Military And Political Unrest.

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

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

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

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 2002, 2003 and 2004, 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 7.3%, (7.6)% and (0.02)%
respectively. Consequently, during
calendar years 2002, 2003 and 2004 the annual rate of inflation as adjusted for
devaluation (appreciation) was approximately 8.7%, (1.1)% and (1.8)%
respectively.

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

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

- 13 -

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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 50 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 and 30 days from the shareholder approvals of each of
the merging entities. 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.

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 45% 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.

- 14 -

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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 $1.52 and a low sales price of $0.60 during 2004 and may continue to be
highly volatile and subject to wide fluctuations in response to factors
including the following, some of which are beyond the Companys control:

| |   |                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------
| |  | actual or anticipated variations in the Companys
  quarterly operating results;                                                               
| |   |                                                                                                                                                
| |  | announcements of technological innovations or new
  products or services or new pricing practices by the Company or its
  competitors;         
| |   |                                                                                                                                                
| |  | changes in United States and other countries
  government regulations relating to approval of the Companys products;                         
| |   |                                                                                                                                                
| |  | results of regulatory inspections;                                                                                                             
| |   |                                                                                                                                                
| |  | the status of patents and proprietary rights
  relevant to the Companys products that are developed by the Company or its
  competitors;      
| |   |                                                                                                                                                
| |  | increased market share penetration by the Companys
  competitors;                                                                             
| |   |                                                                                                                                                
| |  | announcements by the Company or its competitors of
  significant acquisitions, strategic partnerships, joint ventures or capital
  commitments;
| |   |                                                                                                                                                
| |  | additions or departures of key personnel; and                                                                                                  
| |   |                                                                                                                                                
| |  | sales of additional ordinary shares.                                                                                                           

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

An
Investor Should Not Rely On An Investment in The Company If Such Investor
Requires Dividend Income; The Only Return That Such Investor May Receive May
Come From The Appreciation, If Any, In The Value Of The Companys Ordinary
Shares.

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

Controlling
Shareholders Can Limit Shareholders Ability To Influence The Outcome Of
Matters Requiring Shareholder Approval And Could Discourage Potential
Acquisitions Of The Companys Business By Third Parties; Pledge Of Shares.

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

Out
of the 4,944,475 shares, 3,822,428 are currently pledged 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.

- 15
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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 five million shares,
are restricted securities under the federal securities laws. 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.

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Item 4. INFORMATION ON THE COMPANY

A.       History
and Development of the Company

General

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

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

Important
Events in the Development of the Companys Business

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

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

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

In
October 1991, the Company consolidated the operations of Diatech Israel with
those of the Companys subsidiary Pronto Technologies Ltd. (Pronto).

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 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
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.

- 17
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In
December 1998, the Company transferred all of its shares of Gamidor UK to the
Companys principal shareholder Gamida and acquired one half of Gamidor UKs
remaining shareholding in Gamidor Diagnostics Limited (Gamidor Diagnostics
UK), formerly one of Gamidor UKs wholly-owned subsidiaries, but by that time
owned as to 52% by an unaffiliated third party (the Purchaser). Such
shareholding was subject to put and call options in favour of the Company and
the Purchaser respectively, and the Purchaser has since exercised such call
options in full.

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

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

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

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

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

On
August 19, 2003, the Company completed
the registration for sale of approximately four million shares held principally
by Gamida, as part of Gamidas pledge to the United Mizrahi Bank (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.

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

Investment in Afferix Ltd.

In
August 2003, Pronto, which has since merged into Gamidor, invested in Afferix
Ltd., 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.

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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 to 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 In
the beginning of 2005, the loan was converted into shares representing
approximately 27% of the issued and outstanding share capital of Afferix.
Currently, Gamidor is entitled to designate one director to the Afferix board
of directors but no longer has any veto
rights regarding any board or shareholders resolutions.

The Procognia Investment

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

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

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. . 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.

During
2004, Procognia completed two additional rounds of financing in which the Company did not participate,
thus diluting the Companys ownership interest in Procognia to approximately
4%. Owing to this dilution, the Company
lost its right to nominate a director on Procognias board.

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

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

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

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

- 19 -

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The
Savyon Transaction

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

On
December 31, 2002, the Company and Pronto, which has since merged into Gamidor,
entered into agreements with the Levine Family LP (LF), controlled by Dr.
Martin Lee, to establish Savyon Diagnostics Ltd. for the purpose of acquiring
Prontos clinical laboratory diagnostics business for a purchase price of
approximately $1.9 million. As of December 31, 2004, the remaining $0.24
million of the $1.9 million purchase price are to be paid by Savyon to Gamidor
by means of 12 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 between Pronto and GamidaGen
was cancelled.

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

Recent Developments

ImmvaRx Transaction

Further
to the term sheet which the Company signed with ImmvaRx Inc. on June 29, 2004,
the Company is negotiating a
transaction for the transfer by ImmvaRx to the Company of all of ImmvaRxs
assets, including its intellectual property, in exchange for up to an
approximate 87% interest in the
Company. In addition, ImmvaRx may conduct
a tender offer for the purchase of all of the Companys shares. Immvarx engages
in the development of therapies and diagnostic techniques addressing the
adenocarcinoma class of cancers and certain kinds of allergies. The proposed
transaction is subject to the negotiation and execution of a definitive
agreement and to customary closing conditions, including the receipt of
governmental and other third party consents, as well as the approval of
Healthcares stockholders. There can be
no assurance as to whether the transaction will occur.

The
current principal terms of the transaction provide that, at the closing
Healthcare will issue to ImmvaRx a two year warrant to purchase up to 1,000,000
Healthcare shares at an exercise price ranging from $1.00 to $1.25 per
share. Within 2 1/2 years from the
closing of the transaction, but not earlier than January 1, 2006, ImmvaRx may
conduct a tender offer for all of Healthcares shares at a price of $1.60 per
share. Healthcares principal shareholder, Gamida For Life BV, must tender no
less than 4.7 million of its shares in the tender offer. If the tender offer is completed within 2
1/2 years from the closing, ImmvaRx will have an option to sell all of its assets
to Healthcare in consideration for the issuance to ImmvaRx of 52 million
ordinary shares of Healthcare. If
ImmvaRx does not exercise its option after completing the tender offer, or does
not conduct the tender offer or complete it within two and a half years from
closing, Healthcare shall have a call option to purchase all of the ImmvaRxs
assets for the same consideration. The structure of the transfer of ImmvaRxs
assets shall be negotiated by the parties following the exercise of either
partys option, and the transfer of ImmvaRxs assets to the Company is subject
to the qualification for tax deferred treatment and the Companys shares
continuing to be traded following the transfer of the assets. If the tender offer is completed within 2
1/2 years from the closing, Gamida will have a call option to purchase all of
Healthcares shares in its current subsidiaries and affiliates in consideration
for $7.2 million. If Gamida does not
exercise its call option, Healthcare will have a put option for the sale of all
of its shares in its current subsidiaries and affiliates to Gamida for the same
consideration. As the agreement has yet
to be signed, the terms of the transaction described above may be subject to
change.

In
the event that the ImmvaRx transaction is completed, it would result in the
transfer of the Companys existing business to the Companys principal stockholder
and a change of control in the Company.
Thereafter, the success of the Company would depend upon the Companys
ability to complete the research and development and commercialization of
ImmvaRxs products and technologies in the cancer and allergy therapeutics
fields, of which there can be no assurance.

- 20
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Principal
Capital Expenditures and Divestitures

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

|                              |  |                                  |     |      |  |      |  |  |     | 
|----------------------------- |  | -------------------------------- | --- | ---- |  | ---- |  |  | --- | 
|                              |  | Year ended
  December 31,        |    
|                              |  |                                  |    
|                              |  | 2004                             |     | 2003 |  | 2002 | 
|                              |  |                                  |     |      |  |      | 
|                              |  | (in
  thousands of U.S. Dollars) |    
|                              |  |                                  |     |      |  |      |  |  |     | 
|Fixed Assets                  |  |                                  | 313 |      |  | 263  |  |  | 840 | 
|Patents, know-how, trademarks |  |                                  | 0   |      |  | 20   |  |  | 135 | 
|Total                         |  |                                  | 313 |      |  | 283  |  |  | 975 | 

The
figures of 2002 include Savyon and the figures of the years 2003 and 2004 do
not include Savyon.

For
information concerning material acquisitions and divestitures of business
interests by the Company since the beginning of fiscal 2002, see Item 4.
Information On The Company  A. History and Development of the Company and
Item 7. Major Shareholders and Related Party Transactions.

B.       Business Overview

General

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

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

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

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

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

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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 , $2.5 million, $3 million and $3.6 in
2002, 2003 and 2004 respectively, and
to the best of Savyons knowledge from both current sales figures and a network
of over 60 worldwide distributors, the worldwide serology based chlamydia
market has not undergone any material changes since 1999, thereby leaving
Savyons market share relatively unchanged. Savyon also manufactures
immunoassays for the diagnosis of infectious diseases, especially sophisticated
microplate-based enzyme immunoassays. Savyon focuses on specific segments of
the clinical diagnostics market and is positioned to identify ideas and turn
them into marketable products. Savyon
provides quality diagnostic tools to laboratory professionals and point of care
locations in Israel and worldwide. In
addition, Savyon markets kits for the diagnosis of certain infectious diseases
in the over-the-counter market in the United States. As a product developer, Savyon holds proprietary rights to
certain products in the in vitro diagnostics healthcare field. Savyon manufactures sophisticated
immunoassays for antibodies detection of certain pathogens of sexually
transmitted diseases (STD), particularly for the serological diagnosis of
chlamydial infections and of respiratory tract infections (RTI), and
sophisticated devices for the detection of urinary tract infections (UTI). Savyon operates under the quality standards
of ISO 13485:2003 and currently produces its diagnostic kits for the detection
of certain sexually transmitted diseases and other infectious diseases at its
Ashdod facility. Savyon has not
experienced any difficulty in obtaining supplies to date, there being many
available suppliers including chemical companies for reagents and antibodies and
for other supplies.

During
the past three fiscal years, the main categories of products manufactured by
Savyon have been medical diagnostic kits and related products. Savyons current products include enzyme
linked immunosorbent assay (ELISA) test kits, micro-immunofluorescence techniques
(MIF), immuno peroxidase assays (IPA), Uriscreen  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, a molecular biology based technology for
the detection of single nucleotide polymorphisms (SNPs) that is currently used
for genetic screening and testing of certain human genetic disorders.

Savyon 
Diagnostic Technology and Products

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

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

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

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

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

In
addition, Savyon manufactures SeroMPÔ
 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
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.

In
order to improve the diagnostic value of bordetella pertussis infection, Savyon
has developed the SeroPertussis 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
product line, which is produced by other manufacturers. The QuickStripe tests are rapid, quantitative
one-step systems based on immuno-chromatographic technology. QuickStripe 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 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 test results are usually obtained within less then an hour,
and generally provide a positive/negative result.

Savyon
also manufactures Uriscreen, 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 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.

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

|                                        |                                                                                                                                                                    
|--------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|SEXUALLY TRANSMITTED DISEASES
  (STDs) 
|PRODUCT                                 | DESCRIPTION                                                                                                                                                        
|SeroCT 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 Chlamydia IgG, IgM, IgA        | An immunofluorescence
  assay for the detection of IgG or IgM or IgA antibodies specific to C.
  trachomatis, C. pneumoniae and C. psittaci in human serum.        
|SeroELISA Chlamydia IgG, IgA, TRUE-IgM | An enzyme-linked
  immunosorbent assay for the detection of IgG or IgA or True IgM antibodies
  specific to chlamydia.                                             
|SeroHSV IgM                            | An enzyme-linked
  immunosorbent assay for the qualitative detection of specific IgM antibodies
  to herpes simplex virus type 1 or 2 in human serum.              

|                                          |                                                                                                                                                                       
|----------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|RESPIRATORY TRACT INFECTIONS (RTIs)      
|PRODUCT                                   | DESCRIPTION                                                                                                                                                           
|SeroCP IgG,IgM,IgA                       | An enzyme-linked
  immunosorbent assay for the qualitative detection of IgG or IgM or IgA
  antibodies specific to C. pneumoniae in human serum.                      
|SeroCP Quant IgG, IgA                     | An enzyme-linked
  immunosorbent assay for the semi-quantitative determination of IgG or IgA
  antibodies specific to C. pneumoniae in human serum.                   
|SeroMP IgG, IgM,
  IgA                   | An enzyme-linked
  immunosorbent assay for the detection of IgG or IgM or IgA antibodies
  specific to mycoplasma pneumoniae in human serum.                          
|SeroPertussis IgA/IgM, IgG               | An enzyme-linked
  immunosorbent assay for the semi-quantitative detection of IgG antibodies and
  IgA/IgM antibodies specific to bordetella pertussis in human serum.
|SeroFIA Chlamydia IgG, IgM, IgA *        | An immunofluorescence
  assay for the detection of IgG or IgA or IgM antibodies specific to C.
  pneumoniae, C. trachomatis and C. psittaci in human serum.           
|SeroELISA Chlamydia IgG, IgA, TRUE-IgM * | An enzyme-linked
  immunosorbent assay for the detection of IgG or IgA or True IgM antibodies
  specific to chlamydia.                                                

| |   |                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------
| |  | Savyons SeroFIA Chlamydia and SeroELISA Chlamydia
  kits may be used for the diagnosis of both STDs as well as for the diagnosis
  of RTIs.

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|                                |                                                                                            
|------------------------------- | -------------------------------------------------------------------------------------------
|URINARY TRACT INFECTIONS (UTIs)
|PRODUCT                         | DESCRIPTION                                                                                
|URISCREEN                      | A rapid UTI screening test for bacteria and the
  presence of somatic cells in human urine.

|              |                                                                                                                                                                                                                        
|------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|QUICKSTRIPEÔ 
|PRODUCT       | DESCRIPTION                                                                                                                                                                                                            
|Strep A       | A rapid, visual assay
  for the detection of streptococcal Group A antigen from throat swabs.                                                                                                                          
|Hepatitis B   | A rapid, visual assay
  for the detection of hepatitis B surface antigen (HbsAg) in human serum.
  hepatitis B affects the liver, can be fatal and is transmitted either through
  sexual contact or by infected blood.
|Chlamydia Ag  | A rapid, visual assay
  for the detection of chlamydia trachomatis antigen in endocervical, urethral,
  or male urine specimens.                                                                                       
|hcg           | A rapid, visual assay
  for the detection of human chorionic gonadotropin (hCG) in human serum or
  urine (a pregnancy testing kit).                                                                                   
|PregnanStick | A rapid, visual assay
  for the detection of human chorionic gonadotropin (hCG) in human serum or
  urine (a pregnancy testing kit).                                                                                   

The
Company  Technology and Products for Genetic Screening and Testing

The
proprietary Pronto 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).

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

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

|                                            |                                                        
|------------------------------------------- | -------------------------------------------------------
|CARRIER SCREENING AND PRE-NATAL
  DIAGNOSIS
|PRODUCT                                     | ASSOCIATED
  DISEASE GENE                              
|Gaucher                                     | Gaucher
  (glucocerebrosidase)                         
|FMF                                         | Familial
  Mediterranean Fever (Pyrin)                 
|Canavan                                     | Canavan
  (Aspartoacylase)                             
|Bloom/Fanconi                               | Blooms
  syndrome (BLM); Fanconi Anemia C (FACC)      
|CF
  Basic; CF Open; CF Euro 1              | Cystic Fibrosis (CFTR)                                 
|FD                                          | Familial
  Dysautonomia (IKBKAP)                       
|2 GeneScreen                                | Mucolipidosis type IV (ML
  IV), Niemann-Pick types A+B
|4 GeneScreen                                | Canavan, BLM, FACC,
  FD                               
|Tay Sachs                                   | Tay Sachs (hexosaminidase)                             

|                                   |                                                                     
|---------------------------------- | --------------------------------------------------------------------
|GENETIC PRE-DISPOSITION TO DISEASE
|PRODUCT                            | ASSOCIATED
  DISEASE GENE                                           
|Brca                               | Pre-disposition to breast cancer and ovarian cancer
  (Brca1, Brca2)
|ApoE                               | Hyper-cholesterolemia (Apolipoprotein E)                            
|APC                                | Pre-disposition to colorectal cancer                                
|ThromboRisk Ô                      | Increased risk of thrombosis (Factor V, Factor II,
  MTHFR)         
|Factor V                           | Increased risk of thrombosis                                        
|MTHFR                              | Increased risk of thrombosis                                        
|Factor II / Prothrombin            | Increased risk of thrombosis                                        
|Hemochromatosis                    | Hemochromatosis\ iron overload (HFE)                                

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

Research
and Developments  Savyon

The
Company, through Savyon mainly, is engaged in certain research and development
activities as detailed below. See Item
5D Operating and Financial Review and Prospects  Research and Development
Grants. These activities include
certain new projects in the diagnostic field. Savyons research and development
expenditures were approximately $626 thousand dollars and $474 thousand dollars
for the years 2004 and 2003 and represents Savyons effort in developing new
products.

Patents

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

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

In
the genetic field, the Company has seven granted patents that it utilizes in
producing its products (three of which have been assigned to PDL under the PDL
Agreement). The patents are registered
for methods of single nucleotide primer extension and kits therefore, of quick
screening and identification of specific DNA sequences by single nucleotide
primer extension and kits therefore, and of characterizing GC-rich nucleic acid
sequences. These methods relate to the
Companys Pronto genetic test products line. Three of the granted patents are registered
in Israel ,three are registered in the United States and one is registered in
Europe (national phase). All of them
expire between 2012 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 and the serologic fields, the Company has certain other
granted patents and applications for patents that are not utilized by it for
its products, will probably not be used in the future and, therefore, will not
be renewed.

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

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

Marketing and Sales  Gamidor Group, Danyel
and Savyon

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

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Marketing
and Sales in Israel

Clinical Diagnostics Laboratories  Gamidor
Group  www.gamidor.com

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

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

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

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

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

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

Biotechnology
Researchers  Danyel  www.danyel.co.il

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

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

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

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

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

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

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

Marketing
and Sales Worldwide  Savyon

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

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

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

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

Major
Suppliers

During
2003 and 2004, purchases from one of Danyels suppliers accounted for 34% and
31% for each year respectively of the Companys cost of sales.  In addition, during both 2003 and 2004,
purchases from one of Gamidors suppliers accounted for 15% and 15%
respectively of the company 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 Customers

Sales
to three sick funds in Israel, namely Maccabi, Clalit and Meuhedet
(collectively, the Sick Funds) accounted respectively for 5%, 14% and 3% of
the Companys annual sales during 2004, and 8%, 14% and 7% 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.

- 29 -

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

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

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

Danyel

Danyel
Biotechs principal competitors in the distribution of reagents and systems to
the biotechnology market in Israel include: Biorad Israel, Eldan
(Agilent), Medtechnica (Waters) in the field of chromatography; Pharmatec
(Tecan) and Saifan (Pe Life Science) in the field of advanced laboratory
instrumentation (fluorometers, counters); DeGroot (Greiner), Geter
(Corning)  in the field of bio-plastics; and Saifan (Pe Life Sciences
NEN-), Biological Industries (Promega), Dinco Renihum (Invitrogen) and Sigma
Israel in the field of molecular biology and Biology Reagents.  Although the Company is not aware of any
published industry market share statistics, it estimates, based upon its
knowledge of the industry, that in fiscal 2004 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; Teva Medical (Nequas) for quality control products; Dyn Diagnostics
(Roche) and Medtechnica (Olympus) for clinical chemistry products. Although the
Company is not aware of any published industry market share statistics, it
estimates, based upon its knowledge of the industry, that in fiscal 2004 the
Gamidor Group accounted for a significant portion of the Israeli
pathology,  genetics, hemostasis  products market and a lesser portion of the
Israeli market for the Groups other products.

Market
Opportunities

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

The
in vitro diagnostics market is large and essentially mature, with revenues of
over $20 billion. The Company believes that its moderate level of growth is
directly attributable to structural changes within the clinical laboratory
sector. Hospital laboratories are radically restructuring to lower costs and
improve productivity by way of liaison with in vitro diagnostics manufacturers.
They seek integrative technological solutions that automate all or a
significant portion of their testing workloads. The Company anticipates that
the pressure on clinical laboratories to reduce the costs of in vitro
diagnostic testing, coupled with the sluggish state of the market, may result
in a consolidation among in vitro diagnostics suppliers. The Company expects
the point of care and over-the-counter diagnostics segments to grow at a higher
rate than the traditional in vitro diagnostics market, however. For further
details as to the Companys current engagement in both areas, see below:
Market Segmentation  (end-user / product).

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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 QuickStripe products are
addressed to the point of care markets, emergency rooms, urgent medical care
and doctors offices. While the SeroFIA Chlamydia kits are generally used by
professionals in reference laboratories, the Companys SeroELISA Chlamydia,
SeroCT and SeroCP Kits are mainly used by large institutional laboratories
employing automated ELISA processors.

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.

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, 2004, 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 2004 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.

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

|            |  |                                  |  |                   |  |                
|----------- |  | -------------------------------- |  | ----------------- |  | ---------------
|Catalog No. |  | Product                          |  | FDA Approved 510K |  | CE Europe 98/79
|            |  |                                  |  |                   |  |                
|           
|A181-01     |  | SeroCT IgG                      |  |                   |  | Approved       
|A183-01     |  | SeroCT IgA                      |  |                   |  | Approved       
|511-01      |  | SeroFIA Chlamydia IgG           |  |                   |  | Approved       
|512-01      |  | SeroFIA Chlamydia IgM           |  |                   |  | Approved       
|513-01      |  | SeroFIA Chlamydia IgA           |  |                   |  | Approved       
|A111-01     |  | SeroELISAä Chlamydia IgG         |  | K915281/A         |  | Approved       
|A112-01     |  | SeroELISAä Chlamydia TRUE
  IgM  |  |                   |  | Approved       
|A113-01     |  | SeroELISAä Chlamydia IgA         |  | K914327/C         |  | Approved       
|011-01      |  | IPAzymeä Chlamydia IgG/IgA       |  | K910644           |  | Approved       
|012-01      |  | IPAzymeä Chlamydia TRUE IgM      |  | K901975/B         |  | Approved       
|B261-01M    |  | SeroMPä IgG                      |  | K882596/D         |  | Approved       
|B262-01M    |  | SeroMPä IgM                      |  | K895276/D         |  | Approved       
|B263-01M    |  | SeroMPä IgA                      |  | K882596/D         |  | Approved       
|A191-01     |  | SeroCPä IgG                      |  |                   |  | Approved       
|A192-01     |  | SeroCPä IgM                      |  |                   |  | Approved       
|A193-01     |  | SeroCPä IgA                      |  |                   |  | Approved       
|A291-01     |  | SeroCP Quant IgA                 |  |                   |  | Approved       
|A293-01     |  | SeroCP Quant IgG                 |  |                   |  | Approved       
|A231-01     |  | SeroPertussisä IgA/IgM           |  |                   |  | Approved       
|A233-01     |  | SeroPertussisä IgG               |  |                   |  | Approved       
|101-01      |  | URISCREENä                       |  | K981084           |  | Approved       
|4120-01     |  | QuickStripe Strep A             |  |                   |  | Approved       
|FF9911      |  | PRONTOTM BRCA                    |  |                   |  | Approved       
|F9903       |  | PRONTOTM ApoE                    |  |                   |  | Approved       
|F9905       |  | PRONTOTM Factor V                |  |                   |  | Approved       
|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       

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

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).

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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, Petach-Tikva, Ashdod and Rehovot in Israel.

The
Companys offices are located in Petach Tikva and are leased from Gamida for
Life (Israel) Ltd. (Gamida Israel), a company controlled by Gamida. 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 plus
parking space for an annual rental fee of approximately $50,000, linked to the
Israeli consumer price index.  Such
lease currently extends until September 2007.
In addition, the Gamidor Group has extended 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, ending May 30 2005. The agreement was extended for additional
three years for an annual rental fee of approximately $ 27,000.  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

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

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Item 5.  OPERATING AND FINANCIAL REVIEW AND
PROSPECTS

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

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

Revenues
for 2004 were $12.1 million compared to $12.4 million in 2003. This represents
stability in sales to laboratories and point of care sites in Israel. Revenues
for these two years do not include Savyons sales, which are presented on an
equity basis according to US GAAP. The gross profit was $4.2 million as
compared to $4.0 million for 2003. Amortization of goodwill and technology
amounted to $0 thousand in 2004 versus $749 thousand in 2003. The reason for
the decrease is due to the fact that the Company concluded the amortization of
technology related to its investments during 2003.

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

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

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

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

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

Year
ended December 31, 2003 compared to the Year ended December 31, 2002

Revenues
for 2003 were $12.4  million compared to
$16.7 million in 2002. The decrease is mainly, as mentioned, due to the
deconsolidation of Savyon in 2003. Gross profit was $4.0 million as compared to
$5.4 million for 2002.

Selling,
general and administrative expenses decreased in 2003 and were approximately
$4.3 million compared to approximately $5.7 million in 2002. This decrease in
selling, general and administrative expenses is primarily as a result of the deconsolidation
of Procognias and Savyons activities starting April 1, 2002 and January 1
2003 respectively.

Net
research and development costs for the year of 2003 were $94 thousand as compared to $912
thousand in 2002, primarily as a result of the deconsolidation of Procognias
and Savyons activities starting April 1, 2002 and January 1 2003 respectively.
However, Savyons total net research and development expenditures for 2003 were
$474 thousand as compared to $422 thousand in 2002 represent Savyons efforts in developing new
products. Net profit loss for fiscal 2003 was $500 thousand or $0.07 per
share, as compared to a net loss of $1.8 million, or $0.24 per share for fiscal
2002.

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Critical
Accounting Policies

Managements
discussion and analysis of the Companys financial condition and results of
operations are based upon its consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States, The Companys critical accounting policies are described in
Note 2 to the Companys financial statements.
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 year
ended December 31, 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.

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:

| |   |                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------
| | § | significant underperformance relative to expected
  historical or projected future operating results;                        
| |   |                                                                                                                              
| | § | significant changes in the manner of the Companys
  use of the acquired assets or the strategy for its overall business; and
| |   |                                                                                                                              
| | § | 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.

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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.

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.

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.

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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.

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

On
December 31, 2004, the Company had working capital of approximately $2.8
million and shareholders equity of approximately $1.9 million.  On May 29, 2005, the Company completed the
sale of its shares in Procognia which resulted in an increase of the Companys
stockholders equity by approximately $4.8 million.

During
the year ended December 31, 2004, the cash flows used for operating activities
were approximately $0.3 million and the Company used $ 0.08 million of net cash
flows for investing activities. The company invested $0.3 million in fixed
assests using collection of long-term receivables amounting to $227 thousand
and proceeds from sale of fixed assets amounting $78 thousand.

At
December 31, 2004, the Company had short-term bank credit of approximately $0.9
million (including current maturities of long term bank loans) and long-term
liabilities of $0.1 million. The Company believes that revenues from
operations, bank credits, its available cash resources and the $240 thousand
remaining balance of the Savyon purchase price will provide sufficient funds to
meet anticipated cash requirements for the Companys planned operations over
the next twelve months.

D.       Research
and Development, Patents and Licenses, Etc.

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

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

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

|                                                                                                             |  |                                  |    |      |  |      |  |  |       |  
|------------------------------------------------------------------------------------------------------------ |  | -------------------------------- | -- | ---- |  | ---- |  |  | ----- | -
|                                                                                                             |  | Year ended
  December 31,        |   
|                                                                                                             |  |                                  |   
|                                                                                                             |  | 2004                             |    | 2003 |  | 2002 | 
|                                                                                                             |  |                                  |    |      |  |      | 
|                                                                                                             |  | (in
  thousands of U.S. Dollars) |   
|                                                                                                             |  |                                  |    |      |  |      |  |  |       |  
|Gross research and development expenses                                                                      |  |                                  | 95 |      |  | 94   |  |  | 1,070 |  
|Portion funded by the European Unions 5th
  Framework Program (FP5) (The CHEMAG Project  detailed below) |  |                                  |   |      |  |     |  |  | (158  | )
|                                                                                                             |  |                                  |    |      |  |      |  |  |       |  
|Net research and development expenses                                                                        |  |                                  | 95 |      |  | 94   |  |  | 912   |  
|                                                                                                             |  |                                  |    |      |  |      |  |  |       |  

Savyon research and
development expenses for the years 2003 and 2004 that are excluded from the
table above are $474 thousands and $626 thousands respectively

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

To
date, the Company, excluding Savyon, has received approximately $0.66 million
in grants for 1  project for the
development of genetic diagnostic kits. The Companys contingent obligations
based upon the OCS project are approximately $0.53 million. As at December 31,
2004 the Company had paid the Chief Scientist approximately $0.13 million in
royalties at a royalty rate of 3.5%.

CHEMAG
Consortium

Savyon
is a member of a consortium (CHEMAG Consortium) engaged in a research and
development project, commenced in September 2001, into novel paramagnetic
materials, surface activation and nucleic acid modification chemistries for
application in biology, chemistry, health/medicine/diagnostics and the
environment (CHEMAG Project). The CHEMAG Consortium is funded by the
European Unions 5th Framework Program (FP5) with a total budget of
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 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 465,125. As of December 31, 2004 the
Company had received 330,000 and expects to have received approximately
130,000 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 that with
regard to the exploitation of any Foreground intellectual property rights
resulting from the performance of the project, whether patents, patent
applications, registered designs or copyrights that a separate contract between
the respective partners is to be made in a timely manner.

NACBO
Project

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

E.       Trend
Information

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 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.

The
first quarter financial reports of 2005 demonstrate stability in the Companys
operations. Revenues for the first quarter ended March 31, 2005 were $3.1
million, as compared to $2.96 million for the corresponding quarter last year.
The first quarter gross profit was $1.11 million, as compared to $1.26 million
in the first quarter of 2004. The net income for the quarter was $163 thousands
compared with net income of $228 thousands, for the first quarter of 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.

|                    |  |                                                           |  |                               |        |      |  |        |  |  |        | 
|------------------- |  | --------------------------------------------------------- |  | ----------------------------- | ------ | ---- |  | ------ |  |  | ------ | 
|Geographic
  Market |  | Product
  Category                                        |  | 2004                          |        | 2003 |  | 2002   | 
|                    |  |                                                           |  |                               |        |      |  |        | 
|                    |  |                                                           |  | in
  thousand of U.S. Dollars |       
|                    |  |                                                           |  |                               |       
|Israel              |  | Reagents and systems for the molecular biology
  industry |  |                               | 5,177  |      |  | 5,061  |  |  | 4983   | 
|                    |  |                                                           |  |                               |        |      |  |        |  |  |        | 
|                    |  | Reagents and systems for clinical laboratories            |  |                               | 6,654  |      |  | 7,351  |  |  | 8369   | 
|                    |  |                                                           |  |                               |        |      |  |        |  |  |        | 
|total               |  |                                                           |  |                               | 12,130 |      |  | 12,412 |  |  | 13,352 | 
|Europe              |  | Serology and others                                       |  |                               | *      |      |  | *      |  |  | 2,584  | 
|                    |  |                                                           |  |                               |        |      |  |        |  |  |        | 
|Rest of the world   |  | Serology and others                                       |  |                               | *      |      |  | *      |  |  | 740    | 
|Total               |  |                                                           |  |                               | 12,130 |      |  | 12,412 |  |  | 16,676 | 

*2004 and 2003 do not include sales of serology and
other diagnostic products by the Companys 50% owned affiliate, Savyon.

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F.       Off-Balance Sheet
Arrangements

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

G.       Tabular
Disclosure of Contractual Obligations

The
following table summarizes our minimum contractual obligations and commercial
commitments, including obligations of discontinued operations, as of December
31, 2004 and the effect we expect them to have on our liquidity and cash flow
in future periods:

| |                               |  |                                                |       |                    |  |               |  |               |       |                      |  |   |  |  |   | 
| | ----------------------------- |  | ---------------------------------------------- | ----- | ------------------ |  | ------------- |  | ------------- | ----- | -------------------- |  | - |  |  | - | 
| |                               |  | Payments
  due by period
  in thousands of USD |      
| |                               |  |                                                |      
| | Contractual Obligations       |  | Total                                          |       | less than
  1 year |  | 1  3
  years |  | 3  5
  years |       | more than 
  5 years | 
|
| |                               |  |                                                |       |                    |  |               |  |               |       |                      |  |   |  |  |   | 
| |                               |  |                                                |       |                    |  |               |  |               |       |                      |  |   |  |  |   | 
| | Long-Term Debt
  Obligations  |  |                                                | 788   |                    |  | 86            |  |               | 702   |                      |  |  |  |  |  | 
| |                               |  |                                                |       |                    |  |               |  |               |       |                      |  |   |  |  |   | 
| | Operating Lease
  Obligations |  |                                                | 414   |                    |  | 190           |  |               | 224   |                      |  |  |  |  |  | 
| |                               |  |                                                |       |                    |  |               |  |               |       |                      |  |   |  |  |   | 
| | Purchase
  Obligations (1)    |  |                                                | 4,828 |                    |  | 2,414         |  |               | 2,414 |                      |  |  |  |  |  | 
| |                               |  |                                                |       |                    |  |               |  |               |       |                      |  |   |  |  |   | 
| |                               |  |                                                |       |                    |  |               |  |               |       |                      |  |   |  |  |   | 
| | Total                         |  |                                                | 6,030 |                    |  | 2,690         |  |               | 3,340 |                      |  |  |  |  |  | 
| |                               |  |                                                |       |                    |  |               |  |               |       |                      |  |   |  |  |   | 

(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.

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Item
6.  DIRECTORS, SENIOR MANAGEMENT AND
EMPLOYEES

A.       Directors
and Senior Management

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

| |                  |  |     |  |                                                            
| | ---------------- |  | --- |  | -----------------------------------------------------------
| | Name             |  | Age |  | Position with the Company                                  
| |                  |  |     |  |                                                            
| | Daniel Kropf     |  | 57  |  | Chairman of the Board of Directors and Director
  (Class D)
| | Moshe Reuveni    |  | 49  |  | Chief Executive Officer and Director (Class A)             
| | Eran Rotem       |  | 37  |  | Chief Financial Officer                                    
| | Yacob Ofer       |  | 56  |  | Director (Class D)                                         
| | Rolando Eisen    |  | 63  |  | Director (Class C)                                         
| | Samuel Penchas   |  | 65  |  | Director (Class B)                                         
| | Israel Amir      |  | 63  |  | Director (Class B)                                         
| | Ethan Rubinstein |  | 63  |  | Director (Class A)                                         
| | Varda
  Rotter   |  | 58  |  | External Director                                          
| | Elan Penn        |  | 54  |  | External Director                                          

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 organizations 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:
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.

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.

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

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

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

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

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.

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

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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.

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

B.       Compensation

The
aggregate direct compensation paid or accrued on behalf of all directors and
executive officers of the Company as a group during the 2004 fiscal year and in
respect of such year was approximately $930,000, which includes expenses and
amounts set aside or accrued to provide pension, retirement or similar benefits
(which amounts constitute the Companys entire obligation towards said
directors and executive officers in respect of severance pay), as well as
annual consultancy fees paid to certain directors and amounts expended by the
Company for automobiles made available to its officers (but excluding insurance
premiums paid in respect of Directors & Officers Liability
Insurance).  See Item 7. Major
Shareholders and Related Party Transactions  B. Related Party Transactions.

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

Compensation
of Individual Directors

Included
in the aggregate directors and officer s compensation figure for 2004 set
forth above were amounts paid pursuant to the following individual compensation
arrangements:

Mr.
Daniel Kropf: In 2004, 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 2004.

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

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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.

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.  On August 24 ,2004, the Audit
Committee and the Board of Directors, and on December 20, 2004, the
shareholders,  approved the granting to
Yacob Ofer of options to purchase up to 62,500 Ordinary Shares of the Company.
Mr. Ofers options are exercisable in accordance with the provisions of the
2000 Plan, each into one Ordinary Share of the Company, NIS 0.04 nominal value,
at an exercise price of $0.86, subject to a vesting schedule of three years,
1/3 on each of August 24, 2005, 2006, and 2007.

Following
the option issuance to Messers. Reuveni and Rotem during 2003 and the issuance
to Yacob Ofer in 2004, and the expiration of Eliezer Helfans, Ethan Rubinsteins
and Luly Gurevichs options in 2005, options to purchase 175,000 ordinary
shares remain available for issuance under the plan.

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

C.       Board
Practices

Terms of
Office

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

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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.

The
Israeli Companies Law-1999 was most recently amended in March 2005 and requires
the board of directors of a public company to determine the number of directors
who shall possess accounting and financial
expertise. This requirement is subject to, and will only enter into
effect upon, the promulgation of regulations by the Israel Minister of Justice,
which have not yet been published. The board of directors must make such
determination by no later than 90 days following publication of such
regulations.

The
Company may be deemed to be a controlled company under the applicable Nasdaq
regulations because the Companys principal stockholder owns approximately 64%
of the Companys issued and outstanding shares.  As such, the Company is exempt from the requirements of Nasdaq
Rule 4350(c) with respect to the nomination of directors.

Alternate
Directors

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

External
Directors

Pursuant
to Israeli law, the Company is required to appoint two external directors.
These directors must be unaffiliated with the Company and its principals. A person shall be qualified to serve as an
external director only if he or she possesses accounting and financial
expertise or professional qualifications. At least one external director must
posses accounting and financial expertise. As aforesaid, the criteria for
accounting and financial expertise or professional qualifications are subject
to promulgation of regulations by the Israel Minister of Justice in consultation
with the Israel Securities Authority, which have not yet been published;
moreover, these criteria do not apply to external directors appointed before
the recent amendment to the Companies Law  1999, but will apply to their
reappointment for an additional term. 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.

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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 2004 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 2004 were Professors. Varda Rotter, Ethan Rubinstein
and Samuel Penchas (who was appointed on July 22, 2004) and Messers. Rolando
Eisen, Eliezer Helfan (who resigned on December 27, 2004) and Elan Penn.

Audit
Committee

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

The
Companys audit committee is comprised of Professors Varda Rotter, Samuel
Penchas and Dr. Elan Penn.   Mr. Eliezer
Helfan and Mr. Ethan Rubinstein resigned from the audit committee on December
27, 2004 and May 30, 2005, respectively.
The Company has determined that the members of the audit committee meet
the applicable Nasdaq and SEC independence standards.  In addition, the Company has determined that Dr. Elan Penn is a
financial expert as defined by the SEC.

D.       Employees

As
of December 31, 2004, the Company (directly and through its subsidiaries)
employed at its facilities 125 persons, of whom 26 were employed in production,
8 in research and development and 91 in marketing, administration and
management.

| |                                                    |  |                         |     |      |  |      |  |  |     | 
| | -------------------------------------------------- |  | ----------------------- | --- | ---- |  | ---- |  |  | --- | 
| |                                                    |  | Year ended December 31, |    
| |                                                    |  |                         |    
| | Number of Employees  employed by the Company in *: |  | 2004                    |     | 2003 |  | 2002 | 
| |                                                    |  |                         |     |      |  |      | 
|
| |                                                    |  |                         |     |      |  |      |  |  |     | 
| |                                                    |  |                         |     |      |  |      |  |  |     | 
| | Management, sales and marketing                    |  |                         | 91  |      |  | 67   |  |  | 84  | 
| |                                                    |  |                         |     |      |  |      |  |  |     | 
| | Research and
  development                         |  |                         | 8   |      |  | 8    |  |  | 8   | 
| |                                                    |  |                         |     |      |  |      |  |  |     | 
| | Production                                         |  |                         | 26  |      |  | 30   |  |  | 27  | 
| |                                                    |  |                         |     |      |  |      |  |  |     | 
| |                                                    |  |                         |     |      |  |      |  |  |     | 
| | Total                                              |  |                         | 125 |      |  | 119  |  |  | 119 | 
| |                                                    |  |                         |     |      |  |      |  |  |     | 

*
Including Savyons employees which were 56 and 46 in fiscal 2004 and 2003
respectively.

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

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

A
general practice in Israel, which is followed by the Company, although not
legally required, is the contribution of funds on behalf of its senior
employees to a Managers Insurance fund. This fund provides a combination of
savings plan, insurance and severance pay benefits to the employee, giving the
employee a lump sum payment upon retirement and securing his right to receive
severance pay, if legally entitled, upon termination of employment. The
employee contributes an amount equal to 5% of his wages and the employer
contributes an additional 13.3% to 15.8%. 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.

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E.       Share
Ownership

As
of December 31, 2004, none of the executive officers and directors of the
Company owned individually an amount of ordinary shares equal to or greater
than 1% of the outstanding ordinary shares, other than Mr. Kropf (indirectly,
as controlling shareholder of the parent company of Gamida).  See Item 7 Major Shareholders and Related
Party Transactions  A. Major Shareholders.
The following table sets forth, as of June 29, 2005, 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:

|              |  |             |  |                |   |                  |  |  |                                                                                 
|------------- |  | ----------- |  | -------------- | - | ---------------- |  |  | --------------------------------------------------------------------------------
|Name          |  | No. Options |  | Exercise Price |   | Termination Date
|              |  |             |  |                |   |                 
|             
|Eran Rotem    |  | 95,000      |  |                | $ | 0.38             |  |  | 180 days from the date of
  termination of Mr. Rotems employment agreement *   
|              |  |             |  |                |   |                  |  |  |                                                                                 
|Moshe Reuveni |  | 100,000     |  |                | $ | 0.35             |  |  | 180 days from the date of
  termination of Mr. Reuvenis employment agreement **
|              |  |             |  |                |   |                  |  |  |                                                                                 
|Yacob Ofer    |  | 62,500      |  |                | $ | 0.86             |  |  | 180 days from the date of
  termination of Mr. Ofers employment agreement***   

|    |                                                                                         
|--- | ----------------------------------------------------------------------------------------
|*   | five year vesting
  schedule:  1/5 on each of May 20,
  2003, 2004, 2005, 2006 and 2007.
|    |                                                                                         
|**  | four year vesting schedule:  1/4 on each of February 1, 2004, 2005,
  2006 and 2007.­­  
|    |                                                                                         
|*** | three year vesting schedule: 1/3 on each of August
  24, 2005, 2006, and 2007.          

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Item 7.  MAJOR SHAREHOLDERS AND
RELATED PARTY TRANSACTIONS

A.       Major Shareholders

The
following table sets forth, June 15, 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.

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



---

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | Based on 7,702,832ordinary shares NIS 0.04
  outstanding on June 29, 2005. Also see (2) below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|2. | Gamida is the principal holding company of the
  Gamida Group (formerly the Eryphile Group), which engages in research,
  development, production and distribution of products and services for
  healthcare in various territories, including France, Israel, the United
  Kingdom, Turkey and Bulgaria. Gamidas share ownership had increased by 18%
  in October 2001, mainly due to a private placement (See Item 4. Information
  On The Company  A. History and Development of the Company  Recent
  Developments above). During 2003 Gamida increased its percentage ownership
  in the Company by 14% through the acquisition of 1,122,317 ordinary shares in
  a private transaction. Approximately 80% of Gamidas holdings in the Company
  are held by 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

As
of April 27, 2005 there were 7,702,832 ordinary shares outstanding, 87 stockholders of record and more
than 300 beneficial owners of its ordinary shares

B.       Related Party and
Inter-Company Transactions

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

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 and Chief Executive Officer. The
Fees were paid on a monthly basis, plus VAT at the rate legally applicable at
the time of payment. The services and payment of the Fees were mutually
terminable upon ninety (90) days prior written notice by either the Company or
Gamida Israel. The Fees were paid in respect of Mr. Kropfs services commencing
as of October 1, 1999. The fees for the period from October 1999  January 2003
were determined at $10,000 per month, based on (i) an aggregate of $120,000 per
annum. No additional fees were paid in respect of Mr. Kropfs services while
acting as Chief Executive Officer of the Company. Following approval by the Companys audit committee and board
of directors on November 2004, respectively, the Companys shareholders, on
December 20, 2004, approved the
following: Effective as of January
1, 2004, the annual service fees payable by the Company to Gamida Israel in
consideration for the services of Mr. Daniel Kropf as Chairman of the Board of
Directors shall be $120,000 per annum, such fees to continue to be
paid on a monthly basis plus VAT at the rate legally applicable at the time of
payment, and both said services and the payment of such fees to remain mutually terminable upon ninety (90) days
prior written notice by either the Company or Gamida Israel.

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

Until
March, 2002, Gamida Israel provided the Company with financial management,
accounting and book-keeping services for an aggregate annual fee of $316,000,
which had been approved by the Companys board of directors, audit committee
and shareholders meeting. In March 2002, the Companys board of directors,
audit committee and shareholders approved a revision of the foregoing
arrangements, as a result of which the Company with effect from January 2002 is
to provide the Gamida Group as well as itself with the services previously
rendered by Gamida Israel and Gamida Group is to reimburse the Company for its
proportionate share of the expenses of providing such services. Accordingly,
the Company received payment amounting to an annual sum of approximately $81,400 (not including subsidiaries) for the
years 2004 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 2004, Mr. Keene provided
such legal services at a cost amounting to approximately $100,000.

Professor
Ethan Rubinstein

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

During 2004, the Companys
audit committee, the board of directors and shareholders, respectively,
approved an aggregate payment to Professor Rubinstein of approximately $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. . In December 2004, shareholder approval for
such payment was 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.

Eliezer
Helfan

Mr.
Helfan served, until his resignation on December 27, 2004, 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. .In
December 2004, shareholder approval for such payment was obtained.

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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 former subsidiary of Gamida
Israel.

Acquisition
of GamidaGen

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

Sale of
Procognia

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

|   |                                                                                                                                                                                          
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | Upon signing the agreement, Gamida paid the Company
  an initial payment of $10,000 in consideration for all of the shares in
  Procognia held by the Company (the Procognia
  Shares).

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|   |                                                                                                                                            
|-- | -------------------------------------------------------------------------------------------------------------------------------------------
|2. | Upon the occurrence of any of the following events,
  Gamida shall make one additional payment to the Company as further described
  below:

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | In the event an agreement is executed with ImmvaRx,
  Inc. (ImmvaRx), and ImmvaRx
  consummates a tender offer as contemplated therein (the Tender Offer), Gamida shall pay the
  Company $420,000.                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | b. | In the event the agreement with ImmvaRx is not
  executed or in the event it is executed but ImmvaRxs option to execute the
  Tender Offer expires before consummation thereof, Gamida will pay the
  Company, upon the sale of the Procognia Shares, all amounts received in
  consideration therefore (the Post-Tender Offer Consideration) equivalent to
  an amount no greater than $420,000, plus, if any, 30% of the remaining Post
  Tender-Offer Consideration.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | c. | Notwithstanding the above events, in the event:                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | i.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | Gamida, within one year of
  the execution date of the Agreement, either sells the Procognia Shares and/or
  executes a letter of intent with a potential purchaser of the Procognia
  Shares (the Sale); and
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                
| |    | ii.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | the Sale occurs prior to the
  consummation of the Tender Offer,                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                
| |    | Gamida will pay the Company,
  upon the sale of the Procognia Shares, all amounts received in consideration
  therefore (the Pre-Tender Offer Consideration)
  up to $420,000, plus, if any, 80% of the remaining Pre-Tender Offer Consideration.                                                                                                                                                                                                                       

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

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.

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

Legal
Proceedings

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

- 51
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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:

|            |  |      |      |     |  |     
|----------- |  | ---- | ---- | --- |  | ----
|Fiscal Year |  | High |      | Low | 
|            |  |      |      |     |  |     
|2000        |  |      | 3.84 |     |  | 0.78
|            |  |      |      |     |  |     
|2001        |  |      | 1.03 |     |  | 0.48
|            |  |      |      |     |  |     
|2002        |  |      | 0.68 |     |  | 0.2 
|            |  |      |      |     |  |     
|2003        |  |      | 1.9  |     |  | 0.25
|            |  |      |      |     |  |     
|2004        |  |      | 1.52 |     |  | 0.6 

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

|               |  |      |      |     |  |     
|-------------- |  | ---- | ---- | --- |  | ----
|2003           |  | High |      | Low | 
|               |  |      |      |     |  |     
|First Quarter  |  |      | 0.54 |     |  | 0.25
|Second Quarter |  |      | 0.78 |     |  | 0.25
|Third Quarter  |  |      | 1.76 |     |  | 0.5 
|Fourth Quarter |  |      | 1.9  |     |  | 1.02

|               |  |      |      |     |  |     
|-------------- |  | ---- | ---- | --- |  | ----
|               |  |      |      |     |  |     
|2004           |  | High |      | Low | 
|               |  |      |      |     |  |     
|First Quarter  |  |      | 1.5  |     |  | 1.05
|Second Quarter |  |      | 1.52 |     |  | 0.72
|Third Quarter  |  |      | 1.18 |     |  | 0.6 
|Fourth Quarter |  |      | 0.87 |     |  | 0.6 

- 52 -

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

|               |  |      |      |     |  |     
|-------------- |  | ---- | ---- | --- |  | ----
|Month          |  | High |      | Low | 
|               |  |      |      |     |  |     
|December, 2004 |  |      | 0.76 |     |  | 0.61
|January, 2005  |  |      | 0.75 |     |  | 0.62
|February, 2005 |  |      | 0.58 |     |  | 0.75
|March, 2005    |  |      | 1.45 |     |  | 0.58
|April, 2005    |  |      | 0.9  |     |  | 0.5 
|May, 2005      |  |      | 1.16 |     |  | 0.44

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, and as amended most recently in March 2005, 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 unaffiliated with the company on whose board
they serve and such companys principals. They are entitled to obtain all
information relating to such companys management and assets and to receive
assistance, in special cases, from outside experts at the expense of the
company. The Companies Law imposes an obligation on these directors to convene
a meeting of a companys board of directors upon becoming aware of matters that
suggest infringements of law, neglect of good business practice or improper
conduct. A person shall be qualified to
serve as an External Director only if he or she possesses accounting and
financial expertise or professional qualifications. At least one external
director must posses accounting and financial expertise. The criteria for
accounting and financial expertise or professional qualifications are subject
to promulgation of regulations by the Israel Minister of Justice in consultation
with the Israel Securities Authority, which have not yet been published;
moreover, these criteria do not apply to External Directors appointed before
the recent amendment to the Companies Law.

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.

- 53
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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, and on December 20, 2004 the shareholders re-appointed her
in the same capacity. In December 2003, the Companys shareholders appointed
Mr. Elan Penn in the same capacity. Both Prof. Rotter and Mr. Penn have been
serving as External Directors from the date of their respective appointments to
date.

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.

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

| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | undertake in advance to exempt any Office Holder (as
  such term is defined in the Companies Law and described below), from such
  Office Holders responsibility or liability for damages caused to the Company
  due to any breach of such Office Holders duty of care towards the Company                                                                                                                                                              
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (ii)  | indemnify any Office Holder to the fullest extent
  permitted by the Companies Law                                                                                                                                                                                                                                                                                                                                                                         
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (iii) | resolve retroactively to indemnify an Office Holder
  with respect to certain monetary liabilities imposed on an Office Holder
  pursuant to a judgment and certain reasonable legal expenses incurred by the
  Office Holder, provided that such liabilities or expenses were incurred by
  such Office Holder in such Office Holders capacity as an Office Holder of
  the Company                                                                      
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (iv)  | undertake, in advance to indemnify a Companys
  Office Holder for the foreseeable liabilities and expenses described in
  section (iii) above up to a maximum amount set by the board of directors.                                                                                                                                                                                                                                                       
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (v)   | enter into an agreement to insure an Office Holder
  for any liability that may be imposed on such Office Holder in connection
  with an act performed by such Officer Holder in such Office Holders
  capacity, with respect to (i) a violation of the duty of care of the Office
  Holder; (ii) a breach of the fiduciary duty of the Office Holder; and (iii) a
  financial obligation imposed on the Office Holder for the benefit of another
  person

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

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).

- 54
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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. In a
public company, a private placement also requires shareholder approval if it
meets all of the following conditions: (1) the private placement will increase
the relative holdings of a principal shareholder or will cause any person to
become a principal shareholder, as a result of the issuance; (2) 20 percent or
more of the voting rights in the company prior to such issuance are being
offered; and (3) all or part of the consideration for the offering is not cash
or registered securities, or the private placement is not being offered at
market terms. In addition, under the Companies Law, certain transactions or a
series of transactions are considered to be one private placement.

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, 200,
there were 7,702,832 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:

| |   |                                                                                
| | - | -------------------------------------------------------------------------------
| |  | any amendment to the Articles of Association;                                  
| |   |                                                                                
| |  | an increase of the authorized share capital of the
  Company;                  
| |   |                                                                                
| |  | a merger; or                                                                   
| |   |                                                                                
| |  | 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:

| |   |                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------
| |  | there is 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 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.

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.

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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 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 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 465,125. As of December 31, 2004 the Company had
received 330,000 and expects to have received approximately 130,000 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 with regard to the exploitation of
any Foreground intellectual property rights resulting from the performance of
the project, whether patents, patent applications, registered designs or
copyrights, that a separate contract between the respective partners is to be
made in a timely manner.

Agreements
with Levine Family LP: On December 31, 2002, the Company
and Pronto, entered into agreements with the Levine Family LP (LF),
controlled by Dr. Martin Lee, to establish Savyon Diagnostics Ltd. for the
purpose of acquiring Prontos clinical laboratory diagnostics business for a
purchase price of approximately $1.9 million. As of December 31, 2004, the
remaining $0.24 million of the $1.9 million purchase price are to be paid by
Savyon to Gamidor by means of 12 consecutive monthly installments of $20
thousand each.

- 58
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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 and Procognia

Procognia

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

Danyel

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

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.

- 59
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According
to the agreement, the Company acknowledged Mr. Gurevichs entitlement to
specific terms of an employment agreement as of January 1, 1997 (see below). In
1998 Danyel and Mr. Gurevich entered into an employment agreement effective as
of October 1, 1998 which was later replaced with a services agreement on
essentially the same terms. Mr. Gurevichs service agreement includes, a fixed
fee, entitlement to options to purchase Company shares, as well as to receive
5% of Danyels annual profits. The agreement is for an initial period of five
years commencing October 1998, automatically renewed every two years
thereafter. Either party may decide not to extend the agreement upon six months
prior written notice.

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

D.       Exchange Controls

Under
Israeli Law, non-residents of Israel who purchase ordinary shares of the
Company outside of Israel will be able to receive dividends, if such be
declared, and any amounts payable upon the dissolution, liquidation or winding
up of the affairs of the Company, which will be freely repatriable in certain
non-Israeli currencies (including Dollars) at the rate of exchange prevailing
at the time of conversion, provided that Israeli income tax has been paid on
such amounts by the holders of such ordinary shares.

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

E.       Taxation

Israeli
tax considerations

The
following contains a discussion of certain Israeli tax consequences to U.S.
Shareholders (as defined below under U.S. Federal Income Tax Considerations)
of ordinary shares. To the extent that the discussion is based on new tax
legislation that has not been subject to judicial or administrative relevant
interpretation, there can be no assurance that the views expressed in the
discussion will be accepted by the tax authorities. This discussion is not
intended, and should construed, as legal or professional tax advice and is not
exhaustive of all possible tax considerations.

Tax
reform

On
January 1, 2003, the Law for Amendment of the Income Tax Ordinance (Amendment
No.132), 2002, or the Tax Reform, came into effect, following its enactment by
the Israeli Parliament on July 24, 2002. On December 17, 2002, the Israeli
Parliament approved a number of amendments to the Tax Reform, which came into
effect on January 1, 2003. Other regulations and decrees relating to the Tax
Reform were executed as well.

The
Tax Reform, aimed at broadening the categories of taxable income and reducing
the tax rates imposed on employment income, introduced the following, among
other things:

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Reduction of the tax rate levied on capital gains
  (other than gains deriving from the sale of listed securities) derived after
  January 1, 2003, to a general rate of 25% for both individuals and
  corporations. Regarding assets acquired prior to January 1, 2003, the reduced
  tax rate will apply to a proportionate part of the gain, in accordance with
  the holding periods of the asset, before or after January 1, 2003, on a
  linear basis;                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Re-defining residency for tax purposes. A companys
  residency for tax purposes is determined, as of January 1 2003, according to
  its place of organization (instead of the companys place of registration and
  main activity).                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | This test was legislated additionally to the control
  and management test, which has been applied prior to the Tax Reform.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Imposition of Israeli tax on all income of Israeli
  residents, individuals and corporations, regardless of the territorial source
  of income, including income derived from passive sources such as interest,
  dividends and royalties;                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Introduction of controlled foreign corporation, or
  CFC, rules into the Israeli tax structure. Generally under such rules, an
  Israeli resident who holds, directly or indirectly, 10% or more of the rights
  in a foreign corporation whose shares are not publicly traded, in which more
  than 50% of rights are held directly or indirectly by Israeli residents,
  which has undistributed profits a majority of whose income in a tax year is
  considered passive income, and the income tax rate is less then 20% abroad,
  will be liable for tax on the portion of such income attributed to his
  holdings in such corporation, as if such income were distributed to him as a
  dividend;
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Imposition of capital gains tax on capital gains
  realized by individuals as of January1, 2003, from the sale of shares of
  publicly traded companies (which was previously exempt from capital gains tax
  in Israel).                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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| |                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | For information with respect to the applicability of
  Israeli capital gains taxes on the sale of ordinary shares, see Capital
  Gains Tax applicable to Shareholders below;
| |                                                                                                                                                                               
| | Introduction of a new regime for the taxation of
  shares and options issued to employees and officers (including directors).                                                 

Statutory
corporate tax rate

Israeli
companies are generally subject to corporate tax on their taxable income at a
rate of 35% ( in the 2004 tax year), 34% (in the 2005 tax year), 32% (in the
2006 tax year) and 30% (in and after the 2007 tax year). In the Companys case,
as described below, the rate is currently effectively reduced.

Taxation
of Non-Residents

Special
provisions relating to measurement of taxable income

We
measures our taxable income in accordance with the Income Tax Law (Inflationary
Adjustments), 1985, or the Inflationary Adjustments Law, which represents an
attempt to overcome the problems presented to a traditional tax system by an
economy undergoing rapid inflation. Results of the Company for tax purposes are
measured in terms of earning in NIS after certain adjustments for changes in
the Israeli consumer price index. The Inflationary Adjustments Law is highly
complex.

Capital
gains tax applicable to shareholders

Israeli
law generally imposes a capital gains tax on the sale of capital assets located
in Israel, including shares in Israeli resident companies, by both residents
and non-residents of Israel, unless a specific exemption is available or unless
a treaty between Israel and the country of the non-resident provides otherwise.

Regulations
promulgated under the Israeli Income Tax Ordinance provided for an exemption
from Israeli capital gains tax for gains accrued before January 1, 2003 and
derived from the sale of shares of an industrial company, as defined by the
Law for the Encouragement of Industry (Taxation), 1969, that are traded on
specified non-Israeli markets, including The Nasdaq SmallCap Market.
Shareholders are advised to consult their tax advisors regarding the
availability of the exemption.

On
January 1, 2003, the Tax Reform, came into effect thus imposing capital gains
tax at a rate of 15% on gains derived on or after January 1, 2003 from the sale
of shares in Israeli companies publicly traded on a recognized stock exchange
outside of Israel. The tax basis of shares acquired prior to January 1, 2003
will be determined as the higher between the original price paid for the share
and the average closing share price in the three trading days preceding January
1, 2003. Non-Israeli residents shall be exempt from Israeli capital gains tax
on any gains derived from the sale of shares publicly traded on the Nasdaq
SmallCap Market, provided such shareholders did not acquire their shares prior
to an initial public offering. A non Israeli company wont be allowed to enjoy
the tax exempt if its controlling shareholder is an Israeli or whether 25% of
its shares are held by an Israeli. In any event, the provisions of the tax
reform shall not affect the exemption from capital gains tax for gains accrued
before January 1, 2003, as described in the previous paragraph.

The
above rules regarding the taxation of capital gains do not apply to: 
(1) dealers in securities; (2) in certain cases, shareholders who report in
accordance with the Inflationary Adjustment Law; or (3) shareholders who
acquired their shares prior to the companys initial public offering.

In
addition, pursuant to the Convention Between the Government of the United
States of America and the Government of Israel with Respect to Taxes on Income,
as amended or the United States- Israel Tax Treaty, the sale, exchange or
disposition of ordinary shares by a person who qualifies as a resident of the
United States within the meaning of the United States-Israel Tax Treaty and who
is entitled to claim the benefits afforded to such person by the United
States-Israel Tax Treaty, or a Treaty United States Resident, generally will
not be subject to the Israeli capital gains tax unless such Treaty United
States Resident holds, directly or indirectly, shares representing 10% or more
of the Companys voting power during any part of the twelve-month period
preceding such sale, exchange or disposition, subject to certain conditions. A
sale, exchange or disposition of ordinary shares by a Treaty United States
Resident who holds, directly or indirectly, shares representing 10% or more of
the Companys voting power at any time during such preceding twelve-month
period would be subject to such Israeli tax, to the extent applicable; however,
under the United States-Israel Tax Treaty, such Treaty United States Resident
would be permitted to claim a credit for such taxes against the United States
federal income tax imposed with respect to such sale, exchange or disposition,
subject to the limitations in United States laws applicable to foreign tax
credits. The United States-Israel Tax Treaty does not relate to United States
state or local taxes.

- 61
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Taxation
of non-resident shareholders on ordinary income

Non-residents
of Israel are subject to Israeli income tax on ordinary income accrued or
derived from sources in Israel, including passive income such as dividends,
royalties and interest. On distributions of dividends, other than bonus shares
and stock dividends, income tax at the rate of 25% is withheld at the source,
unless a different rate is provided in a treaty between Israel and the
shareholders country of residence. If the dividends are distributed out of
approved enterprise earnings, the applicable tax rate would be 15%. Under the
United States-Israel Tax Treaty, the maximum tax on dividends paid to a holder
of ordinary shares who is a Treaty United States Resident will be 25%, however,
the tax rate is reduced to 12.5% for dividends not generated by an approved
enterprise to a corporation which holds 10% or more of the companys voting
power during a certain period preceding the distribution of the dividend.
Dividends derived from an approved enterprise will still be subject to 15% tax
withholding.

Under
a recent amendment to the Inflationary Adjustments Law, non-Israeli
corporations might be subject to Israeli taxes on the sale of traded securities
of an Israeli company, subject to the provisions of any applicable double
taxation treaty.

F.       Dividends and Paying
Agent

Not
Applicable

G.       Statements by Experts

Not
Applicable

H.       Documents on Display

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

I.        Subsidiary
Information

Not
Applicable.

Item
11.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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

Interest
Rate Risk

At
December 31, 2004, the Company had loans payable carrying fluctuating interest
rates in the amount of approximately $1.1 million (including current
maturities). Market risk was estimated as the potential increase in fair value
resulting from a hypothetical 10% increase in the annual interest rate.
Assuming such increase in the interest rate, the fair value of the Companys
loans would increase by approximately $110 thousand.

Foreign
Currency Exchange Risk

At
December 31, 2003, the Company had U.S. Dollar denominated assets (i.e. cash
and cash equivalents, trade receivables, etc.) in the amount of approximately
$1.3 million and liabilities (i.e. short-term credit, trade payable, long term
loans, etc.) in the amount of approximately $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 U.S. Dollar
denominated liabilities over assets would increase by approximately $70
thousand.

- 62
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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

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.  RESERVED

Item
16.     A.   AUDIT COMMITTEE
FINANCIAL EXPERT

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

B.  CODE OF ETHICS

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

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

- 63 -

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C. PRINCIPAL ACCOUNTANT
FEES AND SERVICES

The
Companys principal accountants for the years 2003 and 2004 were Kost Forer
Gabbay & Kasierer, a member of Ernst & Young Global.

The
table below summarizes the audit and other fees paid (in thousands of USD) the
Company and its consolidated subsidiaries to Kost Forer Gabbay & Kasierer,
during each of 2003 and 2004:

|                       |  |                                |   |                                |  |        |  |            |     |   |  |  |   |     |  |  |  |  |     |   | 
|---------------------- |  | ------------------------------ | - | ------------------------------ |  | ------ |  | ---------- | --- | - |  |  | - | --- |  |  |  |  | --- | - | 
|                       |  | Year Ended
  December 31, 2004 |   | Year Ended
  December 31, 2003 | 
|                       |  |                                |   |                                | 
|                       |  | Amount                         |   | Percentage                     |  | Amount |  | Percentage |    
|                       |  |                                |   |                                |  |        |  |            |    
|Audit Fees (1)         |  |                                | $ | 51                             |  |        |  |            | 77  | % |  |  | $ | 76  |  |  |  |  | 63  | % | 
|Audit-Related Fees (2) |  |                                | $ | 4                              |  |        |  |            | 6   | % |  |  | $ | 9   |  |  |  |  | 5   | % | 
|Tax Fees (3)           |  |                                | $ | 11                             |  |        |  |            | 17  | % |  |  | $ | 35  |  |  |  |  | 32  | % | 
|Total                  |  |                                | $ | 66                             |  |        |  |            | 100 | % |  |  | $ | 120 |  |  |  |  | 100 | % | 

(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.

D. EXEMPTION FROM
LISTING STANDARDS FOR AUDIT COMMITTEE

Not Applicable

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

Not
Applicable

PART III

Item
17.  FINANCIAL STATEMENTS

Not
applicable.

Item
18.  FINANCIAL STATEMENTS

Attached.
See Item 19(a).

Item
19.  FINANCIAL STATEMENTS AND EXHIBITS

(a)    Consolidated
Financial Statements

- 64
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HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2004

IN U.S. DOLLARS

INDEX

|                                                        |  |        
|------------------------------------------------------- |  | -------
|                                                        |  | Page   
|                                                        |  |        
|                                                        |  |        
|Report of Independent Registered Public Accounting Firm |  | 66     
|                                                        |  |        
|Consolidated Balance Sheets                             |  | 67  68
|                                                        |  |        
|Consolidated Statements of Operations                   |  | 69     
|                                                        |  |        
|Statements of Changes in Shareholders Equity           |  | 70     
|                                                        |  |        
|Consolidated Statements of Cash Flows                   |  | 71  72
|                                                        |  |        
|Notes to Consolidated Financial Statements              |  | 73  94
|                                                        |  |        
|Appendix to Consolidated Financial Statements           |  | 95     

- 65 -

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(ERNST AND YOUNG LOGO)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the shareholders of

HEALTHCARE
TECHNOLOGIES LTD.

We
have audited the accompanying consolidated balance sheets of Healthcare
Technologies Ltd. (the Company) and its subsidiaries as of December 31, 2004
and 2003, 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, 2004. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged to
perform an audit of the Companys internal control over financial reporting. An
audit includes consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In
our opinion, the 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, 2004 and 2003 and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2004, in conformity with U.S generally accepted accounting
principles.

|                 |                                  | 
|---------------- | -------------------------------- | 
|Tel-Aviv, Israel | KOST FORER GABBAY & 
  KASIERER  | 
|June 26, 2005    | A Member of Ernst & Young Global | 

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|                                                   
|---------------------------------------------------
|HEALTHCARE
  TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|                                                   
|CONSOLIDATED
  BALANCE SHEETS                      
|                                                   
|U.S.
  dollars in thousands                        

|                                                                                                                               |  |                |        |      |   |        | 
|------------------------------------------------------------------------------------------------------------------------------ |  | -------------- | ------ | ---- | - | ------ | 
|                                                                                                                               |  | December
  31, |       
|                                                                                                                               |  |                |       
|                                                                                                                               |  | 2004           |        | 2003 |  
|                                                                                                                               |  |                |        |      |  
|ASSETS                                                                                                                         |  |                |        |      |   |        | 
|                                                                                                                               |  |                |        |      |   |        | 
|CURRENT ASSETS:                                                                                                                |  |                |        |      |   |        | 
|Cash and cash
  equivalents                                                                                                    |  | $              | 951    |      | $ | 1,450  | 
|Trade
  receivables (net of allowance for doubtful accounts of $ 46 and $ 43 as of
  December 31, 2004 and 2003, respectively) |  |                | 3,960  |      |   | 3,644  | 
|Other accounts
  receivable and prepaid expenses (Note 3)                                                                      |  |                | 576    |      |   | 917    | 
|Inventories
  (Note 4)                                                                                                         |  |                | 1,658  |      |   | 1,488  | 
|                                                                                                                               |  |                |        |      |   |        | 
|                                                                                                                               |  |                |        |      |   |        | 
|Total  current assets                                                                                                          |  |                | 7,145  |      |   | 7,499  | 
|                                                                                                                               |  |                |        |      |   |        | 
|                                                                                                                               |  |                |        |      |   |        | 
|LONG-TERM
  INVESTMENTS:                                                                                                       |  |                |        |      |   |        | 
|Investment in
  other company (Note 2g)                                                                                        |  |                |       |      |   | 100    | 
|Long-term
  receivables                                                                                                        |  |                | 35     |      |   | 262    | 
|Severance pay
  fund (Note 2s)                                                                                                 |  |                | 774    |      |   | 630    | 
|                                                                                                                               |  |                |        |      |   |        | 
|                                                                                                                               |  |                |        |      |   |        | 
|Total
  long-term investments                                                                                                  |  |                | 809    |      |   | 992    | 
|                                                                                                                               |  |                |        |      |   |        | 
|                                                                                                                               |  |                |        |      |   |        | 
|PROPERTY AND
  EQUIPMENT, NET (Note 5)                                                                                         |  |                | 1,112  |      |   | 1,306  | 
|                                                                                                                               |  |                |        |      |   |        | 
|                                                                                                                               |  |                |        |      |   |        | 
|INTANGIBLE
  ASSETS (Note 2j)                                                                                                  |  |                |        |      |   |        | 
|Goodwill                                                                                                                       |  |                | 2,854  |      |   | 2,854  | 
|Other intangible
  assets, net                                                                                                 |  |                | 68     |      |   | 91     | 
|                                                                                                                               |  |                |        |      |   |        | 
|                                                                                                                               |  |                |        |      |   |        | 
|Total
  intangible assets                                                                                                      |  |                | 2,922  |      |   | 2,945  | 
|                                                                                                                               |  |                |        |      |   |        | 
|                                                                                                                               |  |                |        |      |   |        | 
|Totalassets                                                                                                                    |  | $              | 11,988 |      | $ | 12,742 | 
|                                                                                                                               |  |                |        |      |   |        | 

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

- 67 -

---

---



|                                                   
|---------------------------------------------------
|HEALTHCARE
  TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|                                                   
|CONSOLIDATED
  BALANCE SHEETS                      
|                                                   
|U.S.
  dollars in thousands (except share data)    

|                                                                                                                                                                                                      |  |                |         |      |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | ---- | - | ------- | -
|                                                                                                                                                                                                      |  | December
  31, |        
|                                                                                                                                                                                                      |  |                |        
|                                                                                                                                                                                                      |  | 2004           |         | 2003 |  
|                                                                                                                                                                                                      |  |                |         |      |  
|LIABILITIES AND
  SHAREHOLDERS EQUITY                                                                                                                                                                |  |                |         |      |   |         |  
|                                                                                                                                                                                                      |  |                |         |      |   |         |  
|CURRENT
  LIABILITIES:                                                                                                                                                                                |  |                |         |      |   |         |  
|Short-term bank
  credit (Note 6)                                                                                                                                                                     |  | $              | 839     |      | $ | 23      |  
|Current
  maturities of long-term bank loans (Note 8)                                                                                                                                                 |  |                | 86      |      |   | 1,001   |  
|Trade payables                                                                                                                                                                                        |  |                | 2,329   |      |   | 2,703   |  
|Other accounts
  payable and accrued expenses (Note 7)                                                                                                                                                |  |                | 1,059   |      |   | 1,112   |  
|                                                                                                                                                                                                      |  |                |         |      |   |         |  
|                                                                                                                                                                                                      |  |                |         |      |   |         |  
|Total current liabilities                                                                                                                                                                             |  |                | 4,313   |      |   | 4,839   |  
|                                                                                                                                                                                                      |  |                |         |      |   |         |  
|                                                                                                                                                                                                      |  |                |         |      |   |         |  
|LONG-TERM
  LIABILITIES:                                                                                                                                                                              |  |                |         |      |   |         |  
|Long-term bank
  loans, net of current maturities (Note 8)                                                                                                                                            |  |                | 142     |      |   | 30      |  
|Investment in
  other company (Note 2g)                                                                                                                                                               |  |                | 4,761   |      |   | 4,761   |  
|Investment in an
  affiliate (Note 2f)                                                                                                                                                                |  |                | 28      |      |   | 81      |  
|Accrued
  severance pay (Note 2s)                                                                                                                                                                     |  |                | 842     |      |   | 687     |  
|                                                                                                                                                                                                      |  |                |         |      |   |         |  
|                                                                                                                                                                                                      |  |                |         |      |   |         |  
|Total long-term liabilities                                                                                                                                                                           |  |                | 5,773   |      |   | 5,559   |  
|                                                                                                                                                                                                      |  |                |         |      |   |         |  
|                                                                                                                                                                                                      |  |                |         |      |   |         |  
|COMMITMENTS AND
  CONTINGENT LIABILITIES (Note 11)                                                                                                                                                    |  |                |         |      |   |         |  
|                                                                                                                                                                                                      |  |                |         |      |   |         |  
|SHAREHOLDERS
  EQUITY (Note 10):                                                                                                                                                                     |  |                |         |      |   |         |  
|Share capital:                                                                                                                                                                                        |  |                |         |      |   |         |  
|Ordinary shares
  of NIS 0.04 par value  Authorized: 40,000,000 as of December 31, 2004 and
  2003; Issued and Outstanding: 7,702,832 and 7,648,727 as of December 31, 2004
  and 2003, respectively |  |                | 100     |      |   | 99      |  
|Additional
  paid-in capital                                                                                                                                                                          |  |                | 23,267  |      |   | 23,303  |  
|Accumulated
  other comprehensive loss                                                                                                                                                                |  |                | (114    | )    |   | (25     | )
|Deferred
  stock-based Compensation                                                                                                                                                                   |  |                | (90     | )    |   | (131    | )
|Accumulated
  deficit                                                                                                                                                                                 |  |                | (21,261 | )    |   | (20,902 | )
|                                                                                                                                                                                                      |  |                |         |      |   |         |  
|                                                                                                                                                                                                      |  |                |         |      |   |         |  
|Total shareholders equity                                                                                                                                                                            |  |                | 1,902   |      |   | 2,344   |  
|                                                                                                                                                                                                      |  |                |         |      |   |         |  
|                                                                                                                                                                                                      |  |                |         |      |   |         |  
|                                                                                                                                                                                                      |  | $              | 11,988  |      | $ | 12,742  |  
|                                                                                                                                                                                                      |  |                |         |      |   |         |  

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

- 68 -

---

---



|                                                   
|---------------------------------------------------
|HEALTHCARE
  TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|                                                   
|CONSOLIDATED
  STATEMENTS OF OPERATIONS            
|                                                   
|U.S.
  dollars in thousands (except per share data)

|                                                                                              |  |                         |        |      |   |        |   |   |        |  
|--------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | ---- | - | ------ | - | - | ------ | -
|                                                                                              |  | Year ended December 31, |       
|                                                                                              |  |                         |       
|                                                                                              |  | 2004                    |        | 2003 |   | 2002   |  
|                                                                                              |  |                         |        |      |   |        |  
|                                                                                              |  |                         |        |      |   |        |   |   |        |  
|Sales (Note 13)                                                                               |  | $                       | 12,130 |      | $ | 12,412 |   | $ | 16,676 |  
|Cost of sales                                                                                 |  |                         | 7,925  |      |   | 7,640  |   |   | 10,386 |  
|Amortization of
  technology (Note 2j)                                                        |  |                         |       |      |   | 749    |   |   | 858    |  
|                                                                                              |  |                         |        |      |   |        |   |   |        |  
|                                                                                              |  |                         |        |      |   |        |   |   |        |  
|Gross profit                                                                                  |  |                         | 4,205  |      |   | 4,023  |   |   | 5,432  |  
|                                                                                              |  |                         |        |      |   |        |   |   |        |  
|                                                                                              |  |                         |        |      |   |        |   |   |        |  
|Research and
  development costs, net                                                         |  |                         | 95     |      |   | 94     |   |   | 912    |  
|Selling and marketing
  expenses                                                              |  |                         | 2,760  |      |   | 2,896  |   |   | 3,161  |  
|General and
  administrative expenses                                                         |  |                         | 1,805  |      |   | 1,396  |   |   | 2,515  |  
|Impairment of an
  investment in Afferix (Note 2f)                                            |  |                         | 100    |      |   | 111    |   |   |       |  
|                                                                                              |  |                         |        |      |   |        |   |   |        |  
|                                                                                              |  |                         |        |      |   |        |   |   |        |  
|                                                                                              |  |                         | 4,760  |      |   | 4,497  |   |   | 6,588  |  
|                                                                                              |  |                         |        |      |   |        |   |   |        |  
|                                                                                              |  |                         |        |      |   |        |   |   |        |  
|Operating loss                                                                                |  |                         | (555   | )    |   | (474   | ) |   | (1,156 | )
|Financial
  expenses, net (Note 12a)                                                          |  |                         | (145   | )    |   | (41    | ) |   | (804   | )
|Other income,
  net (Note 12b)                                                                |  |                         | 288    |      |   | 49     |   |   | 133    |  
|                                                                                              |  |                         |        |      |   |        |   |   |        |  
|                                                                                              |  |                         |        |      |   |        |   |   |        |  
|                                                                                              |  |                         | (412   | )    |   | (466   | ) |   | (1,827 | )
|Taxes on income                                                                               |  |                         |       |      |   | 20     |   |   |       |  
|                                                                                              |  |                         |        |      |   |        |   |   |        |  
|                                                                                              |  |                         |        |      |   |        |   |   |        |  
|Loss after taxes
  on income                                                                  |  |                         | (412   | )    |   | (486   | ) |   | (1,827 | )
|Equity in
  earnings (losses) of an affiliate                                                 |  |                         | 53     |      |   | (14    | ) |   |       |  
|                                                                                              |  |                         |        |      |   |        |   |   |        |  
|                                                                                              |  |                         |        |      |   |        |   |   |        |  
|Net loss                                                                                      |  | $                       | (359   | )    | $ | (500   | ) | $ | (1,827 | )
|                                                                                              |  |                         |        |      |   |        |   |   |        |  
|                                                                                              |  |                         |        |      |   |        |   |   |        |  
|Basic and
  diluted net loss per share (in U.S dollars)                                       |  | $                       | (0.05  | )    | $ | (0.07  | ) | $ | (0.24  | )
|                                                                                              |  |                         |        |      |   |        |   |   |        |  
|                                                                                              |  |                         |        |      |   |        |   |   |        |  
|Weighted average
  number of shares used in computing basic net loss per share (in thousands) |  | $                       | 7,667  |      | $ | 7,644  |   |   | 7,644  |  
|                                                                                              |  |                         |        |      |   |        |   |   |        |  

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

- 69 -

---

---



|                                                   
|---------------------------------------------------
|HEALTHCARE
  TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|                                                   
|STATEMENTS
  OF CHANGES IN SHAREHOLDERS EQUITY    
|                                                   
|U.S.
  dollars in thousands (except share data)    

|                                                    |  |                        |        |                 |  |                  |  |                          |     |                                                   |   |                                    |   |                    |      |                          |   |      |   |   |         |   |   |        |  
|--------------------------------------------------- |  | ---------------------- | ------ | --------------- |  | ---------------- |  | ------------------------ | --- | ------------------------------------------------- | - | ---------------------------------- | - | ------------------ | ---- | ------------------------ | - | ---- | - | - | ------- | - | - | ------ | -
|                                                    |  | Totalcomprehensiveloss |        | Numberof shares |  | Share 
  capital |  | Additionalpaid-incapital |     | Accumulated
  other
  comprehensive income (loss) |   | Deferred
  stock-basedcompensation |   | Accumulateddeficit |      | Totalshareholdersequity |  
|                                                    |  |                        |        |                 |  |                  |  |                          |     |                                                   |   |                                    |   |                    |      |                          |  
|                                                    |  |                        |        |                 |  |                  |  |                          |     |                                                   |   |                                    |   |                    |      |                          |   |      |   |   |         |   |   |        |  
|Balance at January 1, 2002                          |  |                        |        |                 |  | 7,644            |  | $                        | 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    | )
|                                                    |  |                        |        |                 |  |                  |  |                          |     |                                                   |   |                                    |   |                    |      |                          |   |      |   |   |         |   |   |        |  
|Total comprehensive loss                            |  | $                      | (1,854 | )               |  |                  |  |                          |     |                                                   |   |                                    |   |                    |      |                          |   |      |   |   |         |   |   |        |  
|                                                    |  |                        |        |                 |  |                  |  |                          |     |                                                   |   |                                    |   |                    |      |                          |   |      |   |   |         |   |   |        |  
|Issuance expenses                                   |  |                        |        |                 |  |                 |  |                          |    |                                                   |   | (108                               | ) |                    |     |                          |   |     |   |   |        |   |   | (108   | )
|Forfeiture of options granted to
  employees        |  |                        |        |                 |  |                 |  |                          |    |                                                   |   | (15                                | ) |                    |     |                          |   | 15   |   |   |        |   |   |       |  
|Capital surplus                                     |  |                        |        |                 |  |                 |  |                          |    |                                                   |   | 202                                |   |                    |     |                          |   |     |   |   |        |   |   | 202    |  
|Amortization of deferred stock based
  compensation |  |                        |        |                 |  |                 |  |                          |    |                                                   |   |                                   |   |                    |     |                          |   | 40   |   |   |        |   |   | 40     |  
|                                                    |  |                        |        |                 |  |                  |  |                          |     |                                                   |   |                                    |   |                    |      |                          |   |      |   |   |         |   |   |        |  
|                                                    |  |                        |        |                 |  |                  |  |                          |     |                                                   |   |                                    |   |                    |      |                          |   |      |   |   |         |   |   |        |  
|Balance at December 31, 2002                        |  |                        |        |                 |  | 7,644            |  |                          | 99  |                                                   |   | 23,188                             |   |                    | (118 | )                        |   | (4   | ) |   | (20,402 | ) |   | 2,763  |  
|Net loss                                            |  | $                      | (500   | )               |  |                 |  |                          |    |                                                   |   |                                   |   |                    |     |                          |   |     |   |   | (500    | ) |   | (500   | )
|Other comprehensive loss-                           |  |                        |        |                 |  |                  |  |                          |     |                                                   |   |                                    |   |                    |      |                          |   |      |   |   |         |   |   |        |  
|Foreign currency translation
  adjustments          |  |                        | 93     |                 |  |                 |  |                          |    |                                                   |   |                                   |   |                    | 93   |                          |   |     |   |   |        |   |   | 93     |  
|                                                    |  |                        |        |                 |  |                  |  |                          |     |                                                   |   |                                    |   |                    |      |                          |   |      |   |   |         |   |   |        |  
|Total comprehensive loss                            |  | $                      | (407   | )               |  |                  |  |                          |     |                                                   |   |                                    |   |                    |      |                          |   |      |   |   |         |   |   |        |  
|                                                    |  |                        |        |                 |  |                  |  |                          |     |                                                   |   |                                    |   |                    |      |                          |   |      |   |   |         |   |   |        |  
|Exercise of options                                 |  |                        |        |                 |  | 5                |  |                          |     | *)                                                |   | 1                                  |   |                    |     |                          |   |     |   |   |        |   |   | 1      |  
|Issuance expenses                                   |  |                        |        |                 |  |                 |  |                          |    |                                                   |   | (70                                | ) |                    |     |                          |   |     |   |   |        |   |   | (70    | )
|Deferred stock compensation                         |  |                        |        |                 |  |                 |  |                          |    |                                                   |   | 184                                |   |                    |     |                          |   | (184 | ) |   |        |   |   |       |  
|Amortization of deferred stock based
  compensation |  |                        |        |                 |  |                 |  |                          |    |                                                   |   |                                   |   |                    |     |                          |   | 57   |   |   |        |   |   | 57     |  
|                                                    |  |                        |        |                 |  |                  |  |                          |     |                                                   |   |                                    |   |                    |      |                          |   |      |   |   |         |   |   |        |  
|                                                    |  |                        |        |                 |  |                  |  |                          |     |                                                   |   |                                    |   |                    |      |                          |   |      |   |   |         |   |   |        |  
|Balance at December 31, 2003                        |  |                        |        |                 |  | 7,649            |  |                          | 99  |                                                   |   | 23,303                             |   |                    | (25  | )                        |   | (131 | ) |   | (20,902 | ) |   | 2,344  |  
|Net loss                                            |  | $                      | (353   | )               |  |                 |  |                          |    |                                                   |   |                                   |   |                    |     |                          |   |     |   |   | (359    | ) |   | (359   | )
|Other comprehensive loss-                           |  |                        |        |                 |  |                  |  |                          |     |                                                   |   |                                   |   |                    |      |                          |   |      |   |   |         |   |   |        |  
|Foreign currency translation
  adjustments          |  |                        | (89    | )               |  |                 |  |                          |    |                                                   |   |                                   |   |                    | (89  | )                        |   |     |   |   |        |   |   | (89    | )
|                                                    |  |                        |        |                 |  |                  |  |                          |     |                                                   |   |                                    |   |                    |      |                          |   |      |   |   |         |   |   |        |  
|Total comprehensive loss                            |  | $                      | (442   | )               |  |                  |  |                          |     |                                                   |   |                                    |   |                    |      |                          |   |      |   |   |         |   |   |        |  
|                                                    |  |                        |        |                 |  |                  |  |                          |     |                                                   |   |                                    |   |                    |      |                          |   |      |   |   |         |   |   |        |  
|Issuance of shares                                  |  |                        |        |                 |  | 54               |  |                          | 1   |                                                   |   | 34                                 |   |                    |     |                          |   |     |   |   |        |   |   | 35     |  
|Issuance expenses                                   |  |                        |        |                 |  |                 |  |                          |    |                                                   |   | (70                                | ) |                    |     |                          |   |     |   |   |        |   |   | (70    | )
|Amortization of deferred stock based
  compensation |  |                        |        |                 |  |                 |  |                          |    |                                                   |   |                                   |   |                    |     |                          |   | 41   |   |   |        |   |   | 41     |  
|                                                    |  |                        |        |                 |  |                  |  |                          |     |                                                   |   |                                    |   |                    |      |                          |   |      |   |   |         |   |   |        |  
|                                                    |  |                        |        |                 |  |                  |  |                          |     |                                                   |   |                                    |   |                    |      |                          |   |      |   |   |         |   |   |        |  
|Balance at December 31, 2004                        |  |                        |        |                 |  | 7,703            |  | $                        | 100 |                                                   | $ | 23,267                             |   | $                  | (114 | )                        | $ | (90  | ) | $ | (21,261 | ) | $ | 1,902  |  
|                                                    |  |                        |        |                 |  |                  |  |                          |     |                                                   |   |                                    |   |                    |      |                          |   |      |   |   |         |   |   |        |  

|   |                                   
|-- | ----------------------------------
|*) | Represents an amount lower than 1.

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

- 70 -

---

---



|                                                   
|---------------------------------------------------
|HEALTHCARE
  TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|                                                   
|CONSOLIDATED
  STATEMENTS OF CASH FLOWS            
|                                                   
|U.S.
  dollars in thousands                        

|                                                                                                       |  |                         |        |      |   |       |   |   |        |  
|------------------------------------------------------------------------------------------------------ |  | ----------------------- | ------ | ---- | - | ----- | - | - | ------ | -
|                                                                                                       |  | Year ended December 31, |       
|                                                                                                       |  |                         |       
|                                                                                                       |  | 2004                    |        | 2003 |   | 2002  |  
|                                                                                                       |  |                         |        |      |   |       |  
|Cash flows from operating activities:                                                                  |  |                         |        |      |   |       |   |   |        |  
|Net loss                                                                                               |  | $                       | (359   | )    | $ | (500  | ) | $ | (1,827 | )
|Adjustments
  required to reconcile net loss to net cash provided by (used in) operating
  activities: |  |                         |        |      |   |       |   |   |        |  
|Impairment of an
  investment in an affiliate                                                          |  |                         | 100    |      |   | 111   |   |   |       |  
|Equity in
  (earnings) losses of affiliates                                                            |  |                         | (53    | )    |   | 14    |   |   |       |  
|Depreciation and
  amortization                                                                        |  |                         | 464    |      |   | 1,168 |   |   | 1,913  |  
|Erosion of
  long-term investments and bank loans, net                                                 |  |                         | 60     |      |   | (135  | ) |   | (11    | )
|Capital loss
  (gain) on sale of property and equipment                                                |  |                         | 10     |      |   | (34   | ) |   | (76    | )
|Amortization of
  deferred stock based compensation                                                    |  |                         | 41     |      |   | 57    |   |   | 40     |  
|Other income (see Note 1h)                                                                             |  |                         | (235   | )    |   |      |   |   |       |  
|Accrued interest
  on convertible debentures                                                           |  |                         |       |      |   |      |   |   | 28     |  
|Accrued severance
  pay, net                                                                           |  |                         | 10     |      |   | (191  | ) |   | (42    | )
|Capital gain
  from realization of Gamidor Diagnostics U.K.                                            |  |                         |       |      |   |      |   |   | (13    | )
|Decrease
  (increase) in trade receivables                                                             |  |                         | (283   | )    |   | 688   |   |   | 310    |  
|Decrease in
  other accounts receivable and prepaid expenses                                           |  |                         | 363    |      |   | 405   |   |   | 761    |  
|Decrease
  (increase) in inventories                                                                   |  |                         | (146   | )    |   | (266  | ) |   | 64     |  
|Decrease in
  trade payables                                                                           |  |                         | (488   | )    |   | (759  | ) |   | (300   | )
|Decrease in
  other accounts payable and accrued expenses                                              |  |                         | 173    |      |   | (269  | ) |   | (949   | )
|                                                                                                       |  |                         |        |      |   |       |   |   |        |  
|                                                                                                       |  |                         |        |      |   |       |   |   |        |  
|Net cash
  provided by (used in) operating activities                                                  |  |                         | (343   | )    |   | 289   |   |   | (102   | )
|                                                                                                       |  |                         |        |      |   |       |   |   |        |  
|                                                                                                       |  |                         |        |      |   |       |   |   |        |  
|Cash flows from investing activities:                                                                  |  |                         |        |      |   |       |   |   |        |  
|Investment in
  Afferix                                                                                |  |                         |       |      |   | (211  | ) |   |       |  
|Proceeds from
  sale of property and equipment                                                         |  |                         | 78     |      |   | 132   |   |   | 329    |  
|Purchase of
  property and equipment                                                                   |  |                         | (313   | )    |   | (293  | ) |   | (840   | )
|Proceeds from
  realization of Gamida Diagnostic U.K.                                                  |  |                         |       |      |   |      |   |   | 13     |  
|Proceeds from
  withdrawal of restricted cash                                                          |  |                         |       |      |   |      |   |   | 86     |  
|Collection of
  long-term receivables, net                                                             |  |                         | 227    |      |   | 240   |   |   |       |  
|                                                                                                       |  |                         |        |      |   |       |   |   |        |  
|                                                                                                       |  |                         |        |      |   |       |   |   |        |  
|Net cash provided
  by (used in) investing activities                                                  |  |                         | (8     | )    |   | (132  | ) |   | (412   | )
|                                                                                                       |  |                         |        |      |   |       |   |   |        |  
|                                                                                                       |  |                         |        |      |   |       |   |   |        |  
|Cash flows from financing activities:                                                                  |  |                         |        |      |   |       |   |   |        |  
|Short-term bank
  credit, net                                                                          |  |                         | 799    |      |   | (37   | ) |   | (333   | )
|Proceeds from
  long-term loans                                                                        |  |                         | 195    |      |   | 667   |   |   | 556    |  
|Principal payment
  of long-term loans                                                                 |  |                         | (1,061 | )    |   | (459  | ) |   | (606   | )
|Exercise of
  options                                                                                  |  |                         |       |      |   | 2     |   |   |       |  
|Issuance
  expenses                                                                                    |  |                         | (70    | )    |   | (70   | ) |   | (108   | )
|Proceeds from
  issuance of convertible debentures in a subsidiary                                     |  |                         |       |      |   |      |   |   | 1,000  |  
|                                                                                                       |  |                         |        |      |   |       |   |   |        |  
|                                                                                                       |  |                         |        |      |   |       |   |   |        |  
|Net cash
  provided by (used in) financing activities                                                  |  |                         | (137   | )    |   | 103   |   |   | 509    |  
|                                                                                                       |  |                         |        |      |   |       |   |   |        |  
|                                                                                                       |  |                         |        |      |   |       |   |   |        |  
|Effect of
  exchange rate changes on cash and cash equivalents                                         |  |                         | (11    | )    |   | 37    |   |   | (19    | )
|                                                                                                       |  |                         |        |      |   |       |   |   |        |  
|                                                                                                       |  |                         |        |      |   |       |   |   |        |  
|Increase
  (decrease) in cash and cash equivalents                                                     |  |                         | (499   | )    |   | 297   |   |   | (24    | )
|Cash and cash
  equivalents at the beginning of the year                                               |  |                         | 1,450  |      |   | 1,153 |   |   | 1,177  |  
|                                                                                                       |  |                         |        |      |   |       |   |   |        |  
|                                                                                                       |  |                         |        |      |   |       |   |   |        |  
|Cash and cash
  equivalents at the end of the year                                                     |  | $                       | 951    |      | $ | 1,450 |   | $ | 1,153  |  
|                                                                                                       |  |                         |        |      |   |       |   |   |        |  

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

- 71 -

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|                                                   
|---------------------------------------------------
|HEALTHCARE
  TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|                                                   
|CONSOLIDATED
  STATEMENTS OF CASH FLOWS            
|                                                   
|U.S.
  dollars in thousands                        

|    |                                                                         |  |                         |    |      |   |      |  |   |        |  
|--- | ----------------------------------------------------------------------- |  | ----------------------- | -- | ---- | - | ---- |  | - | ------ | -
|    |                                                                         |  | Year ended December 31, |   
|    |                                                                         |  |                         |   
|    |                                                                         |  | 2004                    |    | 2003 |   | 2002 | 
|    |                                                                         |  |                         |    |      |   |      | 
|    |                                                                         |  |                         |    |      |   |      |  |   |        |  
|(a) | Realization of
  investment in Procognia                                |  |                         |    |      |   |      |  |   |        |  
|    |                                                                         |  |                         |    |      |   |      |  |   |        |  
|    | Working capital
  deficiency, net (excluding cash and cash equivalents) |  | $                       |   |      | $ |     |  | $ | (474   | )
|    | Property and
  equipment                                                |  |                         |   |      |   |     |  |   | 391    |  
|    | Long-term bank
  loans                                                  |  |                         |   |      |   |     |  |   | (145   | )
|    | Convertible
  debentures in subsidiary                                  |  |                         |   |      |   |     |  |   | (2,044 | )
|    | Accrued
  severance pay                                                 |  |                         |   |      |   |     |  |   | (12    | )
|    | Investment in
  other company                                           |  |                         |   |      |   |     |  |   | 4,761  |  
|    | Preferred shares
  in a subsidiary                                      |  |                         |   |      |   |     |  |   | (2,477 | )
|    |                                                                         |  |                         |    |      |   |      |  |   |        |  
|    |                                                                         |  |                         |    |      |   |      |  |   |        |  
|    |                                                                         |  | $                       |   |      | $ |     |  | $ |       |  
|    |                                                                         |  |                         |    |      |   |      |  |   |        |  
|    |                                                                         |  |                         |    |      |   |      |  |   |        |  
|(b) | Sale of
  operations to Savyon                                          |  |                         |    |      |   |      |  |   |        |  
|    |                                                                         |  |                         |    |      |   |      |  |   |        |  
|    | Working capital
  deficiency, net (excluding cash)                      |  | $                       |   |      | $ |     |  | $ | (854   | )
|    | Long-term
  receivables                                                 |  |                         |   |      |   |     |  |   | (480   | )
|    | Property and
  equipment                                                |  |                         |   |      |   |     |  |   | 505    |  
|    | Other assets                                                            |  |                         |   |      |   |     |  |   | 560    |  
|    | Investment in
  Savyon                                                  |  |                         |   |      |   |     |  |   | 67     |  
|    | Capital surplus
  in respect of sale of operations to Savyon            |  |                         |   |      |   |     |  |   | 202    |  
|    |                                                                         |  |                         |    |      |   |      |  |   |        |  
|    |                                                                         |  |                         |    |      |   |      |  |   |        |  
|    |                                                                         |  | $                       |   |      | $ |     |  | $ |       |  
|    |                                                                         |  |                         |    |      |   |      |  |   |        |  
|   
|    | Supplemental disclosure of cash flows
activities:                       |  |                         |    |      |   |      |  |   |        |  
|    | Cash paid during
  the year for:                                        |  |                         |    |      |   |      |  |   |        |  
|    | Interest                                                                |  | $                       | 64 |      | $ | 77   |  | $ | 131    |  
|    |                                                                         |  |                         |    |      |   |      |  |   |        |  

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

- 72 -

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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
|            |                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            | a.                        | General:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            |                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            |                           | Healthcare Technologies Ltd. (the Company), an
  Israeli corporation, is a holding company. The Company and its subsidiaries
  (collectively, the Group), are engaged in the development, manufacturing
  and marketing of medical diagnostic kits and provide service tools and
  materials to diagnostic and biotech research professionals in laboratory and
  point of care sites in Israel and worldwide. The Group is also engaged in the
  production and marketing of molecular biology based gene-screening tools for
  the detection of certain gene-associated
  disorders in humans. The Groups major sales market is the Israeli market. As
  for geographic markets and major customers, see Note 13.
|            |                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            |                           | Pronto Technologies Ltd. (Pronto) and Gamida Gen,
  a wholly-owned subsidiary of Pronto, are 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), an affiliate, is
  engaged in the serology field, and manufactures sophisticated
  microplate-based enzyme immuno assays for detection of antibodies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|            |                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            |                           | The Companys subsidiaries, Danyel Biotech Ltd. (Danyel), Gamida Gen Marketing
  (1979) Ltd. (Gamida Gen Marketing) (formerly  Gamidor Ltd.) and
  Gamidor Diagnostic Ltd. (Gamidor) distribute medical diagnostic kits,
  reagents and chemicals for research, industrial and clinical uses.                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            |                           | Gamida Gen Marketing, Gamidor and Pronto filed an
  application to the Israeli Tax Authorities and the Companies Registrar to
  merge their operations as of December 31, 2003, and are currently awaiting
  such approvals. Such merger has no accounting implications.                                                                                                                                                                                                                                                                                                                                                                                                                                               
|            |                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            |                           | The Companys shares are traded on the National
  Association of Securities Dealers Quotation System (NASDAQ) in the United
  States.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            |                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            |                           | As for the Companys list of subsidiaries,
  affiliates and other companies refer to Appendix I.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            | b.                        | On January 1, 2004, the Company adopted generally
  accepted accounting principles in the United States (U.S. GAAP) as its
  primary basis of accounting, marking the completion of its transition from
  accounting and reporting in accordance with Israeli GAAP, with supplemental
  reporting under US GAAP on a reconciliation basis, to reporting on a full US
  GAAP basis. Accordingly, the Companys consolidated financial statements
  included herein are presented for the first time on a full US GAAP basis.                                                                                                                                                                                           
|            |                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

- 73
-

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|                                                   
|---------------------------------------------------
|HEALTHCARE
  TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL
  STATEMENTS       
|                                                   
|U.S. dollars in thousands (except
  share data)    

|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|----------- | --------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 1:    | BUSINESS AND ORGANIZATION (Cont.)
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            | c.                                | Concentration of risks that may have a significant
  impact on the Group are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                   | The Group currently buys certain products from a
  limited group of suppliers. Management believes that other suppliers could
  provide similar products on comparable terms. A change in suppliers, however,
  could cause a delay in manufacturing and a possible loss of sales, which
  would adversely affect operating results and financial position.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                   | The Group sales to one customer account for a
  significant portion of the Groups total sales and a loss of this customer
  could have a material adverse affect on the Groups business and financial
  results.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            | d.                                | The ImmvaRx Inc. (ImmvaRx) transaction:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                   | On June 29, 2004, the Company signed a term sheet
  with ImmvaRx for the transfer by ImmvaRx to the Company of all of ImmvaRxs
  assets, including its intellectual property, in exchange for up to an
  approximate 87% interest in the Company. In addition, ImmvaRx may conduct a
  tender offer for the purchase of all of the Companys shares. ImmvaRx engages
  in the development of therapies and diagnostic techniques addressing the
  adenocarcinoma class of cancers and certain kinds of allergies. The proposed
  transaction is subject to the negotiation and execution of a definitive
  agreement and to customary closing conditions, including the receipt of
  governmental and other third party consents, as well as the approval of the
  Companys shareholders. There can be no assurance as to whether the
  transaction will occur.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                   | The current principal terms of the transaction
  provide that, at the closing the Company will issue to ImmvaRx a two year
  warrant to purchase up to 1,000,000 of the Companys shares at an exercise
  price ranging from $1.00 to $1.25 per share. Within 2.5 years from the
  closing of the transaction, but not earlier than January 1, 2006, ImmvaRx may
  conduct a tender offer for all of the Companys shares at a price of $1.60
  per share. The Companys principal shareholder, Gamida For Life BV (Gamida),
  must tender no less than 4.7 million of its shares in the tender offer. If
  the tender offer is completed within 2.5 years from the closing, ImmvaRx will
  have an option to sell all of its assets to the Company in consideration for
  the issuance to ImmvaRx of 52 million ordinary shares of the Company. If
  ImmvaRx does not exercise its option after completing the tender offer, or
  does not conduct the tender offer or complete it within 2.5 years from closing,
  the Company shall have a call option to purchase all of the ImmvaRxs assets
  for the same consideration. The structure of the transfer of ImmvaRxs assets
  shall be negotiated by the parties following the exercise of either partys
  option, and the transfer of ImmvaRxs assets to the Company is subject to the
  qualification for tax deferred treatment and the Companys shares continuing
  to be traded following the transfer of the assets. If the tender offer is
  completed within 2.5 years from the closing, Gamida will have a call option
  to purchase all of the Companys shares in its current subsidiaries and
  affiliates in consideration for $7.2 million. If Gamida does not exercise its
  call option, the Company will have a put option for the sale of all of its shares
  in its current subsidiaries and affiliates to Gamida for the same
  consideration. As the agreement has yet to be signed, the terms of the
  transaction described above may be subject to change.

- 74
-

---

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|                                                   
|---------------------------------------------------
|HEALTHCARE
  TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL
  STATEMENTS       
|                                                   
|U.S. dollars in thousands (except
  share data)    

|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|----------- | --------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 1:    | BUSINESS AND ORGANIZATION (Cont.)
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            |                                   | In the event that the ImmvaRx transaction is
  completed, it would result in the transfer of the Companys existing business
  to the Companys principal shareholder and a change of control in the
  Company. Thereafter, the success of the Company would depend upon the
  Companys ability to complete the research and development and
  commercialization of ImmvaRxs products and technologies in the cancer and
  allergy therapeutics fields, of which there can be no assurance.                                                                                                                                                                                                                                                                                                                                                                            
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            | e.                                | 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 (a
  company held 100% by the Company) 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 commencing May 2003. 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. The
  investment in Savyon was accounted for by the equity method.                            
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            |                                   | 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. The
  Company holds a 50% equity interest in Savyon and has equal risks and rewards
  with the other investor. In accordance with EITF 01-2 Interpretations of APB
  Opinion No. 29, a partial gain in the amount of the difference between the
  carrying amount of the net assets surrendered and the fair value of the
  Companys interest in Savyon less the portion of that gain represented by the
  50% economic interest retained by the Company should have been recorded.
  However, since Savyon is a highly leveraged entity and realization of gain is
  not assured, such difference, at the amount of $202 was carried to additional
  paid-in capital.
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            | f.                                | Investment in Procognia:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            |                                   | In January 2000, the Company established a 98% -
  owned subsidiary, Procognia (Israel) Ltd. (Procognia Israel). In April
  2002, Procognia Israels shareholders exchanged their shares in Procognia
  Israel with shares in a newly formed U.K. company (Procognia). Procognia
  develops certain products and technologies in the Glycomolecular field and in
  the Biochemistry of sugar.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            |                                   | As a result of
  certain investment transactions in Procognias shares, the Companys voting rights declined to
11.6% as
  of December 31, 2002 and, consequently, Procognias financial statements were no longer
  consolidated with those of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            |                                   | During 2004, Procognia completed additional two
  financing rounds, upon which the Companys voting rights were reduced to
  approximately 4%. Consequently, the Company no longer retains the right to
  appoint directors in Procognia and has no obligation to finance Procognias
  operations and the investment is stated at cost. The Company recorded the
  investment in this investee, at its book value of $ 4,761 included in
  long-term liabilities.                                                                                                                                                                                                                                                                                                                                                                                                       

- 75 -

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|                                                   
|---------------------------------------------------
|HEALTHCARE
  TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL
  STATEMENTS       
|                                                   
|U.S. dollars in thousands (except
  share data)    

|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                   
|----------- | --------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 1:    | BUSINESS AND ORGANIZATION (Cont.)
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                   
|            |                                   | On March 31, 2005, the Board of Directors and Audit
  Committee had approved the sale of all the Companys shares in Procognia to
  the Companys principal shareholder, Gamida for life BV (Gamida). On May
  29, 2005, the shareholders of the Company approved the sale. The Company
  shall sell and transfer an aggregate amount of 6,255,000 Ordinary Shares of
  Procognia to Gamida in consideration for an initial payment $ 10 and the
  additional payments as follows:                                                                                                                                                                                                                                                                               
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                   
|            |                                   | i.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | In the event that the ImmvaRx transaction will be
  executed, Gamida shall pay the Company an additional $ 420.                                                                                                                                                                                                                   
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                   
|            |                                   | ii.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | In the event that the ImmvaRx transaction will not
  be executed, Gamida will pay the Company, upon Gamidas sale of the Procognia
  shares, all amounts received in consideration therefore equivalent to an
  amount no greater than $ 420, plus, if any, 30% of the remaining
  consideration.                                 
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                   
|            |                                   | iii.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | In the event that within one year of the execution
  date of the agreement, Gamida will sell the shares and the sale occurs prior
  to the consummation of the ImmvaRx transaction, Gamida will pay the Company
  all amounts received in consideration therefore up to $ 420, plus, if any, 80%
  of the remaining consideration.
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                   
|            |                                   | The transaction is with a controlling shareholder
  and therefore the Company will not record any gain in the statements of
  operations. An amount of $ 4,761 (and any additional proceeds that the Company
  may receive for the sale of Procognias shares) would be recorded as
  additional paid-in capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            | g.                                | Investment in Afferix:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |                                   | In August 2003, the Group 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, the Group was to loan Afferix an
  aggregate of $300 in installments, convertible into approximately 40%42.5%
  of the share capital of Afferix, depends on certain conditions. The loan
  bears annual interest at the rate of LIBOR + 2% and will be repaid upon the
  occurrence of certain events, as described in the agreement. The bridge loan
  agreement entitled the Group to designate up to three directors to the
  Afferix board of directors and to designate Afferixs managing director.
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |                                   | In December 2003, the Group and Afferix amended the
  bridge loan agreement to the effect that the Group is no longer required to
  loan to Afferix more than the $ 211 already advanced to Afferix. Moreover it
  was agreed that the Group is entitled to either convert or demand repayment
  of the loan subject to certain provisions of the bridge loan agreement,
  provided that the Group shall not be able to demand repayment before December
  31, 2004. The amendment further stipulates that the Group shall only be
  entitled to designate one director to the Afferix board of directors.                                                                                                                                                         
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |                                   | In the beginning of 2005, the loan was converted
  into shares representing approximately 27% of the issued and outstanding
  share capital of Afferix. Currently, the Group is entitled to designate one
  director to the Afferix board of directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

- 76
-

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|                                                   
|---------------------------------------------------
|HEALTHCARE
  TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL
  STATEMENTS       
|                                                   
|U.S. dollars in thousands (except
  share data)    

|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|----------- | --------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 1:    | BUSINESS AND ORGANIZATION (Cont.)
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            | h.                                | The DMI guarantee:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                   | As part of the acquisition of Gamida Gen Ltd. in
  January 2001, the Company agreed to assume a guarantee of up to $ 270 of
  Gamida Gens debts in favor of an Israeli commercial bank provided by DMI
  Investments B.V. (DMI). DMI had been required by the bank to discharge its
  obligations pursuant to its guarantee and as a consequence, the Company
  recorded a liability at the amount of $ 270. In September 2004, the Company
  entered into an agreement by and among DMI, the Company and Gamida Gen
  pursuant to which the Company issued to DMI, 54,105 ordinary shares of the
  Company in consideration of DMI fully and finally releasing the Company of
  any obligation which it may have in connection with DMIs demands to be
  reimbursed for the amount of approximately $ 270. The Company has recorded the
  issuance of shares at their fair value ($ 35) on the issuance date and the
  remainder ($ 235) was recorded as other income.
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|NOTE 2:    | SIGNIFICANT ACCOUNTING POLICIES  
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                   | These consolidated financial statements have been
  prepared in conformity with generally accepted accounting principles in the
  United States.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            | a.                                | Use of estimates:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                   | The preparation of
  financial statements in conformity with generally accepted accounting
  principles requires management to make estimates and assumptions that affect
  the amounts reported in the financial statements and accompanying notes.
  Actual results could differ from those estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            | b.                                | Financial statements in U.S. dollars:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                   | The functional currency of the Company is the U.S.
  dollar (dollar), as the dollar is the primary currency of the economic
  environment in which the Company has operated and expects to continue to
  operate in the foreseeable future. The Companys operations are currently conducted
  in Israel and most of its expenses are currently paid in dollars. Financing
  and investing activities, equity transactions and cash investments, are made
  in dollars.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                   | Accordingly, monetary accounts maintained in
  currencies other than the dollar are remeasured into dollars. All
  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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                   | The financial statements of the subsidiaries, whose
  functional currency is not the dollar, have been translated into dollars. All
  balance sheet accounts have been translated using the exchange rates in
  effect at the balance sheet date. Statement of operations amounts have been
  translated using the average exchange rate for the period. The resulting
  translation adjustments are reported as a component of shareholders equity
  accumulated other comprehensive loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|            |                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

- 77
-

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---



|                                                   
|---------------------------------------------------
|HEALTHCARE
  TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL
  STATEMENTS       
|                                                   
|U.S. dollars in thousands (except
  share data)    

|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                      
|----------- | ----------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:    | SIGNIFICANT ACCOUNTING POLICIES
  (Cont.)
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                      
|            | c.                                        | Principles of
  consolidation:                                                                                                                                                                                                                                                                                                                                                    
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                      
|            |                                           | The consolidated financial statements include the
  accounts of the Company and its subsidiaries. Intercompany transactions and
  balances have been eliminated upon consolidation. Losses applicable to the
  minority in Danyel are allocated to the Company, since it solely finances
  Danyels operations.                                                                   
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                      
|            | d.                                        | Cash equivalents:                                                                                                                                                                                                                                                                                                                                                                 
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                      
|            |                                           | The Group considers all highly liquid investments
  originally purchased with maturities of three months or less to be cash
  equivalents.                                                                                                                                                                                                                                        
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                      
|            | e.                                        | Inventories:                                                                                                                                                                                                                                                                                                                                                                      
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                      
|            |                                           | Inventories are stated at the lower of cost or
  market value. Inventory provisions for write-offs are provided to cover risks
  arising from slow-moving items or technological obsolescence. In the years
  ended December 31, 2004, 2003 and 2002 the company provided for write-off in
  the amounts of $ 4, $ 0 and $ 0, respectively, which are included in cost of
  sales.
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                      
|            |                                           | Cost is determined as follows:                                                                                                                                                                                                                                                                                                                                                    
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                      
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                   | Raw materials and packaging materials  at average
  cost.                                                                                                                                                           
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                      
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                   | Finished goods  on the basis of computed
  manufacturing costs, which include raw materials, labor and direct and
  indirect manufacturing costs. Purchased goods are stated at the lower of cost
  or market value.
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                      
|            | f.                                        | Investments in an affiliated company:                                                                                                                                                                                                                                                                                                                                             
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                      
|            |                                           | Affiliated companies are companies held to the
  extent of 20% or more (which are not subsidiaries), or companies less than
  20% held, which the Company can exercise significant influence over operating
  and financial policy of the affiliate.                                                                                                                              
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                      
|            |                                           | The Companys investment in 50% of Savyon shares is
  accounted for by the equity method.                                                                                                                                                                                                                                                                                         
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                      
|            |                                           | Following is condensed data from Savyons balance
  sheets as of December 31, 2004 and 2003 and statements of operations for the
  years ended December 31, 2004 and 2003:                                                                                                                                                                                                        

| |                         |  |                |       |      |   |       |  
| | ----------------------- |  | -------------- | ----- | ---- | - | ----- | -
| |                         |  | December
  31, |      
| |                         |  |                |      
| |                         |  | 2004           |       | 2003 |  
| |                         |  |                |       |      |  
| | Current assets          |  | $              | 1,441 |      | $ | 1,010 |  
| | Non-current assets      |  |                | 791   |      |   | 968   |  
| | Current liabilities     |  |                | 992   |      |   | 886   |  
| | Non-current liabilities |  |                | 200   |      |   | 1,344 |  
| | Net sales               |  |                | 4,396 |      |   | 3,657 |  
| | Gross profit            |  |                | 2,141 |      |   | 1,817 |  
| | Net income (loss)       |  | $              | 106   |      | $ | (28   | )

- 78
-

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|                                                   
|---------------------------------------------------
|HEALTHCARE
  TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL
  STATEMENTS       
|                                                   
|U.S. dollars in thousands (except
  share data)    

|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|----------- | ----------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:    | SIGNIFICANT ACCOUNTING POLICIES
  (Cont.)
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                                           | The Company applies EITF 99-10, Percentage Used to
  Determine the Amount of Equity Method Losses (EITF No. 99-10).
  Accordingly, losses of the investee are recognized based on the ownership
  level of the particular investee security held by the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            | g.                                        | Investment in other companies:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                                           | The investment in Afferix is stated at cost, since
  the Company does not have the ability to exercise significant influence over
  operating and financial policies of Afferix. The Companys investment in
  Afferix is reviewed for impairment whenever events or changes in
  circumstances indicate that the carrying amount of an investment may not be
  recoverable, in accordance with Accounting Principle Board Opinion No.18 The
  Equity Method of Accounting for Investments in Common Stock, (APB No.18).
  As of December 31, 2004 and 2003, based on managements most recent analyses,
  impairment losses have been identified in the amount of $ 100 and $ 111,
  respectively.
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                                           | The investment in Procognia is stated at cost, since
  the Company does not have the ability to exercise significant influence over
  operating and financial policies of those investees. The Companys
  investments in Procognia is reviewed for impairment whenever events or
  changes in circumstances indicate that the carrying amount of the investment
  may not be recoverable, in accordance with APB No. 18. As of December 31,
  2004, no impairment losses have been identified.                                                                                                                                                                                                        
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            | h.                                        | Property and equipment:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                                           | Property and equipment are stated at cost net of
  accumulated depreciation. Depreciation is computed using the straight-line
  method over the estimated useful lives of the assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                                           | Annual rates of depreciation are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

| |                                  |  |   |                              | 
| | -------------------------------- |  | - | ---------------------------- | 
| |                                  |  | % |                             
| |                                  |  |   |                             
|
| | Laboratory and medical equipment |  |   | 10  33 (mainly
  20)        | 
| | Office furniture and equipment   |  |   | 6  33 (mainly 6)            | 
| | Motor vehicles                   |  |   | 15                           | 
| | Leasehold improvements           |  |   | Over the term of
  the lease | 

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

- 79
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|                                                   
|---------------------------------------------------
|HEALTHCARE
  TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL
  STATEMENTS       
|                                                   
|U.S. dollars in thousands (except
  share data)    

|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|----------- | ----------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:    | SIGNIFICANT ACCOUNTING POLICIES
  (Cont.)
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            | j.                                        | Intangible assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |                                           | Intangible assets acquired are amortized over their
  useful lives using a method of amortization that reflects the pattern in
  which the economic benefits of the intangible assets are consumed or
  otherwise used up, in accordance with Statement of Financial Accounting
  Standards No. 142 Goodwill and Other Intangible Assets, (SFAS No. 142).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |                                           | Distribution rights were amortized over 8 years and
  technology was amortized over 3 years. The Company recorded amortization
  expenses during 2004, 2003 and 2002, in the amount of $ 25, $ 771 and $ 993,
  respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |                                           | Goodwill represents excess of the costs over the
  fair value of the net assets of businesses acquired. Pursuant to Statement of
  Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets
  (SFAS No. 142) goodwill is presented at cost and not being amortized
  annually, rather goodwill is tested for impairment at least annually or
  between annual tests in certain circumstances, and written down when
  impaired, rather than being amortized. Goodwill attributable to each of the
  reporting units is tested for impairment by comparing the fair value of each
  reporting unit with its carrying value. Fair value is determined using
  discounted cash flows, market multiples and market capitalization.
  Significant estimates used in the methodologies include estimates of future
  cash flows, future short-term and long-term growth rates, weighted average
  cost of capital and estimates of market multiples for the reportable unit. As
  of December 31, 2004, no impairment losses have been identified.
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            | k.                                        | Income taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |                                           | The
  Company and its subsidiaries account for income taxes in accordance with
  Statement of Financial Accounting Standards No. 109, Accounting for Income
  Taxes (SFAS No.109). This Statement prescribes the use of the liability
  method whereby deferred tax assets and liability account balances are
  determined based on differences between financial reporting and tax bases of
  assets and liabilities and are measured using the enacted tax rates and laws
  that will be in effect when the differences are expected to reverse. The
  Company and its subsidiaries provide a valuation allowance, if necessary, to
  reduce deferred tax assets to their estimated realizable value.                                                                                                                                                                                                                                                                                                                                                        
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            | l.                                        | Revenue recognition:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |                                           | Revenues are recognized in accordance with Staff
  Accounting Bulletin No. 104, Revenue Recognition (SAB No. 104), upon
  delivery of the products when the collection of the receivable is probable,
  persuasive evidence of an agreement exists, no significant obligations remain
  and the price is fixed or determinable. The Group follows Statement of
  Financial Accounting Standard No. 48, Revenue Recognition when Right of
  Return Exists (SFAS No. 48). Based on the Companys management experience,
  no provisions for returns were recorded for the years ended December 31,
  2004, 2003 and 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                    

- 80 -

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|                                                   
|---------------------------------------------------
|HEALTHCARE
  TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL
  STATEMENTS       
|                                                   
|U.S. dollars in thousands (except
  share data)    

|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|----------- | ----------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:    | SIGNIFICANT ACCOUNTING POLICIES
  (Cont.)
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            | 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 $ 0, $ 0, and $ 158 in 2004,
  2003 and 2002, respectively. Total royalties paid amounted to $ 21, $ 22 and $ 99
  in 2004, 2003 and 2002, respectively, and were recorded as part of the cost
  of sales.
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            | o.                                        | Basic and diluted net loss per share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            |                                           | Basic net loss per share is computed based on the
  weighted average number of Ordinary shares outstanding during each year.
  Diluted net earnings per share are computed based on the weighted average
  number of Ordinary shares outstanding during each year, plus dilutive
  potential Ordinary shares considered outstanding during the year, in
  accordance with Statement of Financial Accounting Standard No. 128 Earnings
  Per share (SFAS No. 128).                                                                                                                                                                    
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            |                                           | 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 numbers of shares related
  to the outstanding options excluded from the calculations of diluted net loss
  per share were 297,500, 255,000 and 122,500 for the years ended
  December 31, 2004, 2003 and 2002, respectively.                                                                                                                                                                                                                   
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            | p.                                        | Accounting for stock based compensation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            |                                           | The Company has elected to follow Accounting
  Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
  (APB No. 25) and FASB Interpretation No. 44 Accounting for Certain
  Transactions Involving Stock Compensation (FIN No. 44) in accounting for
  its employee stock option plans. Under APB No. 25, when the exercise price of
  the Companys stock option is less than the market price of the underlying
  shares on the date of grant, compensation expense is recognized over the
  options vesting period.                                                                                         

- 81 -

---

---



|                                                   
|---------------------------------------------------
|HEALTHCARE
  TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL
  STATEMENTS       
|                                                   
|U.S. dollars in thousands (except
  share data)    

|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|----------- | ----------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:    | SIGNIFICANT ACCOUNTING POLICIES
  (Cont.)
|            |                                          
|            |                                           | Pro forma information regarding net income and net
  earnings per share is required under Statement of Financial Accounting
  Standard No. 123 Accounting for Stock-Based Compensation (SFAS No. 123)
  and has been determined as if the Company had accounted for its employee
  stock options under the fair value method of SFAS No. 123. The fair value for
  these options is amortized over their vesting period and estimated at the
  date of grant using a Black-Scholes Option Valuation Model with the following
  weighted-average assumptions for 2004, 2003 and 2002: risk-free interest
  rates of 2.78%, 1.0% and 6.0%, respectively; dividend yields of 0% for each
  year; volatility factors of the expected market price of the Companys
  Ordinary shares of 96%, 122% and 163%, respectively; and an expected life of
  the option of 3 years for each year.
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                                           | 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:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

| |                                                                                           |  |                           |       |      |   |       |   |   |        |  
| | ----------------------------------------------------------------------------------------- |  | ------------------------- | ----- | ---- | - | ----- | - | - | ------ | -
| |                                                                                           |  | Year ended
  December 31, |      
| |                                                                                           |  |                           |      
| |                                                                                           |  | 2004                      |       | 2003 |   | 2002  |  
| |                                                                                           |  |                           |       |      |   |       |  
| |                                                                                           |  |                           |       |      |   |       |   |   |        |  
| | Net loss as reported                                                                      |  | $                         | (359  | )    | $ | (500  | ) | $ | (1,827 | )
| |                                                                                           |  |                           |       |      |   |       |   |   |        |  
| |                                                                                           |  |                           |       |      |   |       |   |   |        |  
| | Deduct:
  stock-based employee compensation expense included in reported net loss         |  | $                         | 41    |      | $ | 57    |   | $ | 40     |  
| |                                                                                           |  |                           |       |      |   |       |   |   |        |  
| |                                                                                           |  |                           |       |      |   |       |   |   |        |  
| | Add: stock-based
  employee compensation expense determined under fair value-based method |  | $                         | (55   | )    | $ | (62   | ) | $ | (49    | )
| |                                                                                           |  |                           |       |      |   |       |   |   |        |  
| |                                                                                           |  |                           |       |      |   |       |   |   |        |  
| | Pro forma net loss                                                                        |  | $                         | (373  | )    | $ | (505  | ) | $ | (1,836 | )
| |                                                                                           |  |                           |       |      |   |       |   |   |        |  
| |                                                                                           |  |                           |       |      |   |       |   |   |        |  
| | Pro forma basic
  and diluted net loss per share                                          |  | $                         | (0.05 | )    | $ | (0.07 | ) | $ | (0.24  | )
| |                                                                                           |  |                           |       |      |   |       |   |   |        |  
| |                                                                                           |  |                           |       |      |   |       |   |   |        |  
| | Reported basic
  and diluted net loss per share                                           |  | $                         | (0.05 | )    | $ | (0.07 | ) | $ | (0.24  | )
| |                                                                                           |  |                           |       |      |   |       |   |   |        |  

- 82 -

---

---



|                                                   
|---------------------------------------------------
|HEALTHCARE
  TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL
  STATEMENTS       
|                                                   
|U.S. dollars in thousands (except
  share data)    

|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|----------- | ----------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:    | SIGNIFICANT ACCOUNTING POLICIES
  (Cont.)
|            |                                          
|            | q.                                        | Concentrations of credit risk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |                                           | Financial instruments that potentially subject the
  Group to concentrations of credit risk consist principally of cash and cash
  equivalents, and trade receivables. Cash and cash equivalents are deposited
  in major banks in Israel. Management believes that the financial institutions
  that hold the Groups investments are financially sound, and, accordingly,
  minimal credit risk exists with respect to these investments. The Groups
  trade receivables derive mainly from sales to numerous customers in Israel.
  The Group has adopted credit policies and standards intended to accommodate
  industry growth and inherent risk. Management believes that credit risks are
  moderated by the diversity of its end customers. The Group performs ongoing
  credit evaluations of its customers financial condition and to date has not
  experienced any material losses. An allowance for doubtful accounts is
  determined with respect to those amounts that the Group has determined to be
  doubtful of collection.
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |                                           | The Company has no off-balance-sheet concentration
  of credit risk such as foreign exchange contracts, option contracts or other
  foreign hedging arrangements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            | 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:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |                                           | The carrying amounts of cash and cash equivalents,
  trade receivables, short-term bank credit and trade payables approximate
  their fair value due to the short-term maturity of such instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |                                           | The carrying amounts of the Groups long-term
  borrowings approximate their fair value. The fair value was estimated using
  discounted cash flows analyses, based on the Groups incremental borrowing
  rates for similar type of borrowing arrangements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            | s.                                        | Severance pay:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |                                           | The Companys liability for severance pay is
  calculated pursuant to Israels Severance Pay Law based on the most recent
  salary of the employees multiplied by the number of years of employment, as
  of the balance sheet date. Employees are entitled to one months salary for
  each year of employment, or a portion thereof. The Companys liability for
  all of employees, is fully provided by monthly deposits with severance pay
  funds, insurance policies and by an accrual. The value of these policies is
  recorded as an asset in the Companys consolidated balance sheet.                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |                                           | The deposited funds include profits accumulated up
  to the balance sheet date. The deposited funds may be withdrawn only upon the
  fulfillment of the obligation pursuant to Israels Severance Pay Law or labor
  agreements. The value of the deposited funds is based on the cash surrendered
  value of these policies, and includes immaterial profits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

- 83 -

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---



|                                                   
|---------------------------------------------------
|HEALTHCARE
  TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL
  STATEMENTS       
|                                                   
|U.S. dollars in thousands (except
  share data)    

|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|----------- | ----------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:    | SIGNIFICANT ACCOUNTING POLICIES
  (Cont.)
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                                           | Severance expenses for the years ended December 31,
  2004, 2003 and 2002 amounted to $ 111, $ 123 and $ 54, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            | t.                                        | Impact of recently issued accounting standards:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                                           | In November 2004, the Financial Accounting Standards
  Board (FASB) issued Statement of Financial Accounting Standard No. 151,
  Inventory Costs, an Amendment of ARB No. 43, Chapter 4. SFAS No. 151 amends
  Accounting Research Bulletin (ARB) No. 43, Chapter 4, to clarify that
  abnormal amounts of idle facility expense, freight handling costs and wasted
  materials (spoilage) should be recognized as current-period charges. SAFS No.
  151 is effective for inventory costs incurred during fiscal years beginning
  after June 15, 2005. The Company does not expect that the adoption of SFAS
  No. 151 will have a material effect on its financial position or results
  of operations.                                                                                                                    
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                                           | On December 16, 2004, the FASB issued FASB Statement
  No. 123(R) (revised 2004), Share-Based Payment, which is a revision of FASB
  Statement No. 123, Accounting for Stock-Based Compensation. Statement 123(R)
  supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and
  amends FASB Statement No. 95, Statement of Cash Flows. Generally, the
  approach in Statement 123(R) is similar to the approach described in
  Statement 123. However, Statement 123(R) requires all share-based payments to
  employees, including grants of employee stock options, to be recognized in
  the income statement based on their fair values. Pro forma disclosure is no
  longer an alternative. The new standard will be effective for the Company
  beginning after January 1, 2006.                           
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                                           | As permitted by Statement 123, the company currently
  accounts for share-based payments to employees using APB 25s intrinsic value
  method. Accordingly, the adoption of Statement 123(R)s fair value method
  will have a significant impact on the Companys result of operations,
  although it will have no impact on the Company overall financial position.
  The impact of adoption of Statement 123(R) cannot be predicted at this time
  because it will depend on levels of share-based payments granted in the
  future. However, had the Company adopted Statement 123(R) in prior periods,
  the impact of that standard would have approximated the impact of Statement
  123 as described in the disclosure of pro forma net income and earnings per
  share in Note 2p to the consolidated financial statements.
|            |                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                                           | In March 2005, the SEC staff issued Staff Accounting
  Bulletin No. 107 (SAB 107) to give guidance on implementation of SFAS 123(R).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

- 84 -

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---



|                                                   
|---------------------------------------------------
|HEALTHCARE
  TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL
  STATEMENTS       
|                                                   
|U.S. dollars in thousands (except
  share data)    

|            |                                                  
|----------- | -------------------------------------------------
|NOTE 3:    | OTHER ACCOUNTS RECEIVABLE AND
  PREPAID  EXPENSES

| |                                                         |  |                |     |      |   |     | 
| | ------------------------------------------------------- |  | -------------- | --- | ---- | - | --- | 
| |                                                         |  | December
  31, |    
| |                                                         |  |                |    
| |                                                         |  | 2004           |     | 2003 |  
| |                                                         |  |                |     |      |  
| |                                                         |  |                |     |      |   |     | 
| | Government authorities                                  |  | $              | 75  |      | $ | 81  | 
| | Unbilled receivables                                    |  |                | 66  |      |   | 104 | 
| | Prepaid expenses                                        |  |                | 85  |      |   | 145 | 
| | Related parties (1)                                     |  |                | 41  |      |   | 27  | 
| | Receivable on account of sale of operations to
  Savyon |  |                | 240 |      |   | 480 | 
| | Other                                                   |  |                | 69  |      |   | 80  | 
| |                                                         |  |                |     |      |   |     | 
| |                                                         |  |                |     |      |   |     | 
| |                                                         |  | $              | 576 |      | $ | 917 | 
| |                                                         |  |                |     |      |   |     | 

|            |             |                                                                                                            
|----------- | ----------- | -----------------------------------------------------------------------------------------------------------
|            | (1)         | The balance is linked to Israel Consumer Price Index
  (CPI) and bears annual interest at the rate of 4%.
|            |             |                                                                                                            
|NOTE 4:    | INVENTORIES

| |                |  |   |       |  |   |       | 
| | -------------- |  | - | ----- |  | - | ----- | 
| | Raw materials  |  | $ | 9     |  | $ | 10    | 
| | Finished goods |  |   | 1,649 |  |   | 1,478 | 
| |                |  |   |       |  |   |       | 
| |                |  |   |       |  |   |       | 
| |                |  | $ | 1,658 |  | $ | 1,488 | 
| |                |  |   |       |  |   |       | 

|            |                             |                                                     
|----------- | --------------------------- | ----------------------------------------------------
|NOTE 5:    | PROPERTY AND EQUIPMENT, NET
|            |                            
|            | a.                          | Composition of property and equipment is as follows:

| |                                    |  |                |       |      |   |       | 
| | ---------------------------------- |  | -------------- | ----- | ---- | - | ----- | 
| |                                    |  | December
  31, |      
| |                                    |  |                |      
| |                                    |  | 2004           |       | 2003 |  
| |                                    |  |                |       |      |  
| | Cost:                              |  |                |       |      |   |       | 
| | Laboratory and
  medical equipment |  | $              | 4,640 |      | $ | 4,516 | 
| | Motor vehicles                     |  |                | 687   |      |   | 654   | 
| | Office furniture
  and equipment   |  |                | 922   |      |   | 904   | 
| | Leasehold
  improvements           |  |                | 303   |      |   | 290   | 
| |                                    |  |                |       |      |   |       | 
| |                                    |  |                |       |      |   |       | 
| |                                    |  |                | 6,552 |      |   | 6,364 | 
| |                                    |  |                |       |      |   |       | 
| |                                    |  |                |       |      |   |       | 
| | Accumulated depreciation           |  |                | 5,440 |      |   | 5,058 | 
| |                                    |  |                |       |      |   |       | 
| |                                    |  |                |       |      |   |       | 
| | Depreciated cost                   |  | $              | 1,112 |      | $ | 1,306 | 
| |                                    |  |                |       |      |   |       | 

| |    |                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | Depreciation expenses for the years ended December
  31, 2004, 2003 and 2002, amounted to $ 439, $ 397 and $ 920
  respectively. (As for impairment, see Note 2i).
| |    |                                                                                                                                                                   
| |    | As for Charges, see Note 9e(1).                                                                                                                                   

- 85 -

---

---



|                                                   
|---------------------------------------------------
|HEALTHCARE
  TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL
  STATEMENTS       
|                                                   
|U.S. dollars in thousands (except
  share data)    

|            |                         
|----------- | ------------------------
|NOTE 6:    | SHORT-TERM
  BANK CREDIT

| |                        |  |                 |     |                 |  |                |      |  |      |  |   |     |  |   |    | 
| | ---------------------- |  | --------------- | --- | --------------- |  | -------------- | ---- |  | ---- |  | - | --- |  | - | -- | 
| |                        |  | Interest
  rate |     | Linkage
  terms |  | December
  31, |     
| |                        |  |                 |     |                 |  |               
| |                        |  | 2004            |     | 2003            |  |                | 2004 |  | 2003 | 
| |                        |  |                 |     |                 |  |                |      |  |      |  |  
| |                        |  |                 |     |                 |  |                |      |  |      |  |   |     |  |   |    | 
| | Short-term bank credit |  |                 |    |                 |  | 7.8            | %    |  | NIS  |  | $ |    |  | $ | 23 | 
| | Short-term bank loans  |  |                 | 6.5 | %               |  |               |      |  | NIS  |  |   | 839 |  |   |   | 
| |                        |  |                 |     |                 |  |                |      |  |      |  |   |     |  |   |    | 
| |                        |  |                 |     |                 |  |                |      |  |      |  |   |     |  |   |    | 
| |                        |  |                 |     |                 |  |                |      |  |      |  | $ | 839 |  | $ | 23 | 
| |                        |  |                 |     |                 |  |                |      |  |      |  |   |     |  |   |    | 

| |                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Group has an authorized credit line in the
  amount of $ 100 as of December 31, 2004. For amounts overdrawn in excess
  of the Groups authorized credit line, the Group is subject to an annual
  average interest rate of approximately 7.5% on the outstanding amount.
| |                                                                                                                                                                                                                                                                              
| | As of December 31, 2004, the Group has $ 91 of
  unutilized credit line.                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                              
| | As for charges, see Note 9e(1).                                                                                                                                                                                                                                              

|            |                                              
|----------- | ---------------------------------------------
|NOTE 7:    | OTHER ACCOUNTS PAYABLE AND ACCRUED
  EXPENSES

| |                                |  |                |       |      |   |       | 
| | ------------------------------ |  | -------------- | ----- | ---- | - | ----- | 
| |                                |  | December
  31, |      
| |                                |  |                |      
| |                                |  | 2004           |       | 2003 |  
| |                                |  |                |       |      |  
| |                                |  |                |       |      |   |       | 
| | Royalties payable              |  | $              | 11    |      | $ | 11    | 
| | Employees and payroll accruals |  |                | 366   |      |   | 407   | 
| | Government authorities         |  |                | 120   |      |   | 66    | 
| | Customer advances              |  |                | 182   |      |   | 201   | 
| | Accrued expenses               |  |                | 314   |      |   | 141   | 
| | Other                          |  |                | 66    |      |   | 286   | 
| |                                |  |                |       |      |   |       | 
| |                                |  |                |       |      |   |       | 
| |                                |  | $              | 1,059 |      | $ | 1,112 | 
| |                                |  |                |       |      |   |       | 

- 86 -

---

---



|                                                   
|---------------------------------------------------
|HEALTHCARE
  TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL
  STATEMENTS       
|                                                   
|U.S. dollars in thousands                          

|            |                 |                     
|----------- | --------------- | --------------------
|NOTE 8:    | LONG-TERM LOANS
|            |                
|            | a.              | Composed as follows:

| |    |                                                                                      |  |                 |          |      |      |               |  |                 |    |       |   |               |  |                 |     |       |   |    |  |   |     |  |   |       | 
| | -- | ------------------------------------------------------------------------------------ |  | --------------- | -------- | ---- | ---- | ------------- |  | --------------- | -- | ----- | - | ------------- |  | --------------- | --- | ----- | - | -- |  | - | --- |  | - | ----- | 
| |    |                                                                                      |  |                 |          |      |      | December 31,  | 
| |    |                                                                                      |  | Interest
  rate |          |      |     
| |    |                                                                                      |  |                 | 2004     |      | 2003 |              
| |    |                                                                                      |  |                 |          |      |      |               | 
| |    |                                                                                      |  | 2004            |          | 2003 |      | InU.S. dollar |  | NISlinked toCPI |    | Total |   | InU.S. dollar |  | NISlinked toCPI |     | Total |  
| |    |                                                                                      |  |                 |          |      |      |               |  |                 |    |       |   |               |  |                 |     |       |  
| |    |                                                                                      |  | %               |          |      |      |               |  |                 |    |       |   |               |  |                 |    
| |    |                                                                                      |  |                 |          |      |      |               |  |                 |    |       |   |               |  |                 |    
|
| |    | Loans from banks                                                                     |  |                 | 3.26.25 |      |      | 3.26.2       |  | $               | 18 |       | $ | 210           |  | $               | 228 |       | $ | 99 |  | $ | 932 |  | $ | 1,031 | 
| |    | Less  current maturities                                                            |  |                 |          |      |      |               |  |                 | 8  |       |   | 78            |  |                 | 86  |       |   | 81 |  |   | 920 |  |   | 1,001 | 
| |    |                                                                                      |  |                 |          |      |      |               |  |                 |    |       |   |               |  |                 |     |       |   |    |  |   |     |  |   |       | 
| |    |                                                                                      |  |                 |          |      |      |               |  |                 |    |       |   |               |  |                 |     |       |   |    |  |   |     |  |   |       | 
| |    |                                                                                      |  |                 |          |      |      |               |  | $               | 10 |       | $ | 132           |  | $               | 142 |       | $ | 18 |  | $ | 12  |  | $ | 30    | 
| |    |                                                                                      |  |                 |          |      |      |               |  |                 |    |       |   |               |  |                 |     |       |   |    |  |   |     |  |   |       | 
| |    |                                                                                      |  |                 |          |      |      |               |  |                 |    |       |   |               |  |                 |     |       |   |    |  |   |     |  |   |       | 
| | b. | Maturities of long-term loans subsequent to the balance
  sheet date are as follows: |  |                 |          |      |      |              
| |    |                                                                                      |  |                 |          |      |      |               |  |                 |    |       |   |               |  |                 |     |       |   |    |  |   |     |  |   |       | 
| |    | First year (current maturities)                                                      |  |                 |          |      |      |               |  | $               | 8  |       | $ | 78            |  | $               | 86  |       | $ | 81 |  | $ | 920 |  | $ | 1,001 | 
| |    |                                                                                      |  |                 |          |      |      |               |  |                 |    |       |   |               |  |                 |     |       |   |    |  |   |     |  |   |       | 
| |    |                                                                                      |  |                 |          |      |      |               |  |                 |    |       |   |               |  |                 |     |       |   |    |  |   |     |  |   |       | 
| |    | Second year                                                                          |  |                 |          |      |      |               |  |                 | 8  |       |   | 81            |  |                 | 89  |       |   | 8  |  |   | 12  |  |   | 20    | 
| |    | Third year                                                                           |  |                 |          |      |      |               |  |                 | 2  |       |   | 51            |  |                 | 53  |       |   | 8  |  |   |    |  |   | 8     | 
| |    | Fourth year                                                                          |  |                 |          |      |      |               |  |                 |   |       |   |               |  |                 |    |       |   | 2  |  |   |    |  |   | 2     | 
| |    |                                                                                      |  |                 |          |      |      |               |  |                 |    |       |   |               |  |                 |     |       |   |    |  |   |     |  |   |       | 
| |    |                                                                                      |  |                 |          |      |      |               |  |                 |    |       |   |               |  |                 |     |       |   |    |  |   |     |  |   |       | 
| |    |                                                                                      |  |                 |          |      |      |               |  |                 | 10 |       |   | 132           |  |                 | 142 |       |   | 18 |  |   | 12  |  |   | 30    | 
| |    |                                                                                      |  |                 |          |      |      |               |  |                 |    |       |   |               |  |                 |     |       |   |    |  |   |     |  |   |       | 
| |    |                                                                                      |  |                 |          |      |      |               |  |                 |    |       |   |               |  |                 |     |       |   |    |  |   |     |  |   |       | 
| |    |                                                                                      |  |                 |          |      |      |               |  | $               | 18 |       | $ | 210           |  | $               | 228 |       | $ | 99 |  | $ | 932 |  | $ | 1,031 | 
| |    |                                                                                      |  |                 |          |      |      |               |  |                 |    |       |   |               |  |                 |     |       |   |    |  |   |     |  |   |       | 

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

- 87 -

---

---



|                                                   
|---------------------------------------------------
|HEALTHCARE
  TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL
  STATEMENTS       
|                                                   
|U.S. dollars in thousand                           

|            |                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|----------- | ---------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 9:    | COMMITMENTS AND CONTINGENT
  LIABILITIES
|            |                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            | a.                                       | Royalty commitments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |                                          | The group is obligated to pay royalties to the
  Government of Israel through the Office of the Chief Scientist (OCS), at
  rates of 3% to 5% on sales proceeds from products developed by the OCS. The
  maximum amount of royalties payable to the Government of Israel is limited to
  100% of the grants received, linked to the dollar and bears interest at the
  LIBOR rate from 1999. The obligation to pay these royalties is contingent on
  actual sales of the products and in the absence of such sales no payment is
  required.
|            |                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |                                          | Total royalties accrued or paid by the group
  amounted to $ 21, $ 22 and $ 99 in 2004, 2003 and 2002, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |                                          | At December 31, 2004, the group has remaining
  contingent obligation to the OCS in the amount of $ 530 (excluding accrued
  interest).                                                                                                                                                                                                                                                                                                                                                                                                         
|            |                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            | b.                                       | Lease commitments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |                                          | The Group has leased several buildings, offices and
  warehouses under several operating lease agreements that expire on various
  dates the latest of which is June 30, 2008, and motor vehicles under various
  operating leases that expire on various dates, the latest of which is in
  December 2007.                                                                                                                                                                                                                                     
|            |                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |                                          | Future lease commitments under non-cancelable
  operating leases are as follows                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

| |      |  |   |     | 
| | ---- |  | - | --- | 
| | 2005 |  | $ | 190 | 
| | 2006 |  |   | 104 | 
| | 2007 |  |   | 104 | 
| | 2008 |  |   | 16  | 
| |      |  |   |     | 
| |      |  |   |     | 
| |      |  | $ | 414 | 
| |      |  |   |     | 

| |    |                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | Total rent expenses for the years ended December 31,
  2004, 2003 and 2002, were approximately $ 187, $ 160 and $ 490,
  respectively.                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                              
| | c. | The Company is engaged in a service agreement with
  Gamida for Life Israel, a company related to the Companys controlling
  shareholder, according to which the Company is obligated to pay management
  fees of $ 10 per month. The service agreement is automatically renewed
  for successive one-year terms, unless terminated by either party subject to a
  three-month notification.

- 88 -

---

---



|                                                   
|---------------------------------------------------
|HEALTHCARE
  TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL
  STATEMENTS       
|                                                   
|U.S. dollars in thousand                           

|            |                                                  |                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                    
|----------- | ------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 9:    | COMMITMENTS AND CONTINGENT
  LIABILITIES (Cont.)
|            |                                                 
|            | d.                                               | In January 1999, the Company established an 80% 
  owned subsidiary  Danyel. The remaining 20% are owned by L.C. Tech Ltd., a
  company held by the CEO of Danyel. According to the incorporation agreement,
  the general manager can require the Company to acquire his 20% under two
  alternatives:
|            |                                                  |                                                                                                                                                                                                                                                                                                          
|            |                                                  | 1.                                                                                                                                                                                                                                                                                                        | In the event that the General Manager ceases his
  role by reason of death or incapability. In such event, the purchase price
  will be the fair value as determined by a third party valuation at the
  termination date.         
|            |                                                  |                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                    
|            |                                                  | 2.                                                                                                                                                                                                                                                                                                        | In the event of termination without cause, the
  purchase price will be 90% of the fair value as determined by a third party
  valuation at the termination date.                                                                  
|            |                                                  |                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                    
|            |                                                  | In addition, Danyel is obligated to pay its CEO 5%
  of Danyels annual net income.                                                                                                                                                                                                                      
|            |                                                  |                                                                                                                                                                                                                                                                                                          
|            | e.                                               | Charges (assets pledged) and guarantees:                                                                                                                                                                                                                                                                 
|            |                                                  |                                                                                                                                                                                                                                                                                                          
|            |                                                  | 1.                                                                                                                                                                                                                                                                                                        | As collateral for credit line and loans provided to
  the Group, totaling $ 1,167 as of December 31, 2004, the Group has placed
  unlimited fixed and floating charges on certain assets and share capital, in
  favor of the bank.
|            |                                                  |                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                    
|            |                                                  | 2.                                                                                                                                                                                                                                                                                                        | The company guaranties 50% of Savyon credit line in
  the bank, amounting to $ 100 .                                                                                                                                               
|            |                                                  |                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                    
|            | f.                                               | 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. In 2003 the Company paid the consultant $ 38 in respect of the
  Savyon transaction.                                                                       
|            |                                                  |                                                                                                                                                                                                                                                                                                          
|            | 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.                      

- 89 -

---

---



|                                                   
|---------------------------------------------------
|HEALTHCARE
  TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL
  STATEMENTS       
|                                                   
|U.S. dollars in thousand                           

|            |                      |                                                                                                                                                                                                                                                                                                                                                                                                                      
|----------- | -------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 10:   | SHAREHOLDERS EQUITY
|            |                     
|            | a.                   | Ordinary shares confer upon their holders voting
  rights and the right to receive dividends, if declared.                                                                                                                                                                                                                                                                                                           
|            |                      |                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | b.                   | In September 2004, the Company issued 54,105
  Ordinary shares as a consideration for fully and finally releasing the
  Company of any obligation which it may have in connection with DMIs demands
  (see Note 1h).                                                                                                                                                                                                
|            |                      |                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | c.                   | 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. In
  2004, the Company granted 62,500 options to purchase ordinary shares at an
  exercise price of $ 0.86 per share.                                                                                                                                                                  
|            |                      |                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                      | As of December 31, 2004, an aggregate of 135,000 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 of employment date. The options vest primarily
  over 3 to 5 years. Any options, which are canceled or forfeited before
  expiration become available for future grant.
|            |                      |                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | d.                   | A summary of the Companys stock option activity and
  related information is as follows:                                                                                                                                                                                                                                                                                                                            

| |                                          |  |                         |         |                                       |  |                     |  |                                       |         |                     |  |                                       |  |  |         |   |  |      | 
| | ---------------------------------------- |  | ----------------------- | ------- | ------------------------------------- |  | ------------------- |  | ------------------------------------- | ------- | ------------------- |  | ------------------------------------- |  |  | ------- | - |  | ---- | 
| |                                          |  | Year ended December 31, |        
| |                                          |  |                         |        
| |                                          |  | 2004                    |         | 2003                                  |  | 2002                | 
| |                                          |  |                         |         |                                       |  |                     | 
| |                                          |  | Amount
  of options     |         | Weighted
  average
  exercise
  price |  | Amount
  of options |  | Weighted
  average
  exercise
  price |         | Amount
  of options |  | Weighted
  average
  exercise
  price | 
| |                                          |  |                         |         |                                       |  |                     |  |                                       |         |                     |  |                                       | 
| |                                          |  |                         |         | $                                     |  |                     |  | $                                     |         |                     |  | $                                     | 
| |                                          |  |                         |         |                                       |  |                     |  |                                       |         |                     |  |                                       | 
|
| | Outstanding at the beginning of the year |  |                         | 255,000 |                                       |  | 0.51                |  |                                       | 122,500 |                     |  | 1.38                                  |  |  | 177,500 |   |  | 1.84 | 
| | Granted                                  |  |                         | 62,500  |                                       |  | 0.86                |  |                                       | 200,000 |                     |  | 0.36                                  |  |  |        |   |  |     | 
| | Exercised                                |  |                         |        |                                       |  |                    |  |                                       | (5,000  | )                   |  | 0.38                                  |  |  |        |   |  |     | 
| | Forfeited                                |  |                         | (20,000 | )                                     |  | 1.00                |  |                                       | (62,500 | )                   |  | 1.75                                  |  |  | (55,000 | ) |  | 2.86 | 
| |                                          |  |                         |         |                                       |  |                     |  |                                       |         |                     |  |                                       |  |  |         |   |  |      | 
| |                                          |  |                         |         |                                       |  |                     |  |                                       |         |                     |  |                                       |  |  |         |   |  |      | 
| | Outstanding at the end of the year       |  |                         | 297,500 |                                       |  | 0.55                |  |                                       | 255,000 |                     |  | 0.51                                  |  |  | 122,500 |   |  | 1.38 | 
| |                                          |  |                         |         |                                       |  |                     |  |                                       |         |                     |  |                                       |  |  |         |   |  |      | 
| |                                          |  |                         |         |                                       |  |                     |  |                                       |         |                     |  |                                       |  |  |         |   |  |      | 
| | Exercisable at the end of the year       |  |                         | 100,000 |                                       |  | 0.62                |  |                                       | 80,000  |                     |  | 0.69                                  |  |  | 102,500 |   |  | 1.65 | 
| |                                          |  |                         |         |                                       |  |                     |  |                                       |         |                     |  |                                       |  |  |         |   |  |      | 

- 90 -

---

---



|                                                   
|---------------------------------------------------
|HEALTHCARE
  TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL
  STATEMENTS       
|                                                   
|U.S. dollars in thousand                           

|            |                              |                                                                                                       
|----------- | ---------------------------- | ------------------------------------------------------------------------------------------------------
|NOTE 10:   | SHAREHOLDERS EQUITY (Cont.)
|            |                              |                                                                                                       
|            | e.                           | The options outstanding as of December 31, 2004,
  have been classified by exercise price, as follows:

| |               |            |                                          |  |                                                     |           |                                  |   |                                                   |   |                                                       |  |  |         |  |   |      | 
| | ------------- | ---------- | ---------------------------------------- |  | --------------------------------------------------- | --------- | -------------------------------- | - | ------------------------------------------------- | - | ----------------------------------------------------- |  |  | ------- |  | - | ---- | 
| | Exerciseprice |            | Optionsoutstanding asof December 31,2004 |  | Weighted
  average
  remaining
  contractual
  life |           | Weighted
  averageexercise price |   | Options
  exercisable as of
  December 31,
  2004 |   | Weighted
  averageexercise priceof optionsexercisable | 
| |               |            |                                          |  |                                                     |           |                                  |   |                                                   |   |                                                       | 
| |               |            |                                          |  |                                                     | In months |                                  |   |                                                   |   |                                                       |  |  |         |  |  
| |               |            |                                          |  |                                                     |           |                                  |   |                                                   |   |                                                       |  |  |         |  |  
|
| | $             | 0.35- 0.38 |                                          |  | 195,000                                             |           | *                                | ) |                                                   | $ | 0.36                                                  |  |  | 60,000  |  | $ | 0.36 | 
| | $             | 0.86- 1.00 |                                          |  | 102,500                                             |           | 35                               |   |                                                   | $ | 0.91                                                  |  |  | 40,000  |  | $ | 1.00 | 
| |               |            |                                          |  |                                                     |           |                                  |   |                                                   |   |                                                       |  |  |         |  |   |      | 
| |               |            |                                          |  |                                                     |           |                                  |   |                                                   |   |                                                       |  |  |         |  |   |      | 
| |               |            |                                          |  | 297,500                                             |           |                                  |   |                                                   | $ | 0.55                                                  |  |  | 100,000 |  | $ | 0.62 | 
| |               |            |                                          |  |                                                     |           |                                  |   |                                                   |   |                                                       |  |  |         |  |   |      | 

| |                                                                                                                                                                                                                    |                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------
| | *)                                                                                                                                                                                                                 | 180 days from the date of termination of employment
  agreement.
| |                                                                                                                                                                                                                    |                                                                 
| | Compensation expenses recognized by the Company
  related to its stock-based employee compensation awards amounted to
  $ 41, $ 57 and $ 40, for the years ended December 31,
  2004, 2003 and 2002, respectively.

| |    |                                                            
| | -- | -----------------------------------------------------------
| | f. | The weighted average fair values of options granted
  were:

| |                                                            |  |                                                 |   |                       |   |                                |  |      |      |      |   |      |  |   |   |  |   |       | 
| | ---------------------------------------------------------- |  | ----------------------------------------------- | - | --------------------- | - | ------------------------------ |  | ---- | ---- | ---- | - | ---- |  | - | - |  | - | ----- | 
| |                                                            |  | For
  exercise prices on the date of grant that |  
| |                                                            |  |                                                 |  
| |                                                            |  | Equal
  market price                            |   | Exceed
  market price |   | Are less
  than market
  price | 
| |                                                            |  |                                                 |   |                       |   |                                | 
| |                                                            |  | 2004                                            |   | 2003                  |   | 2004                           |  | 2003 |      | 2004 |   | 2003 | 
| |                                                            |  |                                                 |   |                       |   |                                |  |      |      |      |   |      | 
| |                                                            |  |                                                 |   |                       |   |                                |  |      |      |      |   |      |  |   |   |  |   |       | 
| | Weighted average exercise prices                           |  | $                                               |  |                       | $ |                               |  | $    | 0.86 |      | $ |     |  | $ |  |  | $ | 0.36  | 
| |                                                            |  |                                                 |   |                       |   |                                |  |      |      |      |   |      |  |   |   |  |   |       | 
| | Weighted average fair value of the options on
  grant date |  | $                                               |  |                       | $ |                               |  | $    | 0.75 |      | $ |     |  | $ |  |  | $ | 1.135 | 
| |                                                            |  |                                                 |   |                       |   |                                |  |      |      |      |   |      |  |   |   |  |   |       | 

|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|----------- | --------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 11:   | TAXES ON INCOME
|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            | a.              | Measurement of results for tax purposes under the
  Income Tax Law (Inflationary Adjustments), 1985:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                 | Results for tax purposes are measured in terms of
  earnings in NIS after certain adjustments for increases in Israels Consumer
  Price Index (CPI). As explained in Note 2b, the financial statements are
  measured in U.S. dollars. The difference between the annual change in the CPI
  and in the NIS/dollar exchange rate causes a difference between taxable
  income and the income before taxes shown in the financial statements. In
  accordance with paragraph 9(f) of SFAS No. 109, the Company has not provided
  deferred income taxes in respect of the difference between the reporting
  currency and the tax bases of assets and liabilities.

- 91 -

---

---



|                                                   
|---------------------------------------------------
|HEALTHCARE
  TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL
  STATEMENTS       
|                                                   
|U.S. dollars in thousand                           

|            |                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|----------- | ----------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 11:   | TAXES ON INCOME (Cont.)
|            |                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            | b.                      | Tax rates applicable:                                                                                                                                                                                                                                                                                                                                                                                                                                               
|            |                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                         | Until December 31, 2003, the regular corporate tax
  rate applicable to income of companies in Israel was 36%. In June 2004, an
  amendment to the Income Tax Ordinance (No. 140 and Temporary Provision), 2004
  was passed by the Knesset (Israeli parliament), which determines, among
  other things, that the corporate tax rate is to be gradually reduced to the
  following tax rates: 2004  35%, 2005  34%, 2006  32% and 2007 and
  thereafter  30%.
|            |                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            | c.                      | Carryforward tax losses:                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                         | As of December 31, 2004, losses for Israeli tax
  purposes of the Group totaled approximately $ 12,500.                                                                                                                                                                                                                                                                                                                                                             
|            |                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                         | 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.                      | Deferred income taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                         | Deferred income taxes reflect the net tax effects of
  temporary differences between the carrying amounts of assets and liabilities
  for financial reporting purposes and the amounts used for income tax
  purposes. Significant components of the Groups deferred tax assets are as
  follows:                                                                                                                                                                  

| |                                                    |  |              |        |      |   |        |  
| | -------------------------------------------------- |  | ------------ | ------ | ---- | - | ------ | -
| |                                                    |  | December 31, |       
| |                                                    |  |              |       
| |                                                    |  | 2004         |        | 2003 |  
| |                                                    |  |              |        |      |  
| |                                                    |  |              |        |      |   |        |  
| | Carryforward losses                                |  | $            | 3,750  |      | $ | 4,320  |  
| | Provision for vacation and severance pay           |  |              | 89     |      |   | 100    |  
| |                                                    |  |              |        |      |   |        |  
| |                                                    |  |              |        |      |   |        |  
| | Net deferred tax assets before valuation allowance |  |              | 3,839  |      |   | 4,420  |  
| |                                                    |  |              |        |      |   |        |  
| | Valuation allowance                                |  |              | (3,839 | )    |   | (4,420 | )
| |                                                    |  |              |        |      |   |        |  
| |                                                    |  |              |        |      |   |        |  
| | Net deferred tax assets                            |  | $            |       |      | $ |       |  
| |                                                    |  |              |        |      |   |        |  

| |    |                                                                                                                                                                                                                                                                                                                                       
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | The Group provided valuation allowances in respect
  of deferred tax assets resulting from losses carryforward and other temporary
  differences, since it has a history of losses and thus, management currently
  believes that it is more likely than not that the deferred taxes will not be
  realized in the foreseeable future.
| |    |                                                                                                                                                                                                                                                                                                                                       
| | e. | All income before taxes is domestic.                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                       
| | f. | The main reconciling items between the statutory tax
  rate of the Company and the effective tax rate are the non-recognition of tax
  benefits from accumulated net operating losses carryforward among the
  subsidiaries due to the uncertainty of the realization of such tax benefits.                                           

- 92 -

---

---



|                                                   
|---------------------------------------------------
|HEALTHCARE
  TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL
  STATEMENTS       
|                                                   
|U.S. dollars in thousand                           

|            |                                          |                         
|----------- | ---------------------------------------- | ------------------------
|NOTE 12:   | SELECTED STATEMENTS OF OPERATIONS
  DATA
|            |                                          |                         
|            | a.                                       | Financial expenses, net:

| |                                                                                                         |  |                         |      |      |   |      |   |   |      |  
| | ------------------------------------------------------------------------------------------------------- |  | ----------------------- | ---- | ---- | - | ---- | - | - | ---- | -
| |                                                                                                         |  | Year ended December 31, |     
| |                                                                                                         |  | 2004                    |      | 2003 |   | 2002 |  
| |                                                                                                         |  |                         |      |      |   |      |  
| | Expenses:                                                                                               |  |                         |      |      |   |      |   |   |      |  
| | Interest and
  others                                                                                   |  | $                       | (63  | )    | $ | (91  | ) | $ | (65  | )
| | Expenses with
  respect to short-term bank credits, long-term loans and bank charges                    |  |                         | (66  | )    |   | (53  | ) |   | (77  | )
| | Beneficial
  conversion feature expenses related to conversion of convertible debentures
  in Procognia |  |                         |     |      |   |     |   |   | (313 | )
| | Foreign currency
  translation adjustments                                                              |  |                         | (41  | )    |   | (103 | ) |   | (476 | )
| |                                                                                                         |  |                         |      |      |   |      |   |   |      |  
| |                                                                                                         |  |                         | (170 | )    |   | (247 | ) |   | (931 | )
| |                                                                                                         |  |                         |      |      |   |      |   |   |      |  
| | Income:                                                                                                 |  |                         |      |      |   |      |   |   |      |  
| | Interest on bank
  deposits                                                                             |  |                         | 7    |      |   | 23   |   |   | 20   |  
| | Foreign currency
  translation adjustments                                                              |  |                         | 18   |      |   | 183  |   |   | 107  |  
| |                                                                                                         |  |                         |      |      |   |      |   |   |      |  
| |                                                                                                         |  |                         |      |      |   |      |   |   |      |  
| |                                                                                                         |  |                         | 25   |      |   | 206  |   |   | 127  |  
| |                                                                                                         |  |                         |      |      |   |      |   |   |      |  
| |                                                                                                         |  |                         |      |      |   |      |   |   |      |  
| |                                                                                                         |  | $                       | (145 | )    | $ | (41  | ) | $ | (804 | )
| |                                                                                                         |  |                         |      |      |   |      |   |   |      |  

| |    |                              
| | -- | -----------------------------
| | b. | Other income (expenses), net:

| |                                                           |  |                         |     |      |   |      |  |   |     | 
| | --------------------------------------------------------- |  | ----------------------- | --- | ---- | - | ---- |  | - | --- | 
| |                                                           |  | Year ended December 31, |    
| |                                                           |  |                         |    
| |                                                           |  | 2004                    |     | 2003 |   | 2002 | 
| |                                                           |  |                         |     |      |   |      | 
| |                                                           |  |                         |     |      |   |      |  |   |     | 
| | Expenses:                                                 |  |                         |     |      |   |      |  |   |     | 
| |                                                           |  |                         |     |      |   |      |  |   |     | 
| | Capital loss on
  sale of property and equipment          |  | $                       | (10 | )    | $ |     |  | $ |    | 
| |                                                           |  |                         |     |      |   |      |  |   |     | 
| |                                                           |  |                         |     |      |   |      |  |   |     | 
| | Income:                                                   |  |                         |     |      |   |      |  |   |     | 
| | Capital gain on
  sale of property and equipment          |  |                         |    |      |   | 34   |  |   | 76  | 
| | Capital gain
  from realization of Gamidor Diagnostics UK |  |                         |    |      |   |     |  |   | 13  | 
| | Other income
  (see note 1h)                              |  |                         | 298 |      |   | 15   |  |   | 44  | 
| |                                                           |  |                         |     |      |   |      |  |   |     | 
| |                                                           |  |                         |     |      |   |      |  |   |     | 
| |                                                           |  |                         | 288 |      |   | 49   |  |   | 133 | 
| |                                                           |  |                         |     |      |   |      |  |   |     | 
| |                                                           |  |                         |     |      |   |      |  |   |     | 
| |                                                           |  | $                       | 288 |      | $ | 49   |  | $ | 133 | 
| |                                                           |  |                         |     |      |   |      |  |   |     | 

- 93 -

---

---



|                                                   
|---------------------------------------------------
|HEALTHCARE
  TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL
  STATEMENTS       
|                                                   
|U.S. dollars in thousand                           

|            |                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----------- | -------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 13:   | MAJOR CUSTOMERS AND GEOGRAPHIC
  INFORMATION
|            |                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | a.                                           | Summary information about geographic areas:                                                                                                                                                                                                                                                                                                                                                                                          
|            |                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                              | The Group manages its business on the basis of one
  reportable segment. See Note 1a for a brief description of the Companys
  business. The following data is presented in accordance with Statement of
  Financial Accounting Standard No. 131 (SFAS No 131), Disclosures about
  Segments of an Enterprise and Related Information. Total revenues are
  attributed to geographical areas based on location of end customers.
|            |                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                              | The following presents total revenues and long-lived
  assets for the years ended and as of December 31, 2004, 2003 and 2002:                                                                                                                                                                                                                                                                                                        

| |        |  |                  |        |                     |   |                  |  |                     |        |                  |   |                     |  |   |        |  |   |       | 
| | ------ |  | ---------------- | ------ | ------------------- | - | ---------------- |  | ------------------- | ------ | ---------------- | - | ------------------- |  | - | ------ |  | - | ----- | 
| |        |  | 2004             |        | 2003                |   | 2002             | 
| |        |  |                  |        |                     |   |                  | 
| |        |  | Total
  revenues |        | Long-lived
  assets |   | Total
  revenues |  | Long-lived
  assets |        | Total
  revenues |   | Long-lived
  assets | 
| |        |  |                  |        |                     |   |                  |  |                     |        |                  |   |                     | 
| |        |  |                  |        |                     |   |                  |  |                     |        |                  |   |                     |  |   |        |  |   |       | 
| | Israel |  | $                | 12,130 |                     | $ | 4,034            |  | $                   | 12,412 |                  | $ | 4,251               |  | $ | 13,352 |  | $ | 5,817 | 
| | Europe |  |                  |       |                     |   |                 |  |                     |       |                  |   |                    |  |   | 2,584  |  |   |      | 
| | Other  |  |                  |       |                     |   |                 |  |                     |       |                  |   |                    |  |   | 740    |  |   |      | 
| |        |  |                  |        |                     |   |                  |  |                     |        |                  |   |                     |  |   |        |  |   |       | 
| |        |  |                  |        |                     |   |                  |  |                     |        |                  |   |                     |  |   |        |  |   |       | 
| |        |  | $                | 12,130 |                     | $ | 4,034            |  | $                   | 12,412 |                  | $ | 4,251               |  | $ | 16,676 |  | $ | 5,817 | 
| |        |  |                  |        |                     |   |                  |  |                     |        |                  |   |                     |  |   |        |  |   |       | 

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

| |   |  |                         |    |      |  |      |  |  |    | 
| | - |  | ----------------------- | -- | ---- |  | ---- |  |  | -- | 
| |   |  | Year ended December 31, |   
| |   |  |                         |   
| |   |  | 2004                    |    | 2003 |  | 2002 | 
| |   |  |                         |    |      |  |      | 
| |   |  | %                       |   
| |   |  |                         |   
| |   |  |                         |    |      |  |      |  |  |    | 
| | A |  |                         | 14 |      |  | 14   |  |  | 11 | 
| |   |  |                         |    |      |  |      |  |  |    | 

|            |                                                  |                               
|----------- | ------------------------------------------------ | ------------------------------
|NOTE 14:   | BALANCES AND TRANSACTIONS WITH
  RELATED PARTIES
|            |                                                  |                               
|            | a.                                               | Balances with related parties:

| |                                                                                                                                 |  |              |     |      |   |     | 
| | ------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | --- | ---- | - | --- | 
| |                                                                                                                                 |  | December 31, |    
| |                                                                                                                                 |  |              |    
| |                                                                                                                                 |  | 2004         |     | 2003 |  
| |                                                                                                                                 |  |              |     |      |  
| | Assets:                                                                                                                         |  |              |     |      |   |     | 
| | Other accounts
  receivable and prepaid expenses  subsidiaries and affiliates of Gamida for
  Life B.V. (the Parent Company) |  | $            | 281 |      | $ | 507 | 
| |                                                                                                                                 |  |              |     |      |   |     | 
| |                                                                                                                                 |  |              |     |      |   |     | 
| | Liabilities:                                                                                                                    |  |              |     |      |   |     | 
| | Other accounts
  payable and accrued expenses  subsidiaries and affiliates of Gamida for Life
  B.V. (the Parent Company)    |  | $            |    |      | $ | 35  | 
| |                                                                                                                                 |  |              |     |      |   |     | 

| |    |          
| | -- | ---------
| | b. | Expenses:

| |                                                                      |  |                         |     |      |   |      |  |   |     | 
| | -------------------------------------------------------------------- |  | ----------------------- | --- | ---- | - | ---- |  | - | --- | 
| |                                                                      |  | Year ended December 31, |    
| |                                                                      |  |                         |    
| |                                                                      |  | 2004                    |     | 2003 |   | 2002 | 
| |                                                                      |  |                         |     |      |   |      | 
| | Management fees and reimbursement of expenses to a
  related company |  | $                       | 120 |      | $ | 120  |  | $ | 124 | 
| |                                                                      |  |                         |     |      |   |      |  |   |     | 

- 94 -

---

---



Appendix
I

The following is a list of Healthcare Technologies
Ltds subsidiaries affiliates and other companies:

|                                                                          |  |                                       |     |      |  |      |  
|------------------------------------------------------------------------- |  | ------------------------------------- | --- | ---- |  | ---- | -
|                                                                          |  | Percentage of holding and
  ownership |    
|                                                                          |  |                                       |    
|                                                                          |  | December 31,                          |    
|                                                                          |  |                                       |    
|Company                                                                   |  | 2004                                  |     | 2003 | 
|                                                                          |  |                                       |     |      | 
|                                                                          |  |                                       |     |      |  |      |  
|Danyel Biotech Ltd. (Danyel)                                            |  |                                       | 80  | %    |  | 80   | %
|Gamida Gen Marketing (1979) Ltd. (formerly -
  Gamidor)                   |  |                                       | 100 | %    |  | 100  | %
|Gamida Gen (3)                                                            |  |                                       | 100 | %    |  | 100  | %
|Gamidor Diagnostics Ltd. (Gamidor) (1)                                  |  |                                       | 100 | %    |  | 100  | %
|Savyon Diagnostics Ltd. (Savyon)                                        |  |                                       | 50  | %    |  | 50   | %
|Pronto Technologies Ltd. (formerly: Savyon
  Diagnostics Ltd.) (Pronto) |  |                                       | 100 | %    |  | 100  | %
|Afferix Ltd. (Afferix)                                                  |  |                                       | 27  | %    |  |     |  
|Procognia U.K. Ltd. (Procognia)                                         |  |                                       | 4   | %    |  | 11.6 | %
|Diatech Diagnostics Ltd. (Diatech) (2)                                  |  |                                       | 100 | %    |  | 100  | %
|Savyon-Yaron Diagnostics Marketing Ltd.
  (Savyon-Yaron) (1,2)          |  |                                       | 100 | %    |  | 100  | %

| |     |                                                         
| | --- | --------------------------------------------------------
| | (1) | A wholly-owned subsidiary of Gamida Gen Marketing
  Ltd.
| | (2) | Inactive company.                                       
| | (3) | A wholly-owned subsidiary of Pronto.                    



---

---



(b)  Exhibits

Exh. No.Incorp. By Ref. to

|     |       |                                                                                                                                                                                                                                            
|---- | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.1  | 1.18  | Memorandum of Association of the Registrant, as
  amended.                                                                                                                                                                                 
|     |       |                                                                                                                                                                                                                                            
|1.2  | 16    | Articles of Association, restated to include all
  amendments in effect as of the date of this Report                                                                                                                                      
|     |       |                                                                                                                                                                                                                                            
|2.1  | 2.11  | Debenture Purchase Agreement, dated as of May 14,
  1991, among Healthcare, Rosebud, Evergreen-Canada Israel Investment and Company
  Ltd. et. al.                                                                                         
|     |       |                                                                                                                                                                                                                                            
|4.1  | 2.31  | Agreement dated February 21, 1991 between Savyon and
  New Horizons Diagnostic Corp.                                                                                                                                                       
|     |       |                                                                                                                                                                                                                                            
|4.2  | 2.41  | Agreement dated August 1, 1986 between Diatech Ltd.
  and Diamotek Ltd.                                                                                                                                                                    
|     |       |                                                                                                                                                                                                                                            
|4.3  | 2.51  | Agreement dated February 22, 1987 between Diatech
  Ltd. and Yissum University.                                                                                                                                                            
|     |       |                                                                                                                                                                                                                                            
|4.4  | 2.61  | Agreement dated September 9, 1987 between Diatech
  Ltd. and Ramot University Authority for Applied Research & Industrial
  Development Ltd.                                                                                               
|     |       |                                                                                                                                                                                                                                            
|4.5  | 2.71  | Agreement dated July 15, 1989 between Diatech Ltd.
  and Yissum University.                                                                                                                                                                
|     |       |                                                                                                                                                                                                                                            
|4.6  | 2.81  | Agreement dated January 1, 1991 between Diatech Ltd.
  and Yeda.                                                                                                                                                                           
|     |       |                                                                                                                                                                                                                                            
|4.7  | 2.91  | Distributorship Agreement between Savyon and Toshin,
  dated March 3, 1986.                                                                                                                                                                
|     |       |                                                                                                                                                                                                                                            
|4.8  | 2.114 | Lease Agreement for Savyons Facilities in Ashdod,
  Israel, dated March 29, 1993.                                                                                                                                                         
|     |       |                                                                                                                                                                                                                                            
|4.9  | 2.134 | Agreement between the Company and Savyon dated
  October 10, 1994.                                                                                                                                                                         
|     |       |                                                                                                                                                                                                                                            
|4.10 | 2.156 | 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 | 2.177 | 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 | 2.199 | Asset Purchase Agreement dated October 7, 1998
  between Gamidor Limited (Gamidor UK) and Gamidor Diagnostics UK.                                                                                                                          
|     |       |                                                                                                                                                                                                                                            
|4.13 | 2.209 | Agreement dated December 23, 1998 between the
  Company, Gamida Trading Ltd., Gamida for Life BV and Gamidor Limited (Gamidor
  UK).                                                                                                       

- 96 -

---

---



|     |        |                                                                                                                                                                                                                                                       
|---- | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.14 | 2.219  | Heads of Agreement dated October 1, 1998 between
  Gamidor Diagnostics (1994) Ltd. and the principal shareholder in Yaron
  Chemicals Ltd.                                                                                                            
|     |        |                                                                                                                                                                                                                                                       
|4.15 | 2.229  | Agreement dated February 7, 1999 between Healthcare
  Technologies Ltd., Hadasit Medical Research Services & Development
  Limited and others.                                                                                                        
|     |        |                                                                                                                                                                                                                                                       
|4.16 | 2.239  | Agreement between Luly Gurevich and Entity as
  adopted by Healthcare Technologies Ltd. in June 1999.                                                                                                                                                 
|     |        |                                                                                                                                                                                                                                                       
|4.17 | 16     | The Companys amended year 2000 Incentive Share
  Option Plan.                                                                                                                                                                                        
|     |        |                                                                                                                                                                                                                                                       
|4.18 | 2.2511 | 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 | 2.2611 | 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 | 2.2711 | Assignment and Transfer Agreement dated December 1,
  2000 between Healthcare Technologies Ltd. and Savyon Diagnostics Ltd.                                                                                                                           
|     |        |                                                                                                                                                                                                                                                       
|4.21 | 2.2811 | Asset Transfer and Assignment Agreement dated
  December 30, 2000 between Diatech Diagnostics Inc, Diatech Diagnostics Ltd.
  and Savyon Diagnostics Ltd.                                                                                             
|     |        |                                                                                                                                                                                                                                                       
|4.22 | 2.2911 | Share Sale and Assignment Agreement dated December
  31, 2000 between Diatech Diagnostics Inc, Diatech Diagnostics Ltd. and
  Healthcare Technologies Ltd.                                                                                            
|     |        |                                                                                                                                                                                                                                                       
|4.23 | 2.3011 | Agreement dated January 21, 2001 between Healthcare
  Technologies Ltd and Savyon Diagnostics Ltd.                                                                                                                                                    
|     |        |                                                                                                                                                                                                                                                       
|4.24 | 2.3112 | Share Exchange Agreement dated April 29, 2002
  between Procognia Ltd., Glycodata Ltd., Healthcare Technologies Ltd. and the
  other shareholders of Glycodata Ltd.                                                                                   
|     |        |                                                                                                                                                                                                                                                       
|4.25 | 2.3212 | 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 | 99.113 | Distribution Agreement between Dade Behring Marburg
  GmbH and Gamidor Diagnostics                                                                                                                                                                    
|     |        |                                                                                                                                                                                                                                                       
|4.27 | 99.213 | Distribution Agreement between Amersham Pharmacia
  Biotech AB and Danyel Biotech Ltd.                                                                                                                                                                
|     |        |                                                                                                                                                                                                                                                       
|4.28 | 99.313 | Deal Structure Document for Savyon 2003 Transaction.                                                                                                                                                                                                  

- 97 -

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---



|     |      |                                                                                                                                                      
|---- | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|4.29 | 1014 | Agreement between Biodiagnostic (Savyon) and Advance
  Products (B.G. Negev Technologies and Applications) Ltd. dated October 31,
  1983.            
|     |      |                                                                                                                                                      
|4.30 | 4.30 | Agreement dated October 26, 1994 with the Washington
  Research Foundation.                                                                          
|     |      |                                                                                                                                                      
|4.31 | 14   | Assignment Agreement Amersham  dated August 2,
  2001.                                                                                              
|     |      |                                                                                                                                                      
|4.32 | 16   | Term Sheet for ImmvaRx transaction.                                                                                                                  
|     |      |                                                                                                                                                      
|4.33 | 15   | Audit Committee Charter.                                                                                                                             
|     |      |                                                                                                                                                      
|4.34 | 15   | Agreement for the sale of the Companys shares in
  Procognia to Gamida.                                                                             
|     |      |                                                                                                                                                      
|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.
|     |      |                                                                                                                                                      
|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.                            
|     |      |                                                                                                                                                      

| |   |                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                        
| | 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.

- 98 -

---

---



| |    |                                                                                                                                    
| | -- | -----------------------------------------------------------------------------------------------------------------------------------
| | 10 | Incorporated by reference to the Registrants Annual
  Report on Form 20-F for the Fiscal year ended December 31, 1999.            
| |    |                                                                                                                                    
| | 11 | Incorporated by reference to the Registrants Annual
  Report on Form 20-F for the Fiscal year ended December 31, 2000.            
| |    |                                                                                                                                    
| | 12 | Incorporated by reference to the Registrants Annual
  Report on Form 20-F for the fiscal year ended December 31, 2001, as amended.
| |    |                                                                                                                                    
| | 13 | Incorporated by reference to Registrants
  Registration Statement on form F-3 (SEC File No. 333-99601).                           
| |    |                                                                                                                                    
| | 14 | Incorporated by reference to Registrants
  Registration Statement on Form F-3 (SEC File No. 33-22868).                            
| |    |                                                                                                                                    
| | 15 | Filed herewith.                                                                                                                    
| |    |                                                                                                                                    
| | 16 | Incorporated by reference to the Registrants Annual
  Report on Form 20-F for the Fiscal year ended December 31, 2003.            

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SIGNATURES

The
registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to
sign this annual report on its behalf.

|                       |                                    |  | 
|---------------------- | ---------------------------------- |  | 
|                       | HEALTHCARE TECHNOLOGIES LTD.      
|                       |                                   
|                       | By: /s/ Daniel Kropf              
|                       |                                   
|                       | Daniel Kropf                      
|                       | Chairman of the Board of Directors
|                       |                                   
|Date:  June
  29, 2005 |                                   

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