`UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ----------------------
                                    FORM 20-F

(MARK ONE)

[_]  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, 2006

                                       OR

[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                                       OR

[_]  SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934

      DATE OF EVENT REQUIRING THIS SHELL COMPANY REPORT . . . . . . . . . .

                         COMMISSION FILE NUMBER: 0-17788
                             ----------------------

                          HEALTHCARE TECHNOLOGIES LTD.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                                 NOT APPLICABLE
                 (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:

TITLE OF EACH CLASS Ordinary shares, par value NIS 0.04 per share

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

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: 7,792,832 ordinary shares.

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]

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 periods that the registrant was
required to file such reports), and (2) has been subject to such reporting
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]`

`TABLE OF CONTENTS

                                                                                                      PAGE
                                                                                                      ----

INTRODUCTION                                                                                            2

PART I                                                                                                  5

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

     Item 2.      OFFER STATISTICS AND EXPECTED TIMETABLE                                               5

     Item 3.      KEY INFORMATION                                                                       5

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

     Item 4.      INFORMATION ON THE COMPANY                                                           18

                  A.       History and Development of the Company                                      18
                  B.       Business Overview                                                           23
                  C.       Organizational Structure                                                    35
                  D.           Property, Plant and Equipment                                           36

     Item 5.      Operating and Financial Review and Prospects                                         36

                  A.       Results of Operations                                                       36
                  B.       Impact of Inflation and Devaluation                                         39
                  C.       Liquidity and Capital Resources                                             40
                  D.       Research and Development, Patents and Licenses, Etc                         40
                  E.       Trend Information                                                           42
                  F.       Off-Balance Sheet Arrangements                                              42
                  G.       Tabular Disclosure of Contractual Obligations                               43

     Item 6.      DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                           43

                  A.       Directors and Senior Management                                             43
                  B.       Compensation                                                                46
                  C.       Board Practices                                                             47
                  D.       Employees                                                                   50
                  E.       Share Ownership                                                             50

     Item 7.      MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                                    51

                  A.       Major Shareholders                                                          51
                  B.       Related Party and Inter-Company Transactions                                52
                  C.       Interests of Experts and Counsel                                            54

     Item 8.      FINANCIAL INFORMATION                                                                54

                  A.       Consolidated Statements and other Financial Information                     54
                  B.       Significant Changes                                                         54`

`Item 9.      THE OFFER AND LISTING                                                                54

                  A.       Offer and Listing Details                                                   54

     Item 10.     ADDITIONAL INFORMATION                                                               56

                  A.       Share Capital                                                               56
                  B.       Memorandum and Articles of Association                                      56
                  C.       Material Contracts                                                          61
                  D.       Exchange Controls                                                           63
                  E.       Taxation                                                                    64
                  F.       Dividends and Paying Agent                                                  65
                  G.       Statements by Experts                                                       65
                  H.       Documents on Display                                                        65
                  I.       Subsidiary Information                                                      66

     Item 11.     Quantitative and Qualitative Disclosure About Market Risk                            66

     Item 12.     Description of Securities other than Equity Securities                               66

PART II                                                                                                66

     Item 13.     Defaults, Dividends, Arrearages and Delinquencies                                    66

     Item 14.     Material Modifications to the Rights of Security holders and Use of Proceeds         66

     Item 15.     Controls and Procedures                                                              66

     Item 16.     [Reserved]                                                                           67

                  A.       Audit Committee Financial Expert                                            67
                  B.       Code of Ethics                                                              67
                  C.       Principal Accountant Fees and Services                                      67
                  D.       Exemption from listing standards for Audit Committee                        68
                  E.       Purchases of Equity Securities by the issuer and affiliated purchasers      68

PART III                                                                                               68

     Item 17.     FINANCIAL STATEMENTS                                                                 68

     Item 18.     FINANCIAL STATEMENTS                                                                 68

     Item 19.     FINANCIAL STATEMENTS AND EXHIBITS                                                    68

SIGNATURES                                                                                            130`

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

                                  INTRODUCTION

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

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

     The Company's principal stockholder is Gamida for Life B.V. ("Gamida"),
which owned approximately 62% of the Company's issued and outstanding shares as
of the date of this report.

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

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

All references in this Annual Report to "dollars" or "$" are to U.S. dollars and
all references in this Annual Report to "NIS" are to New Israeli Shekels. The
representative exchange rate between the NIS and the dollar as published by the
Bank of Israel on December 31, 2006 was NIS 4.225 per $1.00.

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

`The following is a schematic presentation of the Company and its
subsidiaries and affiliates (as of June 28, 2007):

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

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

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

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


                                     - 3 -`

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

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

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

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

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


                                     - 4 -`

`PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

     Not Applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

     Not Applicable

ITEM 3. KEY INFORMATION

     A.   SELECTED FINANCIAL DATA

     The following selected consolidated financial data of the Company have been
prepared in accordance with US GAAP, and are derived from the Company's audited
consolidated financial statements and accompanying notes. The selected financial
data set forth below should be read in conjunction with and are qualified by
reference to "Item 5. Operating and Financial Review and Prospects", and the
Consolidated Financial Statements included in Item 19 in this Annual Report.
Historical results are not necessarily indicative of any results to be expected
in any future period.

     INCOME STATEMENT DATA:

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

                                                      2006       2005       2004        2003        2002
                                                    -------    -------    -------     -------     -------

Sales                                                13,656     12,053     12,130      12,412      16,676
Gross Profit                                          4,775      4,369      4,205       4,023       5,432
Operating income (Loss)                                 156        110       (555)       (474)     (1,156)
Net income (Loss) for year                              210        276       (359)       (500)     (1,827)
                                                    =======    =======    =======     =======     =======

Basic and diluted earnings (Loss) per share            0.03       0.04      (0.05)      (0.07)      (0.24)

Shares used in computing basic earnings (Loss)
per share.                                            7,715      7,703      7,667       7,644       7,644
Shares used in computing diluted earnings (Loss)
per share                                             7,715      7,768      7,667       7,644       7,644


                                     - 5 -`

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

                                                      2006      2005
                                                     ------    ------

Working capital                                       2,558     2,198
Total assets                                         14,094    12,374
Short-term credit including current maturities        1,385       940
Long-term liabilities,  net of current maturities     1,724     1,025
Shareholders' equity                                  7,315     6,791

     B.   CAPITALIZATION AND INDEBTEDNESS

     Not Applicable.

     C.   REASON FOR THE OFFER AND USE OF PROCEEDS

     Not Applicable.

     D.   RISK FACTORS

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

                     RISKS RELATED TO THE COMPANY'S BUSINESS

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

     While the company ended 2006 and 2005 with a net income of $ 210 and $ 276
thousand respectively, for the two fiscal years ended December 31, 2004, and
2003 the Company had net losses of approximately $0.36 and $0.5 million,
respectively. Such losses resulted principally from:

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

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

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


     The Company may incur significant losses in the future as it continues its
research and development efforts mainly by Savyon, expands its marketing, sales
and distribution activities, develops strategies for competing with other
manufacturers, and scales up its research and development and manufacturing
capabilities. There can be no assurance that the Company will be able to
generate profits in the future. As of December 31, 2006, the Company's
accumulated deficit was approximately $21 million.


                                     - 6 -`

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

     On December 31, 2006, the Company had a working capital of $2.5 million,
including cash in the amount of $0.36 million. The Company anticipates that
these funds, together with funds from operations will be sufficient to meet its
anticipated cash requirements for 2007. For the fiscal year 2006, net cash used
in operating activities amounted to $124 thousand. Although the Company
currently believes that it will generate a positive cash flow from operations in
fiscal 2007, the Company cannot assure that it will succeed in doing so.

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

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

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

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

     Danyel Biotech's principal competitors in the distribution of reagents and
systems to the biotechnology market in Israel include: Biorad Israel, Eldan
(Agilent), Medtechnica (Waters) in the field of chromatography; Pharmatec
(Tecan) and Saifan (PE Life Science) in the field of advanced laboratory
instrumentation (fluorometers, counters); DeGroot (Greiner), Geter (Corning) in
the field of bio-plastics; and Saifan (PE Life Sciences -NEN-), Biological
Industries (Promega), Dinco Renihum (Invitrogen) and Sigma Israel in the field
of molecular biology and Biology Reagents. Although the Company is not aware of
any published industry market share statistics, it estimates, based upon its
knowledge of the industry, that in fiscal 2006 Danyel accounted for a
significant portion of the Israeli distribution market for chromatography
products, bio-plastics and advanced laboratory instrumentation and a lesser
portion of the Israeli market for Danyel's other products.

     The Gamidor Group's principal competitors in the distribution of reagents
and systems to clinical laboratories in Israel include: Ilex (Abbott) and Dover
(J&J) for hematology products; Dyn Diagnostics (Roche) and Sorin for immunology
products; Ilex (Vitek) and Pharmtop (Sorin) for microbiology products; Travenol
(Nequas) for quality control products; and Dyn Diagnostics (Roche) and
Medtechnica (Olympus) for clinical chemistry products. Although the Company is
not aware of any published industry market share statistics, it estimates, based
upon its knowledge of the industry, that in fiscal 2006 the Gamidor Group
accounted for a significant portion of the Israeli pathology, genetics,
hemostasis products market and a lesser portion of the Israeli market for the
Group's other products.

     Savyon's serology test kits for chlamydia compete with serology tests
produced by companies such as Hitachi (Japan), Medac (Germany), Orgenics
(Israel), MRL (USA) and LabSystems (Finland). Savyon's SeroMP (microplasma
pneumoniae) products compete in the field of serology testing with products
produced by companies such as Fujirebio in Japan. The Company believes that
Savyon is a leader in the serological diagnosis of chlamydial infections. This
belief is based on a study conducted by Froste & Salive, which indicated that
Savyon supplied approximately 30% of the worldwide market for serology based
chlamydia diagnostic kits in 1999. The belief is further based on the fact that
the Company's sales in the worldwide serology based chlamydia market since 1999
have remained stable at approximately $2.9 million, $3.2 million and $3.1
million in 2006, 2005 and 2004 respectively and, to the best of Savyon's
knowledge from both current sales figures and a network of over 60 worldwide
distributors, the worldwide serology based chlamydia market has not undergone
any material changes since 1999, thereby leaving Savyon's market share
relatively unchanged. Savyon's remaining kits represent a much smaller portion
of the overall market for such products.


                                     - 7 -`

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

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

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

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

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

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

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

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

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

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

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

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

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

     -    Other companies may design around technologies the Company has
          licensed or developed; and certain countries such as the People's
          Republic of China, in which the Company may seek to sell its patented
          products in the future, may not protect its patent rights to the same
          extent as the United States, Europe and Israel.


                                     - 8 -`

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

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

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

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

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

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

The Company sells diagnostic products, which may involve product liability risk.
While the Company carries product liability insurance, there can be no certainty
that its coverage will be adequate to protect the Company against future
liability claims. In addition, product liability insurance is expensive and
there can be no certainty that this insurance will be available to the Company
in the future on terms satisfactory to it, if at all. A successful product
liability claim or series of claims brought against the Company in excess of its
insurance coverage could have a material adverse effect on its business,
financial condition and results of operations. The Company maintains a Product
Liability/Professional Indemnity coverage with a combined single limit of $2
million for any one occurrence and in the aggregate in respect of products not
manufactured by the Company, and a Products Liability Policy with limits of $2
million for any one occurrence and $4 million in the aggregate, in respect of
products manufactured in-house.

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

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

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

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



                                     - 9 -`

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

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

     The Company has fulfilled all the ongoing requirements by the FDA and
currently does not have any pending applications for approvals by the FDA.

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

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

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

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

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

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

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

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


                                     - 10 -`

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

     During 2006 and 2005, purchases from one of Danyel's suppliers, Amersham
Biosciences ("Amersham"), which was acquired by General Electric during October
of 2003, accounted for 25% and 31% respectively of the Company's annual cost of
sales. In addition, during 2006 and 2005, purchases from one of the Gamidor
Group's suppliers, Dade Behring, accounted for 25% and 15% respectively of the
Company's annual cost of sales. A failure of such suppliers to continue to
supply products to the Company or failure to renew such agreements, will
adversely affect its business and financial results.

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

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

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

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

     Sales to three HMO's ("Health Maintenance Organization") in Israel, namely
Maccabi, Clalit and Meuhedet (collectively "HMO's") accounted respectively for
12%, 16% and 3% of the Company's annual sales during 2006, and 12%, 16% and 3%
of such sales in 2005. The Company has a number of written agreements with the
HMO's covering different products. Under these agreements, the Company has
undertaken to charge the HMO's a fixed price for various products over a period
of three to five years, provided that they purchase certain minimum quantities
of such products from the Company.

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


                                     - 11 -`

`THE COMPANY MAY NEED STRATEGIC PARTNERS TO BE SUCCESSFUL.

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

     THE GENOMICS INDUSTRY IS INTENSELY COMPETITIVE AND EVOLVING.

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

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

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

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

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


                                     - 12 -`

`FUTURE ACQUISITIONS MAY ABSORB SIGNIFICANT RESOURCES AND MAY BE
     UNSUCCESSFUL.

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

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

     -    diversion of management from daily operations;

     -    inability to obtain required financing on favorable terms;

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

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

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

          and

     -    amortization of the intangible assets of the acquired companies.

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

     THE PROPOSED TRANSACTION WITH NEXGEN MAY NOT BE COMPLETED, AND IF
     COMPLETED, MAY BE UNSUCCESSFUL.

On January 16, 2007, Healthcare signed a definitive agreement with NexGen
Biofuels, Inc. ("NexGen") and Gamida, for the purchase of NexGen's assets
relating to the construction, ownership and operation of ethanol and bio-diesel
manufacturing facilities on land under option in the United States, and the sale
of its current business.

Under the terms of the agreement, NexGen will transfer its assets to a newly
formed wholly-owned US subsidiary of Healthcare for shares in Healthcare at a
price per share of $1.50. The number of shares to be issued for such assets will
be based on a valuation of the NexGen assets to be provided by a recognized
valuation firm.

The contemplated transaction also includes the purchase by Gamida of
Healthcare's holdings in its subsidiaries and related assets in consideration
for 4.7 million of Gamida's shares in Healthcare. Until 180 days following the
Closing, NexGen will have the option to transfer an existing ethanol or
biodiesel plant in exchange for up to 80 million additional Healthcare shares at
a price per share of $1.50.

Closing of the transaction is subject to the completion of due diligence, the
receipt of the necessary corporate, regulatory and third party approvals,
including Healthcare's shareholders and the approval of an Israeli District
Court and other closing conditions. No assurance can be given that the
transactions contemplated by the agreement will close.

     In the event that the NexGen transaction is completed, it would result in
the transfer of the Company's existing business to the Company's principal
stockholder and a change of control in the Company. Thereafter, the success of
the Company would depend upon the Company's ability to raise sufficient funds
and construct and operate Ethanol and biodiesel plants of which there can be no
assurance.


                                     - 13 -`

`RISKS RELATING TO OPERATIONS IN ISRAEL

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

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

     Since the establishments of the State of Israel in 1948, a number of armed
conflicts have taken place between Israel and its Arab neighbors. Most recently,
Israel was engaged during the summer of 2006 in an armed conflict with
Hezbollah, a Lebanese Islamist Shiite militia group and political party. This
conflict involved missile strikes against civilian targets in northern Israel,
and negatively affected business conditions in Israel. In addition, Israel and
companies doing business with Israel have, in the past, been the subject of an
economic boycott. Although Israel has entered into various agreements with
Egypt, Jordan and the Palestinian Authority, Israel has been and is subject to
civil unrest and terrorist activity, with varying levels of severity, since
September 2000. The election in early 2006 of representatives of the Hamas
movement to a majority of seats in the Palestinian Legislative Council and the
tension among the different Palestinian factions may create additional unrest
and uncertainty. Any future armed conflicts or political instability in the
region may negatively affect business conditions and adversely affect our
results of operations. Parties with whom we do business have sometimes declined
to travel to Israel during periods of heightened unrest or tension, forcing us
to make alternative arrangements when necessary. In addition, the political and
security situation in Israel may result in parties with whom we have agreements
involving performance in Israel claiming that they are not obligated to perform
their commitments under those agreements pursuant to force majeure provisions in
the agreements.

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

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

     Exchange rate fluctuations and inflation in Israel could adversely impact
the Company's financial results. During calendar years 2006, 2005 and 2004, the
annual rate of inflation was approximately (0.1%), 2.4%, and (1.8)%
respectively, while the NIS was devalued (appreciated) against the U.S. Dollar
by approximately (8.2%), 6% and (0.02)% respectively. Consequently, during
calendar years 2006, 2005 and 2004 the annual rate of inflation as adjusted for
devaluation (appreciation) was approximately 8.2%, 8%, and (1.8)% respectively.

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

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


                                     - 14 -`

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

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

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

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

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

     IT MAY BE DIFFICULT TO ENFORCE A U.S. JUDGMENT AGAINST US, OUR OFFICERS AND
     DIRECTORS NAMED IN THIS ANNUAL REPORT OR TO ASSERT UNITED STATES SECURITIES
     LAWS' CLAIMS IN ISRAEL OR SERVE PROCESS ON OUR OFFICERS.

     We are incorporated in the State of Israel. All of our executive officers
and directors named in this annual report are not residents of the United
States, and a substantial portion of our assets and the assets of these persons
are located outside the United States. Therefore, it may be difficult to enforce
a judgment obtained in the United States based upon the civil liabilities
provisions of the United States Federal securities laws against us or any of
those persons or to effect service of process upon these persons in the United
States. Additionally, it may be difficult to enforce civil liabilities under
United States federal securities laws in original actions instituted in Israel.


                                     - 15 -`

`YOUR RIGHTS AND RESPONSIBILITIES AS A SHAREHOLDER WILL BE GOVERNED BY
     ISRAELI LAW AND DIFFER IN SOME RESPECTS FROM THE RIGHTS AND
     RESPONSIBILITIES OF SHAREHOLDERS UNDER U.S. LAW.

     We are incorporated under Israeli law. The rights and responsibilities of
the holders of our Ordinary Shares are governed by our articles of association
and by Israeli law. These rights and responsibilities differ in some respects
from the rights and responsibilities of shareholders in typical U.S.
corporations. In particular, a shareholder of an Israeli company has a duty to
act in good faith toward the company and other shareholders and to refrain from
abusing his power in the company, including, among other things, in voting at
the general meeting of shareholders on certain matters. See "Item 10. Additional
Information - B. Memorandum and Articles of Association."

                 RISKS RELATED TO THE COMPANY'S ORDINARY SHARES

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

     The market price of the Company's ordinary shares ranged between a high
sales price of $4.30 and a low sales price of $0.39 during 2006 and may continue
to be highly volatile and subject to wide fluctuations in response to factors
including the following, some of which are beyond the Company's control:

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

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

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

     -    approval of the Company's products;

     -    results of regulatory inspections;

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

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

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

     -    additions or departures of key personnel; and

     -    sales of additional ordinary shares.

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

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

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


                                     - 16 -`

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

     Gamida, the Company's principal shareholder, holds 4,819,761 shares or
approximately 62% of the Company's voting securities. As a result, Gamida has a
controlling interest over all matters, excluding related party transactions
requiring approval by shareholders, including the election or removal of
directors and the approval of mergers or other business combination
transactions.

     Out of the 4,819,761 shares, 4,053,000 are currently pledged to Bank Leumi
Le'Israel Ltd as security for a loan from the Bank to Gamida. So long as the
Bank does not demand immediate payment of the loan (which may occur upon the
occurance of an event of default), Gamida shall be entitled to exercise the
voting rights pertaining to the pledged shares for any purpose not inconsistent
with the terms of the pledge.

     However, as a shareholder, Gamida is required, to oppose certain
resolutions, such as, but not limited to, resolutions that might result in the
dilution of Gamida's holdings in Healthcare, or result in the reduction in the
value of the pledged shares or harm the rights of the Bank under the pledge,
except where the Bank has given its prior written consent. In the event the bank
demands immediate payment of the loan, following the occurrence of an event of
default, all voting rights shall vest with the Bank. Upon the occurrence of an
event of default, the Bank shall be entitled to dispose of the shares, subject
to complying with the terms of the pledge agreement.

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

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

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

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



                                     - 17 -`

`On July 17, 2006, the Company received a notice from the Nasdaq Capital Market
indicating that the Company was not in compliance with the Bid Price Rule,
because the closing bid price per share for its ordinary shares had been below
$1.00 per share for 30 consecutive trading days. In accordance with Nasdaq
Marketplace Rules, the Company was provided 180 calendar days, or until January
16, 2007, to regain compliance with the Bid Price Rule.

     On December 20, 2006, at the annual general meeting of the shareholders of
Healthcare, the shareholders approved an amendment to the Company's Articles of
Association, in order to effect a 1-for-3 reverse share split of the Ordinary
Shares, anticipating that the Reverse Share Split would have the effect of
sufficiently raising the bid price of the Company's Ordinary Shares above $1.00
per share at such time.

On December 12, 2006, Healthcare received a notice from Nasdaq indicating that
the Company has regained compliance with the Bid Price Rule because the closing
bid price per share for its ordinary shares has been above $1.00 per share for
more than 10 consecutive trading days. As a result, the Company decided not to
proceed with the proposal to effect a reverse stock split of the Company's
ordinary shares.

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

ITEM 4. INFORMATION ON THE COMPANY

     A.   HISTORY AND DEVELOPMENT OF THE COMPANY

GENERAL

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

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

IMPORTANT EVENTS IN THE DEVELOPMENT OF THE COMPANY'S BUSINESS

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

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

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


                                     - 18 -`

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

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

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

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

     In January 1999, the Company established Danyel, an Israeli company engaged
in the marketing and distribution to biotechnology researchers in Israel of
products in the fields of applied genomics and cell biology and separation. As
part of the establishment process, the Company sold fixed assets and inventory
to Danyel for a purchase price of approximately $125 thousand, which represents
the book value of the assets transferred as of January 1, 1999. The Company had
no capital expenditures in the establishment of Danyel. The Company owns 80% of
Danyel and the balance is owned by its general manager (through a company under
his control) see Item 10 "Additional information: C- Matirial contract, Danyel".

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

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

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

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


                                     - 19 -`

`THE SAVYON TRANSACTION

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

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

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

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

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

     INVESTMENT IN AFFERIX LTD.

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

     GAMIDOR MERGER

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

     THE PROCOGNIA INVESTMENT

     In January 2000, the Company established Procognia (Israel) with an initial
investment of $600,000, and subsequently transferred the Company's glycobiology
research and development project into Procognia (Israel). In April 2002,
Procognia (Israel) secured $14.3 million in a second round of financing. For the
purposes of this financing, a newly organized company registered in England,
Procognia Ltd., ("Procognia") acquired 100% ownership of Procognia (Israel), in
consideration for which the Company, as well as another existing Procognia
(Israel) shareholder, received ordinary shares of Procognia in exchange for
their Procognia (Israel) shares, while the subsequent investors received
preferred shares carrying certain dividend and liquidation preferences and veto
rights. Following the April 2002 financing, various funds managed by Apax
Partners Europe became the principal shareholders of Procognia, owning in the
aggregate approximately 37% of Procognia's share capital.


                                     - 20 -`

`Procognia subsequently effected certain financing transactions from 2002 to
2004 that reduced the Company's ownership interest in Procognia to approximately
4%. Owing to this dilution, the Company lost its right to nominate a director on
Procognia's board.

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

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

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

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

     IMMVARX TRANSACTION

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

     CHAIM SHEBA MEDICAL CENTER TRANSACTION

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

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

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


                                     - 21 -`

`RECENT DEVELOPMENTS

     NEXGEN TRANSACTION

On November 29, 2006, Healthcare signed a Letter of Intent with NexGen Biofuels,
Inc. ("NexGen"), and Gamida that provided for (i) the transfer to Healthcare of
NexGen's assets relating to the ethanol and bio-diesel manufacturing facilities
on land under option in the United States in consideration for a controlling
stake in Healthcare and (ii) the purchase of Healthcare's holdings in its
subsidiaries by Gamida in consideration for all of Gamida's shares in
Healthcare. The Letter of Intent further contemplated that the number of shares
to be issued in consideration for NexGen's assets shall be based on the
valuation of the assets to be provided by a recognized valuation firm.

On January 16, 2007, Healthcare signed a definitive agreement with NexGen and
Gamida for the purchase of NexGen's assets and the sale of its current business.

Under the terms of this agreement, NexGen will transfer its assets to a newly
formed wholly-owned US subsidiary of Healthcare for shares in Healthcare at a
price per share of $1.50. The number of shares to be issued for such assets will
be based on a valuation of the assets to be provided by a recognized valuation
firm. On May 4, 2007, Healthcare received a valuation report concerning NexGen's
assets from American Appraisal Associates that valued such assets at
approximately $ 58 million.

The contemplated transaction also includes the purchase by Gamida of
Healthcare's holdings in its subsidiaries and related assets in consideration
for 4.7 million of Gamida's shares in Healthcare.

Until 180 days following the Closing date, NexGen will have the option to
transfer an existing ethanol or biodiesel plant in exchange for up to 80 million
additional Healthcare shares at a price per share of $1.50.

Closing of the transaction is subject to the completion of due diligence, the
receipt of the necessary corporate, regulatory and third party approvals,
including Healthcare's shareholders and the approval of an Israeli District
Court and other closing conditions. No assurance can be given that the
transactions contemplated by the agreement announced today will close.

PRINCIPAL CAPITAL EXPENDITURES AND DIVESTITURES

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

                                         In thousands of U.S. Dollars
                                       -------------------------------
                                        2006        2005          2004
                                       -----       -----         -----

Fixed Assets                           1,018         936          313
Investments in other companies             -         150            -
Total                                  1,018       1,086          313

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

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


                                     - 22 -`

`B.   BUSINESS OVERVIEW

GENERAL

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

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

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

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

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

MANUFACTURING - SAVYON - www.savyondiagnostics.com

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

     The Company believes that Savyon is a leader in the serological diagnosis
of chlamydial infections. This belief is based on a study conducted by Froste &
Salive, which indicated that Savyon supplied approximately 30% of the worldwide
market for serology based chlamydia diagnostic kits in 1999." The belief is
further based on the fact that the Company's sales in the worldwide serology
based chlamydia market since 1999 have remained stable at approximately, $2.9,
$3.2 and $3.1 million in 2006, 2005 and 2004, respectively -, and to the best of
Savyon's knowledge from both current sales figures and a network of over 60
worldwide distributors, the worldwide serology based chlamydia market has not
undergone any material changes since 1999, thereby leaving Savyon's market share
relatively unchanged. Savyon also manufactures immunoassays for the diagnosis of
infectious diseases, especially sophisticated microplate-based enzyme
immunoassays. Savyon focuses on specific markets of the clinical diagnostics
market and is positioned to identify ideas and turn them into marketable
products. Savyon provides quality diagnostic tools to laboratory professionals
and point of care locations in Israel and worldwide. In addition, Savyon markets
kits for the diagnosis of certain infectious diseases in the over-the-counter
market in the United States. As a product developer, Savyon holds proprietary
rights to certain products in the in vitro diagnostics healthcare field. Savyon
manufactures sophisticated immunoassays for antibodies detection of certain
pathogens of sexually transmitted diseases (STD), particularly for the
serological diagnosis of chlamydial infections and of respiratory tract
infections (RTI), and sophisticated devices for the detection of urinary tract
infections (UTI). Savyon operates under the quality standards of ISO 13485:2003
and currently produces its diagnostic kits for the detection of certain sexually
transmitted diseases and other infectious diseases at its Ashdod facility.
Savyon has not experienced any difficulty in obtaining supplies to date, as
there are many available suppliers including chemical companies for reagents and
antibodies and for other supplies.


                                     - 23 -`

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

     A separate line of products is based on lateral flow immuno- chromatography
technology. Savyon manufactures and sells pregnancy tests and ovulation kits to
six 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 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. The Company received CE registration but has not yet applied to the
FDA for approval.

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

SAVYON - DIAGNOSTIC TECHNOLOGY AND PRODUCTS

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

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

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

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

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

                                     - 24 -`

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

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

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

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

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

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

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

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


                                     - 25 -`

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

                      SEXUALLY TRANSMITTED DISEASES (STDS)

PRODUCT                                 DESCRIPTION
-------                                 -----------

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

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

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

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

                       RESPIRATORY TRACT INFECTIONS (RTIS)


PRODUCT                                 DESCRIPTION
-------                                 -----------

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

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

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

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

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

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

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


                                     - 26 -`

`URINARY TRACT INFECTIONS (UTIS)

PRODUCT                                 DESCRIPTION
-------                                 -----------

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

                                 QUICKSTRIPE(TM)

PRODUCT                                 DESCRIPTION
-------                                 -----------

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

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

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

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

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

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

THE COMPANY - TECHNOLOGY AND PRODUCTS FOR GENETIC SCREENING AND TESTING

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

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

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


                                     - 27 -`

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

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

                    CARRIER SCREENING AND PRE-NATAL DIAGNOSIS

PRODUCT                                      ASSOCIATED DISEASE GENE
-------                                      -----------------------

Gaucher                                Gaucher (glucocerebrosidase)

FMF                                    Familial Mediterranean Fever (Pyrin)

Canavan                                Canavan (Aspartoacylase)

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

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

FD                                     Familial Dysautonomia (IKBKAP)

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

4 GeneScreen                           Canavan, BLM, FACC, FD

Tay Sachs                              Tay Sachs (hexosaminidase)


                                     - 28 -`

`GENETIC PRE-DISPOSITION TO DISEASE

PRODUCT                                          ASSOCIATED DISEASE GENE
-------                                          -----------------------

Brca                                   Pre-disposition to breast cancer and ovarian cancer (Brca1, Brca2)

ApoE                                   Hyper-cholesterolemia (Apolipoprotein E)

APC                                    Pre-disposition to colorectal cancer

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

Factor V                               Increased risk of thrombosis

MTHFR                                  Increased risk of thrombosis

Factor II / Prothrombin                Increased risk of thrombosis

Hemochromatosis                        Hemochromatosis\ iron overload (HFE)

                                 DNA EXTRACTION

PRODUCT                                                USAGE
-------                                                -----

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


RESEARCH AND DEVELOPMENTS -SAVYON

     The Company, through Savyon mainly, is engaged in certain research and
development activities as detailed below. See Item 5D "Operating and Financial
Review and Prospects - Research and Development Grants." These activities
include certain new projects in the diagnostic field. Savyon's gross research
and development expenditures were approximately $671, $645 and $626 thousand for
the years 2006, 2005 and 2004, respectivly and represents Savyon's effort in
developing new products.

PATENTS

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

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

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


                                     - 29 -`

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

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

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

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

     MARKETING AND SALES - GAMIDOR GROUP, DANYEL AND SAVYON

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

     MARKETING AND SALES IN ISRAEL

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

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

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

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

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

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


                                     - 30 -`

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

     BIOTECHNOLOGY RESEARCHERS - DANYEL - www.danyel.co.il

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

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

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

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

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

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

     MARKETING AND SALES WORLDWIDE - SAVYON

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

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

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


                                     - 31 -`

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

     MAJOR SUPPLIERS

     During 2006 and 2005, purchases from one of Danyel's suppliers, Amersham
Biosciences ("Amersham"), which was acquired by General Electric during October
of 2003, accounted for 25% and 26% respectively of the Company's annual cost of
sales. In addition, during 2006 and 2005, purchases from one of the Gamidor
Group's suppliers, Dade Behring, accounted for 25% and 15% respectively of the
Company's annual cost of sales. A significant decrease in the level of the
Company's sales to these customers could adversely affect the Company's business
and financial results.

     MAJOR CUSTOMERS

     Sales to three HMO's in Israel, namely Maccabi, Clalit and Meuhedet
accounted respectively for 12%, 16% and 3% of the Company's annual sales during
2006, and 12%, 16% and 3% of such sales in 2005.

COMPETITION

SAVYON

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

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

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

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

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


                                     - 32 -`

`DANYEL

     Danyel Biotech's principal competitors in the distribution of reagents and
systems to the biotechnology market in Israel include: Biorad Israel, Eldan
(Agilent), Medtechnica (Waters) in the field of chromatography; Pharmatec
(Tecan) and Saifan (Pe Life Science) in the field of advanced laboratory
instrumentation (fluorometers, counters); DeGroot (Greiner), Geter (Corning) in
the field of bio-plastics; and Saifan (PE Life Sciences -NEN-), Biological
Industries (Promega), Dinco Renihum (Invitrogen) and Sigma Israel in the field
of molecular biology and Biology Reagents. Although the Company is not aware of
any published industry market share statistics, it estimates, based upon its
knowledge of the industry, that in fiscal year 2006 Danyel accounted for a
significant portion of the Israeli distribution market for chromatography
products, bio-plastics and advanced laboratory instrumentation and a lesser
portion of the Israeli market for Danyel's other products.

GAMIDOR GROUP

     The Gamidor Group's principal competitors in the distribution of reagents
and systems to clinical laboratories in Israel include: Ilex (Abbott) and Dover
(J&J) for hematology products; Dyn Diagnostics (Roche) and Pharmtop (Sorin) for
immunology products; Ilex (Vitek) and Sorin for microbiology products; Teva
Medical (Nequas) for quality control products; Dyn Diagnostics (Roche) and
Medtechnica (Olympus) for clinical chemistry products. Although the Company is
not aware of any published industry market share statistics, it estimates, based
upon its knowledge of the industry, that in fiscal year 2006 the Gamidor Group
accounted for a significant portion of the Israeli pathologygenetics, hemostasis
products market and a lesser portion of the Israeli market for the Group's other
products.

MARKET OPPORTUNITIES

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

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

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

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

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


                                     - 33 -`

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

GOVERNMENT REGULATIONS

     Government Regulations

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

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

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

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

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

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


                                     - 34 -`

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

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

     ISO COMPLIANCE

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

     C.   ORGANIZATIONAL STRUCTURE

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


                                     - 35 -`

`D.   PROPERTY, PLANT AND EQUIPMENT

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

     The Company's offices are located in Petach Tikva and are leased from
Gamida for Life (Israel) Ltd. ("Gamida Israel"), a company controlled by Gamida.
During 2006 the Company leased 136 square meters with parking for an annual
rental fee of approximately $28,000, linked to the Israeli consumer price index,
which includes rent and parking charges.

     The Gamidor Group's principal offices are located at the same location in
Petach Tikva and are leased from Gamida Israel. The Gamidor Group leases
approximately 325 square meters of space plus parking space for an annual rental
fee of approximately $75,000, linked to the Israeli consumer price index. Such
lease currently extends until September 2007. In addition, the Gamidor Group has
extended and increased its lease of a warehouse in Petach Tikva to approximately
450 square meters for an annual rental fee of approximately $37,000. The
extension is until September 2007.Danyel's principal offices, including its
administrative and technical service laboratory facilities, are located in the
Kiryat Weizman Science Park, Rehovot. Danyel leases approximately 240 square
meters at an annual rental fee of approximately $29,000 (linked to the Israeli
consumer price index). The agreement has been extended until May 30 2008. In
addition, Danyel leases a warehouse of approximately 270 square meters for an
annual rental fee of approximately $19,000 for a period of five years, ending
June 30, 2008.

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

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

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

     The Company maintains its accounts and present its financial statements in
U.S. Dollars, the currency of the economic environment in which the Company
operates. 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 year. The resulting aggregate translation
adjustments are reported as a component of shareholders' equity accumulated
other comprehensive income or loss.

     The sales of the Company represent the sales of Gamidor Diagnostics Ltd.
and Danyel Biotech Ltd. Operational costs include the expenses of Gamidor,
Daniel, Headquarters and public company related costs. The Company's
consolidated figures for the year ended December 31, 2006, 2005 and 2004 include
Savyon's results on an equity method basis.

     A.   RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2006 COMPARED TO THE YEAR ENDED DECEMBER 31, 2005

     Revenues for 2006 were $13.6 million compared to $12.0 million in 2005.
This represents an increase in sales in the genetics and chemistry markets to
laboratories and point of care sites in Israel. Revenues for these two years do
not include Savyon's sales, which are presented on an equity basis. Gross profit
was $4.8 million as compared to $4.4 million for 2005.

     Selling and Marketing expenses were $2.9 million in 2006 compared to $2.5
million in 2005. The increase in selling and marketing expenses in 2006 resulted
mostly from commissions paid to sales personnel due to an increase in sales, and
the costs of recruiting additional personnel for the pupose of selling the
company's new products. General and Administrative expenses were $1.7 million
both in in 2006 and 2005.


                                     - 36 -`

`Operating income for the year 2006 amounted to $156 thousand compared to
operating income of $110 thousand in 2005. An equity earning in affiliates
amounted to $36 thousands in 2006 as compared to $ 167 thousand in 2005 and
represents the Company's share in Savyon's net income.

     Net profit for fiscal year 2006 was $210 thousand or $0.03 per share, as
compared to a net profit of $276 thousand, or $0.04 per share for fiscal year
2005.

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

     Revenues for 2005 were $12.0 million compared to $12.1 million in 2004.
This represents stability in sales to laboratories and point of care sites in
Israel. Revenues for these two years do not include Savyon's sales, which are
presented on an equity basis according to US GAAP. Gross profit was $4.4 million
as compared to $4.2 million for 2004.

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

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

     Operating income for the year 2005 amounted to $110 thousand compared to an
operating loss of $(555) thousand in 2004. The improvement is due to the
following reasons:

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

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

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

     An equity earnings in affiliates amounted to $167 thousand in 2005 as
compared to $53 thousand in 2004 and represent the Company's share in Savyon's
net income.

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

     CRITICAL ACCOUNTING POLICIES

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

     ALLOWANCE FOR DOUBTFUL ACCOUNTS

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


                                     - 37 -`

`EXCESS AND OBSOLETE INVENTORY

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

     GOODWILL AND OTHER INTANGIBLE ASSETS

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

     We perform an annual impairment test for each fiscal year, or more
frequently if impairment indicators are present. We operate in one operating
segment, and this segment comprises our only reporting unit. Goodwill is tested
for impairment by comparing the fair value of the reporting unit with its
carrying value. Fair value is determined using market multiples and comparative
analysis. Significant estimates used in the methodologies include estimates of
market multiples for the reportable unit. If these estimates or their related
assumptions change in the future, we may be required to record impairment
charges for our goodwill and intangible assets with an indefinite life.

     In addition, we test for impairment periodically whenever events or
circumstances occur subsequent to our annual impairment tests that indicate that
the asset may be impaired. Indicators we consider important which could trigger
an impairment include, but are not limited to, significant underperformance
relative to historical or projected future operating results, significant
changes in the manner of use of the acquired assets or the strategy for our
overall business, significant negative industry or economic trends, or a
significant decline in our stock price for a sustained period. As of December
31, 2006 no impairment charges were required.

     REVENUE RECOGNITION:

     Revenues from product sales (equipment and reagents) are recognized in
accordance with Staff Accounting Bulletin No. 104 "Revenue Recognition in
Financial Statements" ("SAB No. 104") when all following criteria are met:
persuasive evidence of an arrangement exists, delivery has occurred and
collectibility is reasonably. All revenues are recognized once substantially all
risks and rewards associated with ownership have passed, i.e. upon delivery.

     Savyon sells its products mainly through distributors, which considered end
users without rights of return or any rights for price protection, exchange or
stock rotation. Savyon provides warranty to the distributor only in cases the
products were damaged in the shipment. According to the agreements with the
distributors, the sale is definite. Therefore, revenue from distributors have
been recognized on a "sell-in" basis (i.e., when the inventory is sold or
delivered to the distributor).

     RECENTLY ISSUED ACCOUNTING STANDARDS

In July 2006, the FASB issued FASB Interpretation 48, "Accounting for Income Tax
Uncertainties" ("FIN 48"). FIN 48 defines the threshold for recognizing the
benefits of tax return positions in the financial statements as
"more-likely-than-not" to be sustained by the taxing authority. The recently
issued literature also provides guidance on derecognition, measurement and
classification of income tax uncertainties, along with any related interest and
penalties. FIN 48 also includes guidance concerning accounting for income tax
uncertainties in interim periods and increases the level of disclosures
associated with any recorded income tax uncertainties.

FIN 48 is effective for fiscal years beginning after December 15, 2006. The
differences between the amounts recognized in the statements of financial
position prior to the adoption of FIN 48 and the amounts reported after adoption
will be accounted for as a cumulative-effect adjustment recorded to the
beginning balance of retained earnings.. The company estimates that the adoption
of FIN 48 will not have any significant impact on its consolidated financial
statements.


                                     - 38 -`

`In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" ("SFAS No. 157"). SFAS 157 defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles (GAAP) and expands disclosures about fair value
measurements. SFAS 157 is effective for fiscal years beginning after November
15, 2007 and interim periods within those fiscal years. The Company is currently
evaluating the effect that the adoption of SFAS 157 will have on its financial
position and results of operations.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS No. 159"). SFAS No. 159
permits companies to choose to measure certain financial instruments and certain
other items at fair value. The standard requires that unrealized gains and
losses on items for which the fair value option has been elected be reported in
earnings. SFAS No. 159 is effective for the company beginning in the first
quarter of fiscal year 2008, although earlier adoption is permitted. The company
is currently evaluating the impact that SFAS No. 159 will have on its
consolidated financial statements

     B.   IMPACT OF INFLATION AND DEVALUATION

PRODUCT DEVELOPMENT AND MARKETING OPERATIONS

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

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

THIRD PARTY PRODUCT DISTRIBUTION ACTIVITIES

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

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


                                     - 39 -`

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

     C.   LIQUIDITY AND CAPITAL RESOURCES

     On December 31, 2006, the Company had working capital of approximately $2.5
million and shareholders' equity of approximately $7.2 million. During the year
ended December 31, 2006, cash flow used in operating activities was
approximately $0.1 million. The Company used approximately $1.0 million of net
cash flow for investing activities, mainly for purchasing diagnostic equipment
for long term transactions with hospitals and HMO's in Israel. The company
financed such investing activities with long term bank loans.

     At December 31, 2006 we had cash and cash equivalents of approximatly $ 0.4
million as compare to short-term bank credit of approximately $1.4 million
(including current maturities of long term bank loans) and long-term loans of
$0.6 million. The Company believes that revenues from operations, bank credits
and its available cash resources will provide sufficient funds to meet
anticipated cash requirements for the Company's planned operations over the next
twelve months.

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

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

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

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

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

                                                                             Year ended December 31,
                                                                          -----------------------------
                                                                          2006        2005         2004
                                                                          -----       -----       -----
                                                                          (in thousands of U.S. Dollars)

Gross research and development expenses other than Savyon                 $   -       $   -       $  95
Gross research and development expenses by Savyon                           737         645         626
Portion funded by the European Union's 5th Framework  Program (FP5)
   ("The CHEMAG Project" and "The NACBO project"- detailed below)           200          75         (46)
                                                                          -----       -----       -----
Net research and development expenses by Savyon                             537         570         580
                                                                          =====       =====       =====
Net research and development expenses                                     $ 537       $ 570         675
                                                                          =====       =====       =====

                                     - 40 -`

`RESEARCH AND DEVELOPMENT GRANTS

     OFFICE OF CHIEF SCIENTIST ("OCS")

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

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

     To date, the Company, excluding Savyon, has received approximately $0.66
million in grants for one project for the development of genetic diagnostic
kits. The Company's contingent obligations based upon the OCS project are
approximately $0.48 million (excluding accrued interest) . As at December 31,
2006 the Company had paid the OCS approximately $0.18 million in royalties at a
royalty rate of 3.5%.

     CHEMAG CONSORTIUM

     Savyon is a member of a consortium ("CHEMAG Consortium") engaged in a
research and development project, commenced in September 2001, into "novel
paramagnetic materials, surface activation and nucleic acid modification
chemistries for application in biology, chemistry, health/medicine/diagnostics
and the environment" ("CHEMAG Project"). The CHEMAG Consortium is funded by the
European Union's 5th Framework Program (FP5) with a total budget of (euro)4.9
million. expendable over a three-year period. Savyon's budget for this program
over the three-year period of the CHEMAG Project is (euro)930,249, of which it
is entitled to claim a contribution of one half from the EU through FP5, i.e. a
total contribution not exceeding (euro)465,125. As of December 31, 2004 the
Company had received (euro)418,000 and expects to have received approximately
(euro)47,125 by the end of 2007.

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

     NACBO PROJECT

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


                                     - 41 -`

`E.   TREND INFORMATION

     The form 6-k filled on May 30, 2007, which were neither audited nor
reviewed for the first quarter of 2007, Demonstrate an increase in the Company's
revenues vs. a decrease in net profit. Revenues for the first quarter ended
March 31, 2007 were $4.08 million, as compared to $3.59 million for the
corresponding quarter last year. The increase is mainly due to more business
transactions we made in the genetic, chemistry and microbiology markets. The
first quarter gross profit was $1.35 million, as compared to $1.39 million in
the first quarter of 2006. Net income for the quarter was $113 thousand, as
compared to net income of $352 thousand for the first quarter of the year 2006.
The decrease in net income is a result of the recruitment of additional sales
personnel engaged for the pupose of selling the Company's future products.

     SALES

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


GEOGRAPHIC
   MARKET     PRODUCT CATEGORY                                2006                     2005                    2004
------------- ---------------------------------------- -------------------     ---------------------     ------------------
                                                                          In thousand of U.S Dollars
                                                       --------------------------------------------------------------------

Israel        Reagents and systems for the molecular
              biology industry                                 5,139                  4,774                   5,162


              Reagents and systems for clinical
              laboratories                                     8,517                  7,279                   6,968
------------- ---------------------------------------- -------------------     ---------------------     ------------------
TOTAL                                                         13,656                 12,053                  12,130
------------- ---------------------------------------- ------------------- --- --------------------- --- ------------------

     F.   OFF-BALANCE SHEET ARRANGEMENTS

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


                                     - 42 -`

`G.   TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

     The following table summarizes our minimum contractual obligations and
commercial commitments, including obligations of discontinued operations, as of
December 31, 2006 and the effect we expect them to have on our liquidity and
cash flow in future periods:

                                              PAYMENTS DUE BY PERIOD
                                               IN THOUSANDS OF USD

                                               less than     2 - 3      more than
Contractual Obligations              Total       1 year      years      3 years
                                     -----       -----       -----       -----

Long-Term Debt Obligations           1,115         939         176           -

Operating Lease Obligations            287         225          62           -

Accrued severance pay, net (2)          74           -           -          74

Purchase Obligations (1)                 -           -           -           -
                                     -----       -----       -----       -----

Total                                1,476       1,164         238          74
                                     =====       =====       =====       =====

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

(2) Severance pay relates to accrued severance obligations to our Israeli
employees as required under Israeli labor law. These obligations are payable
only upon termination, retirement or death of the respective employee and there
is no obligation if the employee voluntarily resigns.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

     A.   DIRECTORS AND SENIOR MANAGEMENT

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

Name                  Age        Position with the Company
----                  ---        -------------------------

Daniel Kropf          59         Chairman of the Board of Directors and Director (Class D)
Moshe Reuveni         51         Chief Executive Officer and Director (Class A)
Eran Rotem            39         Chief Financial Officer
Yacob Ofer            58         Director (Class D)
Rolando Eisen         65         Director (Class C)
Samuel Penchas        67         Director (Class B)
Israel Amir           65         Director (Class B)
Ethan Rubinstein      65         Director (Class A)
Varda Rotter          60         External Director
Elan Penn             56         External Director
Luly Gurevitch        46         Director (Class C)


                                     - 43 -`

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

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

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

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

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

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

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

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

                                     - 44 -`

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

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

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

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

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

SENIOR MANAGEMENT AND EMPLOYEES

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

CONSULTANTS AND SERVICE SUPPLIERS

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

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


                                     - 45 -`

`B.   COMPENSATION

     The aggregate direct compensation paid or accrued on behalf of all
directors and executive officers of the Company as a group during the 2006
fiscal year and in respect of such year was approximately $870,000, which
includes expenses and amounts set aside or accrued to provide pension,
retirement or similar benefits (which amounts constitute the Company's entire
obligation towards said directors and executive officers in respect of severance
pay), as well as annual consultancy fees paid to certain directors and amounts
expended by the Company for automobiles made available to its officers (but
excluding insurance premiums paid in respect of Directors & Officers' Liability
Insurance). See Item 7. "Major Shareholders and Related Party Transactions - B.
Related Party Transactions."

     The Company may be deemed to be a "controlled company" under the applicable
Nasdaq regulations because the Company's principal stockholder owns
approximately 62% of the Company's issued and outstanding shares. As such, the
Company is exempt from the requirements of Nasdaq Rule 4350(c)(3) with respect
to the compensation of its Chief Executive Officer.

COMPENSATION OF INDIVIDUAL DIRECTORS

Included in the aggregate directors' and officers' compensation figure for 2006
set forth above were amounts paid pursuant to the following individual
compensation arrangements:

     Mr. Daniel Kropf: In 2006, the Company reimbursed Gamida Israel for the
services of Mr. Kropf as its active chairman at the rate of $10,000 per month.

     Mr. Israel Amir: Mr. Amir, who serves as a director of the Company,
received approximately $5,000 per month in consulting fees in 2006.

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

STOCK OPTIONS

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

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


                                     - 46 -`

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

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

     On November 5, 2006 the Board of Directors issued to Eran Rotem options to
purchase 62,000 Ordinary Shares of the Company, Such options are exercisable in
accordance with the provisions of the 2000 Plan, each into one Ordinary Share of
the Company, NIS 0.04 nominal value, at an exercise price of $0.85, subject to a
vesting schedule of five years, 20% on each of November 5, 2007, November 5,
2008, November 5, 2009, November 5, 2010, and November 5, 2011.

     On November 20, 2006 the Board of Directors issued to 6 employees Options
to purchase an aggregate of 27,000 Ordinary Shares of the Company. Such options
are exercisable in accordance with the provisions of the 2000 Plan, each into 1
Ordinary share of the Company, NIS 0.04 nominal value, at an exercise price of
$0.96, subject to a vesting schedule of three years, a 1/3 on each of November
20, 2007, November 20, 2008, November 20, 2008.

     As of December 31, 2006 options to purchase 1000 ordinary shares remain
available for issuance under the plan.

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

     C.   BOARD PRACTICES

TERMS OF OFFICE

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

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


                                     - 47 -`

`The Israeli Companies Law-1999 and requires the board of directors of a
public company to determine the number of directors who shall possess accounting
and financial expertise On March 29, 2006 the board of directors determined the
minimum number to be two directors. In addition, the law was amended to require
that, at least one external director have financial and accounting expertise and
the other external directors are to possess professional qualifications, as
promulgated by regulations to the Companies Law. These regulations provide that
financial and accounting expertise require such director to possess a high level
of understanding in business matters, such that he or she can read and
understand financial statements in depth and be able to raise issues with
respect to the manner in which the financial data is presented therein. The
Company's board of directors is to determine such candidate's qualifications
based on his or her education, experience and skills regarding financial and
control matters in companies of similar size and in a similar industry and
knowledge of preparation and approval of financial statements under the
Companies Law and Israeli securities laws. The Company may be deemed to be a
"controlled company" under the applicable Nasdaq regulations because the
Company's principal stockholder owns approximately 62% of the Company's issued
and outstanding shares. As such, the Company is exempt from the requirements of
Nasdaq Rule 4350(c) with respect to the nomination of directors.

ALTERNATE DIRECTORS

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

EXTERNAL DIRECTORS

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

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

     The initial term of an external director is three years and may be extended
for additional periods of up to three years each, pursuant to a recent amendment
to the Companies Law, provided that the audit committee and the board of
directors confirm that, in light of the outside director's expertise and special
contribution to the work of the board of directors and its committees, the
reelection for such additional period(s) is beneficial to the company External
directors may be removed only by the same percentage of shareholders as is
required for their election, or by a court, and then only if the external
directors cease to meet the statutory qualifications for their appointment or if
they violate their duty of loyalty to the Company. Under the Companies Law, any
committee of the Board of Directors must include at least one external director,
and the Audit Committee must include all if the external Directors.


                                     - 48 -`

`The Companies Law details certain standards for the independence of
External Directors. These directors must be unaffiliated with the company on
whose board they serve and such company's principals. They are entitled to
obtain all information relating to such company's management and assets and to
receive assistance, in special cases, from outside experts at the expense of the
company. The Companies Law imposes an obligation on these directors to convene a
meeting of a company's board of directors upon becoming aware of matters that
suggest infringements of law, neglect of good business practice or improper
conduct.

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

     In October 2001, the Company's shareholders appointed Prof. Varda Rotter as
an External Director, and on December 20, 2004 the shareholders re-appointed her
in the same capacity. In December 2003, the Company's shareholders appointed Mr.
Elan Penn as an External Director and on December 20, 2006 the shareholders
re-appointed him in the same capacity. Both Prof. Rotter and Mr. Penn have been
serving as External Directors from the date of their respective appointments to
date.

DIRECTORS' COMPENSATION

     The Company's executive directors (i.e. directors who receive remuneration
from the Company either as employees or consultants) are not entitled to receive
any separate compensation in consideration for their services as directors of
the Company. The Company's non-executive directors receive annual fees which
amounted to approximately $6,000 per person in 2006 on account of all services
as directors, including participation in board and audit committee proceedings.
The members of the board do not receive any additional remuneration upon
termination of their services as directors. The Company's non-executive
directors for the year of 2006 were Professors. Varda Rotter, Ethan Rubinstein
and Samuel Penchas , Mr. Rolando Eisen, and Dr. Elan Penn.

AUDIT COMMITTEE

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

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

INTERNAL AUDITOR

     Under the Companies Law, Israeli companies whose securities are publicly
traded are also required to appoint an Internal Auditor in accordance with the
proposal of the audit committee. The role of the Internal Auditor is to examine,
inter alia, whether the Company's actions comply with the law, integrity and
orderly business procedure. In November 2000, Mr. Yossi Ginosar was appointed as
the Company's Internal Auditor. In March 2007, Mr. Yossi Ginosar was
re-appointed as such.


                                     - 49 -`

`D.   EMPLOYEES

     As of December 31, 2006, the Company (directly and through its
subsidiaries) employed at its facilities 114 persons, of whom 28 were employed
in production, 8 in research and development and 78 in marketing, administration
and management.

                                                         YEAR ENDED DECEMBER 31,
                                                        ------------------------
                                                        2006     2005       2004
                                                        ----     ----       ----

Number of Employees employed by the Company in *:

Management, sales and marketing                          78        81        91

Research and development                                  8         7         8

Production                                               28        27        26
                                                        ---       ---       ---

Total                                                   114       115       125
                                                        ===       ===       ===

     * Including Savyon's employees which were 54 and 55 and 56 in fiscal 2006
,2005 and 2004 respectively.

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

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

     A general practice in Israel, which is followed by the Company, although
not legally required, is the contribution of funds on behalf of its senior
employees to a "Manager's Insurance" fund. This fund provides a combination of
savings plan, insurance and severance pay benefits to the employee, giving the
employee a lump sum payment upon retirement and securing his right to receive
severance pay, if legally entitled, upon termination of employment. The employee
contributes an amount equal to 5% of his wages and the employer contributes an
additional 13.3% to 15.8%. Notwithstanding the aforesaid, the Company is
obligated to contribute funds on behalf of nearly all of its employees to a
pension fund if such employees' wages are not insured under a Manager's
Insurance fund pursuant to recent Israeli labor law legislation enacted in April
2006. The Company is currently taking measures to ensure that it is in full
compliance with this recent amendment. In addition, Israeli law generally
requires severance pay upon the retirement or death of an employee or
termination of employment without due cause. Furthermore, Israeli employees and
employers are required to pay predetermined sums to the National Insurance
Institute, which is similar to the United States Social Security Administration.

     E.   SHARE OWNERSHIP

     As of December 31, 2006, none of the executive officers and directors of
the Company owned individually an amount of ordinary shares equal to or greater
than 1% of the outstanding ordinary shares, other than Mr. Kropf (indirectly, as
controlling shareholder of the parent company of Gamida). See Item 7 "Major
Shareholders and Related Party Transactions - A. Major Shareholders". The
following table sets forth, as of June 28, 2007, the number of options to
acquire ordinary shares owned by each of the directors and officers of the
Company, the exercise prices and termination dates of such options:


                                     - 50 -`

`NAME             NO. OPTIONS     EXERCISE PRICE                      TERMINATION DATE
       ----             -----------     --------------                      ----------------

Eran Rotem               55,000 (1)         $0.38       180 days from the date of termination of Mr. Rotem's
                                                        employment agreement
                         62,000 (2)         $0.85

Moshe Reuveni            50,000 (3)         $0.35       180 days from the date of termination of Mr. Reuveni's
                                                        employment agreement

Yacob Ofer               62,500 (4)         $0.86       180 days from the date of termination of Mr. Ofer's
                                                        employment agreement

Luly Gurevitch           30,000 (5)         $0.72       60 days from the date of termination of Mr. Gurevitch's
                                                        service agreement

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

2.   five year vesting schedule: 1/5 on each of November 5, 2007, 2008, 2009,
     2010, and 2011.

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

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

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

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

     A.   MAJOR SHAREHOLDERS

     The following table sets forth, the number of ordinary shares owned by all
shareholders known to the Company to own beneficially more than 5% of the
Company's ordinary shares, as of June 28, 2007.

                                    NUMBER OF ORDINARY    PERCENTAGE OF ALL ORDINARY SHARES
NAME AND ADDRESS                     SHARES NIS 0.04       NIS 0.04 OWNED OUTSTANDING (1)
----------------                     ---------------       ------------------------------

Gamida for Life B.V. (2)(3)
Drentestraat 24BG
1083 HK Amsterdam
The Netherlands                           4,819,761                      62%

1.   Based on 7,792,832 ordinary shares NIS 0.04 outstanding on, June 28, 2007.
     Also see (2) below.

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


                                     - 51 -`

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

     As of June 28, 2007 there were 7,792,832 ordinary shares outstanding,
approximately 80 stockholders of record and more than 300 beneficial owners of
its ordinary shares

     B.   RELATED PARTY AND INTER-COMPANY TRANSACTIONS

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

SERVICES ARRANGEMENTS

     GAMIDA GROUP

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

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

     Until March, 2002, Gamida Israel provided the Company with financial
management, accounting and book-keeping services for an aggregate annual fee of
$316,000, which had been approved by the Company's board of directors, audit
committee and shareholders meeting. In March 2002, the Company's board of
directors, audit committee and shareholders approved a revision of the foregoing
arrangements, as a result of which the Company with effect from January 2002 is
to provide the Gamida Group as well as itself with the services previously
rendered by Gamida Israel and Gamida Group is to reimburse the Company for its
proportionate share of the expenses of providing such services. Accordingly, the
Company received payment amounting to an annual sum of approximately $262,000
(not including subsidiaries) for the year 2006 from the Gamida Group for such
services.

     Mr. Gareth Keene, who is a director of Gamida, provides legal advice to the
Company and its subsidiaries through Gamida Israel. During 2006, Mr. Keene
provided such legal services at a cost amounting to approximately $30,000.

     PROFESSOR ETHAN RUBINSTEIN

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


                                     - 52 -`

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

     ISRAEL AMIR

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

SUB-LEASE ARRANGEMENTS

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

ACQUISITION OF GAMIDAGEN LTD

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

SALE OF PROCOGNIA

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

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


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

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

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


                                     - 53 -`

`ASSIGNMENT OF INTER COMPANY DEBTS:

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

     C.   INTERESTS OF EXPERTS AND COUNSEL

     Not Applicable.

ITEM 8. FINANCIAL INFORMATION

     A.   CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

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

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

LEGAL PROCEEDINGS

     The Company is not currently involved in any material legal proceedings and
there are no material legal proceedings pending against it, with the exception
of a legal claim that was filed in February 2003 against the Company and Pronto,
in an amount of approximately $179,000, by a former employee concerning
termination of employment. On May 3, 2007, the court rejected the claimant's
claim and ruled in favor of the Company and Pronto.

DIVIDEND POLICY

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

     B.   SIGNIFICANT CHANGES

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

ITEM 9. THE OFFER AND LISTING

A.   OFFER AND LISTING DETAILS

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


                                     - 54 -`

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

FISCAL YEAR                                  HIGH       LOW

2002                                         0.68        0.2
2003                                          1.9       0.25
2004                                         1.52        0.6
2005                                         1.45       0.37
2006                                          4.3       0.39

2005                                         HIGH       LOW

First Quarter                                1.09       0.58
Second Quarter                               0.95        0.6
Third Quarter                                0.87       0.65
Fourth Quarter                               0.75        0.6

2006                                         HIGH       LOW

First Quarter                                1.31       0.39
Second Quarter                               1.06       0.51
Third Quarter                                0.99       0.63
Fourth Quarter                                4.3       0.85

MOST RECENT SIX MONTH                        HIGH       LOW

December, 2006                               2.29       1.37
January, 2007                                1.12       1.98
February, 2007                               1.69       1.29
March, 2007                                  1.25       1.55
April, 2007                                  2.03       1.24
May 2007                                     1.29       0.92


                                     - 55 -`

`ITEM 10. ADDITIONAL INFORMATION

     A.   SHARE CAPITAL

     Not Applicable

     B.   MEMORANDUM AND ARTICLES OF ASSOCIATION

     PURPOSES

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

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

     TRANSACTIONS REQUIRING SPECIAL APPROVAL

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

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

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

          -    all other important information pertaining to the previous
               actions.

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

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

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

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

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

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


                                     - 56 -`

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

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

          -    not in the ordinary course of business;

          -    not on market terms; or

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

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

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

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

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

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

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

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

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

                                     - 57 -`

`EXCULPATION, INSURANCE AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

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

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

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

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

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

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

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

     DESCRIPTION OF SHARE CAPITAL

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

     As of December 31, 2006, further to a Shareholders resolution to increase
the authorized share capital and amend the Articles of Association accordingly,
the Company's authorized share capital consisted of 150,000,000,ordinary shares,
NIS 0.04 nominal value. As of December 31, 2006, there were 7,792,832 issued and
outstanding ordinary shares and no preferred shares issued and outstanding.

     DESCRIPTION OF ORDINARY SHARES. All issued and outstanding ordinary shares
of the Company are duly authorized and validly issued, fully paid and
non-assessable. The ordinary shares do not have preemptive rights. Neither the
Company's Memorandum and Articles of Association nor the laws of the State of
Israel restrict in any way the ownership or voting of ordinary shares by
non-residents of Israel, except with respect to subjects of countries which are
in a state of war with Israel.

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


                                     - 58 -`

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

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

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

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

     o    any amendment to the Articles of Association;

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

     o    a merger; or

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

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

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


                                     - 59 -`

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

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

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

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

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

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

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

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

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


                                     - 60 -`

`C.   MATERIAL CONTRACTS

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

     SAVYON

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

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

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

     The CHEMAG Consortium is funded by the EU's 5th Framework Program (FP5)
with a total budget of (euro)4.9 million expendable over a three-year period.
The CHEMAG Project commenced in September 2001. Savyon's budget for this program
over the three-year period of the Project is (euro)930,249, of which it is
entitled to claim a contribution of one half from the EU through FP5, i.e. a
total contribution not exceeding (euro)465,125. As of December 31, 2006 the
Company had received (euro)418,000 and expects to receive approximately
(euro)47,125 by the end of 2007.

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

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


                                     - 61 -`

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

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

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

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

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

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

     PROCOGNIA

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

     DANYEL

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


                                     - 62 -`

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

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

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

     HEALTHCARE

     NEXGEN TRANSACTION

On November 29, 2006, Healthcare signed a Letter of Intent with NexGen Biofuels,
Inc. ("Nexgen"), and Gamida. that provided for (i) the transfer to Healthcare of
NexGen's assets relating to the ethanol and bio-diesel manufacturing facilities
on land under option in the United States in consideration for a controlling
stake in Healthcare and (ii) the purchase of Healthcare's holdings in its
subsidiaries by Gamida in consideration for all of Gamida's shares in
Healthcare. The Letter of Intent further contemplated that the number of shares
to be issued in consideration for NexGen's assets shall be based on the
valuation of the assets to be provided by a recognized valuation firm.

On January 16, 2007, Healthcare signed a definitive agreement with NexGen and
Gamida., for the purchase of NexGen's assets and the sale of its current
business.

Under the terms of the agreement, NexGen will transfer its assets to a newly
formed wholly-owned US subsidiary of Healthcare for shares in Healthcare at a
price per share of $1.50. The number of shares to be issued for such assets will
be based on a valuation of the assets to be provided by a recognized valuation
firm. On May 4, 2007, Healthcare received a valuation report concerning NexGen's
assets from American Appraisal Associates that valued such assets at
approximately $ 58 million.

The contemplated transaction also includes the purchase by Gamida of
Healthcare's holdings in its subsidiaries and related assets in consideration
for 4.7 million of Gamida's shares in Healthcare.

Until 180 days following the Closing, NexGen will have the option to transfer an
existing ethanol or biodiesel plant in exchange for up to 80 million additional
Healthcare shares at a price per share of $1.50.

     Closing of the transaction is subject to the completion of due diligence,
the receipt of the necessary corporate, regulatory and third party approvals,
including Healthcare's shareholders and the approval of an Israeli District
Court and other closing conditions. No assurance can be given that the
transactions contemplated by the agreement announced today will close

     D.   EXCHANGE CONTROLS

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


                                     - 63 -`

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

     E.   TAXATION

ISRAELI TAX CONSIDERATIONS

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

STATUTORY CORPORATE TAX RATE

     Israeli companies are generally subject to corporate tax on their taxable
income at a rate of 31% ( in the 2006 tax year), 29% (in the 2007 tax year) 27%
(in the 2008 tax year), 26% (in the 2009 tax year) and 25% (in and after the
2010 tax year).

SPECIAL PROVISIONS RELATING TO MEASUREMENT OF TAXABLE INCOME

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

CAPITAL GAINS TAX APPLICABLE TO SHAREHOLDERS

     On January 1, 2006 an amendment to the Israeli tax regime became effective
(the "2006 Tax Reform"). The 2006 Tax Reform significantly changed the tax rates
applicable to income derived from shares.

     According to the 2006 Tax Reform, an individual is subject to a 20% tax
rate on real capital gains derived from the sale of shares, as long as the
individual is not a "substantial shareholder" (generally a shareholder with 10%
or more of the right to profits, right to nominate a director and voting rights)
of the company issuing the shares. These provisions will not apply to
individuals who are dealers in seurities. There will generally be no capital
gains tax on the inflationary surplus. The rate on the gains from publicly
traded shares applicable to gains that were realized before January 1, 2006 was
15%.

     A substantial shareholder will be subject to tax at a rate of 25% in
respect of real capital gains derived from the sale of shares issued by the
company in which he or she is a substantial shareholder. The determination of
whether the individual is a substantial shareholder will be made on the date
that the securities are sold. In addition, the individual will be deemed to be a
substantial shareholder if at any time during the 12 months preceding this date
he had been a substantial shareholder.

     The 20% tax rate will apply to capital gains deemed to have been derived
after January 1, 2003. For gains before 2003, Regulations promulgated under the
Israeli Income Tax Ordinance provided for an exemption from Israeli capital
gains tax derived from the sale of shares of an "industrial company," as defined
by the Law for the Encouragement of Industry (Taxation), 1969, provided that the
shares were traded on specified non-Israeli markets, including The Nasdaq
SmallCap Market. Shareholders are advised to consult their tax advisors
regarding the availability of the exemption.


                                     - 64 -`

`Non-Israeli residents are exempt from Israeli capital gains tax on any
gains derived from the sale of shares in an Israeli corporation publicly traded
on a foreign stock exchange, provided such gains do not derive from a permanent
establishment of such shareholders in Israel and that such shareholders did not
acquire their shares prior to the issuer's initial public offering. However,
non-Israeli corporations will not be entitled to such exemption if an Israeli
resident (i) has a controlling interest of 25% or more in such non-Israeli
corporation, or (ii) is the beneficiary of or is entitled to 25% or more of the
revenues or profits of such non-Israeli corporation, whether directly or
indirectly.

     In some instances where our shareholders may be liable to Israeli tax on
the sale of their ordinary shares, the payment of the consideration may be
subject to the withholding of Israeli tax at the source.

     Pursuant to the treaty between the Governments of the United States and
Israel with respect to taxes on income, or the U.S.-Israel tax treaty, the sale,
exchange or disposition of our ordinary shares by a person who qualifies as a
resident of the United States under the treaty and who is entitled to claim the
benefits afforded to him by the treaty, will generally not be subject to Israeli
capital gains tax. This exemption shall not apply to a person who held, directly
or indirectly, shares representing 10% or more of the voting power in our
company during any part of the 12-month period preceding the sale, exchange or
disposition, subject to certain conditions. A sale, exchange or disposition of
our shares by a U.S. resident qualified under the treaty, who held, directly or
indirectly, shares representing 10% or more of the voting power in our company
at any time during the preceding 12-month period would be subject to Israeli
tax, to the extent applicable; however, under the treaty, this U.S. resident
would be permitted to claim a credit for these taxes against the U.S. income tax
with respect to the sale, exchange or disposition, subject to the limitations in
U.S. laws applicable to foreign tax credits.

TAXATION OF NON-RESIDENT SHAREHOLDERS ON ORDINARY INCOME

     Non-residents of Israel are subject to Israeli income tax on ordinary
income accrued or derived from sources in Israel, including passive income such
as dividends, royalties and interest. On distributions of dividends, other than
bonus shares and stock dividends, income tax at the rate of 20% is withheld at
the source, unless a different rate is provided in a treaty between Israel and
the shareholder's country of residence. If the dividends are distributed out of
approved enterprise earnings, the applicable tax rate would be 15%. Under the
United States-Israel Tax Treaty, the maximum tax on dividends paid to a holder
of ordinary shares who is a Treaty United States Resident will be 25%, however,
the tax rate is reduced to 12.5% for dividends not generated by an approved
enterprise to a corporation which holds 10% or more of the company's voting
power during a certain period preceding the distribution of the dividend.
Dividends derived from an approved enterprise will still be subject to 15% tax
withholding.

     Residents of the United States will generally have taxes in Israel withheld
at source. Such persons generally would be entitled to a credit or deduction for
United States Federal income tax purposes for the amount of such taxes withheld,
subject to limitations applicable to foreign tax credits.

     F.   DIVIDENDS AND PAYING AGENT

     Not Applicable

     G.   STATEMENTS BY EXPERTS

     Not Applicable

     H.   DOCUMENTS ON DISPLAY

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


                                     - 65 -`

`I.   SUBSIDIARY INFORMATION

     Not Applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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

INTEREST RATE RISK

     At December 31, 2006, the Company had loans payable carrying fluctuating
interest rates in the amount of approximately two million Dollars (including
current maturities). Market risk was estimated as the potential increase in fair
value resulting from a hypothetical 10% increase in the annual interest rate.
Assuming such increase in the interest rate, the fair value of the Company's
loans would increase by approximately $200 thousand.

FOREIGN CURRENCY EXCHANGE RISK

     At December 31, 2006, the Company had U.S. Dollar denominated assets (i.e.
cash and cash equivalents, trade receivables, etc.) in the amount of
approximately $3.36 million and liabilities (i.e. short-term credit, trade
payable, long term loans, etc.) in the amount of approximately $3.29 million.
Market risk was estimated as the potential increase in fair value of net excess
abovementioned liabilities over abovementioned assets resulting from a
hypothetical 10% decrease in the year-end Dollar exchange rate. Assuming such
decrease in the Dollar exchange rate, the fair value of the Company's net excess
U.S. Dollar denominated liabilities over assets would increase by approximately
$8 thousand.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

     Not Applicable

                                     PART II

ITEM 13. DEFAULTS, DIVIDENDS, ARREARAGES AND DELINQUENCIES.

     Not Applicable

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
         PROCEEDS

     Not Applicable

ITEM 15. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

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


                                     - 66 -`

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

ITEM 16. RESERVED

ITEM 16. A. AUDIT COMMITTEE FINANCIAL EXPERT

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

     B.   CODE OF ETHICS

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

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

     C.   PRINCIPAL ACCOUNTANT FEES AND SERVICES

     The Company's principal accountants for the years 2006 and 2005 were Kost
Forer Gabbay & Kasierer, a member of Ernst & Young Global.

The table below summarizes the audit and other fees paid (in thousands of USD)
the Company and its consolidated subsidiaries to Kost Forer Gabbay &
Kasierer, during each of 2006 and 2005:

                               Year Ended December 31, 2006  Year Ended December 31, 2005
                                 -----------------------       ------------------------
                                 Amount       Percentage       Amount        Percentage
                                 ------       ----------       ------        ----------

Audit Fees (1)                    $65             87%            $61             68%
Audit-Related Fees (2)            $ 0              0%            $ 4              4%
Tax Fees (3)                      $10             13%            $25             28%
Total                             $75            100%            $90            100%

(1) "Audit fees" includes annual audit fees for Healthcare and its subsidiaries.

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

(3) for services rendered to the company during and/or pertaining to the year
2006 in connection with the following: tax related work, consulting services as
to government grants, review of the financial statements, consultation as to
various transaction and the like

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


                                     - 67 -`

`D.   EXEMPTION FROM LISTING STANDARDS FOR AUDIT COMMITTEE

     Not Applicable

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

     Not Applicable

                                    PART III

ITEM 17. FINANCIAL STATEMENTS

     Not applicable.

ITEM 18. FINANCIAL STATEMENTS

     Attached. See Item 19(a).

ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS

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

     (b)  Savyon Diagnostics Ltd financial statements.


                                     - 68 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                             AS OF DECEMBER 31, 2006

                                 IN U.S. DOLLARS

                                      INDEX

                                                                    PAGE
                                                                 ----------

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM               70

CONSOLIDATED BALANCE SHEETS                                         71 - 72

CONSOLIDATED STATEMENTS OF OPERATIONS                                 73

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY                         74

CONSOLIDATED STATEMENTS OF CASH FLOWS                                 75

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                         76 - 101

APPENDIX TO CONSOLIDATED FINANCIAL STATEMENTS                         102


                                     - 69 -`



`|X| Kost Forer Gabbay & Kasierer  |X| Phone: 972-3-5680333
                       3 Aminadav St.                    Fax:   972-3-5633407
                       Tel-Aviv 67067, Israel

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

                  TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF

                HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

     We have audited the accompanying consolidated balance sheets of Healthcare
Technologies Ltd. ("the Company") and its subsidiaries as of December 31, 2006
and 2005, 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, 2006. 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. Our
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, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company and its subsidiaries as of December 31, 2006 and 2005 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2006, in conformity with accounting
principles generally accepted in the U.S.

     As discussed in Note 2 to the consolidated financial statements, the
Company adopted the provision of Statement of Financial Accounting Standard No.
123(R), "Share-Based Payment", effective January 1, 2006.

Tel-Aviv, Israel                               KOST FORER GABBAY & KASIERER
May 31, 2007                                 A Member of Ernst & Young Global


                                     - 70 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

                                                                        DECEMBER 31,
                                                               ----------------------------
                                                                   2006            2005
                                                               ------------    ------------

    ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                    $        361    $        699
  Trade receivables (net of allowance for doubtful accounts
    of $ 47 and $ 39 in 2006 and 2005,
    respectively)                                                     3,735           3,381
  Related parties (Note 13)                                             268             320
  Deferred share - issuance expenses                                     59               -
  Other accounts receivable and prepaid expenses (Note 3)               430             386
  Inventories                                                         2,819           1,970
                                                               ------------    ------------

TOTAL current assets                                                  7,672           6,756
                                                               ------------    ------------

LONG-TERM INVESTMENTS:
  Investments in affiliates (Note 2f)                                   325             289
  Long-term receivables                                                   2              29
  Severance pay fund                                                  1,022             805
                                                               ------------    ------------

TOTAL long-term investments                                           1,349           1,123
                                                               ------------    ------------

PROPERTY AND EQUIPMENT, NET (Note 4)                                  2,197           1,599
                                                               ------------    ------------

OTHER ASSETS, NET:
  Intangible assets, net                                                 22              42
  Goodwill                                                            2,854           2,854
                                                               ------------    ------------

TOTAL other assets                                                    2,876           2,896
                                                               ------------    ------------

TOTAL assets                                                   $     14,094    $     12,374
                                                               ============    ============

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


                                     - 71 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

                                                                            DECEMBER 31,
                                                                    -----------------------------
                                                                       2006              2005
                                                                    ------------     ------------

    LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Short-term bank credit (Note 5)                                   $      1,023     $        777
  Current maturities of long-term bank loans (Note 7)                        362              163
  Trade payables                                                           2,558            2,672
  Related parties (Note 13)                                                   19               88
  Other accounts payable and accrued expenses (Note 6)                     1,093              858
                                                                    ------------     ------------

TOTAL current liabilities                                                  5,055            4,558
                                                                    ------------     ------------

LONG-TERM LIABILITIES:
  Long-term bank loans, net of current maturities (Note 7)                   628              174
  Accrued severance pay                                                    1,096              851
                                                                    ------------     ------------

TOTAL long-term liabilities                                                1,724            1,025
                                                                    ------------     ------------


COMMITMENTS AND CONTINGENT LIABILITIES (Note 8)

SHAREHOLDERS' EQUITY (Note 9):
  Share capital -
    Ordinary shares of NIS 0.04 par value - Authorized:
      40,000,000 shares as of December 31, 2006 and 2005; Issued
      and Outstanding: 7,792,832 and 7,702,832 shares as of
      December 31, 2006 and 2005, respectively                               100              100
  Additional paid-in capital                                              28,103           28,044
  Accumulated other comprehensive loss                                      (113)            (319)
  Deferred stock-based compensation                                            -              (49)
  Accumulated deficit                                                    (20,775)         (20,985)
                                                                    ------------     ------------

TOTAL shareholders' equity                                                 7,315            6,791
                                                                    ------------     ------------

TOTAL liabilities and shareholders' equity                          $     14,094     $     12,374
                                                                    ============     ============

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


                                     - 72 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

                                                                 YEAR ENDED DECEMBER 31,
                                                           ----------------------------------
                                                             2006         2005         2004
                                                           --------     --------     --------

Sales                                                      $ 13,656     $ 12,053     $ 12,130
Cost of sales                                                 8,881        7,684        7,925
                                                           --------     --------     --------

Gross profit                                                  4,775        4,369        4,205
                                                           --------     --------     --------

Operating expenses:
  Research and development                                        -            -           95
  Selling and marketing                                       2,929        2,508        2,760
  General and administrative                                  1,690        1,751        1,805
  Impairment of an investment in Afferix (Note 1f)                -            -          100
                                                           --------     --------     --------

TOTAL operating expenses                                      4,619        4,259        4,760
                                                           --------     --------     --------

Operating income (loss)                                         156          110         (555)
Financial expenses, net (Note 11a)                               (2)         (19)        (145)
Other income, net (Note 11b)                                     20           18          288
                                                           --------     --------     --------

Income (loss) before equity in earnings of an affiliate         174          109         (412)
Equity in earnings of an affiliate                               36          167           53
                                                           --------     --------     --------

Net income (loss)                                          $    210     $    276     $   (359)
                                                           ========     ========     ========

Basic and diluted net earnings (loss) per share            $   0.03     $   0.04     $  (0.05)
                                                           ========     ========     ========

Weighted average number of shares used in computing
  basic net earnings (loss) per share
  attributed to Ordinary shareholders                         7,715        7,703        7,667
                                                           ========     ========     ========

Weighted average number of shares used in computing
  diluted  net earnings (loss) per share
  attributed to Ordinary shareholders                         7,715        7,768        7,667
                                                           ========     ========     ========

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


                                     - 73 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

                                         TOTAL     NUMBER                          ACCUMULATED   DEFERRED
                                    COMPREHENSIVE OF SHARES             ADDITIONAL    OTHER      STOCK-                    TOTAL
                                         INCOME     (IN        SHARE     PAID-IN  COMPREHENSIVE   BASED    ACCUMULATED SHAREHOLDERS'
                                         (LOSS)   THOUSANDS)  CAPITAL    CAPITAL       LOSS    COMPENSATION   DEFICIT     EQUITY
                                        --------   --------   --------   --------    --------    --------    --------    --------

Balance as of January 1, 2004                         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 as of 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 as of December 31, 2005                       7,703        100     28,044        (319)        (49)    (20,985)      6,791
Net income                              $    210          -          -          -           -           -         210         210
Other comprehensive loss-
Foreign currency translation
  adjustments                                206          -          -          -         206           -           -         206
                                        --------
Total comprehensive income              $    416
                                        ========
Reclassification of deferred
  compensation to additional
  paid-in capital                                         -          -        (49)          -          49           -           -
Exercise of options                                      90        *)-         32           -           -           -          32

Stock-based compensation expenses                         -          -         68           -                       -          68
Compensation related to options
  granted to consultants                                  -          -          8           -           -           -           8
                                                   --------   --------   --------    --------    --------    --------    --------

Balance as of December 31, 2006                       7,793   $    100   $ 28,103    $   (113)   $      -    $(20,775)   $  7,315
                                                   ========   ========   ========    ========    ========    ========    ========

*)   Represents an amount lower than $ 1.

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


                                     - 74 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

                                                                 YEAR ENDED DECEMBER 31,
                                                          ----------------------------------
                                                            2006         2005         2004
                                                          --------     --------     --------

CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                       $    210     $    276     $   (359)
  Adjustments required to reconcile net income
    (loss) to net cash provided by (used in)
    operating activities:
    Impairment of an investment in an affiliate                  -            -          100
    Equity in earnings of an affiliate                         (36)        (167)         (53)
    Depreciation and amortization                              563          325          464
    Foreign currency exchange rate for long-term
    receivable and bank loans, net                              68           (8)          60
    Loss (gain) from sale of property and equipment             (9)         (18)          10
    Stock-based compensation expenses                           68           41           41
    Amortization of compensation related to options
    granted to consultants                                       8            6            -
    Other income                                                 -            -         (235)
    Accrued severance pay, net                                  24          (19)          10
    Decrease (increase) in trade receivables                   (76)         367         (283)
    Decrease (increase) in related parties, net               (190)        (279)          88
    Decrease (increase) in other accounts receivable
    and prepaid expenses                                       127         (374)         275
    Increase in inventories                                   (687)        (395)        (146)
    Increase (decrease) in trade payables                     (330)         451         (488)
    Increase in other accounts payable and accrued
    expenses                                                   136          147          173
                                                          --------     --------     --------

Net cash provided by (used in) operating activities           (124)         353         (343)
                                                          --------     --------     --------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of property and equipment                  11          110           78
  Purchase of property and equipment                        (1,018)        (936)        (313)
  Proceeds from the collection of long-term
  receivables, net                                              29          240          227
  Investment in affiliate                                        -         (150)           -
  Proceeds from sale of Procognia                                -           10            -
                                                          --------     --------     --------

Net cash used in investing activities                         (978)        (726)          (8)
                                                          --------     --------     --------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Short-term bank credit, net                                  182          (23)         799
  Issuance expenses                                              -            -          (70)
  Proceeds from long-term loans                                813          273          195
  Principal payment of long-term loans                        (250)        (142)      (1,061)
  Deferred share- issuance expenses                            (59)           -            -
  Proceeds from exercise of options                             32            -            -
                                                          --------     --------     --------

Net cash provided by (used in) financing activities            718          108         (137)
                                                          --------     --------     --------

Effect of exchange rate changes on cash and
cash equivalents                                                46           13          (11)
                                                          --------     --------     --------

Decrease in cash and cash equivalents                         (338)        (252)        (499)
Cash and cash equivalents at the beginning of the year         699          951        1,450
                                                          --------     --------     --------

Cash and cash equivalents at the end of the year          $    361     $    699     $    951
                                                          ========     ========     ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS ACTIVITIES:
  Cash paid during the year for:
    Interest                                              $    145     $     81     $     64
                                                          ========     ========     ========

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


                                     - 75 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 1:- GENERAL

     a.   Healthcare Technologies Ltd. (the "Company"), was established as an
          Israeli corporation. 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 12.

          Pronto Technologies Ltd. ("Pronto") and Gamida Gen Ltd. (Israel)
          ("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 the 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.

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

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

     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's sales to two customers account for a significant portion
          of the Group's total sales and the loss of these customers could have
          a material adverse effect on the Group's business and financial
          results (see also Note 12b).


                                     - 76 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 1:- GENERAL (CONT.)

     c.   The NexGen Biofiles Inc ("NexGen") transaction:

          On November 29, 2006, the Company signed a Letter of Intent ("LOI")
          with NexGen and Gamida for Life B.V. ("Gamida"). The transaction
          includes (i) the transfer to Healthcare of NexGen's assets relating to
          the construction, ownership and operation of ethanol and bio-diesel
          manufacturing facilities on land under option in the United States in
          consideration of a controlling stake in Healthcare, and (ii) the
          purchase of Healthcare's holdings in its subsidiaries by Gamida in
          consideration of all of Gamida's shares in Healthcare.

          The Letter of Intent further contemplated that the number of shares to
          be issued in consideration of NexGen's assets shall be based on the
          valuation of the assets to be provided by a recognized valuation firm.

          Subsequent to the balance sheet date, on January 16, 2007, the Company
          signed a definitive agreement with NexGen and Gamida. for the purchase
          of NexGen's assets and the sale of its current business.

          Under the terms of the agreement, NexGen will transfer its assets to a
          newly formed wholly-owned U.S. subsidiary of Healthcare for shares in
          Healthcare at a price per share of $ 1.50. The number of shares to be
          issued for such assets will be based on a valuation of the assets to
          be provided by a recognized valuation firm.

          The contemplated transaction also includes the purchase by Gamida of
          Healthcare's holdings in its subsidiaries and related assets in
          consideration of 4.7 million of Gamida's shares in Healthcare.

          Until 180 days following the closing, NexGen will have the option to
          transfer an existing ethanol or biodiesel plant in exchange for up to
          80 million additional Healthcare shares at a price per share of $
          1.50.

          Closing of the transaction is subject to the completion of due
          diligence, the receipt by Healthcare of a written valuation by a
          recognized valuation firm, the receipt of the necessary corporate,
          regulatory and third party approvals, including Healthcare's
          shareholders and the approval of a District Court in Israel and other
          closing conditions.


                                     - 77 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 1:- GENERAL (CONT.)

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

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

          On January 30, 2006, for various reasons, including, without
          limitation, that the closing (as defined in the purchase assets
          agreement) did 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 the statement of operations.

     e.   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 swapped their shares in Procognia Israel for
          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 retained the right to appoint
          directors in Procognia and had no obligation to finance Procognia's
          operations.

          On March 31, 2005, the Board of Directors and its 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 of 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.


                                     - 78 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 1:- GENERAL (CONT.)

          ii.  In the event that the ImmvaRx transaction is not executed, or in
               the event it is executed but ImmvaRx's option to execute the
               tender offer expires before consummation thereof, Gamida will pay
               the Company, upon Gamida's sale of the Procognia shares to a
               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 effected 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 in January 2006, only option
          ii is applicable. No consideration was paid.

     f.   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 developed 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.

          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 negative equity and since the Company
          did not provide any guarantees to subsidize the affiliate's losses,
          the Company ceased to assume the affiliate's loss when its
          shareholders' equity becomes 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, 2006, 2005 and 2004, based on managements' most recent
          analyses, impairment losses have been identified in the amount of $ 0,
          $ 0, and $ 100, respectively.


                                     - 79 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 1:- GENERAL (CONT.)

     g.   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 for 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 from 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
          during 2004 at their fair value of $ 35 on the issuance date and the
          remaining $ 235 was recorded as other income.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

     The consolidated financial statements have been prepared according to
     accounting principles generally accepted in the United States ("U.S.
     GAAP"), applied on a consistent basis, as follows:

     a.   USE OF ESTIMATES:

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

     b.   FINANCIAL STATEMENTS IN U.S. DOLLARS:

          The functional currency of the Company is the U.S. dollar ("dollar"),
          as the dollar is the currency of the primary 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 and equity transactions,
          are effected in dollars.

          Accordingly, monetary accounts maintained in currencies other than the
          dollar are remeasured into dollars in accordance with Statement of
          Financial Accounting Standard No. 52, "Foreign Currency Translations".
          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.


                                     - 80 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          The financial statements of the subsidiaries, whose functional
          currency is not the dollar, have been translated into dollars for
          balance sheet accounts using the month end rates in effect as of the
          balance sheet date and average exchange rate for revenue and expenses
          accounts for each respective period. The translation adjustments are
          deferred as a separate component of shareholders' equity, within
          accumulated other comprehensive loss, net of tax where applicable.
          Gains or losses resulting from transactions denominated in foreign
          currencies are included in other income or expense, within the
          consolidated statements of operations.

     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 AND CASH EQUIVALENTS:

          Cash and cash equivalents include short-term, highly liquid
          investments that are readily convertible to cash with original
          maturities of three months or less at acquisition.

     e.   INVENTORIES:

          Inventories are stated at the lower of cost or market value. Inventory
          provisions are provided to cover risks arising from slow-moving items
          or technological obsolescence, excess inventories and for market
          prices lower than cost. In the years ended December 31, 2006, 2005 and
          2004, the Company provided for write-off in the amounts of $ 0 $ 6,
          and $ 4, respectively, which are included in the cost of sales.

          Cost is determined using the moving average cost method.

          The Company's entire inventory is finished goods.

     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, in
          which the Company can exercise significant influence over operating
          and financial policy of the affiliate.

          The Company's investment in 50% of Savyon's shares is accounted for by
          the equity method in accordance with APB No.18.


                                     - 81 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          Following are condensed data from Savyon's balance sheets as of
          December 31, 2006 and 2005 and statements of operations for the years
          ended December 31, 2006 and 2005:

                                        DECEMBER 31,
                               ----------------------------
                                  2006              2005
                               ----------        ----------

Current assets                 $    2,373        $    2,075
Non-current assets                  1,865             1,543
Current liabilities                 2,133             1,648
Non-current liabilities             1,455             1,392
Net sales                           4,849             5,103
Gross profit                        2,177             2,394
Net income                             72               336

     g.   PROPERTY AND EQUIPMENT:

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

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

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

     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,
          2006 and 2005 no impairment losses have been identified.


                                     - 82 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     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 eight years and technology was
          amortized over three years. The Company recorded amortization expenses
          during 2006, 2005 and 2004, in the amount of $ 20, $ 22 and $ 25,
          respectively.

     j.   GOODWILL:

          Goodwill is measured as the excess of the cost of an acquired company
          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 is 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 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, 2006 and 2005, no impairment losses have been
          identified.

     k.   INCOME TAXES:

          The Group 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 Group provides a valuation allowance, if
          necessary, to reduce deferred tax assets to their estimated realizable
          value if it is more likely-than-not that some portion or all of the
          deferred taxes will not be realized.

     l.   REVENUE RECOGNITION:

          The Group generates their revenues mainly from sales of products and
          reagents. The Group sells their products through a direct sales force.
          Revenue is recognized when the following criteria are met: persuasive
          evidence of an agreement exists, delivery has occurred or services
          have been rendered, price to the buyer is fixed and determinable, and
          collectibility is reasonably assured. Delivery is not considered to
          have occurred until the customer takes title and assumes the risks and
          rewards of ownership, which is generally on the date of shipment.


                                     - 83 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          Shipping and handling fees billed to customer are classified in net
          sales in the consolidated statement of operations. Shipping and
          handling costs incurred are classified in cost of sales in the
          consolidated statement of operation.

          The Group does not grant any rights of return.

     m.   RESEARCH AND DEVELOPMENT COSTS:

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

     n.   ROYALTY AND NON-ROYALTY-BEARING GRANTS:

          Royalty-bearing grants from the Government of Israel and The
          Israel-United States Bi-national Industrial Research and Development
          Foundation for funding approved research and development projects are
          recognized at the time the Company is entitled to such grants, on the
          basis of the costs incurred and included as a reduction in research
          and development costs. There were no grants for the years 2006, 2005
          and 2004. Total royalties paid amounted to $ 26, $ 23 and $ 21 in
          2006, 2005 and 2004, respectively. The royalties were recorded as part
          of the cost of sales.

     o.   BASIC AND DILUTED NET EARNINGS (LOSS) PER SHARE:

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

          Options outstanding to purchase 151,500, 147,500 and 297,500 Ordinary
          shares for the years ended December 31, 2006, 2005 and 2004,
          respectively, were not included in the computation of diluted net
          earnings (loss) per share, because option effective exercise prices
          were greater than the average market price for the Ordinary shares
          and, therefore, their inclusion would have been anti-dilutive.


                                     - 84 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     p.   ACCOUNTING FOR STOCK BASED COMPENSATION:

          On January 1, 2006, the Company adopted Statement of Financial
          Accounting Standards No. 123 (revised 2004), "Share-Based Payment,"
          ("SFAS No. 123(R)") which requires the measurement and recognition of
          compensation expense for all share-based payment awards made to
          employees and directors based on estimated fair values. SFAS No.
          123(R) supersedes the Company's previous accounting under Accounting
          Principles Board Opinion No. 25, "Accounting for Stock Issued to
          Employees" ("APB No. 25"), for periods beginning in fiscal year 2006.
          In March 2005, the Securities and Exchange Commission issued Staff
          Accounting Bulletin No. 107 ("SAB No. 107") relating to SFAS No.
          123(R). The Company has applied the provisions of SAB 107 in its
          adoption of SFAS 123(R).

          SFAS No. 123(R) requires companies to estimate the fair value of
          equity-based payment awards on the date of grant using an
          option-pricing model. The value of the portion of the award that is
          ultimately expected to vest is recognized as an expense over the
          requisite service periods in the Company's consolidated statement of
          operations. Prior to the adoption of SFAS No. 123(R), the Company
          accounted for equity-based awards to employees and directors using the
          intrinsic value method in accordance with APB No. 25 as allowed under
          Statement of Financial Accounting Standards No. 123, "Accounting for
          Stock-Based Compensation" ("SFAS No, 123").

          The Company adopted SFAS 123(R) using the modified prospective
          transition method, which requires the application of the accounting
          standard as of January 1, 2006, the first day of the Company's fiscal
          year 2006. Under that transition method, compensation cost recognized
          in the year ended December 31, 2006, includes: (a) compensation cost
          for all share-based payments granted prior to, but not yet vested as
          of January 1, 2006, based on the grant date fair value estimated in
          accordance with the original provisions of Statement 123, and (b)
          compensation cost for all share-based payments granted subsequent to
          January 1, 2006, based on the grant-date fair value estimated in
          accordance with the provisions of SFAS No. 123(R). As required by the
          modified prospective method, results for prior periods have not been
          restated.

          The Company recognized compensation expenses for the value of these
          awards, which has graded vesting, based on the accelerated attribution
          method over the vesting period of each of the award, net of estimated
          forfeitures. Estimated forfeitures were based on actual historical
          pre-vesting forfeitures.

          As a result of adopting SFAS No. 123(R) on January 1, 2006, the
          Group's income before taxes on income for the year 2006 is $ 174 lower
          than if it had continued to account for stock-based compensation under
          APB 25. Basic and diluted net earnings per share for 2006 are $ 0.03
          per share lower, than if the Company had continued to account for
          share-based compensation under APB No. 25.

          Prior to January 1, 2006, the Company applied the intrinsic value
          method of accounting for stock options as prescribed by APB No. 25,
          whereby compensation expense is equal to the excess, if any, of the
          quoted market price of the stock over the exercise price at the grant
          date of the award.


                                     - 85 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          The pro forma table below illustrates the effect of the Company's
          stock based compensation expense on net income and basic and diluted
          earnings per share for 2005 and 2004, had the Company applied the fair
          value recognition provisions of SFAS No. 123. The fair value for
          options granted in 2005 and 2004 is amortized over their vesting
          period and estimated at the date of grant using a Black-Scholes
          options pricing model with the following weighted average assumptions:

                                   YEAR ENDED DECEMBER 31,
                                  2005               2004
                               ----------         ----------

Dividend yield                          0%                 0%
Expected volatility                   151%                96%
Risk-free interest rate              4.37%              2.78%
Expected life (years)                 3-5                3-5

          Pro forma information under SFAS No. 123:

                                                                   YEAR ENDED DECEMBER 31,
                                                                   ----------------------
                                                                     2005          2004
                                                                   --------      --------

Net income (loss) as reported                                      $    276      $   (359)
                                                                   ========      ========

Add: stock-based employee compensation expense
   included in reported net income (loss)                          $     41      $     41
                                                                   ========      ========
Deduct: stock-based employee compensation expense
   determined under fair value-based method                        $    (65)     $    (55)
                                                                   ========      ========

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

Earning (loss) per share:

Basic and diluted net earnings (loss) per share - as reported      $   0.04      $  (0.05)
                                                                   ========      ========

Basic and diluted net earnings (loss) per share - pro forma        $   0.03      $  (0.05)
                                                                   ========      ========


                                     - 86 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          The Company estimates the fair value of stock options granted using
          the Black-Scholes-Merton option-pricing model. The option-pricing
          model requires a number of assumptions, of which the most significant
          are, expected stock price volatility, and the expected option term.
          Expected volatility was calculated based upon actual historical stock
          price movements over the most recent periods ending December 31, 2006,
          equal to the expected option term. The expected option term represents
          the period that the Company's stock options are expected to be
          outstanding and was determined based on historical experience of
          similar options granted, giving consideration to the contractual terms
          of the stock options. The Company has historically not paid dividends
          and has no foreseeable plans to issue dividends. The risk-free
          interest rate is based on the yield from U.S. Treasury zero-coupon
          bonds with an equivalent term. The following weighted assumptions were
          used in the model for 2006:

                                         2006
                                       ----------

          Dividend yield                   0%
          Expected volatility             103%
          Risk-free interest rate         4.6%
          Expected life (years)        4.5 years
          Forfeiture rate                 14%

          The Group applies SFAS No. 123 and EITF No. 96-18, "Accounting for
          Equity Instruments That Are Issued to Other Than Employees for
          Acquiring or in Conjunction with Selling, Goods or Services", with
          respect to options and warrants issued to non-employees. SFAS No. 123
          requires the use of option valuation models to measure the fair value
          of the options and warrants at the measurement date.

     q.   CONCENTRATIONS OF CREDIT RISK:

          Financial instruments that potentially subject the Group to
          concentrations of credit risk consist principally of cash and cash
          equivalents and trade receivables.

          The Group's 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.


                                     - 87 -`

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--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     r.   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,
          other accounts receivable, short-term bank credit, trade payables and
          other accounts payable 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 a discounted cash
          flows analyses, based on the Group's incremental borrowing rates for
          similar type of borrowing arrangements.

     s.   SEVERANCE PAY:

          The Company's liability for severance pay is calculated pursuant to
          Israel's Severance Pay Law based on the most recent salary of the
          employees, multiplied by the number of years of employment as of the
          balance sheet date. Employees are entitled to one month's salary for
          each year of employment, or a portion thereof. The Company's liability
          for all of 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
          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 expense for the years ended December 31, 2006, 2005 and 2004
          amounted to $ 245, $ 65, and $ 111, respectively.

     t.   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.


                                     - 88 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     u.   RECLASSIFICATION:

          Certain amounts from prior years have been reclassified to conform to
          the current period presentation.

          The reclassification had no effect on previously reported net income,
          shareholders' equity or cash flows.

     v.   IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS:

          1.   In July 2006, the FASB issued FASB Interpretation 48, "Accounting
               for Income Tax Uncertainties" ("FIN 48"). FIN 48 defines the
               threshold for recognizing the benefits of tax return positions in
               the financial statements as "more-likely-than-not" to be
               sustained by the taxing authority. The recently issued literature
               also provides guidance on derecognition, measurement and
               classification of income tax uncertainties, along with any
               related interest and penalties. FIN 48 also includes guidance
               concerning accounting for income tax uncertainties in interim
               periods and increases the level of disclosures associated with
               any recorded income tax uncertainties.

               FIN 48 is effective for fiscal years beginning after December 15,
               2006. The differences between the amounts recognized in the
               statements of financial position prior to the adoption of FIN 48
               and the amounts reported after adoption will be accounted for as
               a cumulative-effect adjustment recorded to the beginning balance
               of retained earnings. The Company estimates that the adoption of
               FIN 48 will not have any significant impact on its consolidated
               financial statements.

          2.   In September 2006, the FASB issued Statement of Financial
               Accounting Standards No. 157, "Fair Value Measurements" ("SFAS
               No. 157"). SFAS 157 defines fair value, establishes a framework
               for measuring fair value in generally accepted accounting
               principles (GAAP) and expands disclosures about fair value
               measurements. SFAS 157 is effective for fiscal years beginning
               after November 15, 2007 and interim periods within those fiscal
               years. The Company is currently evaluating the effect that the
               adoption of SFAS 157 will have on its financial position and
               results of operations.

          3.   In February 2007, the FASB issued SFAS No. 159, "The Fair Value
               Option for Financial Assets and Financial Liabilities" ("SFAS No.
               159"). SFAS No. 159 permits companies to choose to measure
               certain financial instruments and certain other items at fair
               value. The standard requires that unrealized gains and losses on
               items for which the fair value option has been elected be
               reported in earnings. SFAS No. 159 is effective for the Company
               beginning in the first quarter of fiscal year 2008, although
               earlier adoption is permitted. The Company is currently
               evaluating the impact that SFAS No. 159 will have on its
               consolidated financial statements.


                                     - 89 -`

`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,
                              ------------------------
                                2006            2005
                              --------        --------

Government authorities        $    112        $     89
Unbilled receivable                176             128
Prepaid expenses                   142              81
Shareholder                          -              35
Other                                -              53
                              --------        --------

                              $    430        $    386
                              ========        ========

NOTE 4:-      PROPERTY AND EQUIPMENT

     a.   Composition of property and equipment is as follows:

                                                 DECEMBER 31,
                                          ------------------------
                                            2006            2005
                                          --------        --------

Cost:
  Laboratory and medical equipment        $  3,048        $  2,182
  Motor vehicles                             1,036             783
  Office furniture and equipment               280             260
  Leasehold improvements                       198             175
                                          --------        --------

                                             4,562           3,400
                                          --------        --------
Accumulated depreciation:

  Laboratory and medical equipment           1,720           1,365
  Motor vehicles                               335             173
  Office furniture and equipment               184             158
  Leasehold improvements                       126             105
                                          --------        --------

Accumulated depreciation                     2,365           1,801
                                          --------        --------

Depreciated cost                          $  2,197        $  1,599
                                          ========        ========

     b.   Depreciation expense for the years ended December 31, 2006, 2005 and
          2004, amounted to $ 563, $ 302 and $ 439, respectively.

          As for charges, see Note 8e(1).


                                     - 90 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 5:- SHORT-TERM BANK CREDIT

                                 INTEREST RATE                                DECEMBER 31,
                             ---------------------         LINKAGE       --------------------
                              2006           2005           TERMS         2006          2005
                             ------         ------         ------        ------        ------

Short-term bank loans           6.6%           6.8%           NIS        $1,023        $  777
                                                                         ======        ======

     In addition to the short term bank loans, the Group has an authorized
     credit line in the amount of $ 130 as of December 31, 2006. For amounts
     overdrawn in excess of the Group's authorized credit line, the Group is
     subject to an annual average interest rate of approximately 7 % on the
     outstanding amount.

     As of December 31, 2006, the Group has $ 130 of an unutilized credit line.

     As for charges, see Note 8e(1).

NOTE 6:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

                                               DECEMBER 31,
                                      ----------------------------
                                         2006              2005
                                      ----------        ----------

Royalties payable                     $       16        $       14
Employees and payroll accruals               367               379
Government authorities                       115                34
Customer advances                            235               159
Accrued expenses                             307               250
Other                                         53                22
                                      ----------        ----------

                                      $    1,093        $      858
                                      ==========        ==========


                                     - 91 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 7:- LONG-TERM LOANS

     a.   Composed as follows:

                                                                             DECEMBER 31,
                                  INTEREST        ---------------------------------------------------------------
                                    RATE                       2006                            2005
                            -------------------   ------------------------------   ------------------------------
                                                               NIS                              NIS
                                                     IN      LINKED TO                IN      LINKED TO
                             2006       2005    U.S. DOLLAR    CPI        TOTAL   U.S. DOLLAR   CPI        TOTAL
                            --------   --------   --------   --------   --------   --------   --------   --------
                                     %
                            -------------------

Loans from banks               5.5-7     5-10.8   $      3   $    987   $    990   $     10   $    327   $    337
Less - current maturities                                3        359        362          7        156        163
                                                  --------   --------   --------   --------   --------   --------

                                                  $      -   $    628   $    628   $      3   $    171   $    174
                                                  ========   ========   ========   ========   ========   ========

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

First year (current maturities)                   $      3   $    359   $    362   $      7   $    156   $    163
                                                  --------   --------   --------   --------   --------   --------

Second year                                              -        252        252          3        140        143
Third year                                               -        182        182          -         31         31
Fourth year                                              -        121        121          -          -          -
Fifth year                                               -         73         73          -          -          -
                                                  --------   --------   --------   --------   --------   --------

                                                         -        628        628          3        171        174
                                                  --------   --------   --------   --------   --------   --------

                                                  $      3   $    987   $    990   $     10   $    327   $    337
                                                  ========   ========   ========   ========   ========   ========

          As for charges, see Note 8e(1).

     c.   Covenants:

          One of the Company's subsidiaries has a financial covenant provision
          with a bank which includes, amongst others, fulfillment of different
          financial ratios and other provisions. As of December 31, 2006 and
          2005, the subsidiary fulfilled all such provisions.


                                     - 92 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 8:- 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 paid by the Group amounted to $ 26, $ 23 and $ 21 in
          2006, 2005 and 2004, respectively.

          At December 31, 2006 and 2005, the Group has remaining contingent
          obligation to the OCS in the amount of $ 481 and $ 507,
          respectively(excluding accrued interest).

     b.   Lease commitments:

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

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

          2007        $      225
          2008                59
          2009                 3
                      ----------

                      $      287
                      ==========

          Total rent expenses for the years ended December 31, 2006, 2005 and
          2004, were approximately $ 188, $ 182 and $ 187, 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.


                                     - 93 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 8:- COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)

     d.   In January 1999, the Company established an 80% owned subsidiary -
          Danyel. The remaining 20% is 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% interest under two alternatives:

          1.   In the event that the general manager ceases his role by reason
               of death or incapacity, 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 a credit line and loans provided to the Group,
               totaling $ 2,013 as of December 31, 2006, the Group has recorded
               unlimited fixed and floating charges on certain assets and share
               capital, in favor of the banks.

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

NOTE 9:- 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.

          During 2006, the Company granted 89,000 options to purchase Ordinary
          shares at an exercise price of $ 0.85 - $ 0.96 per share. As of
          December 31, 2006, an aggregate of 1,000 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 three to five years. Any options which are
          canceled or forfeited before expiration become available for future
          grant.


                                     - 94 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 9:- SHAREHOLDERS' EQUITY (CONT.)

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

                                YEAR ENDED DECEMBER 31,                     YEAR ENDED DECEMBER 31,                       YEAR ENDED DECEMBER 31,
                       ----------------------------------------     ---------------------------------------     ----------------------------------------
                                         2006                                        2005                                          2004
                       ----------------------------------------     ---------------------------------------     ----------------------------------------
                                             WEIGHTED                                    WEIGHTED                                      WEIGHTED
                                   WEIGHTED  AVERAGE                           WEIGHTED   AVERAGE                            WEIGHTED   AVERAGE
                        AMOUNT     AVERAGE  REMAINING  AGGREGATE    AMOUNT      AVERAGE  REMAINING  AGGREGATE    AMOUNT      AVERAGE   REMAINING  AGGREGATE
                          OF       EXERCISE CONTRACTUAL INTRINSIC     OF       EXERCISE CONTRACTUAL INTRINSIC      OF       EXERCISE  CONTRACTUAL INTRINSIC
                       OPTIONS      PRICE      TERM      VALUE      OPTIONS      PRICE     TERM       VALUE      OPTIONS      PRICE      TERM       VALUE
                       -------      -----     -----     -------     -------      -----     -----     -------     -------      -----     -----     -------

Outstanding at the
  beginning of
  the year             307,500      $0.51                           297,500      $0.54                           255,000      $0.51
Granted                 89,000      $0.88                            50,000      $0.72                            62,500      $0.86
Exercised              (90,000)     $0.36                                 -      $   -                                 -      $   -
Forfeited                    -      $   -                           (40,000)     $1.00                           (20,000)     $1.00
                       -------                                      -------                                      -------

Outstanding at the
  end of the year      306,500      $0.66       *)-     231,525     307,500      $0.51       *)-      41,850     297,500      $0.54        *)      28,800
                       =======      =====     =====     =======     =======      =====     =====     =======     =======      =====     =====     =======

Vested or expected
  to vest at
  December 31,
  each year            317,003      $0.61       *)-     239,343     232,771      $0.61       *)-      39,233     149,217      $0.61        *)      25,323
                       =======      =====     =====     =======     =======      =====     =====     =======     =======      =====     =====     =======

Exercisable at the
  end of the year      118,333      $0.59       *)-     135,957     125,833      $0.45       *)-      19,340     100,000      $0.62        *)       7,067
                       =======      =====                           =======      =====                           =======      =====     =====     =======

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

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


                                     - 95 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 9:- SHAREHOLDERS' EQUITY (CONT.)

          The aggregate intrinsic value in the table above represents the total
          intrinsic value (i.e., the difference between the Company's closing
          stock price on the last trading day of fiscal 2006 and the exercise
          price, multiplied by the number of shares) that would have been
          received by the option holders had all option holders exercised their
          options on December 31, 2006. This amount changes, based on the market
          price of the Company's shares.

          The total intrinsic value of options exercised during the years ended
          December 31, 2006, 2005, and 2004, was $ 128, $0, and $ 0,
          respectively.

     e.   The options outstanding as of December 31, 2006, have been classified
          by exercise price, as follows:

                                                                         WEIGHTED
              OPTIONS        WEIGHTED                      OPTIONS        AVERAGE
            OUTSTANDING      AVERAGE                     EXERCISABLE     EXERCISE
               AS OF        REMAINING       WEIGHTED        AS OF         PRICE
  EXERCISE   DECEMBER 31,  CONTRACTUAL      AVERAGE       DECEMBER 31,  OF OPTIONS
   PRICE        2006           LIFE      EXERCISE PRICE      2006       EXERCISABLE
----------   ---------      ---------      ---------      ---------      ---------

$0.35-0.38     105,000            *)-      $    0.37         60,000      $    0.37
$     0.86      62,500            *)-      $    0.86         41,667      $    0.86
$     0.72      50,000           **)-      $    0.72         16,666      $    0.72
$     0.85      62,000            *)-      $    0.85              -      $       -
$     0.96      27,000           **)-      $    0.96              -      $       -
             ---------                     ---------      ---------      ---------

               306,500                     $    0.66        118,333      $    0.59
             =========                     =========      =========      =========

          *)   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 $ 67, $ 41 and $
          41, for the years ended December 31, 2006, 2005 and 2004,
          respectively.

     f.   The weighted-average grant-date fair value of options granted during
          the years 2006, 2005 and 2004 was $1.02, $0.53, and $0.44,
          respectively.

     g.   Options issued to consultants:

          The Company's outstanding options to consultants as of December 31,
          2006, are as follows:

                                  NUMBER OF                     EXERCISE
                IN CONNECTION      OPTIONS        OPTIONS        PRICE    EXERCISABLE
ISSUANCE DATE       WITH           GRANTED       EXERCISABLE   PER SHARE     THROUGH
-------------     ------------   -----------    -----------    ---------    ----------

24/07/2005        Consultants        35,000             -        $ 0.72         *)

          *)   60 days from the date of termination.


                                     - 96 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 9:- SHAREHOLDERS' EQUITY (CONT.)

          Expenses recognized by the Company related to its consultant's
          compensation awards amounted to $ 8, $ 6 and $ 0, for the years ended
          December 31, 2006, 2005 and 2004, respectively.

     h.   Cash received from the exercise of options under all share-based
          payment arrangements for the years ended December 31, 2006, 2005, and
          2004, was $ 32, $ 0, and $ 0, respectively.

NOTE 10:- 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
          31% in 2006, 29% in 2007, 27% in 2008, 26% in 2009 and 25% in 2010 and
          thereafter.

     c.   Carryforward tax losses:

          As of December 31, 2006, the Group's losses for Israeli tax purposes
          totaled approximately $ 10,000.

          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.


                                     - 97 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 10:- TAXES ON INCOME (CONT.)

     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,
                                                          -----------------------------
                                                             2006               2005
                                                          ----------         ----------

Carryforward losses                                       $    3,209         $    3,364
Accrued vacation and severance pay                                78                 66
                                                          ----------         ----------

Net deferred tax assets before valuation allowance             3,287              3,430

Valuation allowance                                           (3,287)            (3,430)
                                                          ----------         ----------

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.


                                     - 98 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 11:- SELECTED STATEMENTS OF OPERATIONS DATA

     a.   Financial expenses, net:

                                                                    YEAR ENDED DECEMBER 31,
                                                          ------------------------------------------
                                                            2006             2005             2004
                                                          --------         --------         --------

Expenses:
  Interest and others                                     $    (29)        $    (24)        $    (63)
  Expenses with respect to short-term bank credit,
    long-term loans and bank charges                          (126)             (76)             (66)
  Foreign currency loss                                        (26)             (61)             (41)
                                                          --------         --------         --------

                                                              (181)            (161)            (170)
                                                          --------         --------         --------
Income:
  Interest on bank deposits                                     10                9                7
  Foreign currency gain                                        169              133               18
                                                          --------         --------         --------

                                                               179              142               25
                                                          --------         --------         --------

                                                          $     (2)        $    (19)        $   (145)
                                                          ========         ========         ========

     b.   Other income, net:

Expenses:

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

Income:
Capital gain on sale of property and equipment                   9               25                -
Other income (include $ 235 from DMI
   transaction in 2004, see Note 1g)                            11                -              298
                                                          --------         --------         --------

                                                                20               25              288
                                                          --------         --------         --------

                                                          $     20         $     18         $    288
                                                          ========         ========         ========

NOTE 12:- MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION

     a.   Summary information about geographic areas:

          The Group manages its business on the basis of one reportable segment,
          see Note 1a for a brief description of the Group's business. The
          following data is presented in accordance with Statement of Financial
          Accounting Standard No. 131, "Disclosures About Segments of an
          Enterprise and Related Information" ("SFAS No. 131").

          Total revenues and long-lived assets for the years ended and as of
          December 31, 2006, 2005 and 2004, were generated and located in
          Israel.


                                     - 99 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 12:- MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION (CONT.)

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

                             YEAR ENDED DECEMBER 31,
                   ----------------------------------------
                     2006            2005            2004
                   --------        --------        --------
                                     %
                   ----------------------------------------

          A              16              16              14
          B              12              12               8

NOTE 13:- BALANCES AND TRANSACTIONS WITH RELATED PARTIES

     a.   Balances with related parties:

                                                               DECEMBER 31,
                                                        ------------------------
                                                          2006            2005
                                                        --------        --------

Assets:
Other accounts receivable and prepaid expenses -
  subsidiaries and affiliates of Gamida for
  Life B.V. (the parent company)                        $    365        $    320
                                                        ========        ========

Liabilities:
Other accounts payable and accrued expenses -
  subsidiaries and affiliates of Gamida for
  Life B.V. (the parent company)                        $    147        $     88
                                                        ========        ========

     b.   Transactions:

          Expenses:

                                                                   YEAR ENDED DECEMBER 31,
                                                        ----------------------------------------------
                                                           2006              2005              2004
                                                        ----------        ----------        ----------

 Management fees and reimbursement of expenses
   to a related company                                 $      120        $      120        $      120
                                                        ==========        ==========        ==========

 Rental expenses to a related company                   $      103        $       38        $       38
                                                        ==========        ==========        ==========

Income:

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


                                    - 100 -`

`HEALTHCARE TECHNOLOGIES LTD. AND ITS SUBSIDIARIES

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

NOTE 13:- BALANCES AND TRANSACTIONS WITH RELATED PARTIES (CONT.)

     c.   Services arrangements:

          Gamida Group:

          Following approval by the Company's audit committee and Board of
          Directors in November 2004, the Company's shareholders, on December
          20, 2004, approved the following:

          Effective as of January 1, 2004, the annual service fees payable by
          the Company to Gamida Israel in consideration of the services of Mr.
          Daniel Kropf as Chairman of the Board of Directors shall be $ 120 per
          annum, such fees to continue to be paid on a monthly basis plus VAT at
          the rate legally applicable at the time of payment, and both said
          services and the payment of such fees to remain mutually terminable
          upon 90 days' prior written notice by either the Company or Gamida
          Israel.

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

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

          Until March, 2002, Gamida Israel provided the Company with financial
          management, accounting and book-keeping services for an aggregate
          annual fee of $ 316, which had been approved by the Company's Board of
          Directors, audit committee and shareholders meeting. In March 2002,
          the Company's Board of Directors, audit committee and shareholders
          approved a revision of the foregoing arrangements, as a result of
          which the Company, with effect from January 2002, is to provide the
          Gamida Group as well as itself with the services previously rendered
          by Gamida Israel and Gamida Group is to reimburse the Company for its
          proportionate share of the expenses for providing such services.
          Accordingly, the Company received payment amounting to an annual
          amount of approximately $ 262 (not including subsidiaries) for the
          year 2006 from the Gamida Group for such services.

          Mr. Gareth Keene, who is a director of Gamida, provides legal advice
          to the Company and its subsidiaries through Gamida Israel. During
          2006, Mr. Keene provided such legal services at a cost amounting to
          approximately $ 30.

          The management of the Company believes that the related party
          transactions described aforementioned (not inclusive of transactions
          between the Company and its wholly-owned subsidiaries or among the
          subsidiaries) have been at least as favorable to the Company as it
          could have negotiated with unrelated third parties.


                                    - 101 -`

`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:

                                                                             PERCENTAGE OF HOLDING AND OWNERSHIP
                                                                                -----------------------------
                                                                                         DECEMBER 31,
                                                                                -----------------------------
                                                                                   2006               2005
COMPANY                                                                         ----------         ----------

Danyel Biotech Ltd. ("Danyel")                                                         80%                80%
Gamida Gen Marketing (1979) Ltd. (formerly - Gamidor)                                 100%               100%
Gamida Gen Ltd. (3)                                                                   100%               100%
Gamidor Diagnostics (1984) 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%                27%
Procognia U.K. Ltd. ("Procognia")                                                       -                  -
Diatech Diagnostics Ltd. ("Diatech") (2)                                              100%               100%
Savyon-Yaron Diagnostics Marketing Ltd. ("Savyon-Yaron") (1,2)                        100%               100%

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

     (2)  Inactive company.

     (3)  A wholly-owned subsidiary of Pronto.


                                    - 102 -`

`SAVYON DIAGNOSTICS LTD.

                              FINANCIAL STATEMENTS

                             AS OF DECEMBER 31, 2006

                            U.S. DOLLARS IN THOUSANDS

                                      INDEX

                                                                        PAGE
                                                                  -----------------

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                  104

BALANCE SHEETS                                                        105 - 106

STATEMENTS OF INCOME                                                     107

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)               108

STATEMENTS OF CASH FLOWS                                                 109

NOTES TO FINANCIAL STATEMENTS                                         110 - 125


                                    - 103 -`



`|X| Kost Forer Gabbay & Kasierer  |X| Phone: 972-3-5680333
                       3 Aminadav St.                    Fax:   972-3-5633407
                       Tel-Aviv 67067, Israel


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

                TO THE BOARD OF DIRECTORS AND THE SHAREHOLDERS OF

                             SAVYON DIAGNOSTICS LTD.

     We have audited the accompanying balance sheets of Savyon Diagnostics Ltd
("the Company") as of December 31, 2006 and 2005, and the related statements of
income, changes in shareholders' equity and cash flows for each of the two years
in the period ended December 31, 2006. 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 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. Our
audit included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 2006 and 2005 and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 2006, in conformity with
accounting principles generally accepted in the U.S.

Tel-Aviv, Israel                             KOST FORER GABBAY & KASIERER
May 31, 2007                               A Member of Ernst & Young Global



                                    - 104 -`

`SAVYON DIAGNOSTICS LTD.
BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

                                                                    DECEMBER 31,
                                                                -------------------
                                                                 2006         2005
                                                                ------       ------
                                                                      AUDITED
                                                                -------------------
    ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                     $  656       $  217
  Trade receivables                                                540          793
  Other accounts receivable and prepaid expenses (Note 3)          291          311
  Inventories (Note 4)                                             886          754
                                                                ------       ------

TOTAL current assets                                             2,373        2,075
                                                                ------       ------

LONG-TERM INVESTMENTS AND RECEIVABLES:
  Deferred taxes (Note 11b)                                        154           33
  Severance pay fund                                               499          381
                                                                ------       ------

TOTAL long-term investments and receivables                        653          414
                                                                ------       ------

PROPERTY AND EQUIPMENT, NET (Note 5)                               818          679
                                                                ------       ------

OTHER ASSETS, NET (Note 2g):
  Intangible assets, net                                           292          348
  Goodwill                                                         102          102
                                                                ------       ------

TOTAL other assets                                                 394          450
                                                                ------       ------

TOTAL assets                                                    $4,238       $3,618
                                                                ======       ======

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


                                    - 105 -`

`SAVYON DIAGNOSTICS LTD.
BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

                                                                                   DECEMBER 31,
                                                                               -------------------
                                                                                2006         2005
                                                                               ------       ------
                                                                                     AUDITED
                                                                               --------------------
    LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current maturities of long-term bank loans                                   $   80       $   17
  Trade payables                                                                  561          371
  Other accounts payable and accrued expenses (Note 6)                            482          473
  Management fees payable to shareholders                                       1,010          787
                                                                               ------       ------

TOTAL current liabilities                                                       2,133        1,648
                                                                               ------       ------

LONG-TERM LIABILITIES:
  Accrued severance pay                                                           682          537
  Long-term bank loans, net of current maturities (Note 8)                        153           31
  Long-term loans from a shareholder (Note 9)                                     620          824
                                                                               ------       ------

TOTAL long-term liabilities                                                     1,455        1,392
                                                                               ------       ------

COMMITMENTS AND CONTINGENT LIABILITIES (Note 7)

SHAREHOLDERS' EQUITY  (Note 10):
  Share capital -
    Ordinary shares of NIS 0.01 par value - Authorized: 4,000,000 shares
      as of December 31, 2006 and 2005; Issued and outstanding: 100,002
      shares as of December 31, 2006 and 2005                                    *) -         *) -
  Additional paid-in capital                                                      141          141
  Retained earnings                                                               509          437
                                                                               ------       ------

TOTAL shareholders' equity                                                        650          578
                                                                               ------       ------

TOTAL liabilities and shareholders' equity                                     $4,238       $3,618
                                                                               ======       ======

*)   Represents an amount lower than $ 1.

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


                                    - 106 -`

`SAVYON DIAGNOSTICS LTD.
STATEMENTS OF INCOME
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

                                                             YEAR ENDED DECEMBER 31,
                                                       -------------------------------------
                                                        2006           2005           2004
                                                       -------        -------        -------
                                                              AUDITED               UNAUDITED
                                                       ----------------------        -------

Sales (Note 13b)                                       $ 4,849        $ 5,103        $ 4,396
Cost of sales                                            2,672          2,709          2,255
                                                       -------        -------        -------

Gross profit                                             2,177          2,394          2,141
                                                       -------        -------        -------

Operating expenses:
  Research and development costs, net (Note 12a)           537            570            580
  Selling and marketing                                    577            597            554
  General and administrative                               868            855            909
                                                       -------        -------        -------

TOTAL operating expenses                                 1,982          2,022          2,043
                                                       -------        -------        -------


Operating income                                           195            372             98
Financial income (expenses), net (Note 12b)                (85)           (67)            24
                                                       -------        -------        -------

Income before taxes on income                              110            305            122
Taxes on income (benefit) (Note 11)                         38            (31)            16
                                                       -------        -------        -------

Net income                                             $    72        $   336        $   106
                                                       =======        =======        =======

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


                                    - 107 -`

`SAVYON DIAGNOSTICS LTD.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA

                                                                                           RETAINED         TOTAL
                                                                            ADDITIONAL      EARNINGS     SHAREHOLDERS'
                                                   NUMBER       SHARE        PAID-IN     (ACCUMULATED       EQUITY
                                                 OF SHARES     CAPITAL       CAPITAL        DEFICIT)     (DEFICIENCY)
                                                  -------       ------       -------        -------        -------

Balance as of January 1, 2004 (unaudited)         100,000       $ *) -       $  (159)       $    (5)       $  (164)

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

Balance as of December 31, 2004 (unaudited)       100,000         *) -          (159)           101            (58)

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

Balance as of December 31, 2005 (audited)         100,002         *) -           141            437            578

Net income                                              -            -             -             72             72
                                                  -------       ------       -------        -------        -------

Balance as of December 31, 2006 (audited)         100,002       $ *) -       $   141        $   509        $   650
                                                  =======       ======       =======        =======        =======

*)   Represents an amount lower than $ 1.

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


                                    - 108 -`

`SAVYON DIAGNOSTICS LTD.
STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

                                                                                    YEAR ENDED DECEMBER 31,
                                                                                -------------------------------
                                                                                2006          2005         2004
                                                                                -----        -----        -----
                                                                                     AUDITED            UNAUDITED
                                                                                ------------------        -----
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                                    $  72        $ 336        $ 106
  Adjustments required to reconcile net income to net cash
      provided by operating activities:
    Depreciation and amortization                                                 287          170          221
    Foreign currency exchange rate adjustments on long-term loans, net             74           51           37
    Gain from sale of property and equipment                                        -           (1)           -
    Accrued severance pay, net                                                     27          (44)          36
    Decrease (increase) in trade receivables                                      253          (14)        (180)
    Decrease (increase) in other accounts receivable and prepaid expenses          20          (62)         (59)
    Increase in inventories                                                      (132)           -          (45)
    Increase in deferred tax asset                                               (121)         (33)           -
    Increase (decrease) in trade payables                                         190         (261)         363
    Increase (decrease) in other accounts payable and accrued expenses              9           62         (345)
    Increase in management fees to shareholders                                   223           97          360
                                                                                -----        -----        -----

Net cash provided by operating activities                                         902          301          494
                                                                                -----        -----        -----

CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of property and equipment                                      -            8            -
  Purchase of property and equipment                                             (336)        (367)        (157)
  Investment in other assets                                                      (37)         (35)           -
                                                                                -----        -----        -----

Net cash used in investing activities                                            (373)        (394)        (157)
                                                                                -----        -----        -----

CASH FLOWS FROM FINANCING ACTIVITIES:
  Short-term bank credit                                                            -            -          (11)
  Proceeds from long-term loans                                                   240           53            -
  Principal payment of long-term bank loans                                       (74)          (4)           -
  Principal payment of long-term loans from shareholder                          (256)        (193)        (102)
  Proceeds from issuance of shares, net                                             -          150            -
                                                                                -----        -----        -----

Net cash provided by (used in) financing activities                               (90)           6         (113)
                                                                                -----        -----        -----

Increase (decrease) in cash and cash equivalents                                  439          (87)         224
Cash and cash equivalents at the beginning of the year                            217          304           80
                                                                                -----        -----        -----

Cash and cash equivalents at the end of the year                                $ 656        $ 217        $ 304
                                                                                =====        =====        =====

NON-CASH FINANCING ACTIVITIES:

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

CASH PAID DURING THE YEAR FOR:

  Interest                                                                      $  67        $  43        $  38
                                                                                =====        =====        =====

  Taxes                                                                         $  58        $  59        $  11
                                                                                =====        =====        =====

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


                                    - 109 -`

`SAVYON DIAGNOSTICS LTD.
NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 1:- GENERAL

     a.   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
          six 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 is 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 number of
          suppliers. Management believes that other suppliers could provide
          similar products at 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 the 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

     The financial statements have been prepared according to accounting
     principles generally accepted in the United States ("U.S. GAAP"), applied
     on a consistent basis, as follows:

     a.   USE OF ESTIMATES:

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

     b.   FINANCIAL STATEMENTS IN U.S. DOLLARS:

          The functional currency of the Company is the U.S. dollar ("dollar"),
          as the dollar is the currency of the primary 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 and equity transactions
          are made in dollars.


                                    - 110 -`

`SAVYON DIAGNOSTICS LTD.
NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          Accordingly, monetary accounts maintained in currencies other than the
          dollar are remeasured into dollars in accordance with Statement of
          Financial Accounting Standard No. 52, "Foreign Currency Translations".
          All transaction gains and losses of the remeasurement of monetary
          balance sheet items are reflected in the statements of income as
          financial income or expenses, as appropriate.

     c.   CASH AND CASH EQUIVALENTS:

          Cash and cash equivalents include short-term, highly liquid
          investments that are readily convertible to cash with original
          maturities of three months or less at acquisition.

     d.   INVENTORIES:

          Inventories are stated at the lower of cost or market value. Inventory
          provisions are provided to cover risks arising from slow-moving items
          or technological obsolescence, excess inventories and for market
          prices lower than cost. In the years ended December 31, 2006, 2005 and
          2004, the Company provided for a write-off in the amounts of $ 77, $
          40, and $ 0 (unaudited), respectively, which are included in cost of
          sales.

          Cost is determined as follows:

          -    Raw materials and packaging materials - at moving weighted
               average cost method..

          -    Finished goods - on the basis of computed manufacturing costs,
               which include raw materials at average cost, labor and direct and
               indirect manufacturing costs, based on standard pricing.

     e.   PROPERTY AND EQUIPMENT:

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

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

          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 related lease
                                                        period or useful life of the asset



                                    - 111 -`

`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,
          2006 and 2005, no impairment losses have been identified.

     g.   INTANGIBLE ASSETS:

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

     h.   GOODWILL:

          Goodwill is measured as the excess of the cost of an acquired company
          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 is 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 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, 2006 and 2005, no impairment losses have been
          identified.

     i.   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 if it is more likely-than-not that some portion or all of the
          deferred taxes will not be realized.


                                    - 112 -`

`SAVYON DIAGNOSTICS LTD.
NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     j.   REVENUE RECOGNITION:

          The Company sells its products mainly through distributors, which are
          considered end users without rights of return or exchange. Therefore,
          revenue from distributors has been recognized on a "sell-in" basis
          (i.e., when the inventory is sold or delivered to the distributor).

          Revenue is recognized when the following criteria are met: persuasive
          evidence of an agreement exists, delivery has occurred or services
          have been rendered, price to the buyer is fixed and determinable, and
          collectibility is reasonably assured. Delivery is not considered to
          have occurred until the customer takes title and assumes the risks and
          rewards of ownership, which is generally on the date of shipment.

     k.   RESEARCH AND DEVELOPMENT COSTS:

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

     l.   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 reduction in research and development
          costs. No grants were received in 2006.

          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 $ 134, $ 75 and $ 46 (unaudited) as participation
          in the years ended December 31, 2006, 2005 and 2004, respectively.

     m.   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 with 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.


                                    - 113 -`

`SAVYON DIAGNOSTICS LTD.
NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

          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. As of December 31, 2006 and 2005, there was no allowance
          for doubtful accounts.

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

     n.   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.

     o.   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 pay for the years ended December 31, 2006, 2005 and 2004
          amounted to net $ 149, $3 and $ 36 (unaudited), respectively.

     P.   RECLASSIFICATION:

          Certain amounts from prior years have been reclassified to conform to
          the current period presentation.

          The reclassification had no effect on previously reported net income,
          shareholders' equity or cash flows.


                                    - 114 -`

`SAVYON DIAGNOSTICS LTD.
NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     q.   IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS:

          1.   In July 2006, the FASB issued FASB Interpretation 48, "Accounting
               for Income Tax Uncertainties" ("FIN 48"). FIN 48 defines the
               threshold for recognizing the benefits of tax return positions in
               the financial statements as "more-likely-than-not" to be
               sustained by the taxing authority. The recently issued literature
               also provides guidance on derecognition, measurement and
               classification of income tax uncertainties, along with any
               related interest and penalties. FIN 48 also includes guidance
               concerning accounting for income tax uncertainties in interim
               periods and increases the level of disclosures associated with
               any recorded income tax uncertainties.

               FIN 48 is effective for fiscal years beginning after December 15,
               2006. The differences between the amounts recognized in the
               statements of financial position prior to the adoption of FIN 48
               and the amounts reported after adoption will be accounted for as
               a cumulative-effect adjustment recorded to the beginning balance
               of retained earnings. The Company estimates that the adoption of
               FIN 48 will not have any significant impact on its consolidated
               financial statements.

          2.   In September 2006, the FASB issued Statement of Financial
               Accounting Standards (SFAS) 157, "Fair Value Measurements." SFAS
               157 defines fair value, establishes a framework for measuring
               fair value in generally accepted accounting principles (GAAP) and
               expands disclosures about fair value measurements. SFAS 157 is
               effective for fiscal years beginning after November 15, 2007 and
               interim periods within those fiscal years. The Company is
               currently evaluating the effect that the adoption of SFAS 157
               will have on its financial position and results of operations.

          3.   In February 2007, the FASB issued SFAS No. 159, "The Fair Value
               Option for Financial Assets and Financial Liabilities" ("SFAS No.
               159"). SFAS No. 159 permits companies to choose to measure
               certain financial instruments and certain other items at fair
               value. The standard requires that unrealized gains and losses on
               items for which the fair value option has been elected be
               reported in earnings. SFAS No. 159 is effective for the Company
               beginning in the first quarter of fiscal year 2008, although
               earlier adoption is permitted. The Company is currently
               evaluating the impact that SFAS No. 159 will have on its
               consolidated financial statements.


                                    - 115 -`

`SAVYON DIAGNOSTICS LTD.
NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 3:- OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

                                                                       DECEMBER 31,
                                                                   -------------------
                                                                    2006         2005
                                                                   ------       ------
                                                                         AUDITED
                                                                   -------------------

Government authorities                                             $  141       $  122
Accounts receivable                                                     2           28
Prepaid expenses                                                       47          118
Related parties (1)                                                    58            -
Deferred taxes                                                         43           43
                                                                   ------       ------

                                                                   $  291       $  311
                                                                   ======       ======

     (1) Mostly, linked to the U.S. dollar.

NOTE 4:- INVENTORIES

Raw materials and
 packaging materials                                               $  339       $  245
Finished goods                                                        547          509
                                                                   ------       ------

                                                                   $  886       $  754
                                                                   ======       ======

NOTE 5:- PROPERTY AND EQUIPMENT

     a.   Composition of property and equipment is as follows:

Cost:
  Production and laboratory equipment                              $  738       $  419
  Motor vehicles                                                       91           91
  Office furniture and equipment                                      193          179
  Leasehold improvements                                              401          399
                                                                   ------       ------

                                                                    1,423        1,088
                                                                   ------       ------
Accumulated depreciation:
  Production and laboratory equipment                                 170           92
  Motor vehicles                                                       19            5
  Office furniture and equipment                                       88           62
  Leasehold improvements                                              328          250
                                                                   ------       ------

                                                                      605          409
                                                                   ------       ------

Depreciated cost                                                   $  818       $  679
                                                                   ======       ======

     b.   Depreciation expenses for the years ended December 31, 2006, 2005 and
          2004 amounted to $ 197, $ 146 and $ 118 (unaudited), respectively.

          As for charges, see Note 7c.


                                    - 116 -`

`SAVYON DIAGNOSTICS LTD.
NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 6:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

                                       DECEMBER 31,
                                     ---------------
                                     2006       2005
                                     ----       ----
                                         AUDITED
                                     ---------------

Royalties payable                    $ 35       $ 78
Employees and payroll accruals        159        187
Government authorities                164         43
Accrued expenses                       96         76
Other                                  28         89
                                     ----       ----

                                     $482       $473
                                     ====       ====

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 2%-3.5%
          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 paid to the Government of Israel in the years ended
          December 31, 2006, 2005 and 2004 amounted to $ 14, $ 27 and $ 28
          (unaudited) respectively, and were recorded in cost of sales.

          At December 31, 2006, the Company has a remaining contingent
          obligation to the OCS in the amount of $ 562 (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 2009.

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

          2007                                $ 432
          2008                                  387
          2009                                  260
          2010                                  209
          2011 and thereafter                   641
                                             ------

                                             $1,929
                                             ======

          Total rent expenses for the years ended December 31, 2006, 2005 and
          2004, were approximately $ 267, $ 276 and $ 155 (unaudited),
          respectively.


                                    - 117 -`

`SAVYON DIAGNOSTICS LTD.
NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

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

     c.   Charges (assets pledged) and guarantees:

          As collateral for the credit line and loans provided to the Company,
          totaling $ 239 as of December 31, 2006, the Company has placed
          unlimited fixed and floating charges on certain assets and share
          capital, in favor of the bank.

     d.   On January 2003, a former employee filed a claim against the Company
          in the amount of $ 179. On May 3, 2007, all aspects of the claim was
          rejected by a court in Israel.

     e.   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 2006, 2005 and 2004, the Company received from the
          project an aggregate amount of $ 66, $ 17 and $ 0 (unaudited),
          respectively. There is no obligation to repay the grants received.

     f.   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.

     g.   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, in amount of (euro) 418,000.

     h.   In September 2003, a shareholder assigned to the Company various
          patents with respect to methods for producing diagnostic kits and
          undertook to assist Savyon in their exploitation. In consideration
          thereof, the shareholder is entitled to receive royalties at a rate of
          4% of all net sales of the relevant future products by the Company.


                                    - 118 -`

`SAVYON DIAGNOSTICS LTD.
NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 8:- LONG-TERM BANK LOANS

     a.   Composed as follows:

                                   INTEREST RATE          DECEMBER 31,
                                 ----------------       ----------------
                                 2006        2005       2006       2005
                                 ----        ----       ----       -----
                                         %                 AUDITED
                                 ----------------       ---------------

Loans from banks                 7.7          5.1       $233       $ 48
Less - current maturities                                 80         17
                                                        ----       ----

                                                        $153       $ 31
                                                        ====       ====

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

                                       DECEMBER 31,
                                      ---------------
                                      2006       2005
                                      ----       ----
                                          AUDITED
                                      ---------------

First year (current maturities)       $ 80       $ 17
                                      ----       ----

Second year                             80         17
Third year                              73         14
                                      ----       ----

                                       153         31
                                      ----       ----

                                      $233       $ 48
                                      ====       ====

     c.   Covenants:

          The Company has a bank covenant provision which includes, amongst
          others, compliance with different financial ratios and other
          provisions. As of December 31, 2006, the Company complied within all
          such provisions.

NOTE 9:- LONG-TERM LOAN FROM A SHAREHOLDER

     In January 2003, the Company received a loan in the amount of $ 1,200. 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, 2006, 2005 and 2004, the Company repaid
     amounts of $ 204, $ 193 and $ 102 (unaudited), respectively, from the loan.
     During 2005, $ 150 was converted into shares (see also Note 10).


                                    - 119 -`

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

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.There were no significant
          issuance expenses.

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 31% in 2006, 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 as an "Approved Enterprise", according to the
               Law, under two investment programs ("the Programs").

               In accordance with the Law, the Company has chosen the
               alternative benefits track. Accordingly, taxable income derived
               from the "Approved Enterprises" is tax exempt for a period of two
               to four years and is eligible for 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 12
               years from the year in which the enterprise began operations, or
               14 years from the year in which the approval was granted,
               whichever is earlier.


                                    - 120 -`

`SAVYON DIAGNOSTICS LTD.
NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 11:- INCOME TAXES (CONT.)

               The entitlement to the above benefits is conditioned upon the
               fulfillment of the conditions stipulated by the Law, regulations
               published thereunder and the letters 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. The
               Company has decided not to declare dividends out of such
               tax-exempt income. Accordingly, no deferred income taxes have
               been provided on income attributable to the Company's "Approved
               Enterprises".

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

               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 Beneficiary Enterprise, such as
               provisions generally requiring that at least 25% of the
               Beneficiary Enterprise's income will be derived from export. The
               Company's income from Beneficiary Enterprise in 2005 and 2006 is
               immaterial. 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 Investment Law provides that terms and benefits
               included in any letter 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. As a result of the Amendment, tax-exempt income
               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.


                                    - 121 -`

`SAVYON DIAGNOSTICS LTD.
NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 11:- INCOME TAXES (CONT.)

     b.   Deferred taxes:

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

                                                           DECEMBER 31,
                                                         ---------------
                                                         2006       2005
                                                         ----       ----
                                                             AUDITED
                                                         ---------------
Deferred tax assets:
   Reserves and allowances                               $ 71       $ 86
                                                         ----       ----

Total deferred tax asset                                   71         86
                                                         ----       ----

Deferred tax liabilities:
   Management fees                                        112          -
   Property and equipment                                  14        (10)
                                                         ----       ----

Net deferred tax assets before valuation allowance        197         76
Valuation allowance                                         -          -
                                                         ----       ----

Net deferred tax assets                                  $197       $ 76
                                                         ====       ====

Deferred tax assets presented in balance sheet:

   Non-current deferred tax assets                       $154       $ 33
   Other current deferred tax assets                       43         43
                                                         ----       ----

Net deferred tax assets                                  $197       $ 76
                                                         ====       ====

     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
          income, is as follows:

                                                                                  YEAR ENDED DECEMBER 31,
                                                                              -------------------------------
                                                                              2006          2005         2004
                                                                              -----        -----        -----
                                                                                   AUDITED            UNAUDITED
                                                                              ------------------        -----

Income before income taxes, as reported in the statements of income           $ 110        $ 305        $ 122
                                                                              =====        =====        =====
Tax based on statutory tax rate in Israel (31% in 2006, 34%
   in 2005 and 36% in 2004)                                                   $  34        $ 103        $  44
                                                                              -----        -----        -----
Decrease in taxes resulting from the effect of "Approved Enterprise"              -           (6)          (3)
   benefits
Non-deductible expenses                                                          33           10           10
Deductible expense for tax purposes only                                        (21)        (103)         (17)
Taxes in respect of prior years                                                   -          (10)           -
Valuation allowance                                                               -          (20)         (21)
Other                                                                            (8)          (5)           3
                                                                              -----        -----        -----

                                                                                  4         (134)         (28)
                                                                              -----        -----        -----
Actual income tax                                                             $  38        $ (31)       $  16
                                                                              =====        =====        =====

                                    - 122 -`

`SAVYON DIAGNOSTICS LTD.
NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 11:- INCOME TAXES (CONT.)

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

                        YEAR ENDED DECEMBER 31,
                     ----------------------------
                     2006        2005        2004
                     ----        ----        ----
                         AUDITED           UNAUDITED
                     ----------------        ----

Current taxes        $ 47        $ 47        $ 16
Deferred taxes         (9)        (78)          -
                     ----        ----        ----

                     $ 38        $(31)       $ 16
                     ====        ====        ====

NOTE 12:- SELECTED STATEMENTS OF OPERATIONS DATA

     a.   Research and development costs, net:

                                                      YEAR ENDED DECEMBER 31,
                                                   ------------------------------
                                                   2006         2005         2004
                                                   -----       -----        -----
                                                        AUDITED           UNAUDITED
                                                   -----------------        -----

Materials                                          $  70       $  36        $  67
Wages and related benefits                           353         333          338
Depreciation and amortization                        106          40           31
Rent, maintenance and motor vehicle expenses          77          93           72
Consulting                                            39          86           84
Travel expenses                                       21          27           30
Other                                                  5          30            4
                                                   -----       -----        -----

                                                     671         645          626
Less - grants and participations                     134          75           46
                                                   -----       -----        -----

                                                   $ 537       $ 570        $ 580
                                                   =====       =====        =====

     b.   Financial expenses (income), net:

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

Expenses:
  Interest and others                                 61          66           40
  Exchange rate differences and bank charges          24           2           22
                                                   -----       -----        -----

                                                      85          68           62
                                                   -----       -----        -----

                                                   $  85       $  68        $ (24)
                                                   =====       =====        =====


                                    - 123 -`

`SAVYON DIAGNOSTICS LTD.
NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

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.

     b.   The following data presents total revenues and long-lived assets for
          the years ended and as of December 31, 2006, 2005and 2004:

                                       2006                      2005                      2004
                                -------------------       -------------------       -------------------
                               LONG-LIVED    TOTAL      LONG-LIVED     TOTAL      LONG-LIVED     TOTAL
                                ASSETS      REVENUES      ASSETS      REVENUES      ASSETS      REVENUES
                                ------       ------       ------       ------       ------       ------

Israel                          $1,215       $  353       $1,129       $  451       $  904       $  492
Western Europe (excluding
   France and Germany)               -        1,277            -        1,183            -          857
France                               -        1,067            -        1,377            -        1,300
Eastern Europe                       -          369            -          291            -          284
Asia                                 -          476            -          365            -          335
United States                        -          434            -          568            -          177
Germany                              -          656            -          671            -          787
Other                                -          217            -          197            -          164
                                ------       ------       ------       ------       ------       ------

                                $1,215       $4,849       $1,129       $5,103       $  904       $4,396
                                ======       ======       ======       ======       ======       ======

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

                           YEAR ENDED DECEMBER 31,
                      ----------------------------------
                      2006           2005           2004
                      ----           ----           ----
                           AUDITED               UNAUDITED
                      -------------------           ----

Customer A             22%            27%            29%
Customer B             13%            13%            18%


                                    - 124 -`

`SAVYON DIAGNOSTICS LTD.
NOTES TO FINANCIAL STATMENTS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

NOTE 14:- BALANCES AND TRANSACTIONS WITH RELATED PARTIES

     a.   Balances with related parties:

                                                                       DECEMBER 31,
                                                                   -------------------
                                                                    2006         2005
                                                                   ------       ------
                                                                         AUDITED
                                                                   -------------------
Assets:
Trade receivables (on account of purchases from the Company)       $   86       $   70
                                                                   ======       ======
Liabilities:
Management fees to shareholders                                    $1,010       $  787
                                                                   ======       ======

Long-term loans from a shareholder (see Note 9)                    $  552       $  744
                                                                   ======       ======

     b.   Transactions with related parties:

                                                                        YEAR ENDED DECEMBER 31,
                                                                      ---------------------------
                                                                      2006       2005       2004
                                                                      ----       ----       ----
                                                                          AUDITED         UNAUDITED
                                                                      ---------------       ----
Expenses:
  Management fees and reimbursement of expenses to shareholders       $396       $396       $432
                                                                      ====       ====       ====
Interest on a long-term loan from a shareholder (see Note 9)          $ 52       $ 48       $ 39
                                                                      ====       ====       ====
Income:
  Income from manufacturing and sales to a related party              $286       $325       $405
                                                                      ====       ====       ====

     c.   The Company manufactures and sells its products, amongst others, to a
          related party (Gamidor Diagnostics Ltd.), and purchases part of its
          raw material from related party (Danyel Biotech Ltd.), and pays
          management fees and reimbursement of expenses to shareholders
          (Healthcare Technologies Ltd. and Martin Lee).


                                    - 125 -`

`(B)  EXHIBITS

EXH. NO. INCORP. BY REF. TO

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

1.2              (15)         Articles of Association, restated to include all
                              amendments in effect as of the date of this Report

2.1              2.1(1)       Debenture Purchase Agreement, dated as of May 14,
                              1991, among Healthcare, Rosebud, Evergreen-Canada
                              Israel Investment and Company Ltd. et. al.

4.1              2.3(1)       Agreement dated February 21, 1991 between Savyon
                              and New Horizons Diagnostic Corp.

4.2              2.4(1)       Agreement dated August 1, 1986 between Diatech Ltd.
                              and Diamotek Ltd.

4.3              2.5(1)       Agreement dated February 22, 1987 between Diatech
                              Ltd. and Yissum University.

4.4              2.6(1)       Agreement dated September 9, 1987 between Diatech
                              Ltd. and Ramot University Authority for Applied
                              Research & Industrial Development Ltd.

4.5              2.7(1)       Agreement dated July 15, 1989 between Diatech Ltd.
                              and Yissum University.

4.6              2.8(1)       Agreement dated January 1, 1991 between Diatech
                              Ltd. and Yeda.

4.7              2.9(1)       Distributorship Agreement between Savyon and
                              Toshin, dated March 3, 1986.

4.8              2.11(4)      Lease Agreement for Savyon's Facilities in Ashdod,
                              Israel, dated March 29, 1993.

4.9              2.13(4)      Agreement between the Company and Savyon dated
                              October 10, 1994.

4.10             2.15(6)      Agreement dated January 23, 1995 between the
                              Company, Eriphyle Trading Ltd. and Gamida-Gen
                              Marketing Ltd., for the acquisition by the Company
                              of shares of Gamida-Gen Marketing Limited (Gamidor).

4.11             2.17(7)      Agreement dated April 10, 1997 between the Company,
                              Gamida for Life BV, Yacob Ofer, Gamida-Gen
                              Marketing Ltd. and Gamidor Diagnostics (1984) Ltd.,
                              for the acquisition by the Company of ordinary
                              shares of Gamida-Gen Marketing Ltd.

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

4.13             2.20(9)      Agreement dated December 23, 1998 between the
                              Company, Gamida Trading Ltd., Gamida for Life BV
                              and Gamidor Limited (Gamidor UK).


                                     - 126 -`

`4.14             2.21(9)      Heads of Agreement dated October 1, 1998 between
                              Gamidor Diagnostics (1994) Ltd. and the principal
                              shareholder in Yaron Chemicals Ltd.

4.15             2.22(9)      Agreement dated February 7, 1999 between Healthcare
                              Technologies Ltd., Hadasit Medical Research
                              Services & Development Limited and others.

4.16             2.23(9)      Agreement between Luly Gurevich and Entity as
                              adopted by Healthcare Technologies Ltd. in June
                              1999.

4.17             (16)         The Company's amended year 2000 Incentive Share
                              Option Plan.

4.18             2.25(11)     Share Purchase Agreement dated August 21, 2000, by
                              and between Healthcare Technologies Ltd., Glycodata
                              Ltd., Mr. Ofer Markman, Mr. Yeshayahu Yakir and
                              certain investors, including Form of Convertible
                              Debenture attached as Exhibit B thereto.

4.19             2.26(11)     Share Purchase Agreement dated October 2, 2000
                              between Healthcare Technologies Ltd., Gamida For
                              Life BV (and other shareholders of GamidaGen Ltd.)
                              and GamidaGen Ltd.

4.20             2.27(11)     Assignment and Transfer Agreement dated December 1,
                              2000 between Healthcare Technologies Ltd. and
                              Savyon Diagnostics Ltd.

4.21             2.28(11)     Asset Transfer and Assignment Agreement dated
                              December 30, 2000 between Diatech Diagnostics Inc,
                              Diatech Diagnostics Ltd. and Savyon Diagnostics Ltd.

4.22             2.29(11)     Share Sale and Assignment Agreement dated December
                              31, 2000 between Diatech Diagnostics Inc, Diatech
                              Diagnostics Ltd. and Healthcare Technologies Ltd.

4.23             2.30(11)     Agreement dated January 21, 2001 between Healthcare
                              Technologies Ltd and Savyon Diagnostics Ltd.

4.24             2.31(12)     Share Exchange Agreement dated April 29, 2002
                              between Procognia Ltd., Glycodata Ltd., Healthcare
                              Technologies Ltd. and the other shareholders of
                              Glycodata Ltd.

4.25             2.32(12)     Subscription and Shareholders' Agreement relating
                              to Procognia Ltd. dated April 29, 2002 between
                              certain investors, executives and additional
                              subscribers, Healthcare Technologies Ltd.,
                              Procognia Ltd. and Glycodata Ltd.

4.26             99.1(13)     Distribution Agreement between Dade Behring Marburg
                              GmbH and Gamidor Diagnostics

4.27             99.2(13)     Distribution Agreement between Amersham Pharmacia
                              Biotech AB and Danyel Biotech Ltd.

4.28             99.3(13)     Deal Structure Document for Savyon 2003 Transaction.


                                     - 127 -`

`4.29             10(14)       Agreement between Biodiagnostic (Savyon) and
                              Advance Products (B.G. Negev Technologies and
                              Applications) Ltd. dated October 31, 1983.

4.30             4.30         Agreement dated October 26, 1994 with the
                              Washington Research Foundation.

4.31             14           Assignment Agreement Amersham - dated August 2,
                              2001.

4.32             16           Term Sheet for ImmvaRx transaction.

4.33             17           Audit Committee Charter.

4.34             17           Agreement for the sale of the Company's shares in
                              Procognia to Gamida.

4.35             15           Agreement between Healthcare Technologies Ltd.,
                              Gamida For Life B.V., Macqaurie Bioventures Inc.
                              and NexGen Biofuels Inc.

8.               99.5         Subsidiaries of the Registrant.

11               17           Code of Ethics

12.1             15           Certification of Chief Executive Officer pursuant
                              to 18 U.S.C. Section 1350 as adopted pursuant to
                              Section 906 of the Sarbanes-Oxley Act Of 2002.

12.2             15           Certification of Chief Financial Officer pursuant
                              to 18 U.S.C. Section 1350 as adopted pursuant to
                              Section 906 of the Sarbanes-Oxley Act Of 2002.

12.3             15           Certification of Chief Executive Officer pursuant
                              to Rule 13a-14(a) of the Securities Exchange Act of
                              1934, as amended.

12.4             15           Certification of Chief Financial Officer pursuant
                              to Rule 13a-14(a) of the Securities Exchange Act of
                              1934, as amended.

23               15           Consent of Kost Forer & Gabbay.

                 ----------

                 1    Incorporated by reference to the Registrant's Registration
                      Statement on Form F-1 (File No. 44811)

                 2    Incorporated by reference to the Registrant's Registration
                      Statement on Form F-1 (File No. 33-22868)

                 3    Incorporated by reference to the Registrant's Registration
                      Statement on Form F-1 (File No. 33-54190)

                 4    Incorporated by reference to the Registrant's Registration
                      Statement on Form F-2 (File No. 33-85144)

                 5    Incorporated by reference to the Registrant's Annual Report
                      on Form 20-F for the Fiscal year ended December 31, 1994.

                 6    Incorporated by reference to the Registrant's Annual Report
                      on Form 20-F for the Fiscal year ended December 31, 1995.

                 7    Incorporated by reference to the Registrant's Annual Report
                      on Form 20-F for the Fiscal year ended December 31, 1996.


                                     - 128 -`

`8    Incorporated by reference to the Registrant's Annual Report
                      on Form 20-F for the Fiscal year ended December 31, 1997.

                 9    Incorporated by reference to the Registrant's Annual Report
                      on Form 20-F for the Fiscal year ended December 31, 1998.

                10    Incorporated by reference to the Registrant's Annual Report
                      on Form 20-F for the Fiscal year ended December 31, 1999.

                11    Incorporated by reference to the Registrant's Annual Report
                      on Form 20-F for the Fiscal year ended December 31, 2000.

                12    Incorporated by reference to the Registrant's Annual Report
                      on Form 20-F for the fiscal year ended December 31, 2001, as
                      amended.

                13    Incorporated by reference to Registrant's Registration
                      Statement on form F-3 (SEC File No. 333-99601).

                14    Incorporated by reference to Registrant's Registration
                      Statement on Form F-3 (SEC File No. 33-22868).

                15    Filed herewith.

                16    Incorporated by reference to the Registrant's Annual Report
                      on Form 20-F for the Fiscal year ended December 31, 2003.

                17    Incorporated by reference to the Registrant's Annual Report
                      on Form 20-F for the Fiscal year ended December 31, 2004.



                                     - 129 -`

`SIGNATURES

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

                                              HEALTHCARE TECHNOLOGIES LTD.


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


Date: June 28, 2007


                                     - 130 -`

`Exhibit 12.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C.
SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002

Exhibit 12.2 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C.
SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002

Exhibit 12.3 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

Exhibit 12.4 CERTIFICATION OF CHIEF FINANCIA OFFICER PURSUANT TO RULE 13A-14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED`