AMENDMENT NO. 1 TO
                                   FORM 20-F/A

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

           [_] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                                       OR

                [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 2005

                                       OR

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

                           Commission File No. 0-17788

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

                                     ISRAEL
                 (Jurisdiction of incorporation or organization)

                         BEIT AMARGAD, 32 SHAHAM STREET,
                   KIRYAT MATALON, PETACH TIKVA, ISRAEL, 49170
                    (Address of principal executive offices)

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

            Securities registered or to be registered pursuant to Section 12(g)
            of the Act: ORDINARY SHARES, NIS 0.04 par value per share (Title of
            Class)

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

            Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close of the period covered by the
annual report: As of December 31, 2005, the registrant had outstanding 7,702,832
Ordinary Shares, NIS 0.04 nominal value per share.

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

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

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

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

      Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):
 Large accelerated filer [_] Accelerated filer [_] Non-accelerated filer [x]

      Indicate by check mark which financial statement item the registrant has
elected to follow: Item 17 [_] Item 18 [x]

      If this is an annual report, indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [_] No
[x]

<PAGE>


                                EXPLANATORY NOTE

     This Amendment No. 1 on Form 20-F/A amends certain items in our Annual
Report on Form 20-F for the fiscal year ended December 31, 2005 of Healthcare
Technologies Ltd. as filed with the Securities and Exchange Commission on June
28, 2006 (the "Annual Report"). This Amendment No. 1 responds to comments of the
Staff of the Securities and Exchange Commission in connection with its review of
our Annual Report. These amended items are as follows:


     (i)  Part III Item 19. Amendment No. 1 to the Form 20-F includes audited
          financial statements for Savyon Diagnostics Ltd. as at and for the
          fiscal year ended December 31, 2005 and unaudited financial statements
          as at December 31, 2004 and for the two fiscal years ending December
          31, 2004.

     (ii) Part III, Item 19. Note 2F of the Company's audited consolidated
          financial statements has been revised to reflect certain final
          classifications (mainly balance sheet classifications) for Savyon's
          2004 financial statements and to correct certain typographical errors
          in Note 2F.

     Except as described above, this Form 20-F/A continues to speak as of June
28, 2006 and no other changes have been made to the Annual Report. This
Amendment No. 1 does not amend or update any other information set forth in the
Annual Report and we have not updated disclosures contained therein to reflect
any events that occurred at a date subsequent to the filing of the Annual
Report.

     Pursuant to Rule 12b-15 under the Securities Exchange act of 1934, as a
result of this Amendment No. 1, the certifications pursuant to Section 302 and
Section 906 of the Sarbanes-Oxley Act of 2002 have been re-executed and refiled
as of the date of this Amendment No. 1. In addition an updated consent letter
from Kost Forer & Gabbay is being filed with This Amendment No. 1. As a result,
the Exhibit Index in Part IV; Item 19 of the Annual Report is also being amended
to reflect the inclusion of the aforementioned updates.

ITEM 19.  FINANCIAL STATEMENTS AND EXHIBITS

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

          (b)  Savyon Diagnostics Ltd financial statements.

<PAGE>


                HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                             AS OF DECEMBER 31, 2005

                                 IN U.S. DOLLARS

                                      INDEX

                                                                      PAGE

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                 4

CONSOLIDATED BALANCE SHEETS                                          5 - 6

CONSOLIDATED STATEMENTS OF OPERATIONS                                   7

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY                           8

CONSOLIDATED STATEMENTS OF CASH FLOWS                                   9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                          10 - 31

APPENDIX TO CONSOLIDATED FINANCIAL STATEMENTS                          32

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

                                      - 3 -

<PAGE>

[ERNST & YOUNG LOGO]

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

                             TO THE SHAREHOLDERS OF

                          HEALTHCARE TECHNOLOGIES LTD.

      We have audited the accompanying consolidated balance sheets of Healthcare
Technologies Ltd. ("the Company") and its subsidiaries as of December 31, 2005
and 2004, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2005. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

      In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the consolidated financial position of
the Company and its subsidiaries as of December 31, 2005 and 2004 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2005, in conformity with U.S
generally accepted accounting principles.

                                                      KOST FORER GABBAY &
Tel-Aviv, Israel                                          KASIERER
June 28, 2006                                 A Member of Ernst & Young Global

                                      - 4 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

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

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

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

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

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

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

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

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

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

                                      - 5 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

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

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

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

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

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

COMMITMENTS AND CONTINGENT LIABILITIES (Note 9)

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

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

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

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

                                      - 6 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

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

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

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

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

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

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

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

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

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

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

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

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

                                      - 7 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

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

*)    Represents an amount lower than 1.

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

                                      - 8 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

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

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

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

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

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

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

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

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

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

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

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

                                      - 9 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 1:-    BUSINESS AND ORGANIZATION

            a.    General:

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

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

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

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

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

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

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

                                     - 10 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 1:-    BUSINESS AND ORGANIZATION (CONT.)

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

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

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

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

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

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

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

            d.    Investment in Procognia:

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

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

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

                                     - 11 -

<PAGE>

                               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.)

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

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

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

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

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

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

                  Since ImmvaRx transaction was cancelled only option 2 is
                  applicable.

            e.    Investment in Afferix:

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

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

                                     - 12 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 1:-    BUSINESS AND ORGANIZATION (CONT.)

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

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

            f.    The DMI guarantee:

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

NOTE 2:-    SIGNIFICANT ACCOUNTING POLICIES

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

            a.    Use of estimates:

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

                                     - 13 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 2:-    SIGNIFICANT ACCOUNTING POLICIES (CONT.)

            b.    Financial statements in U.S. dollars:

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

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

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

            c.    Principles of consolidation:

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

            d.    Cash equivalents:

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

            e.    Inventories:

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

                  Cost is determined as follows:

                  -     Raw materials and packaging materials - at average cost.

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

                                     - 14 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 2:-    SIGNIFICANT ACCOUNTING POLICIES (CONT.)

            f.    Investments in affiliated companies:

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

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

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

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

                  Current assets                    $      2,075   $      2,086
                  Non-current assets                       1,543          1,238
                  Current liabilities                      1,728          1,733
                  Non-current liabilities                  1,312          1,649
                  Net sales                                5,103          4,396
                  Gross profit                             2,394          2,255
                  Net income                                 336            106

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

            g.    Property and equipment:

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

                  Annual rates of depreciation are as follows:

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

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

                                     - 15 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 2:-    SIGNIFICANT ACCOUNTING POLICIES (CONT.)

            h.    Impairment of long-lived assets:

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

            i.    Intangible assets:

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

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

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

                                     - 16 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 2:-    SIGNIFICANT ACCOUNTING POLICIES (CONT.)

            j.    Income taxes:

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

            k.    Revenue recognition:

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

            l.    Research and development costs:

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

            m.    Royalty and non-royalty-bearing grants:

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

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

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

                                     - 17 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 2:-    SIGNIFICANT ACCOUNTING POLICIES (CONT.)

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

            o.    Accounting for stock based compensation:

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

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

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

                                     - 18 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 2:-    SIGNIFICANT ACCOUNTING POLICIES (CONT.)

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

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

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

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

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

Earning per share:

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

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

            p.    Concentrations of credit risk:

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

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

                                     - 19 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 2:-    SIGNIFICANT ACCOUNTING POLICIES (CONT.)

            q.    Fair value of financial instruments:

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

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

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

            r.    Severance pay:

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

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

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

            s.    Comprehensive income:

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

                                     - 20 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 2:-    SIGNIFICANT ACCOUNTING POLICIES (CONT.)

            t.    Impact of recently issued accounting standards:

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

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

                                     - 21 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 3:-    OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

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

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

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

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

NOTE 4:-    INVENTORIES

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

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

NOTE 5:-    PROPERTY AND EQUIPMENT, NET

            a.    Composition of property and equipment is as follows:

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

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

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

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

                  *)     Reclassified

                                     - 22 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

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

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

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

NOTE 6:-    SHORT-TERM BANK CREDIT

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

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

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

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

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

NOTE 7:-    OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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

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

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

                                     - 23 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 8:-    LONG-TERM LOANS

            a.    Composed as follows:

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

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

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

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

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

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

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

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

            c.    Covenants:

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

                                     - 24 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 9:-    COMMITMENTS AND CONTINGENT LIABILITIES

            a.    Royalty commitments:

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

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

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

            b.    Lease commitments:

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

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

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

                                     $ 438
                                     =====

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

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

                                     - 25 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

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

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

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

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

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

            e.    Charges (assets pledged) and guarantees:

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

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

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

NOTE 10:-   SHAREHOLDERS' EQUITY

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

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

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

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

                                     - 26 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 10:-   SHAREHOLDERS' EQUITY (CONT.)

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

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

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

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

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

            e.    The options outstanding as of December 31, 2005, have been
                  classified by exercise price, as follows:

<TABLE>
<CAPTION>
                                       WEIGHTED                                      WEIGHTED
                      OPTIONS          AVERAGE     WEIGHTED        OPTIONS            AVERAGE
                   OUTSTANDING AS     REMAINING    AVERAGE    EXERCISABLE AS OF   EXERCISE PRICE
    EXERCISE       OF DECEMBER 31,   CONTRACTUAL   EXERCISE      DECEMBER 31,       OF OPTIONS
     PRICE              2005            LIFE        PRICE            2005          EXERCISABLE
----------------   ---------------   -----------   --------   -----------------   --------------
                                      IN MONTHS
                                     -----------
<S>                <C>                   <C>       <C>        <C>                <C>
$      0.35-0.38           195,000        *)       $   0.37             105,000   $         0.37
$           0.86            62,500        *)       $   0.86              20,833   $         0.86
$           0.72            50,000       **)       $   0.72                   -   $            -
                   ---------------                 --------   -----------------

                           307,500                 $   0.53             125,833   $         0.45
                   ===============                 ========   =================   ==============
</TABLE>

                  *)    180 days from the date of termination of employment
                        agreement.

                  **)   60 days from the date of termination of employment
                        agreement.

                  Compensation expenses recognized by the Company related to its
                  stock-based employee compensation awards amounted to $ 41, $
                  41 and $ 57, for the years ended December 31, 2005, 2004 and
                  2003, respectively.

                                     - 27 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 10:-   SHAREHOLDERS' EQUITY (CONT.)

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

<TABLE>
<CAPTION>
                                     FOR EXERCISE PRICES ON THE DATE OF GRANT THAT
                            ---------------------------------------------------------------
                                                                       ARE LESS THAN MARKET
                            EQUAL MARKET PRICE   EXCEED MARKET PRICE           PRICE
                            ------------------   -------------------   --------------------
                              2005      2004       2005       2004        2005       2004
                            --------   -------   --------   --------   ---------   --------
<S>                         <C>        <C>       <C>        <C>        <C>         <C>
Weighted average exercise
  prices                    $      -   $     -   $   0.72   $   0.86   $       -   $      -
                            ========   =======   ========   ========   =========   ========
Weighted average fair
  value of the options on
  grant date                $      -   $     -   $   0.53   $   0.44   $       -   $      -
                            ========   =======   ========   ========   =========   ========
</TABLE>

            g.    Options issued to consultants:

                  The Company's outstanding options to consultants as of
                  December 31, 2005, are as follows:

<TABLE>
<CAPTION>
                                NUMBER OF
                IN CONNECTION    OPTIONS      OPTIONS     EXERCISE PRICE   EXERCISABLE
ISSUANCE DATE       WITH         GRANTED    EXERCISABLE      PER SHARE       THROUGH
-------------   -------------   ---------   -----------   --------------   -----------
<S>             <C>                <C>           <C>      <C>                    <C>
24/07/2005      Consultants        35,000        -        $         0.72         *)
</TABLE>

                  *)    60 days from the date of termination.

                  Expenses recognized by the Company related to its consultants
                  compensation awards amounted to $ 6, $ 0 and $ 0, for the
                  years ended December 31, 2005, 2004 and 2003, respectively.

NOTE 11:-   TAXES ON INCOME

            a.    Measurement of results for tax purposes under the Income Tax
                  Law (Inflationary Adjustments), 1985:

                  Results for tax purposes are measured in terms of earnings in
                  NIS after certain adjustments for increases in Israel's
                  Consumer Price Index ("CPI"). As explained in Note 2b, the
                  financial statements are measured in U.S. dollars. The
                  difference between the annual change in the CPI and in the
                  NIS/dollar exchange rate causes a difference between taxable
                  income and the income before taxes shown in the financial
                  statements. In accordance with paragraph 9(f) of SFAS No. 109,
                  the Company has not provided deferred income taxes in respect
                  of the difference between the reporting currency and the tax
                  bases of assets and liabilities.

            b.    Tax rates applicable:

                  Taxable income of Israeli companies is subject to tax at the
                  rate of 34% in 2005, 31% in 2006, 29% in 2007, 27% in 2008,
                  26% in 2009 and 25% in 2010 and thereafter.

                                     - 28 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 11:-   TAXES ON INCOME (CONT.)

            c.    Carryforward tax losses:

                  As of December 31, 2005, losses for Israeli tax purposes of
                  the Group totaled approximately $ 11,000.

                  Under Israeli law, these losses may be carried forward and
                  offset against taxable income in the future for an indefinite
                  period. Under the inflationary adjustments law, carryforward
                  tax losses and deductions for inflation are linked to the CPI.

            d.    Deferred income taxes:

                  Deferred income taxes reflect the net tax effects of temporary
                  differences between the carrying amounts of assets and
                  liabilities for financial reporting purposes and the amounts
                  used for income tax purposes. Significant components of the
                  Groups' deferred tax assets are as follows:

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

                  Carryforward losses                       $  3,364   $  3,750
                  Provision for vacation and
                    severance pay                                 66         89
                                                            --------   --------

                  Net deferred tax assets before
                    valuation allowance                        3,430      3,839

                  Valuation allowance                         (3,430)    (3,839)
                                                            --------   --------

                  Net deferred tax assets                   $      -   $      -
                                                            ========   ========

                  The Group provided valuation allowances in respect of deferred
                  tax assets resulting from losses carryforward and other
                  temporary differences, since it has a history of losses and
                  thus, management currently believes that it is more likely
                  than not that the deferred taxes will not be realized in the
                  foreseeable future.

            e.    All income before taxes is domestic.

            f.    The main reconciling items between the statutory tax rate of
                  the Company and the effective tax rate are the non-recognition
                  of tax benefits from accumulated net operating losses
                  carryforward among the subsidiaries due to the uncertainty of
                  the realization of such tax benefits.

                                     - 29 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 12:-   SELECTED STATEMENTS OF OPERATIONS DATA

            a.    Financial expenses, net:

                                                      YEAR ENDED DECEMBER 31,
                                                     --------------------------
                                                      2005       2004     2003
                                                     -------   -------   ------
                  Expenses:
                     Interest and others             $   (24)  $   (63)  $  (91)
                     Expenses with respect to
                       short-term bank credits,
                       long-term loans and bank
                       charges                           (76)      (66)     (53)
                     Foreign currency translation
                       adjustments                       (61)      (41)    (103)
                                                     -------   -------   ------

                                                        (161)     (170)    (247)
                                                     -------   -------   ------
                  Income:
                     Interest on bank deposits             9         7       23
                     Foreign currency translation
                       adjustments                       133        18      183
                                                     -------   -------   ------

                                                         142        25      206
                                                     -------   -------   ------

                                                     $   (19)  $  (145)  $  (41)
                                                     =======   =======   ======

            b.    Other income, net:

                  Expenses:

                  Capital loss on sale of
                    property and equipment           $    (7)  $   (10)  $    -
                                                     -------   -------   ------

                  Income:
                  Capital gain on sale of
                    property and equipment                25         -       34
                  Other income (include $ 235
                    from DMI transaction in 2004,
                    see note 1g)                           -       298       15
                                                     -------   -------   ------

                                                          25       288       49
                                                     -------   -------   ------

                                                     $    18   $   288   $   49
                                                     =======   =======   ======

NOTE 13:-   MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION

            a.    Summary information about geographic areas:

                  The Group manages its business on the basis of one reportable
                  segment. See Note 1a for a brief description of the Company's
                  business. The following data is presented in accordance with
                  Statement of Financial Accounting Standard No. 131 ("SFAS No
                  131"), "Disclosures about Segments of an Enterprise and
                  Related Information". Total revenues are attributed to
                  geographical areas based on location of end customers.

                  Total revenues and long-lived assets for the years ended and
                  as of December 31, 2005, 2004 and 2003, were generated and
                  located in Israel.

                                     - 30 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 13:-   MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION (CONT.)

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

                                                      YEAR ENDED DECEMBER 31,
                                                     --------------------------
                                                       2005     2004      2003
                                                     -------   -------   ------
                                                                  %
                                                     --------------------------
                  A                                     16        14       14
                  B                                     12         8        5

NOTE 14:-   BALANCES AND TRANSACTIONS WITH RELATED PARTIES

            a.    Balances with related parties:

                                                                 DECEMBER 31,
                                                               ----------------
                                                                2005      2004
                                                               -------   ------
                  Assets:
                  Other accounts receivable and
                    prepaid expenses -
                    subsidiaries and affiliates
                    of Gamida for Life B.V. (the
                    "Parent Company")                          $   320   $   41
                                                               =======   ======

                  Receivable on account of sale
                    of operations to Savyon                          -      240
                                                               =======   ======

                  Liabilities:
                  Other accounts payable and
                    accrued expenses -
                    subsidiaries and affiliates
                    of Gamida for Life B.V. (the
                    "Parent Company")                          $    88   $    -
                                                               =======   ======

            b.    Transactions:

                  Expenses:


                                                       YEAR ENDED DECEMBER 31,
                                                     --------------------------
                                                      2005       2004     2003
                                                     -------   -------   ------
                  Management fees and
                    reimbursement of expenses to
                    a related company                $   120   $   120   $  120
                                                     =======   =======   ======

                  Rental expenses to a related
                    company                          $    38   $    38   $   18
                                                     =======   =======   ======

                  Income:
                  Management fees from non
                    consolidated companies
                    (included in general and
                    administrative expenses)         $   262   $   296   $  307
                                                     =======   =======   ======

                                     - 31 -

<PAGE>

                               HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

APPENDIX TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

APPENDIX I

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

<TABLE>
<CAPTION>
                                                                          PERCENTAGE OF HOLDING AND
                                                                                 OWNERSHIP
                                                                          -------------------------
COMPANY                                                                          DECEMBER 31,
                                                                          -------------------------
                                                                              2005          2004
                                                                          ------------   ----------
<S>                                                                           <C>           <C>
Danyel Biotech Ltd. ("Danyel")                                                 80%           80%
Gamida Gen Marketing (1979) Ltd. (formerly - Gamidor)                         100%          100%
Gamida Gen (3)                                                                100%          100%
Gamidor Diagnostics Ltd. ("Gamidor") (1)                                      100%          100%
Savyon Diagnostics Ltd. ("Savyon")                                             50%           50%
Pronto Technologies Ltd. (formerly: Savyon Diagnostics Ltd.) ("Pronto")       100%          100%
Afferix Ltd. ("Afferix")                                                       27%            -
Procognia U.K. Ltd. ("Procognia")                                               -             4%
Diatech Diagnostics Ltd. ("Diatech") (2)                                      100%          100%
Savyon-Yaron Diagnostics Marketing Ltd. ("Savyon-Yaron") (1,2)                100%          100%
</TABLE>

      (1)   A wholly-owned subsidiary of Gamida Gen Marketing Ltd.

      (2)   Inactive company.

      (3)   A wholly-owned subsidiary of Pronto.

                               - - - - - - - - - -

                                     - 32 -
<PAGE>


                             SAVYON DIAGNOSTICS LTD.

                              FINANCIAL STATEMENTS

                             AS OF DECEMBER 31, 2005

                            U.S. DOLLARS IN THOUSANDS

                                      INDEX

                                                                  PAGE
                                                                 ------

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM            34

BALANCE SHEETS                                                   35 - 36

STATEMENTS OF OPERATIONS                                           37

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)         38

STATEMENTS OF CASH FLOWS                                           39

NOTES TO FINANCIAL STATEMENTS                                    40 - 55


                                     - 33 -
<PAGE>


[ERNST & YOUNG LOGO]
                   |X| KOST FORER GABBAY & KASIERER     |X| Phone: 972-3-6232525
                       3 Aminadav St.                       Fax:   972-3-5622555
                       Tel-Aviv 67067, Israel

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

                             TO THE SHAREHOLDERS OF

                             SAVYON DIAGNOSTICS LTD.

     We have audited the accompanying balance sheet of Savyon Diagnostics Ltd.
("the Company") as of December 31, 2005, and the related statements of
operations, changes in shareholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

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

     In our opinion, the financial statements referred to above, present fairly,
in all material respects, the financial position of the Company as of December
31, 2005 and the results of its operations and cash flows for the year then
ended, in conformity with U.S generally accepted accounting principles.

Tel-Aviv, Israel                                  KOST FORER GABBAY & KASIERER
June 28, 2006                                   A Member of Ernst & Young Global


                                     - 34 -
<PAGE>


                                                         SAVYON DIAGNOSTICS LTD.

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

                                                               DECEMBER 31,
                                                             ----------------
                                                              2005      2004
                                                             ------    ------
                                                             AUDITED  UNAUDITED
                                                             ------    ------


    ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                  $  217    $  304
  Trade receivables                                             793       779
  Other accounts receivable and prepaid expenses (Note 3)       311       249
  Inventories (Note 4)                                          754       754
                                                             ------    ------

TOTAL current assets                                          2,075     2,086
                                                             ------    ------

LONG-TERM INVESTMENTS AND RECEIVABLES:
  Deferred taxes (Note 11b)                                      33         -
  Severance pay fund                                            381       334
                                                             ------    ------

TOTAL long-term investments and receivables                     414       334
                                                             ------    ------

PROPERTY AND EQUIPMENT, NET (Note 5)                            679       465
                                                             ------    ------

INTANGIBLE ASSETS (Note 2g):
  Goodwill                                                      102       102
  Other intangible assets, net                                  348       337
                                                             ------    ------

TOTAL intangible assets                                         450       439
                                                             ------    ------

TOTAL assets                                                 $3,618    $3,324
                                                             ======    ======

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


                                     - 35 -
<PAGE>

                                                         SAVYON DIAGNOSTICS LTD.

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

<TABLE>
<CAPTION>
                                                                                           DECEMBER 31,
                                                                                        ------------------
                                                                                          2005       2004
                                                                                        -------    -------
                                                                                        AUDITED   UNAUDITED
                                                                                        -------    -------
<S>                                                                                     <C>        <C>
    LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)

CURRENT LIABILITIES:
  Current maturities of long-term bank loans                                            $    97    $     -
  Trade payables                                                                            371        632
  Other accounts payable and accrued expenses (Note 6)                                      473        411
  Management fees to shareholders                                                           787        690
                                                                                        -------    -------

TOTAL current liabilities                                                                 1,728      1,733
                                                                                        -------    -------

LONG-TERM LIABILITIES:
  Accrued severance pay (Note 2n)                                                           537        534
  Long-term bank loans, net of current maturities (Note 8)                                   31          -
  Long-term loans from a shareholder (Note 9)                                               744      1,115
                                                                                        -------    -------

TOTAL long-term liabilities                                                               1,312      1,649
                                                                                        -------    -------

COMMITMENTS AND CONTINGENT LIABILITIES (Note 7)

SHAREHOLDERS' EQUITY (DEFICIENCY) (Note 10):
  Share capital:
    Ordinary shares of NIS 0.01 par value - Authorized: 4,000,000 shares as of
      December 31, 2005 and 2004; Issued and outstanding: 100,002 and 100,000 shares
      as of December 31, 2005 and 2004 (unaudited), respectively                        *)    -    *)    -
  Additional paid-in capital                                                                141       (159)
  Retained earnings                                                                         437        101
                                                                                        -------    -------

TOTAL shareholders' equity (deficiency)                                                     578        (58)
                                                                                        -------    -------

TOTAL liabilities and shareholders' equity (deficiency)                                 $ 3,618    $ 3,324
                                                                                        =======    =======
</TABLE>

*)   Represents an amount lower than $ 1.

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


                                     - 36 -
<PAGE>


                                                         SAVYON DIAGNOSTICS LTD.

STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                    -------------------------------
                                                      2005        2004        2003
                                                    -------     -------     -------
                                                    AUDITED          UNAUDITED
                                                    -------     -------------------
<S>                                                 <C>         <C>         <C>
Sales (Note 13b)                                    $ 5,103     $ 4,396     $ 3,607
Cost of sales                                         2,709       2,255       1,806
                                                    -------     -------     -------

Gross profit                                          2,394       2,141       1,801
                                                    -------     -------     -------

Operating costs and expenses:
  Research and development costs, net (Note 12a)        570         580         438
  Selling and marketing expenses                        597         554         417
  General and administrative expenses                   855         909         890
                                                    -------     -------     -------

TOTAL operating costs and expenses                    2,022       2,043       1,745
                                                    -------     -------     -------

Operating income                                        372          98          56
Financial expenses (income), net (Note 12b)              68         (24)         42
Other income, net                                         1           -           2
                                                    -------     -------     -------

Income before taxes on income                           305         122          16
Taxes on income (benefit) (Note 11)                     (31)         16          21
                                                    -------     -------     -------

Net income (loss)                                   $   336     $   106     $    (5)
                                                    =======     =======     =======
</TABLE>

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


                                     - 37 -
<PAGE>


                                                         SAVYON DIAGNOSTICS LTD.

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

<TABLE>
<CAPTION>
                                                                        TOTAL
                                                ADDITIONAL            SHAREHOLDERS'
                               NUMBER    SHARE   PAID-IN    RETAINED    EQUITY
                              OF SHARES CAPITAL  CAPITAL    EARNINGS  (DEFICIENCY)
                               -------   -----   -------    -------    -------

<S>                            <C>       <C>     <C>        <C>        <C>
Balance at January 1, 2003     100,000   $ *)-   $  (134)   $     -    $  (134)

Issuance expenses                    -       -       (25)         -        (25)
Net loss                             -       -         -         (5)        (5)
                               -------   -----   -------    -------    -------

Balance at December 31, 2003   100,000     *)-      (159)        (5)      (164)

Net income                           -       -         -        106        106
                               -------   -----   -------    -------    -------

Balance at December 31, 2004   100,000     *)-      (159)       101        (58)

Issuance of shares, net              2     *)-       300          -        300
Net income                           -       -         -        336        336
                               -------   -----   -------    -------    -------

Balance at December 31, 2005   100,002   $ *)-   $   141    $   437    $   578
                               =======   =====   =======    =======    =======
</TABLE>

*)   Represents an amount lower than $ 1.

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


                                     - 38 -
<PAGE>


                                                         SAVYON DIAGNOSTICS LTD.

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

<TABLE>
<CAPTION>
                                                                                 YEAR ENDED DECEMBER 31,
                                                                             -----------------------------
                                                                               2005       2004       2003
                                                                             -------    -------    -------
                                                                             AUDITED         UNAUDITED
                                                                             -------    ------------------
<S>                                                                          <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                                          $   336    $   106    $    (5)
  Adjustments required to reconcile net income (loss) to net cash provided
    by (used in) operating activities:
    Depreciation and amortization                                                170        221        339
    Foreign currency exchange rate adjustments on long-term loans, net            51         37          -
    Capital gain on sale of property and equipment                                (1)         -         (2)
    Accrued severance pay, net                                                   (44)        36        164
    Increase in trade receivables                                                (14)      (180)      (599)
    Increase in other accounts receivable and prepaid expenses                   (62)       (59)      (190)
    Increase in inventories                                                        -        (45)      (143)
    Increase in deferred tax asset                                               (33)         -          -
    Increase (decrease) in trade payables                                       (261)       363        269
    Increase (decrease) in other accounts payable and accrued expenses            62       (345)    (1,144)
    Increase in management fees to shareholders                                   97        360        330
                                                                             -------    -------    -------

Net cash provided by (used in) operating activities                              301        494       (981)
                                                                             -------    -------    -------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of property and equipment                                     8          -          4
  Purchase of property and equipment                                            (367)      (157)      (109)
  Investment in other assets                                                     (35)         -          -
                                                                             -------    -------    -------

Net cash used in investing activities                                           (394)      (157)      (105)
                                                                             -------    -------    -------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Short-term bank credit                                                           -        (11)        11
  Proceeds from long-term loans                                                   53          -      1,200
  Principal payment of long-term bank loans                                       (4)         -          -
  Principal payment of long-term loans from shareholder                         (193)      (102)       (20)
  Issuance of shares, net                                                        150          -          -
  Issuance expenses                                                                -          -        (25)
                                                                             -------    -------    -------

Net cash provided by (used in) financing activities                                6       (113)     1,166
                                                                             -------    -------    -------

Increase (decrease) in cash and cash equivalents                                 (87)       224         80
Cash and cash equivalents at the beginning of the year                           304         80          -
                                                                             -------    -------    -------

Cash and cash equivalents at the end of the year                             $   217    $   304    $    80
                                                                             =======    =======    =======

NON-CASH FINANCING ACTIVITIES:

Issuance of Common shares upon conversion of long-term loans                 $   150    $     -    $     -
                                                                             =======    =======    =======

CASH PAID DURING THE YEAR FOR:

  Interest                                                                   $    43    $    38    $    36
                                                                             =======    =======    =======
  Taxes                                                                      $    59    $    11    $    26
                                                                             =======    =======    =======
</TABLE>

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


                                     - 39 -
<PAGE>


                                                         SAVYON DIAGNOSTICS LTD.

NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 1:- BUSINESS AND ORGANIZATION

     a.   General:

          Savyon Diagnostics Ltd. ("Savyon" or "the Company") is engaged in the
          serology field, and manufactures sophisticated microplate-based enzyme
          immuno assays for detection of antibodies development, manufacturing
          and marketing of medical diagnostic kits to laboratories and point of
          care sites in Israel and worldwide. The Company is also engaged in the
          production of molecular biology based gene-screening tools for the
          detection of certain gene-associated disorders in humans.

          A separate line of products is based on lateral flow
          immuno-chromatography technology.

          Savyon manufactures and sells pregnancy tests and ovulation kits to 6
          distributors around the world, mainly in North America.

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

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

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

          The Company's sales to one customer account for a significant portion
          of the Company's total sales and a loss of this customer could have a
          material adverse effect on the Company's business and financial
          results (see also Note 13c).

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

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

     a.   Use of estimates:

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


                                     - 40 -
<PAGE>


                                                         SAVYON DIAGNOSTICS LTD.

NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     b.   Financial statements in U.S. dollars:

          The Company's revenues are generated in U.S. dollars ("dollar"). In
          addition, over 90% of the Company's costs are incurred in dollars. The
          Company's management believes that the dollar is the primary currency
          of the economic environment in which the Company operates. Thus, the
          functional and reporting currency of the Company is the dollar.

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

     c.   Cash equivalents:

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

     d.   Inventories:

          Inventories are stated at the lower of cost or market value. Inventory
          provisions for write-offs are provided to cover risks arising from
          slow-moving items or technological obsolescence.

          In the years ended December 31, 2005, 2004 and 2003, the Company
          provided for write-off in the amounts of $ 40, $ 0 (unaudited), and $
          0 (unaudited), 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 at average cost, labor and direct and
               indirect manufacturing costs.

     e.   Property and equipment:

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

          Annual rates of depreciation are as follows:

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

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


                                     - 41 -
<PAGE>

                                                         SAVYON DIAGNOSTICS LTD.

NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     f.   Impairment of long-lived assets:

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

     g.   Intangible assets:

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

          Goodwill represents excess of the costs over the fair value of the net
          assets of businesses acquired. Pursuant to SFAS No. 142, goodwill is
          presented at cost and not 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
          amortized. Goodwill attributable to the reporting unit is tested for
          impairment by comparing the fair value of the reporting unit with its
          carrying value. Fair value is determined using discounted cash flows,
          market multiples and market capitalization. Significant estimates used
          in the methodologies include estimates of future cash flows, future
          short-term and long-term growth rates, weighted average cost of
          capital and estimates of market multiples for the reportable unit. As
          of December 31, 2005 and 2004 (unaudited), no impairment losses have
          been identified.

     h.   Income taxes:

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


                                     - 42 -
<PAGE>


                                                         SAVYON DIAGNOSTICS LTD.

NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     i.   Revenue recognition:

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

     j.   Research and development costs:

          Research and development costs are charged to expenses as incurred.

     k.   Royalty and non-royalty-bearing grants

          Royalty-bearing grants from the Government of Israel for funding
          approved research and development projects are recognized at the time
          the Company is entitled to such grants, on the basis of the costs
          incurred and included as a deduction of research and development
          costs. There were no grants for the year 2005. Total royalties paid to
          the Government of Israel in the years ended December 31, 2005, 2004
          and 2003 amounted to $ 27, $ 28 (unaudited) and $ 24 (unaudited)
          respectively, and were recorded in cost of sales.

          Non-royalty bearing grants from participation in European Union
          programs are recognized at the time that the Company is entitled to
          such grants, on the basis of the costs incurred and included as a
          deduction of research and development costs.

          The Company recorded $ 75, $ 46 (unaudited) and $ 37 (unaudited) as
          participation in the years ended December 31, 2005, 2004 and 2003,
          respectively.

     l.   Concentrations of credit risk:

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

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


                                     - 43 -
<PAGE>


                                                         SAVYON DIAGNOSTICS LTD.

NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     m.   Fair value of financial instruments:

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

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

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

     n.   Severance pay:

          The Company's liability for severance pay is calculated pursuant to
          Israel's Severance Pay Law based on the most recent salary of the
          employees multiplied by the number of years of employment, as of the
          balance sheet date. Employees are entitled to one month's salary for
          each year of employment, or a portion thereof. The Company's liability
          for all of its 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 balance
          sheet.

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

          Severance payment (income) for the years ended December 31, 2005, 2004
          and 2003 amounted to net $ (44), $ 36 (unaudited) and $ 3 (unaudited),
          respectively.

     o.   Impact of recently issued accounting standards:

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


                                     - 44 -
<PAGE>


                                                         SAVYON DIAGNOSTICS LTD.

NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and
          Error Corrections", a replacement of APB No. 20, "Accounting Changes"
          and SFAS No. 3, "Reporting Accounting Changes in Interim Financial
          Statements". SFAS No. 154 provides guidance on the accounting for and
          reporting of accounting changes and error corrections. APB No. 20
          previously required that most voluntary changes in accounting
          principles be recognized by including in net income for the period of
          the change, the cumulative effect of changing to the new accounting
          principle. SFAS No. 154 requires retroactive application to prior
          periods' financial statements of a voluntary change in accounting
          principles unless it is impracticable. SFAS 154 is effective for
          accounting changes and corrections of errors made in fiscal years
          beginning after December15, 2005. As of December 31, 2005, adoption of
          SFAS No. 154 will not have a material impact on the Company's
          financial position or results of operations.

NOTE 3:- OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

                                          DECEMBER 31,
                                          ----     ----
                                          2005     2004
                                          ----     ----
                                        AUDITED  UNAUDITED
                                          ----     ----

Government authorities                    $122     $ 49
Accounts receivable                         28        6
Prepaid expenses                           118       54
Related parties (1)                          -      140
Deferred taxes                              43        -
                                          ----     ----

                                          $311     $249
                                          ====     ====

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

NOTE 4:- INVENTORIES


Raw materials and packaging materials     $245     $331
Finished goods                             509      423
                                          ----     ----

                                          $754     $754
                                          ====     ====


                                     - 45 -
<PAGE>


                                                         SAVYON DIAGNOSTICS LTD.

NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 5:- PROPERTY AND EQUIPMENT, NET

     a.   Composition of property and equipment is as follows:

                                             DECEMBER 31,
                                          -----------------
                                           2005       2004
                                          ------     ------
                                          AUDITED   UNAUDITED
                                          ------     ------

Cost:
  Production and laboratory equipment     $  419     $  350
  Motor vehicles                              91          8
  Office furniture and equipment             179        129
  Leasehold improvements                     399        241
                                          ------     ------

                                           1,088        728
                                          ------     ------
Accumulated depreciation:
  Production and laboratory equipment         92         54
  Motor vehicles                               5          3
  Office furniture and equipment              62         34
  Leasehold improvements                     250        172
                                          ------     ------

                                             409        263
                                          ------     ------

Depreciated cost                          $  679     $  465
                                          ======     ======

     b.   Depreciation expenses for the years ended December 31, 2005, 2004 and
          2003 amounted to $ 146, $ 118 (unaudited) and $ 187 (unaudited),
          respectively.

          As for charges, see Note 7c.

NOTE 6:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

                                   DECEMBER 31,
                                   -------------
                                   2005     2004
                                   ----     ----
                                  AUDITED UNAUDITED
                                   ----     ----

Royalties payable                  $ 78     $ 71
Employees and payroll accruals      187      256
Government authorities               43        -
Accrued expenses                     76       48
Other                                89       36
                                   ----     ----

                                   $473     $411
                                   ====     ====


                                     - 46 -
<PAGE>


                                                         SAVYON DIAGNOSTICS LTD.

NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 7:- COMMITMENTS AND CONTINGENT LIABILITIES

     a.   Royalty commitments:

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

          Total royalties accrued or paid by the Company amounted to $ 27, $ 28
          (unaudited) and $ 24 (unaudited), in 2005, 2004 and 2003,
          respectively.

          At December 31, 2005, the Company has a remaining contingent
          obligation to the OCS in the amount of $ 576 (excluding accrued
          interest).

     b.   Lease commitments:

          The Company has leased several buildings, offices and warehouses under
          an operating lease agreement that expires on 2014, and motor vehicles
          under various operating leases that expire on various dates, the
          latest of which is in 2008.

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

          2006                         $   329
          2007                             294
          2008                             260
          2009                             237
                                       -------

                                       $ 1,120
                                       =======

          Total rent expenses for the years ended December 31, 2005, 2004 and
          2003, were approximately $ 276, $ 155 (unaudited) and $ 159
          (unaudited), respectively.

     c.   Charges (assets pledged) and guarantees:

          As collateral for credit line and loans provided to the Company,
          totaling $ 48 as of December 31, 2005, the Company has placed
          unlimited fixed and floating charges on certain assets and share
          capital, in favor of the bank.


                                     - 47 -
<PAGE>


                                                         SAVYON DIAGNOSTICS LTD.

NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 7:- COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)

     d.   NACBO Project:

          In May 2004, Savyon entered into a consortium agreement with various
          other entities for the purpose of submitting a proposal to be awarded
          a project under the 6th Framework Program of the European Union (2002
          - 2006) regarding the novel and improved nanomaterials, chemistries
          and apparatus for nanobiotechnology ("NACBO Project"). The consortium
          agreement and the terms of the project, if awarded, set forth various
          provisions regarding the parties' (including Savyon) rights and
          obligations with respect to the intellectual property developed by
          each party throughout the project ("Project IP") and certain
          pre-existing intellectual property of each party thereto
          ("Pre-existing IP"). Among others, each party is required, under
          certain conditions, to grant the other parties to the consortium
          agreement licenses and/or other user rights regarding the Project IP
          that they own, and regarding certain of their Pre-existing IP, which
          the parties are required to identify and list in an annex to the
          agreement. During 2005 and 2004, the Company received from the project
          an aggregate amount of $ 17 and $ 0 (unaudited), respectively. There
          is no obligation to repay the grants received.

     e.   The Company has been granted a worldwide non-exclusive license to
          make, have made, market, distribute and sell products which use
          certain licensed rights or know-how relating to diagnostic methods for
          the detection of Chlamydia pneumonia in a defined field of use.
          According to the license agreement, the Company is obligated to pay
          royalties at the rate of 5.5% and an annual license fee of $ 7. The
          agreement is for a term of 17 years from its execution, or until the
          last remaining patent rights thereunder expire, whichever is later.
          Other than for termination upon breach and bankruptcy/insolvency, the
          Company may terminate the agreement upon 60 days' written notice.

     f.   Savyon is a member of a consortium ("CHEMAG Consortium") engaged in a
          research and development project into "novel paramagnetic materials,
          surface activation and nucleic acid modification chemistries for
          application in biology, chemistry, health/medicine/diagnostics and the
          environment" ("CHEMAG Project"). There is no obligation to repay
          grants received.

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


                                     - 48 -
<PAGE>


                                                         SAVYON DIAGNOSTICS LTD.

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

NOTE 8:- LONG-TERM BANK LOANS

     a.   Composed as follows:

                                                     INTEREST
                                                       RATE    DECEMBER 31,
                                                       ---     -----------
                                                       2005    2005    2004
                                                       ---     ---     ---
                                                        %    AUDITED UNAUDITED
                                                       ---     ---     ---

   Loans from banks                                    5.1     $48     $ -
   Less - current maturities                                    17       -
                                                               ---     ---

                                                               $31     $ -
                                                               ===     ===

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

   First year (current maturities)                             $17     $ -
                                                               ---     ---

   Second year                                                  17       -
   Third year                                                   14       -
                                                               ---     ---

                                                                31       -
                                                               ---     ---

                                                               $48     $ -
                                                               ===     ===

     c.   Covenants:

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

NOTE 9:- LONG-TERM LOAN FROM A SHAREHOLDER

     In January 2003, the Company received a loan in the amount of $ 1.2
     million. The loan bears an annual interest rate of LIBOR+1.75%. According
     to the agreement, all of the shareholders will determine the repayment
     date.

     The loan will be converted into shares immediately upon liquidation.

     During the years ended December 31, 2005, 2004 and 2003, the Company repaid
     a sum of $ 193, $ 102 (unaudited) and $ 20 (unaudited), respectively, from
     the loan. During 2005, $ 150 was converted into shares (see also Note 10).

NOTE 10:- SHAREHOLDERS' EQUITY (DEFICIENCY)

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

     b.   In January 2005, the Company issued 2 Ordinary shares to its
          shareholders in consideration for $ 300.


                                     - 49 -
<PAGE>


                                                         SAVYON DIAGNOSTICS LTD.

NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 11:- TAXES ON INCOME

     a.   Measurement of results for tax purposes under the Income Tax
          (Inflationary Adjustments) Law, 1985:

          Results for tax purposes are measured in terms of earnings in NIS
          after certain adjustments for increases in Israel's Consumer Price
          Index ("CPI"). As explained in Note 2b, the financial statements are
          measured in U.S. dollars. The difference between the annual change in
          the CPI and in the NIS/dollar exchange rate causes a difference
          between taxable income and the income before taxes shown in the
          financial statements. In accordance with paragraph 9(f) of SFAS No.
          109, the Company has not provided deferred income taxes in respect of
          the difference between the reporting currency and the tax bases of
          assets and liabilities.

          1.   Corporate tax structure:

               Taxable income of Israeli companies is subject to tax at the rate
               of 34% in 2005, 31% in 2006 and 29% in 2007, 27% in 2008, 26% in
               2009 and 25% in 2010 and thereafter.

          2.   Tax benefits under the Israeli Law for the Encouragement of
               Capital Investments, 1959 ("the Law"):

               A portion of the Company's production facilities have been
               granted the status of an "Approved Enterprise", according to the
               Law, under two investment programs ("the Programs").

               In accordance with the Law, the Company has chosen the
               alternative system of benefits. Accordingly, taxable income
               derived from the "Approved Enterprise" is tax exempt for a period
               of two to four years and is liable to a reduced corporate tax
               rate of up to 15% for an additional period of six to eight years,
               based on the percentage of foreign investment in the Company. The
               abovementioned tax benefits are scheduled to gradually expire
               through 2006 for the first program and 2015 for the second
               program.

               The benefit period for each of the Programs is limited to twelve
               years from the year in which the enterprise began operations, or
               fourteen years from the year in which the approval was granted,
               whichever is earlier.

               The entitlement to the above benefits is conditioned upon the
               fulfillment of the conditions stipulated by the Law, regulations
               published thereunder and the instruments of approval for the
               specific investments in an "Approved Enterprise". In the event of
               failure to comply with these conditions, the benefits may be
               canceled and the Company may be required to refund the amount of
               the benefits, in whole or in part, including interest.

               The tax-exempt income attributable to the "Approved Enterprise"
               can be distributed to shareholders without subjecting the Company
               to taxes only upon the complete liquidation of the Company.
               Through December 31, 2005, approximately $ 21 of the Company's
               net income has been derived from tax-exempt income. The Company
               has decided not to declare dividends out of such tax-exempt
               income. Accordingly, no deferred income taxes have been provided
               on income attributable to the Company's "Approved Enterprises".


                                     - 50 -
<PAGE>


                                                         SAVYON DIAGNOSTICS LTD.

NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 11:-     INCOME TAXES (CONT.)

               If the net retained tax-exempt income is distributed in a manner
               other than in the complete liquidation of the Company, it would
               be taxed at the corporate tax rate applicable to such profits as
               if the Company had not elected the alternative system of benefits
               and an income tax liability of approximately $ 3 would be
               incurred as of December 31, 2005.

               Income from sources other than the "Approved Enterprise" during
               the benefit period will be subject to tax at the statutory tax
               rate.

               On April 1, 2005, an amendment to the Law came into effect ("the
               Amendment") that has significantly changed the provisions of the
               Law. The Amendment limits the scope of enterprises that may be
               approved by the Investment Center by setting criteria for the
               approval of a facility as a Benificiary Enterprise, such as
               provisions generally requiring that at least 25% of the
               Benificiary Enterprise's income will be derived from export.
               Additionally, the Amendment enacted major changes in the manner
               in which tax benefits are awarded under the Law so that companies
               no longer require Investment Center approval in order to qualify
               for tax benefits.

               However, the Law provides that terms and benefits included in any
               certificate of approval already granted will remain subject to
               the provisions of the Law as they were on the date of such
               approval. Therefore, the Company's existing "Approved Enterprise"
               will generally not be subject to the provisions of the Amendment.
               Tax-exempt income that will be generated under the provisions of
               the new Law, will subject the Company to taxes upon distribution
               or liquidation and the Company may be required to record deferred
               tax liability with respect to such tax-exempt income

          3.   Tax benefits under the Israeli Law for the Encouragement of
               Industry (Taxation), 1969:

               The Company is an "industrial company", as defined by this law
               and, as such, is entitled to certain tax benefits, including
               accelerated depreciation and deduction of public issuance
               expenses in three equal annual installments.

     b.   Deferred taxes:

          Deferred taxes reflect the net tax effect of temporary differences
          between the carrying amounts of assets and liabilities for financial
          reporting purposes and the amounts used for income tax purposes.
          Significant components of the Company's deferred tax assets and
          liabilities are as follows:


                                     - 51 -
<PAGE>


                                                         SAVYON DIAGNOSTICS LTD.

NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 11:- INCOME TAXES (CONT.)

                                                         DECEMBER 31,
                                                       ----------------
                                                        2005       2004
                                                       -----      -----
                                                      AUDITED   UNAUDITED
                                                       -----      -----

Deferred tax assets:
   Reserves and allowances                             $  88      $ 106
                                                       -----      -----

Total deferred tax asset                                  88        106
                                                       -----      -----

Deferred tax liabilities:
   Property and equipment                                (10)       (86)
                                                       -----      -----

Net deferred tax assets before valuation allowance        78         20
Valuation allowance                                        -        (20)
                                                       -----      -----

Net deferred tax assets                                $  78      $   -
                                                       =====      =====

     c.   A reconciliation between the theoretical tax expenses, assuming all
          income is taxed at the statutory tax rate applicable to income of the
          Company, and the actual tax expense as reported in the statements of
          operations, is as follows:

                                                     YEAR ENDED DECEMBER 31,
                                                   ---------------------------
                                                    2005       2004       2003
                                                   -----      -----      -----
                                                  AUDITED        UNAUDITED
                                                   -----      ----------------

Income before income taxes, as reported in the
   statements of operations                        $ 305      $ 122      $  16
                                                   =====      =====      =====

Tax based on statutory tax rate in Israel (34%
   in 2005, 36% in 2004 and 2003)                  $ 103      $  44      $   6
                                                   -----      -----      -----

Decrease in taxes resulting from effect of
   "Approved Enterprise" benefits                     (6)        (3)         -
Non-deductible expenses                               10         10          4
Deductible expense for tax purposes only            (103)       (17)       (10)
Taxes in respect of prior years                      (10)         -          -
Valuation allowance                                  (20)       (21)        41
Other                                                 (5)         3        (20)
                                                   -----      -----      -----

                                                    (134)       (28)        15
                                                   -----      -----      -----

Actual income tax                                  $ (31)     $  16      $  21
                                                   =====      =====      =====

     d.   The provision for income taxes
          is comprised as follows:

Current taxes                                      $  47      $  16      $  21
Deferred taxes                                       (78)         -          -
                                                   -----      -----      -----

                                                   $ (31)     $  16      $  21
                                                   =====      =====      =====


                                     - 52 -
<PAGE>


                                                         SAVYON DIAGNOSTICS LTD.

NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 12:- SELECTED STATEMENTS OF OPERATIONS DATA

     a.   Research and development costs, net:

                                                      YEAR ENDED DECEMBER 31,
                                                    ---------------------------
                                                     2005       2004       2003
                                                    -----      -----      -----
                                                   AUDITED        UNAUDITED
                                                    -----      ----------------

   Materials                                        $  36      $  67      $  40
   Wages and related benefits                         333        338        315
   Depreciation and amortization                       40         31         50
   Rent, maintenance and motor vehicle expenses        93         72         27
   Consulting                                          86         84          4
   Travel expenses                                     27         30          4
   Other                                               30          4         35
                                                    -----      -----      -----

                                                      645        626        475
   Less - grants and participations                    75         46         37
                                                    -----      -----      -----

                                                    $ 570      $ 580      $ 438
                                                    =====      =====      =====

b. Financial expenses (income), net:

   Income:
   Exchange rate differences                        $   -      $ (86)     $   -
                                                    -----      -----      -----

   Expenses:
     Interest and others                               66         40         36
     Exchange rate differences and bank charges         2         22          6
                                                    -----      -----      -----

                                                       68         62         42
                                                    -----      -----      -----

                                                    $  68      $ (24)     $  42
                                                    =====      =====      =====

NOTE 13:- MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION

     a.   Summary information about geographic areas:

          The Company manages its business on the basis of one reportable
          segment. See Note 1a for a brief description of the Company's
          business. The following data is presented in accordance with Statement
          of Financial Accounting Standard No. 131 ("SFAS No 131"), "Disclosures
          about Segments of an Enterprise and Related Information". Total
          revenues are attributed to geographical areas based on location of end
          customers.


                                     - 53 -
<PAGE>


                                                         SAVYON DIAGNOSTICS LTD.

NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 13:- MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION (CONT.)

     b.   The following data presents total revenues and long-lived assets for
          the years ended and as of December 31, 2005, 2004 and 2003:

                          2005                  2004                 2003
                   -----------------     -----------------     ----------------
                 LONG-LIVED   TOTAL    LONG-LIVED   TOTAL    LONG-LIVED  TOTAL
                   ASSETS    REVENUES    ASSETS    REVENUES    ASSETS   REVENUES
                   ------     ------     ------     ------     ------    ------

Israel             $1,129     $  451     $  904     $  492     $1,153    $  328
Western Europe
   (excluding
   France and
   Germany)             -      1,183          -        857          -       728
France                  -      1,377          -      1,300          -     1,087
Eastern Europe          -        291          -        284          -       294
Asia                    -        365          -        335          -       291
United States           -        568          -        177          -        62
Germany                 -        671          -        787          -       687
Other                   -        197          -        164          -       130
                   ------     ------     ------     ------     ------    ------

                   $1,129     $5,103     $  904     $4,396     $1,153    $3,607
                   ======     ======     ======     ======     ======    ======

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

                        YEAR ENDED DECEMBER 31,
                  ------------------------------------
                   2005         2004          2003
                  -------   ------------  ------------
                  AUDITED           UNAUDITED
                  -------   --------------------------

Customer A          27%          29%          30%
Customer B          13%          18%          19%

NOTE 14:- BALANCES AND TRANSACTIONS WITH RELATED PARTIES

     a.   Balances with related parties:

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                             ----------------------
                                                              2005            2004
                                                             ------          ------
                                                             AUDITED        UNAUDITED
                                                             ------          ------
<S>                                                          <C>             <C>
Assets:
Trade receivables (on account of purchases from the
  Company)                                                   $   70          $  140
                                                             ======          ======

Liabilities:
Management fees to shareholders                              $  787          $  690
                                                             ======          ======

Long-term loans from a shareholder (see Note 9)              $  744          $1,115
                                                             ======          ======
</TABLE>


                                     - 54 -
<PAGE>


                                                         SAVYON DIAGNOSTICS LTD.

NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 14:-       BALANCES AND TRANSACTIONS WITH RELATED PARTIES (CONT.)

     b.   Transactions with related parties:

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                         --------------------------------
                                                         2005          2004          2003
                                                         ----          ----          ----
                                                        AUDITED            UNAUDITED
                                                         ----          ------------------
<S>                                                      <C>           <C>           <C>
Expenses:
  Management fees and reimbursement of expenses
    to shareholders                                      $396          $432          $400
                                                         ====          ====          ====

Interest on a long-term loan from a shareholder
  (see Note 9)                                           $ 48          $ 39          $ 35
                                                         ====          ====          ====

Income:
  Income from manufacturing and sales to a
    related party                                        $325          $405          $288
                                                         ====          ====          ====
</TABLE>

                                 - - - - - - - -

                                     - 55 -
<PAGE>


                                   SIGNATURES

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

                                              HEALTHCARE TECHNOLOGIES LTD.


                                              By: /s/ Daniel Kropf
                                              --------------------
                                              Daniel Kropf
                                              Chairman of the Board of Directors



Date: October 30, 2006