UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549




FORM 20-F




o
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, 2014





OR




o
TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




For the transition period from _____________ to ____________





OR




o
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 0-30820




TIKCRO TECHNOLOGIES LTD.


(Exact name of Registrant as specified in its charter)




N/A


(Translation of Registrant’s name into English)




ISRAEL


(Jurisdiction of incorporation or organization)




POB 87, Hadera 3810002, Israel


(Address of principal executive offices)




Aviv Boim, T: +972-4-671-5933, info@tikcro.com


POB 87, Hadera 3810002, Israel


(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)









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




Title of each class

None
Name of each exchange on which registered




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




Ordinary Shares, no par value


(Title of Class)




Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:




None


(Title of Class)




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:




8,898,861 Ordinary Shares, no par value




Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.





o Yes  ýNo





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.





o Yes   ýNo





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.





ý Yes   o No





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).





ý Yes  o 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 o                                                      Accelerated filer o                                           Non-accelerated filer ý





Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:





U.S. GAAP ý                                                      IFRS as issued by the IASB o                                              Other o





If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.





Item 17 oItem 18 o




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).





oYesý No




ii




TABLE OF CONTENTS




PART I

1




ITEM 1.
Identify of Directors, Senior Management and Advisors
1




ITEM 2.
Offer Statistics and Expected Timetable
1




ITEM 3.
Key Information
1




A.
Selected Financial Data
1




B.
Capitalization and Indebtedness
3




C.
Reasons for the Offer and Use of Proceeds
3




D.
Risk Factors
4




ITEM 4.
Information on the Company
17




A.
History and Development of the Company
17




B.
Business Overview
17




C.
Organizational Structure
24




D.
Property, Plants and Equipment
24




ITEM 4A.      Unresolved Staff Comments
24




ITEM 5.
Operating and Financial Review and Prospects
24




A.
Operating Results
24




B.
Liquidity and Capital Resources
24




C.
Research and Development, Patents and Licenses
29




D.
Trend Information
30




E.
Off-balance Sheet Arrangements
30




F.
Tabular Disclosure of Contractual Obligations
30




ITEM 6.
Directors, Senior Management and Employees
30




A.
Directors and Senior Management
30




B.
Compensation
32




C.
Broad Practices
33




D.
Employees
39




E.
Share Ownership
39




iii




ITEM 7.
Major Shareholders and Related Party Transactions
40




A.
Major Shareholders
40




B.
Related Party Transactions
40




C.
Interests of Experts and Counsel
41




ITEM 8.
Financial Information
41




A.
Consolidated Statements and other Financial Information
41




B.
Significant Changes
41




ITEM 9.
The Offer and Listing
41




A.
Offer and Listing Details
41




B.
Plan of Distribution
43




C.
Markets
43




D.
Selling Shareholders
43




E.
Dilution
43




F.
Expenses of the Issue
43




ITEM 10.
Additional information
43




A.
Share Capital
43




B.
Memorandum and Articles of Association
43




C.
Material Contracts
49




D.
Exchange Controls
50




E.
Taxation
50




F.
Dividends and Paying Agents
60




G.
Statement by Experts
60




H.
Documents On Display
60




I.
Subsidiary Information
60




ITEM 11.
Quantitative and Qualitative Disclosures about Market Risk
60




ITEM 12.
Description of Securities other than Equity Securities
61




iv




PART II.

61




ITEM 13
Defaults, Dividend Averages and Delinquencies
61




ITEM 14Material Modifications to the Rights of Security Holders and Use ofProceeds
61




ITEM 15.          Controls and Procedures
61




ITEM 16A.
Audit Committee Financial Expert
62




ITEM 16B.         Code of Ethics

63




ITEM 16C.        Principal Accountant Fees and Services
63




ITEM 16D.        Exemptions from Listing Standards for Audit Committees

63




ITEM 16E.        Purchases of Equity Securities by the Issuer and Affiliated Purchasers
63
  ITEM 16F.        Change in Registrant’s Certifying Accountant
63
  ITEM 16G.         Corporate Governance
63
  ITEM 16H.         Mine Safety Disclosure
64
  PART III
64


ITEM 17.            Financial Statements
64




ITEM 18.            Financial Statements
64







ITEM 19.            Exhibits

64


v





PART I




Unless the context otherwise requires, “Tikcro,” “us,” “we” and “our” refer to Tikcro Technologies Ltd., an Israeli company. References to “U.S. dollars,” and “$” are to the lawful currency of the United States of America, and references to “NIS” are to new Israeli shekels. As of December 31, 2014, the exchange rate published by the Bank of Israel was NIS 3.889 per $1.00.




Statements in this Annual Report concerning our business outlook or future economic performance; anticipated revenues, expenses or other financial items; and statements concerning assumptions made or expectations as to any future events, conditions, performance or other matters, are “forward-looking statements” as that term is defined under the United States Federal Securities Laws. In some cases, you can identify forward-looking statements by our use of words such as “expect,” “anticipate,” “believe,” “intend,” “plan,” “seek” and “estimate” and similar expressions.  Forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from those stated in such statements.  Factors that could cause or contribute to such differences include, but are not limited to, those set forth under “Risk Factors” and elsewhere in this Annual Report as well as our reports on Form 6-K submitted to the Securities and Exchange Commission.




ITEM 1.
Identity of Directors, SeniorManagement and Advisors




Not applicable.




ITEM 2.
Offer Statistics and Expected Timetable




Not applicable.




ITEM 3.
Key Information




A. Selected Financial Data




We have derived the following selected financial data, with respect to the five years from 2010 through 2014, from the audited financial statements of Tikcro, which have been prepared in accordance with U.S generally accepted accounting principles.




The selected financial data set forth below as of December 31, 2013 and 2014 and for each of the years ended December 31, 2012, 2013 and 2014 are derived from our audited financial statements which are incorporated by reference into this Annual Report.




The selected financial data as of December 31, 2010, 2011 and 2012 and for the years ended December 31, 2010 and 2011 are derived from our audited financial statements which are not included in this Annual Report.




You should read the selected financial data together with Item 5 “Operating and Financial Review and Prospects” and our financial statements included elsewhere or incorporated by reference in this Annual Report.




1




In 2014, we initiated a biotechnology project in the area of cancer immune checkpoints with the aim to develop new antibodies with superior clinical qualities for the treatment of cancer through the re-modulation of certain identified immune checkpoints. For that purpose, in December 2014 we entered into aresearch and license agreement with Yeda Research and Development Company Ltd. ("Yeda"), the technology transfer arm of the Weizmann Institute of Science (the "Weizmann Institute") in Israel.The agreement is for the development of new antibodies originating from specified research at the Weizmann Institute addressing identified targets of cancer immune checkpoints.Under the agreement, Tikcro will provide funding for further research at the Weizmann Institute to develop certain antibodies selected and verified in pre-clinical trials. The antibodies may have high selectivity and binding qualities towards cancer immune checkpoints. Please see Item 4.B “Business Overview” for more information.
  In July 2008, we acquired a minority stake in BioCancell Therapeutics, Inc., an Israel-based clinical-stage biopharmaceutical company, which stake was substantially liquidated in 2012. Please see Item 4.A “Information on the Company - History and Development of the Company - Recent Developments” for more information.
  2


Years Ended December 31,2010


2011


2012


2013


2014(in thousands, except share and per share data)Statement of Operations Data:Research and development

$
-


$
92


$
40


$
29


$
89General and administrative expenses

$
471 471



541



401



542



348Consulting services


(82
)


(76
)


(41
)


-



-Operating loss

$
(389
)

$
(557
)

$
(400
)

$
(571
)

$
(437
)Financial income (expenses), net


(389
)


(2,303
)


(158
)


579



(240
)Income (loss) before taxes


(778
)


(2,860
)


(558
)


8



(677
)Tax expenses


-



(54
)


34



-



-Net income (loss)

$
(778
)

$
(2,914
)

$
(592
)

$
8


$
(677
)Basic net earnings (loss) per share

$
(0.09
)

$
(0.34
)

$
(0.07
)

$
(0.00
)

$
(0.08
)Diluted net earnings (loss) per share

$
(0.09
)

$
(0.34
)

$
(0.07
)

$
(0.00
)

$
(0.08
)Number of shares used in computing basic net earnings (loss) per share


8,475,833



8,562,402



8,649,048



8,747,776



8,832,385Number of shares used in computing diluted net earnings (loss) per share


8,475,833



8,562,402



8,649,048



8,747,776



8,832,385







December 31,2010


2011


2012


2013


2014(in thousands)Balance Sheet Data:Cash and cash equivalents, marketable securities and deposits

$
7,270


$
6,985


$
9,234


$
9,120


$
8,722Investment in BioCancell - Short-term*


-



3,033



243



397



85Investment in BioCancell - Long-term*


5,625



-



-



-



-Working capital


7,108



9,881



9,337



9,403



8,648Total assets


13,051



10,183



9,508



9,531



8,920Shareholders' equity


12,733



9,881



9,337



9,403



8,736


* See Item 4 “Information on the Company” for more information on our investment in BioCancell.




B. Capitalization and Indebtedness




Not applicable.




C. Reasons for the Offer and Use of Proceeds




Not applicable.




3




D. Risk Factors




We believe that the occurrence of any one or some combination of the following factors could have a material adverse effect on our business, financial condition and results of operations.




Risks relating to our business




We currently conduct limited business activities pursuing early stage technology projects, mainly in the biotechnology field, which may not be successful.




Our activities are limited to attempting to locate candidates and to the funding and supporting early stage technology projects, with a focus on early stage biotechnology projects. In December 2014, we entered into a research and development agreement addressing new antibodies which may have high selectivity and binding qualities towards cancer immune checkpoints, with the aim to develop highly selective antibodies compared with antibodies resulting from using currently known research methodology. Our further investment in this project will depend on research milestones.




We select venture and growth projects for investment which are subject to high uncertainty of completion.




We select venture and growth projects and other businesses for investment. The process through entering into a license or investment is subject to high uncertainty. There can be no assurance that we will be successful in identifying and evaluating suitable business opportunities or in consummating transactions at reasonable commercial terms.   Since 2008, the only significant transaction that we consummated was with BioCancell, of which our stake was substantially liquidated in 2012 after BioCancell repaid the amounts due to us plus interest under a convertible note we purchased. There is no assurance that we will be able to negotiate additional transactions on terms favorable to us, or at all, or that any projects or companies in which we invest will be successful.




4





Risks relating to our antibody program





Our antibody program addressing cancer immune checkpoints is in early discovery and pre-clinical development, and there is no assurance that it will be successful or produce any revenues.





Our antibody program is in pre-clinical discovery and in-vitro trial development. We have not yet identified lead antibody candidates in targeting cancer immune checkpoints and there is no assurance that we will be successful in this aim. Even if our pre-clinical studies produce positive results, they may not necessarily be predictive of further in-vivo animal studies and of the results of future clinical trials in humans. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced in-vivo animal trials and/or in clinical trials after achieving positive results in pre-clinical development, and we cannot be certain that we will not face similar setbacks. These setbacks have been caused by, among other things, pre-clinical findings made while clinical trials were underway or safety or efficacy observations made in clinical trials, including adverse events. Moreover, pre-clinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily in pre-clinical studies and clinical trials nonetheless failed to obtain regulatory approval. Specifically, in-vivo animal trial models used to verify immunological agents pose high complexity since human immune systems vary considerably from small animal immune systems. Therefore, results from trials with small animals and non human primates may be a weak predictor for clinical results with humans. If we fail to produce positive results in in-vivo animal trials and in clinical trials of our antibodies, our business and financial prospects would be materially adversely affected.





New data from our research and development activities could modify our strategy and result in the need to adjust our projections of timelines and costs.





Because we are focused on novel technologies to develop antibody candidates for cancer immune checkpoints, our research and development activities involve the ongoing discovery and generation of new data, based on which we determine next steps for a relevant program. We monitor the likelihood of success of our initiatives and we may need to discontinue funding of such activities if they do not prove to be commercially feasible. Moreover, these product candidates may not be effective in treating any disease or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may prevent or limit commercial use.





Clinical drug development is expensive, time consuming and uncertain, and we may ultimately not be able to obtain regulatory approvals for the commercialization of antibody products.





The research, testing, manufacturing, labeling, approval, selling, marketing and distribution of drug products are subject to extensive regulation by the U.S. Food and Drug Administration, or FDA, European Union, and EU Member State legislators and agencies, such as the European Medicines Agency, or EMA, and other non-U.S. regulatory authorities, which enforce regulations that differ from country to country. We will not be permitted to market product candidates in the United States until we receive approval of a biologics license application, or BLA, from the FDA or in any other country until we receive marketing approval from applicable regulatory authorities outside the United States. Our in-development product candidates are in very early stages of development and are subject to the risks of failure inherent in drug development. We have not submitted an application, or received marketing approval, for any product candidates. Obtaining approval of a BLA or other marketing application can be a lengthy, expensive and uncertain process, and delay or failure can occur at any stage of the process.




5


Our in-development antibody product candidates will face a variety of risks and uncertainties, including the following:





•           future clinical trial results may show that our antibody product is not effective for many reasons, our clinical trial designs are flawed or clinical trial subjects do not comply with trial protocols;





•           our product candidates may not be well tolerated or may cause negative side effects;





•           our ability to complete the development and commercialization of products may be significantly dependent upon our ability to obtain and maintain experienced and committed collaborators to assist us with obtaining clinical and regulatory approvals for, and the manufacturing, marketing and distribution of, our products;





•           even if a product is shown to be safe and effective for its intended purposes, we may face significant or unforeseen difficulties in obtaining or manufacturing sufficient quantities or at reasonable prices;





•           even if a product is successfully developed, commercially produced and receives all necessary regulatory approvals, there is no guarantee that there will be market acceptance; and





•           our competitors have developed competing antibodies and invest significant efforts to develop therapeutics or other treatments that may be superior to or less costly than our own with the result that our products, even if they are successfully developed, manufactured and approved, may not generate significant revenues.





If we are unsuccessful in dealing with any of these risks, or if we are unable to successfully commercialize antibody products for some other reason, it would likely have a material adverse effect on our business, prospects, financial condition and results of operations.




6


The commencement and completion of clinical trials can be delayed or prevented for a number of reasons.




Drug development is a long, expensive and uncertain process, and delay or failure can occur at any stage of any of our clinical trials. The commencement and completion of clinical trials can be delayed or prevented for a number of reasons, including due to the need to have healthcare regulatory approvals, having agreements with  contract research organizations, contract manufacturing organizations, and trial sites, having regulatory requests for alterations to any of our study designs, pre-clinical strategy or manufacturing plans, challenges for recruiting and enrolling subjects to participate in clinical trials, changes in regulatory requirements, policy and guidelines.





If we do not succeed in conducting and managing our preclinical development activities or clinical trials, or in obtaining regulatory approvals, we might not be able to commercialize product candidates, or might be significantly delayed in doing so, which could have a material adverse effect on our business, prospects, financial condition and results of operations.





Our competitors in the biotechnology and pharmaceutical industries have already FDA approved products targeting certain cancer immune checkpoints, have superior development and manufacturing capabilities, selling and marketing expertise and financial resources.




Our antibody product program is in early development stage and, even if it results with strong antibody candidates, it will be first evaluated for U.S. Food and Drug Administration (FDA) approval to allow initial clinical trials only in several years. While we pursue a unique technology for the development of antibodies, we may fail because of competition from major pharmaceutical companies and specialized biotechnology companies that already have FDA approved antibody products, or that are engaged in advanced stages of clinical development of product candidates directed at the same or at similar cancer immune checkpoints and treat similar cancer indications. Our competitors have greater development, manufacturing, sales, marketing, financial and human resources and have more experience than we do.


A number of antibodies that address cancer immune checkpoints have obtained FDA approvals and are offered on the market, including the following: (1) Bristol-Myers Squibb’s  ipilimumab, an anti-cytotoxic T-lymphocyte-associated protein 4 (CTLA-4) antibody, was FDA approved in 2011 for the treatment of melanoma, a type of skin cancer, (2) Merck’s pembrolizumab, an anti programmed cell death protein 1 (PD-1) antibody, was FDA approved in 2014 in an accelerated approval process for the treatment of melanoma for use following treatment with ipilimumab, and (3) Bristol-Myers Squibb’s nivolumab, an anti PD-1 antibody, was FDA approved in 2014 for the treatment of unresectable or metastatic melanoma patients who no longer respond to other drugs. In early 2015, the FDA approval for nivolumab was expanded to treat also patients with metastatic squamous non-small cell lung cancer (NSCLC), a common type of lung cancer, with progression on or after platinum-based chemotherapy.




7





Additional antibodies that target cancer immune checkpoints which are in advanced clinical development include, without limitation, the following: (1) AstraZeneca Medimmune's anti-CTLA-4, an anti-PD-1 and an antiprogrammed cell death 1 ligand 1 (PD-L1) antibodies, (2) Medivation's (through a license from Curetech) technology for an anti-PD-1 antibody, (3) Pfizer's andMerck KGaA's joint pursuit of an anti-PD-L1 antibody, and (4) Roche Genentech's promotion of an anti-PD-L1 antibody.





In addition, there a numerous pre-clinical programs pursued by biotechnology and pharmaceuticalcompanies and academic centers for the development of antibodies that target the same or other cancer immune checkpoints as our antibody program. In addition, there are approved as well as advanced clinical trials for other agents like t-cell modulators and cancer vaccines that trigger an immune response against cancer cells.





There is no assurance that our antibody products in development will be able to compete with the above antibodies, alone or in combination with other agents that trigger an immune response, specifically with the products that are expected to have an established market presence and clinical track record for several years prior to our having an FDA approved product addressing immune cancer checkpoints, even if any of our in-development products ultimately obtains FDA approval.





Accelerated FDA approval protocols used to allow market access for cancer immune checkpoint agents are expected to increase competition in this area.





Since the clinical effects of antibodies directed at cancer immune checkpoints in certain cancer indications proved to be superior compared to current treatments, the FDA uses accelerated approval protocols for such products. For example, the FDA approvals of both Merck’s and Bristol-Myers Squibb’s cancer immune checkpoint antibodies in 2014 and 2015 were granted pursuant to accelerated and priority review programs, which provide for an expedited review of drugs that treat serious conditions and, if approved, would provide significant improvement in safety or effectiveness in the treatment of a serious condition. Such approval protocols are expected to increase competition for our antibody development program, with accelerated launches of new agents for the treatment of cancer through the modulation of immune checkpoints and other technologies.





8





Manufacturing products resulting from our antibody program may cause delays, increased costs, or loss of revenues.





If we are successful in identifying lead antibody candidates, our antibody program will require substantial development and investment in manufacturing. Since the project is still in preclinical stage, we have not initiated the development of systems required to manufacture antibody candidates. We intend to utilize consultants and advisors to assist advancing these operations. We intend to rely on contract manufacturing organizations, or CMOs, and contract research organizations, or CROs, to support our antibody programs which would cause us to incur additional costs and risks.





If we fail to comply with our obligations under our intellectual property licenses with third parties, we could lose license rights that are important to our business.





We are currently party to an intellectual property license agreement with Yeda and pursue additional licenses.Such engagements impose various diligence, milestone payment, royalty, insurance and other obligations. If we fail to comply with our obligations under such licenses, the licensors may have the right to terminate their respective license agreements, in which event we might not be able to pursue the development and eventually to market any product that is covered by the agreement. Termination of a license agreement or reduction or elimination of our licensed rights may result in our having to negotiate a new or reinstated license with less favorable terms, which could harm our business.





9





Healthcare legislative changes may harm our business and future prospects.




Healthcare costs have risen significantly over the past decade. Globally, governments are becoming increasingly aggressive in imposing health care cost-containment measures. Certain proposals, if passed, would impose limitations on prices of pharmaceutical agents. Such limitations will affect prices and the amounts of reimbursement available for these products from governmental agencies or third-party payors. These limitations could in turn reduce the attractiveness to invest in our antibody project and harm our ability to raise funds.




Other business risks




We fund early stage technology projects, which involves a high risk.




We provide funding for early-stage biotechnology projects. Since we invest at an early stage, the risk of loss is high. In 2013 and 2014, we recorded relatively insignificant research and development expenses related to such projects, although additional funding for certain research and development expenses of such projects is provided by the Israeli government but is not recorded by us as an expense. Our expenses related to our antibody project with Yeda are expected to be significant.




Our shareholders may be subject to dilution of the value of our shares if we issue newly issued securities, enter into a strategic transaction regarding any of the technology projects or conduct a business combination.




In order to pursue the funding of early stage technology projects, we will need a significant amount of cash. Issuance of newly issued securities, entering into a strategic transaction involving any of our technology projects, and a business combination are among the business alternatives considered by us, are likely to involve the issuance of a significant number of additional shares or transferring certain rights in technology projects to a strategic party. Depending upon the amount of funds we raise in any such equity financing or strategic partnership, the value of the assets acquired in such transaction or the funds raised from a strategic partner in return for rights in any of our technology projects, may result in a significant decrease of the per-share value of our ordinary shares.




The growth of our business depends on our obtaining additional financing, which may be unavailable to us or available at unfavorable terms.




In order to pursue the investment in technology projects, including in our antibody project, we will need to raise significant additional funds through public or private equity or debt financings. We may be unable to obtain additional financing on acceptable terms or at all, which would harm our financial condition and results of operations.




10




Conditions and changes in the national and global economic and political environments may adversely affect our business and financial results.




Current global financial conditions have been characterized by increased volatility and several financial institutions have either gone into bankruptcy or have had to be rescued by governmental authorities. With major financial institutions de-levering their balance sheets, credit was constricted in recent years, and may likely remain so for an extended period. In addition, recent concerns regarding the possibility of sovereign debt defaults by European Union member countries has disrupted financial markets throughout the world, and may lead to weaker consumer demand in the European Union, the United States, and other parts of the world. If economic growth further declines, this may have a negative impact on our financial condition and share price, which may impact our ability to obtain financing and other sources of funding in the future on terms favorable to us, if at all. If such increased levels of volatility and market turmoil continue, it may materially adversely affect our results of operations.




We may be deemed an “investment company” under the Investment Company Act of 1940.




We may be deemed an “investment company” under the Investment Company Act of 1940, unless we qualify for an exemption. If we acquire stakes in operating companies, we may be deemed an investment company if we do not have sufficient control over such companies or qualify for another exemption under the Investment Company Act of 1940. If we are deemed an investment company, we could be found to be in violation of the Investment Company Act of 1940. A violation of that law could make it more difficult for us to register securities and raise funding and subject us to other material adverse consequences.




We might lose money from the investment of our cash.




We invest the majority of our cash on hand in bank deposits and financial instruments. If the obligor of any of the instruments we hold defaults or undergoes a reorganization in bankruptcy, we may lose all or a portion of our investment.  This would harm our financial condition.  For information on the types of our investments as of December 31, 2014, see Item 11 “Quantitative and Qualitative Disclosures about Market Risk - Interest Rate Risk Management”.




We are subject to costs and risks associated with complying with extensive corporate governance and disclosure requirements.




As a foreign private issuer in Israel subject to U.S. federal securities laws, we are required to comply with laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, various SEC regulations and the Israeli Companies Law. Section 404 of the Sarbanes-Oxley Act requires management’s annual review and evaluation of our internal control over financial reporting and attestation of the effectiveness of these controls by our management. There is no guarantee that these efforts will result in management assurance that our internal control over financial reporting is adequate in future periods. The additional management attention and costs relating to compliance with the Sarbanes-Oxley Act and other corporate governance requirements could materially and adversely affect our financial results.




11




Risks relating to our presence in Israel




Our incorporation in Israel may limit our ability to find a target for a business combination or other transactions outside Israel.




We are incorporated and headquartered in Israel. Since the establishment of the State of Israel in 1948, a number of armed conflicts have occurred between Israel and its Arab neighbors, Hamas (an Islamist militia and political group in the Gaza Strip) and Hezbollah (an Islamist militia and political group in Lebanon). Recent political events and continuous unrest in various countries in the Middle East and Northern Africa, including Egypt and Syria, have shaken and continue to impact the stability of those countries. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons.  Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza and Hezbollah in Lebanon. This situation may potentially escalate in the future to violent events which may affect Israel and us. We cannot predict the effect on us of the increase in the degree of terror attacks against Israel, political instability in the region or military action elsewhere in the Middle East.  Furthermore, several countries restrict doing business with Israel and Israeli companies, and additional companies may restrict doing business with Israel and Israeli companies as a result of an increase in hostilities or due to disagreement with Israel’s policies. This may also seriously harm our operating results, financial condition and the ability to expand our business.


It may be difficult to enforce a U.S. judgment against us, our officers and directors or to assert U.S. securities law claims in Israel.




Service of process upon our directors and officers named herein may be difficult to effect within the United States because some of these people reside outside the United States. Any judgment obtained in the United States against us or these individuals or entities may not be enforceable within the United States.




In addition, it may be difficult to assert U.S. securities law claims in original actions instituted in Israel.  Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws because Israel is not the most appropriate forum to bring such a claim.  In addition, even if any Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim.  If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process.  Certain matters of procedure will also be governed by Israeli law.  There is little binding case law in Israel addressing these matters.




12




Subject to specified time limitations and legal procedures, under the rules of private international law currently prevailing in Israel, Israeli courts may enforce a U.S. judgment in a civil matter, including judgments based upon the civil liability provisions of the U.S. securities laws and including a monetary or compensatory judgment in a non-civil matter, provided that the following key conditions are met:




·
subject to limited exceptions, the judgment is final and non-appealable;




·
the judgment was given by a court competent under the laws of the state of the court and is otherwise enforceable in such state;




·
the judgment was rendered by a court competent under the rules of private international law applicable in Israel;




·
the laws of the state in which the judgment was given provide for the enforcement of judgments of Israeli courts;




·
adequate service of process has been effected and the defendant has had a reasonable opportunity to present his arguments and evidence;




·
the judgment and its enforcement are not contrary to the law, public policy, security or sovereignty of the State of Israel;




·
the judgment was not obtained by fraud and does not conflict with any other valid judgment in the same matter between the same parties; and




·
an action between the same parties in the same matter was not pending in any Israeli court at the time the lawsuit was instituted in the U.S. court.




13





Provisions of Israeli law may delay, prevent or make more difficult a merger or other business combination, which may depress our share price.




Provisions of Israeli corporate law may have the effect of delaying, preventing or making more difficult a merger with, or acquisition of, us.  The Israeli Companies Law generally provides that a merger be approved by the board of directors and a majority of the shares present and voting on the proposed merger.  For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the shares not held by the other party to the merger (or by any person who holds 25% or more of the shares or the right to appoint 25% or more of the directors of the other party or its general manager) have voted against the merger.  Upon the request of any creditor of a party to the proposed merger, a court may delay or prevent the merger if it concludes that there is a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations of the surviving company.  Finally, a merger may not be completed unless at least (i) 50 days have passed since the filing of a merger proposal signed by both parties with the Israeli Registrar of Companies and (ii) 30 days have passed since the merger was approved by the shareholders of each merging company.




The Companies Law also provides that an acquisition of shares in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become a 25% or greater shareholder of the company, unless there is already another 25% or greater shareholder of the company.  Similarly, an acquisition of shares must be made by means of a tender offer if as a result of the acquisition the purchaser would become a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. In any event, if as a result of an acquisition of shares the acquirer will hold more than 90% of a company’s shares, the acquisition must be made by means of a tender offer for all of the shares.




Finally, Israel tax law treats some acquisitions, such as stock-for-stock exchanges between an Israeli company and a foreign company, less favorably than U.S. tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his ordinary shares for shares in another corporation, to taxation prior to the sale of the shares received in such stock-for-stock swap.




The described restrictions could prevent or make more difficult an acquisition of Tikcro, which could depress our share price.




Risks relating to the market for our ordinary shares




Holders of our ordinary shares who are U.S. residents face certain potentially adverse U.S federal income tax consequences.




As a consequence of our ownership of relatively substantial cash and investment assets, it is likely that we would be classified for U.S. federal income tax purposes as having been a passive foreign investment company, or PFIC, for each year since 2003, although the determination of PFIC status is made separately for each year and our PFIC status could change. Classification as a PFIC could result in a reduction in the after-tax return to U.S. holders of our ordinary shares, which could, in turn, cause a reduction in the value of our ordinary shares.  Classification as a PFIC also triggers the application of certain United States income tax reporting requirements.




14




U.S. residents should carefully read Item 10.E “Taxation – United States Federal Income Tax Consequences” for a more complete discussion of the U.S. federal income tax risks related to owning and disposing of our ordinary shares and the consequences of PFIC status.




The trading market for our ordinary shares has low liquidity, which could make it difficult for our shareholders to sell their shares at desired prices and amounts.




Our ordinary shares are traded on the OTCQB. The market for shares quoted on the OTCQB is typically less liquid than that for shares listed on national stock exchanges, such as the Nasdaq Stock Market, where we do not meet the listing criteria. This could make it more difficult for our shareholders to sell their shares at desired prices and amounts.




The market price of our ordinary shares is subject to fluctuations.




The market value of our ordinary shares has fluctuated over time, not necessarily in connection with the performance of our business.  The following factors, among others, may significantly impact the market price of our ordinary shares:




•
our company's releases regarding developments in our business;




•
industry developments, including business developments of competitors and FDA policy and drug evaluation announcements;




•
low trading volume of our ordinary shares;




•
political, economic or other developments affecting Israel;




•
global economic and other external factors; and




•
quarter-to-quarter fluctuations in our financial results.




Our major shareholders may be able to control us.




Steven N. Bronson beneficially owns approximately 16.9% of our outstanding ordinary shares, Eric Paneth, one of our directors, beneficially owns approximately 13.0% of our outstanding ordinary shares, Izhak Tamir, our Chairman of the Board, beneficially owns approximately 11.9% of our outstanding ordinary shares, and Aviv Boim, our CEO, beneficially owns approximately 9.9% of our outstanding ordinary shares, and in March 2015  our shareholders approved a grant of 2,290,667 options to purchase ordinary shares that represent approximately 20.5% of our outstanding ordinary shares on a fully diluted basis. These options are subject to customary accelerated vesting upon the occurrence of certain events. Currently, none of these holders is a party to a shareholders agreement. However, if these shareholders or any combination thereof act together, they effectively may have the power to control the outcome of all matters submitted for the vote of our shareholders, including the election of directors and the approval of significant change in control transactions. The combined equity interest of these holders may have the effect of making certain transactions more difficult and may result in delaying, deferring or preventing a change in control of Tikcro unless approved by one or more of them.


15




Our shareholder bonus rights plan may delay, prevent or make more difficult a hostile acquisition of Tikcro, which could depress our share price.




In September 2005, we adopted a shareholder bonus rights plan pursuant to which share purchase bonus rights were distributed to our shareholders. These rights generally will be exercisable and transferable apart from our ordinary shares ten business days after a person or group acquires beneficial ownership of 15% or more of our ordinary shares, or commences a tender or exchange offer upon consummation of which that person or group would hold such a beneficial interest. Once these rights become exercisable and transferable, the holders of rights, other than the person or group triggering their transferability, will be generally entitled to purchase our ordinary shares at a discount from the market price. In addition, the Board may exchange the rights (other than rights owned by the person or group triggering their transferability), in whole or in part, at an exchange ratio of one ordinary share per right (subject to adjustment). The term of the plan was extended until December 31, 2025.  While these rights remain outstanding, they may make an acquisition of us more difficult and result in delaying or preventing a change in control of Tikcro. On November 20, 2012, Mr. Steven N. Bronson filed a Statement on Schedule 13D reflecting beneficial ownership of 1,500,094 of our ordinary shares, or 16.9% of our outstanding ordinary shares, thereby crossing the 15% ownership threshold. We have deferred the "Distribution Date" under the bonus rights plan to the close of business on the 30th business day following the termination of a standstill and confidentiality agreement that we entered into with Mr. Bronson, which shall remain in effect until terminated by either party.


16




ITEM 4.
Information on the Company




A.  History and Development of the Company




We were incorporated on December 14, 1999 under the laws of the State of Israel. We are governed by the Israeli Companies Law, 5759-1999.  In September 2003, we changed our name from “Tioga Technologies Ltd.” to “Tikcro Technologies Ltd.”  Our principal executive offices are located at POB 87, Hadera 3810002, Israel and our telephone number is (972) 4-671-5933.


Principal Capital Expenditures




We did not have any capital expenditures in 2012 or 2013. In 2014, we had a capital expenditure of $98,000. Our capital expenditures were to purchase laboratory equipment for our business.




B. Business Overview




General




Our business plan is to select and fund through commercialization, alone or with partners, early stage technology projects originated by Israeli universities and academic centers, with a focus on biotechnology projects. Currently we pursue early stage biotechnology projects, and have an emphasis on oncology. These projects are at high risk to meet their development milestones. Our ability to continue and support these projects and to effect additional transactions is dependent on our ability to raise additional funds.





Biotechnology Projects





We provide funding for early-stage biotechnology projects originating in Israeli academic centers. The first amount of funding we provide to each project is immaterial and the risk of loss is high, but if the project succeeds we would be well-positioned to take a significant equity interest and effect an exclusive license agreement with the applicable academic center. We usually require the participation of Israeli government research funds. See Item 3.D “Risk Factors” above. Among these projects are new therapeutic agents in the field of oncology. We are currently party to an intellectual property license agreement with Yeda and pursue additional licenses addressing new therapeutic agents in the field of oncology.  With respect to one such project, we have recently exercised an option for a license, subject to negotiating a definitive license agreement. We intend to increase the amounts we spend for research and development and general expenses required to promote projects that reach early development milestones.


17




Antibody Project - Cancer Immune Checkpoints




General





In 2011, the FDA approved the first antibody that targets an immune checkpoint for the treatment of advanced melanoma cancer. In late 2014 and 2015, the FDA approved two additional antibodies targeting different immune checkpoints to target certain cancer indications. Positive encouraging clinical results were reached with the treatment of cancer patients in advanced stage of melanoma cancer and recently also for the treatment of certain types of lung cancer. Revenues in 2014 from the sale of the first approved antibody targeting an immune checkpoint were about $1.3 billion. Industry analysts estimate a significant increase of revenues from immune checkpoint antibodies in the coming years.





The aim of our antibody project is to identify lead candidates of antibodies for the treatment of patients with cancer through the modulation of immune checkpoints. This approach is driven by proprietary research tools and customization that are expected to allow the design and the production of quality human monoclonal antibodies with high selectivity and binding qualities. In comparison to antibodies that were recently FDA approved for the treatment of cancer immune checkpoints, the goal is to have antibodies which results in better therapeutic outcomes, used alone or in combinations, leveraging the qualities of high specificity and binding. By using such new antibodies under development, the program aims to partially disable the mechanisms that cancer cells employ to evade detection and destruction by the immune system. Once lead antibodies are identified, such antibodies will need to undergo in vitro and in vivo animal trials, and if successful, to pursue clinical trials in order to apply for FDA and other regulatory approvals.


The Therapeutic Need




Immune checkpoints are processes that regulate immune responses within the body. Such checkpoints can contribute to rapid activation of the immune system, prevent immune responses to false alarms, trim down the immune response when threats are eliminated, and limit the immune response to minimize damage to unimpaired tissues.





There are numerous checkpoints as well as ligands that interact with these checkpoints, each of which is expressed on various cell types involved in immune responses. As scientific tools and industry resource allocation into this area have increased, a set of new cancer checkpoints were recently discovered. While in healthy conditions these checkpoints and ligands work well to control our immune responses, in certain indications, these checkpoint processes are manipulated and intensify cancer and auto-immune diseases. Cancer can be recognized by the immune system as “non-self” and trigger potential immune control, but it can also “hijack” checkpoint processes to protect itself from detection and destruction by the body's immune system.







18


Recently, following extensive research and clinical trials in this area, advances in cancer treatment emerged and the FDA approved therapeutic monoclonal antibodies targeting checkpoint receptors, facilitating immune responses against cancers. These antibodies are blocking antibodies, which have a therapeutic application in stimulating the immune system against tumors by blocking interactions of the targeted protein with other binding partners.
  Specifically, in 2011 and most recently in late 2014 and early 2015, three new blocking antibodies were approved for treating cancer through the modulation of immune cancer checkpoints. These treatments have not only led to increased survival periods for many patients with certain forms of melanoma and lung cancer, but are leading to apparent cures in some patients with advanced metastatic cancer. However, clinical data suggests that not all of the patient population responded to such treatments, and adverse toxicity side effects were observed, which required simultaneous treatment with suppressive therapeutic agents to counter the effects triggered by the immune system over healthy cells.





In an effort to improve the therapeutic benefit of such modulation agents, it is likely that more specifically designed blocking antibodies with higher binding qualities will allow for a lower therapeutic dose, reduced binding effect over other modulation checkpoints, thus increasing the therapeutic effect while reducing adverse side effects.




19










Our Strategy and Business Plan




We currently focus our efforts primarily in the identification and isolation of antibody drug candidates addressing immune checkpoints and further characterize these antibody candidates in in-vitro and in-vivo functional testing. We currently do not have any clinical or commercial manufacturing or sales capabilities. Once we identify lead candidates, we expect to use contract manufacturers for the manufacture of our product candidates. We intend to license to, or enter into strategic alliances with, larger companies in the biopharmaceutical field, which are equipped to manufacture, market and sell our products, if any, through their well-developed manufacturing capabilities and distribution networks.





Our strategy is to pursue the development of lead antibody candidates which:





•
allow superior selectivity and binding qualities towards cancer immune checkpoints;





•
target difficult to design classes of antibodies of immune cancer checkpoints;and





•
bind exclusively as much as possible to immune checkpoint modulators without interfering with suppressive modulators or other receptors or ligands.





This strategy aims to yield best-in-class antibody agents and cancer treatments that bind better to the targeted immune modulator and also reduce toxicity and adverse side effects, with elimination of binding to suppressive modulation checkpoints, other receptors or ligands.





We intend to develop and commercialize antibody product candidates by continuing our existing arrangements with academic collaborators and by entering into new collaborations to have additional building blocks that are required for an effective therapeutic agent.





To facilitate this project, in December 2014 we entered into aresearch and license agreement with Yeda, the technology transfer arm of the Weizmann Institute.The agreement is for the development of new antibodies originating from specified research at the Weizmann Institute addressing identified targets of cancer immune checkpoints.Under the agreement, we will provide funding for further research at the Weizmann Institute to develop certain antibodies selected and verified in pre-clinical trials. The antibodies may have high selectivity and binding qualities towards cancer immune checkpoints. Further research and development will be required to promote such antibodies as therapeutic candidates for immune modulation in oncology. We, alone or through sub-licensees, will have the right to obtain the research results and to pursue development through commercialization. The license consideration due from us to Yeda includes royalties from net sales, sub-license fees and fixed fees linked to clinical and commercial sales milestones. We expect to use contract manufacturers for the pre-clinical selection process and manufacture of any antibody candidates we develop. We currently do not have any clinical or commercial manufacturing or sales capabilities nor intend to have it until we conclude pre-clinical trials of selected antibody candidates.




20




We intend to assess the development, commercialization and/or partnering strategies with respect to our lead antibody candidates periodically based on several factors, including pre-clinical trial results, competitive positioning and funding requirements and resources. Our lead product candidates will require extensive pre-clinical trials, clinical trials and approvals from the FDA and other regulatory agencies, as well as acceptance in the marketplace, all of which are multi-year processes.




Intellectual Property Rights





We seek to protect our technologies through a combination of patents, trade secrets and know-how. We are at an early stage of development efforts mainly with the Weizmann Institute, and we intend to seek patent protection for newly-identified therapeutic antibodies and product candidates once identified. We can provide no assurance that any of our or future patent applications will have commercial value or will result in the issuance of valid and enforceable patents.





The patent landscape in the field of therapeutic antibody development, manufacture and commercialization is crowded. For example, we are aware of third party patents directed to methods for identifying and producing therapeutic antibodies. We are also aware of third party patents directed at antibodies to numerous targets for which we also seek to identify, develop, and commercialize antibodies. For example, some patents claim antibodies based on competitive binding with existing antibodies, some claim antibodies based on specifying sequence or other structural information, and some claim various methods of discovery, production or use of such antibodies. These or other third party patents could impact our freedom to operate in relation to the development and commercialization of antibodies identified by us as potential therapeutic candidates.





Competition





Competition in the pharmaceutical and biotechnology industries is intense. Many pharmaceutical or biotechnology companies have products on the market and are actively engaged in the research and development of products for the treatment of cancer through the modulation of cancer immune checkpoints or through different approaches, including but not limited to T-cell related agents, vaccination, inhibitors and combinations thereof.




21


Many competitors have substantially greater financial, manufacturing, marketing, sales, distribution and technical resources, and more experience in research and development, clinical trials and regulatory matters than we do. Competing companies developing or acquiring rights to more efficacious therapeutic products for the same diseases we are targeting, or which offer significantly lower costs of treatment, could render our products noncompetitive or obsolete. See Item 3D. “Risk Factors-Risks Related to our Antibody Project”.





Academic institutions, governmental agencies and other public and private research institutions conduct significant amounts of research in biotechnology, medicinal chemistry and pharmacology. These entities have become increasingly active in seeking patent protection and licensing revenues for their research results. They also compete with us.





Our antibody project targeting a limited number of immune checkpoints is currently in preclinical development. We are aware of many companies that have antibody-based products on the market or in clinical development that are directed to the same biological targets as we pursue or at targets that are likely to have similar clinical effects. We are also aware of companies that promote bispecific antibodies or treatments with multiple antibodies that target a number of immune checkpoints or their epitopes.





A number of antibodies that address cancer immune checkpoints have obtained FDA approvals and are offered on the market, including the followings (1) Bristol-Myers Squibb’s  ipilimumab, an anti-CTLA-4 antibody, was FDA approved in 2011 for the treatment of melanoma, a type of skin cancer, (2) Merck’s pembrolizumab, an anti PD1 antibody, was FDA approved in 2014 in an accelerated approval process for the treatment of melanoma for use following treatment with ipilimumab and (3) BMS’s nivolumab, an anti PD1 antibody, was FDA approved in 2014 for the treatment of unresectable or metastatic melanoma patients who no longer respond to other drugs. In early 2015, this FDA approval was expanded to also treat patients with metastatic squamous non-small cell lung cancer (NSCLC), a common type of lung cancer, with progression on or after platinum-based chemotherapy.





Additional antibodies that target cancer immune checkpoints in advanced clinical development include, without limitation, the following: (1) AstraZeneca Medimmune's anti-CTLA-4, anti-PD1 and anti-PDL-1 antibodies, (2) Medivation's (through a license from Curetech) technology for an anti-PD1 antibody, (3) Pfizer's andMerck KGaA's joint pursuit of an anti-PDL1 antibody and (4) Roche Genentech's promotion of an anti-PD-L1 antibody.





In addition, there are numerous pre-clinical programs by companies and academic centers for the development of antibodies that target the same cancer immune checkpoints as our program targets, as well as pre-clinical programs for the development of antibodies that address different cancer immune checkpoints at an earlier biological verification stage.  In addition, there are approved agents and advanced clinical trials for agents, such as cancer vaccines and T-cell modulators, that trigger an immune response against cancer cells.





22




We anticipate increased competition as new companies enter markets we seek to address and scientific developments surrounding immunotherapy and other traditional cancer therapies continue to accelerate. There is no assurance that our antibody products will be able to compete with the above antibodies, specifically with the products that will have an established market presence and clinical track record for a considerable period of time prior to our having FDA approved antibody products in the same area of immune cancer checkpoints.




Government Regulation




Government authorities in the United States (including federal, state and local authorities) and in other countries, extensively regulate, among other things, the manufacturing, research and clinical development, marketing, labeling and packaging, storage, distribution, post-approval monitoring and reporting, advertising and promotion, pricing and export and import of pharmaceutical products, such as those we are developing. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Moreover, failure to comply with applicable regulatory requirements may result in, among other things, warning letters, clinical holds, civil or criminal penalties, recall or seizure of products, injunction, disbarment, partial or total suspension of production or withdrawal of the product from the market. Any agency or judicial enforcement action could have a material adverse effect on us.




Historical Investment - BioCancell




In July 2008, we invested in BioCancell, a clinical-stage biopharmaceutical company headquartered in Israel and listed on the Tel Aviv Stock Exchange. BioCancell focuses on the discovery and development of novel therapies for treating solid cancer tumors. In exchange for our investment of $2.5 million we acquired from BioCancell in a privately negotiated transaction 837,521 shares of its common stock for consideration of $0.5 million, at a price of $0.60 per share, and a four-year convertible note due June 2012 in the principal amount of $2.0 million, bearing interest at 10% per year and convertible into up to 3,464,385 shares of common stock. As part of the transaction we also received a five-year warrant expiring June 2013 to purchase up to 4,301,906 shares of BioCancell common stock for an exercise price of $0.716 per share. All the above share amounts and per share prices do not account for a reverse stock split occurred in June 2013 in BioCancell shares at a ratio of 1-for-10.




23




In July 2012, our convertible note in BioCancell was repaid in full, including accrued interest, in the total gross amount of approximately $2.48 million.




As of April 26, 2015, we held 219,487 ordinary shares of BioCancell (after the above-mentioned reverse stock split), constituting approximately 0.45% of its outstanding share capital (based on a public filing of BioCancell dated March 16, 2015). In addition, we are entitled to 250,226 shares (after the above-mentioned reverse stock split), subject to payment of an exercise price equal to approximately $64,000, which is in dispute.




C. Organizational Structure




We do not have any significant subsidiaries.




D. Property, Plants and Equipment




We do not have any material fixed assets.





ITEM 4A.          Unresolved Staff Comments




Not applicable.




ITEM 5.
Operating and Financial Review and Prospects




A.  Operating Results




Our operating and financial review and prospects should be read in conjunction with our audited financial statements, accompanying notes thereto and other financial information appearing elsewhere in this Annual Report.




Overview




Our business plan is to select and fund early stage technology projects originated by Israeli universities and academic centers, with a focus on biotechnology projects.  These projects are at high risk to meet their development milestones. If successful, it is expected that additional significant amounts of funds to be invested over a long period will be required in order to advance these projects through commercialization or, alternatively, to effect a strategic partnership, trade sale or sub-licensing transaction.





We provide funding for early-stage biotechnology projects. The first amount of funding we provide to each project is immaterial and the risk of loss is high, but if the project succeeds we would be well-positioned to take a significant equity interest. In 2012, 2013 and 2014, we recorded aggregate research and development expenses of $40,000, $29,000 and $89,000, respectively, related to such projects. In December 2014, we entered into a research and license agreement with Yeda for the development of new antibodies for the treatment of cancer through the modulation of immune cancer checkpoints.




24





In 2012, we had financial expenses, net of $158,000, mainly from payment of interest on the BioCancell note and on marketable securities, income of $641,000, offset by revaluation of the investment in BioCancell, expenses of $799,000 (mainly General and administrative expenses), and tax expenses due to tax withheld on payments on interest of $109,000, resulting in a net loss of $592,000. In 2013, we had financial income, net of $579,000, mainly from the additional shares of BioCancell that we were awarded (as discussed above in Item 4.B. "Business Overview"), offset by a decrease in the value of our investment in BioCancell and expenses of $571,000 (mainly General and administrative expenses), resulting in net profit of $8,000. In 2014, we had financial expenses, net of $240,000, mainly from the devaluation of our investment in BioCancell shares of $245,000, offset by other insignificant items in a net amount of $5,000.





Application of Critical Accounting Policies and Estimates





Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with United States generally accepted accounting principles.





For additional information regarding our significant accounting policies please refer to Note 2 of our financial statements as of December 31, 2014 incorporated by reference in this Annual Report. While all the accounting policies impact the financial statements, certain policies may be viewed to be critical.  These policies are most important for the fair portrayal of our financial condition and results of operations and are those that require our management to make difficult, subjective and complex judgments, estimates and assumptions, based upon information available at the time that they are made, historical experience and various other factors that are believed to be reasonable under the circumstances.





In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. generally accepted accounting principles and does not require management’s judgment in its application.  There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result.




We are also subject to risks and uncertainties that may cause actual results to differ from estimates and assumptions. Certain of these risks, uncertainties and assumptions are discussed in Item 3.D “Risk Factors.” To facilitate the understanding of our business activities, described below are certain accounting policies that are relatively more important to the portrayal of our financial condition and results of operations and that require management’s subjective judgments. We base our judgments on past experience and various other assumptions that are believed to be reasonable under the circumstances.




25




On an on-going basis, to fully understand and evaluate our reported financial results, we believe it is important to understand the significant estimates and judgments applied as they relate to our policies for income taxes and for valuation of our holdings in BioCancell, which is measured at fair value at each reporting date, with gains and losses being recorded as our audited financial statements, which are included elsewhere in this Annual Report.




Income Taxes




Based on the guidance in ASC 740 “Income Taxes”, we use a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. We accrue interest and penalties related to unrecognized tax benefits in the provision for income tax.




Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different.  We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate.  To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related interest.




Investment in BioCancell




We elected to apply the fair value option for our holdings in BioCancell’s common stock, and warrant in accordance with ASC No. 825, “Financial Instruments”. The primary reasons for electing the fair value option were simplification and cost-benefit considerations as well as expansion of the use of fair value measurement being consistent with the FASB’s measurement objectives for accounting for financial instruments. ASC No. 825 provides companies with an option to report selected financial assets and financial liabilities at fair value, which can be elected on an instrument-by-instrument basis. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date.




Our holding in BioCancell's shares of common stock is based on quoted prices in an active market.




26




Results of Operations




The table below sets forth, for the periods indicated, financial data (in thousands of dollars) which we believe to be significant in analyzing our results of operations.




Years Ended December 31,2012


2013


2014in thousands))Statement of Operations Data:Research and development

$
40


$
29


$
89General and administrative expenses, net


401



542



348Consulting services


(41
)


-



-Operating loss


(400
)


(571
)


(437
)Financial income (expenses), net


(158
)


579



(240
)Income (loss) before taxes


(558
)


8



(677
)Tax expenses


(34
)


-



-Net income (loss)

$
(592
)

$
8


$
(677
)





Consulting Services.We received consulting fees in accordance with an agreement with BioCancell, pursuant to which we provided funding to BioCancell. The fees from such consulting fees were $41,000 in 2012, and are presented as "Consulting Services" under operating expenses. We stopped receiving consulting fees in 2013.




Research and development expenses.In  2012, 2013 and 2014, we had expenses of $40,000, $29,000 and $89,000, respectively, related to our investments in early-stage biotechnology projects.




General and administrative expenses. General and administrative expenses increased in 2013 from $401,000 in 2012 to $542,000 in 2013 mainly due to an increase in legal expenses related to our arbitration with BioCancell and management fees. General and administrative expenses decreased from $542,000 in 2013 to $348,000 in 2014 mainly due to a decrease in legal expenses related to our arbitration with BioCancell and a decrease in employee compensation.




Financial income, net.  Financial income consists primarily of mark-to-market of the investment in BioCancell and also interest on marketable securities and bank deposits. In 2012, our financial expense included expense from the mark-to-market adjustment of securities of BioCancell in the amount of $799,000, offset partly by interest we received on our convertible notes of BioCancell amounting $622,000. In 2013, our financial income consisted primarily of income from the mark-to-market adjustment of securities of BioCancell in the amount of $579,000. In 2014, our financial expense consisted primarily of the  mark-to-market adjustment of securities of BioCancell in the amount of $245,000.




27




Tax.  We had expenses of $34,000 in 2012, due to tax withheld on interest payments. We did not have tax expenses in 2013 and 2014.





Net income.  In 2012, we had net loss of $592,000 as a result of financial expenses in the amount of $158,000, tax expenses in the amount of $34,000 and operating loss in the amount of $400,000. In 2013, we had net income of $8,000 as a result of financial income in the amount of $579,000 and operating loss in the amount of $571,000. In 2014, we had net loss of $677,000 as a result of financial expenses in the amount of $240,000 and operating loss in the amount of $437,000.




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Impact of Inflation, Devaluation and Fluctuation of Currencies on Results of Operations Liabilities and Assets




A devaluation of the new Israeli shekel in relation to the U.S. dollar would have the effect of decreasing the dollar value of our assets in new Israeli shekels to the extent the underlying value is new Israeli shekel-based. Such a devaluation also would have the effect of reducing the U.S. dollar amount of any of our liabilities which are payable in new Israeli shekels (unless such payables are linked to the U.S. dollar).




We may have from time to time expenses denominated in new Israeli shekels. Such expenses would decrease as a result of a devaluation of the new Israeli shekel in relation to the U.S. dollar. In 2014, the value of the U.S dollar increased against the NIS, which caused our NIS denominated expenses to decrease. In 2012 and 2013, the value of the U.S. dollar decreased against the NIS, which caused our NIS denominated expenses to increase We do not presently engage in any hedging or other transactions intended to manage risks relating to foreign currency exchange rate fluctuations.




The following table presents information about the rate of inflation in Israel, the rate of devaluation of the new Israeli shekel against the U.S. dollar, and the rate of inflation of Israel adjusted for the devaluation:




Years Ended

December 31,

Israeli Inflation

Rate

NIS-USD

Devaluation Rate

Israel Inflation Adjusted

for Devaluation2010

2.7

(6.0)

8.72011

2.2

7.6

(5.4)2012

1.5

(2.3)

3.82013

1.8

(7.0)

8.82014

(0.2)

12.0

(12.2)




B. Liquidity and Capital Resources




We had working capital of $9.3 million as of December 31, 2012, $9.4 million as of December 31, 2013 and $8.6 million as of December 31, 2014.  We believe that we have sufficient working capital for at least the next 12 months.




In 2012, we had net loss of $592,000 and we generated net cash of $252,000 from operations. In 2013, wehad net income of $8,000 and we used $534,000 of cash for operations. In 2014, wehad net loss of $677,000 and we used $367,000 of cash for operations. We generated net cash of $4.3 million from investment activities in 2012 and $420,000 in 2013. We used a net of $31,000 of cash in investment activities in 2014.




29




In 2012, 2013 and 2014, we did not have any cash flow from financing activities.




C. Research and Development, Patents and Licenses




Research and development expenses include funding for early-stage biotechnology projects and are charged to the statement of operations, as incurred.




D. Trend Information




None.




E. Off-Balance Sheet Arrangements




We have no off-balance sheet arrangements.




F. Tabular Disclosure of Contractual Obligations




As of December 31, 2014, we had no contractual obligations of the type required to be disclosed in this section.




ITEM 6.
Directors, Senior Management and Employees




A. Directors and Senior Management and Employees




The following table lists our current directors and senior managers as of April 22, 2015:




Name
Age
PositionIzhak Tamir
62
Chairman of the BoardEric Paneth
64
DirectorLiat Hadad
43
External DirectorYiftach Atir
65
External DirectorAviv Boim
47
Chief Executive Officer





The business experience of each of our directors and executive officers is as follows:




Izhak Tamir has served as Chairman of our Board of Directors since January 2000 and served as our Chief Executive Officer from August 2003 to December 2007. He co-founded Orckit Communications Ltd. ("Orckit") in 1990 and served as President and a Director until 2014. Mr. Tamir served as Chairman of the Board of Orckit-Corrigent Ltd., a subsidiary of Orckit, from 2001 to 2014, and as Chief Executive Officer of Orckit-Corrigent Ltd. from 2007 to 2014 and as a Director of Gilat Satellite Networks Ltd. from 2005 to 2012. From 1987 until 1989, Mr. Tamir was employed by Comstream Inc., in San Diego, California.  From 1985 until 1987, he was vice president of A.T. Communication Channels Ltd., a subsidiary of Bezeq.  From 1978 to 1985, he was a senior engineer in the Israeli Government. Mr. Tamir holds an engineering degree from the Technion, and an M.B.A. from Tel Aviv University.


30




Eric Paneth has served as one of our Directors since January 2000 and served as our Chief Executive Officer from November 2008 to October 2010.  He co-founded Orckit in 1990 and served as Chief Executive Officer and a Director until 2014.  From 1975 until 1983, Mr. Paneth was a senior engineer in the Israeli Government, and from 1985 to 1990, he was a technical department head in the Israeli Government.  From 1983 until 1985, he was employed by Linkabit Inc. in San Diego, California.  Mr. Paneth holds an advanced engineering degree from the Technion.
  Liat Hadad has served as one of our external directors since September 2009. Ms. Hadad has served as VP of marketing and business development at Allium Medical since March 2010. From May 2009 to March 2010, she served as director of business development at McCann Erickson Digital Israel. From 2001 to 2008, Ms. Hadad served as an associate in the Life Sciences Division of Giza Venture Capital. From 1999 to 2001, she was a Business Development and Marketing Manager at Girafa.com Ltd. From 1996 to 1998, she was a System Integrations Project Manager at IBM Israel. Ms. Hadad has a B.A. in sociology, anthropology and political science from Tel Aviv University, a B.A. in life sciences from the Open University and an Executive M.B.A. in entrepreneurial studies, marketing and finance from Tel Aviv University.


Yiftach Atir has served as one of our external directors since September 2006. Mr. Atir has been a private consultant since January 2003.  He also served as a director of Radware Ltd. and Aran Research and Development (1982) Ltd.  From August 2000 to January 2003, Mr. Atir served as the managing director of Koor Corporation Venture Capital.  Prior thereto, he served as a managing director in Evergreen Venture Capital Funds, a management company for a group of technology focused venture capital funds, where he had been employed since November 1994.  Prior to joining Evergreen, Mr. Atir served as a Brigadier General in the Intelligence Corps of the Israel Defense Forces.  Mr. Atir has a B.A. in political science from Haifa University and an M.B.A. from Tel Aviv University and an M.A in Hebrew literature from Ben Gurion University.




Aviv Boim has served as our Chief Executive Officer since October 2010.  He joined Tikcro in January 2008. From 2008 to 2012, he served as a member of the board of directors and the executive committee of BioCancell. From 1998 to 2007, he served as the Chief Financial Officer of Orckit. From August 1996 to February 1998, Mr. Boim was a banker with BT Alex. Brown Incorporated, an investment banking firm. From August 1993 until August 1996, Mr. Boim was a vice president of Giza Ltd., Tel Aviv, an investment banking firm. Mr. Boim holds a B.A. and an M.A. in economics and management from Tel Aviv University and an L.L.B. from Tel Aviv University Law School.


31




There are no family relationships between any director or senior manager. There are no arrangements or understandings between any director or senior manager and any other person pursuant to which the director or senior manager was selected.




B. Compensation




The aggregate direct remuneration, including fringe benefits commonly provided by companies in Israel, paid or accrued by us to all persons as a group (five persons) who served in the capacity of director or executive officer in the year ended December 31, 2014, was approximately $101,000. The foregoing amounts consist of the fees paid to our directors and chief executive officer. In 2014, our statutory external directors were paid cash compensation of NIS 36,250 (approximately $9,321) per year and NIS 1,855 (approximately $477) per meeting in accordance with applicable regulations. Mr. Paneth, as a member of board and our compensation committee, is paid the fixed amounts under applicable regulations, which is NIS 25,000 (approximately $6,428) per year and NIS 1,590 (approximately $409) per meeting.  These basic amounts are linked to the Israeli CPI twice a year starting at the date the amounts were approved. Mr. Tamir is paid a participation fee in the amount of $1,000 for attendance at each meeting of the board of directors or committee thereof and does not receive any additional compensation for serving as our Chairman of the Board.




The table below reflects the compensation of our five most highly compensated office holders during or with respect to the year ended December 31, 2014. This group consists of our Chief Executive Officer, who is our only employee, and our four directors.




For purposes of the table below, “compensation” includes salary cost, director fees, bonuses, equity-based compensation and social benefits. All amounts reported in the table are in terms of cost to the Company, as recognized in our financial statements for the year ended December 31, 2014.




The amounts set forth in the table below are given in thousands of U.S. Dollars.




Name and Position

Salary Cost (1)


Director Fees


Bonus


Equity-Based

Compensation(2)


TotalAviv Boim, CEO


64



--



38
(3)


10



112Izhak Tamir, Chairman


--



6



--



--



6Eric Paneth, Director


--



6



--



--



6Yiftach Atir, External Director


--



14



--



--



14Liat Hadad, External Director


--



13



--



--



13


____________________




(1)
Salary cost includes Mr. Boim's gross salary plus customary payment of social benefits made by the Company on his behalf.




(2)
Represents the equity-based compensation expenses recorded in the Company's financial statements for the year ended December 31, 2014 based on the fair value of the applicable securities on the date of grant thereof, in accordance with accounting guidance for equity-based compensation. For a discussion of the assumptions used in reaching this valuation, see Note 6(4) to our consolidated financial statements included in our annual report on Form 20-F for the year ended December 31, 2014.




(3)
Represents a carry fee bonus payable pursuant to Mr. Boim's employment agreement.




32





C. Board Practices




Israeli Companies Law




We are subject to the provisions of the Israeli Companies Law, 5759-1999, and the regulations adopted thereunder.




Board of Directors




According to the Companies Law and our articles of association, the oversight of the management of our business is vested in our board of directors.  The board of directors may exercise all powers and may take all actions that are not specifically granted to our shareholders. As part of its powers, our board of directors may cause us to borrow or secure payment of any sum or sums of money for our purposes, at times and upon terms and conditions as it thinks fit, including the grant of security interests in all or any part of our property.  Our board of directors may consist of not less than three and no more than 15 directors and as of the date hereof,consists of four directors, including our external directors.




Under the Companies Law, our board of directors must determine the minimum number of directors having financial and accounting expertise, as defined in the regulations, that our board of directors should have.  In determining the number of directors required to have such expertise, the board of directors must consider, among other things, the type and size of the company and the scope and complexity of its operations. Our board of directors has determined that we require one director with the requisite financial and accounting expertise and that Yiftach Atir has such expertise.




According to the Companies Law, a company’s chairman of the board may not serve as its chief executive officer, unless otherwise approved by the shareholders for periods of up to three years.  Our directors are elected at annual meetings of our shareholders by a vote of the holders of a majority of the ordinary shares voting thereon. Generally, our directors hold office until the next annual meeting of shareholders following the annual meeting at which they were elected. Directors may be removed earlier from office by resolution passed at a general meeting of our shareholders.Pursuant to the Israeli Companies Law, external directors are elected by shareholders for a three-year term and may be re-elected by shareholders for up to two additional three-year terms.




33




Unless otherwise unanimously decided by our directors, a quorum at a meeting of the board of directors is constituted by the presence of a majority of the directors then in office who are lawfully entitled to participate in the meeting, but not less than two directors.  A resolution proposed at a meeting of the board of directors is deemed adopted if approved by a majority of the directors present and voting on the matter.




There are no arrangements or understandings between us and any of our directors for benefits upon termination of service.




External Directors





Qualifications of External Directors




Under the Companies Law, companies incorporated under the laws of Israel whose shares are listed for trading on a stock exchange or have been offered to the public in or outside of Israel are required to appoint at least two external directors. External directors are required to possess professional qualifications as set out in regulations promulgated under the Companies Law. The Companies Law provides that a person may not be appointed as an external director if (i) the person or the person’s relative or affiliate has, as of the date of the person’s appointment to serve as an external director, or had, during the two years preceding that date any affiliation with the company, any controlling shareholder thereof, or any affiliate thereof, or (ii) in a company that does not have a 25% shareholder, if such person has an affiliation with any person who, at the time of appointment, is the chairman, the chief executive officer, the chief financial officer or a 5% shareholder of the company.




The Companies Law defines the term “office holder” of a company to include a director, the chief executive officer, the chief business manager, a vice president and any officer that reports directly to the chief executive officer.




No person can serve as an external director if the person’s position or other business creates, or may create conflict of interests with the person’s responsibilities as an external director or may otherwise interfere with the person’s ability to serve as an external director. Until the lapse of two years from termination of office, a company or its controlling shareholder may not give any direct or indirect benefit to the former external director.




34




Election Of External Directors




External directors are to be elected by a majority vote at a shareholders’ meeting, provided that either:




•
at least a majority of the shares of non-controlling shareholders voted at the meeting vote in favor of the election; or




•
the total number of shares voted against the election of the external director does not exceed two percent of the aggregate voting rights in the company.




The initial term of an external director is three years and may be extended for up to two additional three year terms. Thereafter, he or she may be reelected by our shareholders for additional periods of up to three years each only if the audit committee and the board of directors confirm that, in light of the external director’s expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional periods is beneficial to the company. Reelection of an external director may be effected through one of the following mechanisms: (1) the board of directors proposed the reelection of the nominee and the election was approved by the shareholders by the majority required to appoint external directors for their initial term; or (2) a shareholder holding 1% or more of the voting rights or the nominee himself proposed the reelection of the nominee, and the reelection is approved by a majority of the votes cast by the shareholders of the company, excluding the votes of controlling shareholders and those who have a personal interest in the matter as a result of their relations with the controlling shareholders, provided that the aggregate votes cast in favor of the reelection by such non-excluded shareholders constitute more than 2% of the voting rights in the company. External directors may be removed from office 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. Each committee of a company’s board of directors is required to include at least one external director, except for the audit committee which is required to include all the external directors. On December 31, 2012, Liat Hadad commenced her second term as an external director and Yiftach Atir commenced his third term as an external director.




Audit Committee




Under the Companies Law, our board of directors is required to appoint an audit committee, comprised of at least three directors including all of the external directors. The members of the audit committee must satisfy certain independence standards under the Companies Law, and the chairman of the audit committee is required to be an external director. Our audit committee consists of Mr. Atir (Chairman), Ms. Hadad and Mr. Paneth.




The role of the audit committee is to examine deficiencies in the management of the company’s business, in consultation with the internal auditor and the company’s independent accountants, suggest remedial action, approve specified related party transactions and assess the company's internal audit system and the performance of its internal auditor. Our audit committee currently consists of our two external directors.




35




Our audit committee also has the authority and responsibility to oversee our independent auditors, to recommend for shareholder approval the appointment and, where appropriate, replacement of our independent auditors and to pre-approve audit engagement fees and all permitted non-audit services and fees. Our audit committee also serves as our qualified legal compliance committee, responsible for investigating reports, made by attorneys appearing and practicing before the SEC in representing us, of perceived material violations of U.S. federal or state securities laws, breaches of fiduciary duty or similar violations by us or any of our agents.




Compensation Committee




Under the Israeli Companies Law, the board of directors of a public company is required to establish a compensation committee. The compensation committee needs to have at least three directors who satisfy certain independence qualifications, and the chairman of the compensation committee is required to be an outside director. Under the Israeli Companies Law, the role of the compensation committee is to recommend to the board of directors, a policy governing the compensation of office holders based on specified criteria, to review modifications to the compensation policy from time to time, to review its implementation and to approve the actual compensation terms of office holders prior to the approval thereof by the board of directors. Our compensation committee consists of Mr. Atir (Chairman), Ms. Hadad and Mr. Paneth.




Internal Auditor




Our board of directors has appointed an internal auditor.  Under the Companies Law, the role of the internal auditor is to examine, among other things, whether the company’s actions comply with the law and orderly business procedure. Under the Companies Law, the internal auditor may not be an interested party, an office holder or a relative of any of the foregoing, nor may the internal auditor be the company’s independent accountant or its representative. The Companies Law defines the term “interested party” to include a person who holds 5% or more of the company’s outstanding share capital or voting rights, a person who has the right to appoint one or more directors or the general manager, or any person who serves as a director or as the general manager.




Fiduciary Duties of Office Holders




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 with which a reasonable office holder in the same position would have acted under the same circumstances.  The duty of care includes a duty to use reasonable means to obtain:




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




•
all other important information pertaining to these actions.




36




The duty of loyalty of an office holder includes a duty to:




•
refrain from any conflict of interest between the performance of his duties in the company and the performance of his other duties or 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.




Approval of Specified Related Party Transactions Under Israeli Law




Transactions with an Office Holder




The Companies Law requires that an office holder of a company disclose to the company any personal interest that he may have and all related material information known to him, 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.




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




•         other than in the ordinary course of business;




•         otherwise than on market terms; or




•
that is likely to have a material impact of the company’s profitability, assets or liabilities.




Once an office holder complies with the above disclosure requirement, the board of directors may approve a transaction between the company and an office holder, or a third party in which an office holder has a personal interest.  To be approved, a transaction must be for the benefit of the company.




If the transaction is an extraordinary transaction, approval of both the audit committee and the board of directors is required.  Under specific circumstances, shareholder approval may also be required.  A person who has a personal interest in a transaction that is considered at a meeting of the board of directors or the audit committee generally may not be present at this meeting or vote on this matter, unless a majority of the members of the board of directors or the audit committee, as the case may be, has a personal interest in the matter.  If a majority of members of the board of directors have a personal interest therein, shareholder approval is also required.




37




Office Holder Compensation




Under the Israeli Companies Law, we are required to adopt a compensation policy, recommended by the compensation committee, and approved by the board of directors and the shareholders, in that order. The shareholder approval requires a majority of the votes cast by shareholders, excluding any controlling shareholder and those who have a personal interest in the matter (similar to the threshold described in the following paragraph). Nevertheless, even if the shareholders reject a proposed compensation policy, the compensation committee and the board of directors may approve the compensation policy if they have determined that the compensation policy is for the benefit of the company despite the opposition of the shareholders.In general, all office holders’ terms of compensation are required to comply with the company's compensation policy. In addition, the compensation terms of directors, the chief executive officer, and any employee or service provider who is considered a controlling shareholder generally need to be approved separately by the compensation committee, the board of directors and the shareholders of the company (by the same threshold noted above), in that order. The compensation terms of other officers require the approval of the compensation committee and the board of directors.




Transactions with a Controlling Shareholder




Under the Companies Law, the disclosure requirements that apply to an office holder also apply to a controlling shareholder of a public company.  A controlling shareholder is a shareholder who has the ability to direct the activities of a company, including, for this purpose, a shareholder that owns 25% or more of the voting rights if no other shareholder owns more than 50% of the voting rights, but excluding a shareholder whose power derives solely from his or her position on the board of directors or any other position with the company.  Extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest require the approval of the audit committee, the board of directors and the shareholders of the company in that order.  The shareholder approval must be by a majority of the shares voted on the matter, provided that either:




•
at least a majority of the shares of shareholders who have no personal interest in the transaction and who vote on the matter vote in favor thereof; or




•
the shareholders who have no personal interest in the transaction who vote against the transaction do not represent more than two percent of the voting rights in the company.




In addition, any such transaction whose term is longer than three years requires further shareholder approval every three years, unless (with respect to transactions not involving management fees or employment terms) the audit committee approves that a longer term is reasonable under the circumstances.




38




Shareholders generally have the right to examine any document in the company’s possession pertaining to any matter that requires shareholder approval.




D. Employees




We had one employee as of each of December 31, 2012, 2013 and 2014.




E. Share Ownership




As of April 22, 2015, Mr. Eric Paneth beneficially owned 1,156,602 ordinary shares, or approximately 13.0% of our outstanding ordinary shares, Mr. Izhak Tamir beneficially owned 1,061,701 ordinary shares, or approximately 11.9% of our outstanding ordinary shares, and Mr. Aviv Boim beneficially owned 885,287 ordinary shares, or approximately 9.9% of our outstanding ordinary shares. None of our other directors beneficially owns 1% or more of our outstanding ordinary shares.




Share Incentive Plans




We have two share incentive plans pursuant to which options may be granted to our directors, officers, employees, consultants and contractors. These share incentive plans are administered by our board of directors, which determines the optionees, dates of grant and the exercise price of options.  Unless otherwise decided by our board of directors, options granted under the share incentive plans are non-assignable except by the laws of descent.  Under the share incentive plans, the grantee is responsible for all personal tax consequences of the grant and the exercise thereof.  The plan adopted in 2003 (the “2003 Plan”) allows us to grant options to qualified persons pursuant to the “capital gains route” under Section 102 of the Israeli Income Tax Ordinance.  In December 2007, our Board of Directors amended the 2003 Plan to also enable the granting of restricted shares or restricted share units, or RSUs. Restricted shares are grants of our ordinary shares that are subject to certain re-sale restrictions for a specified period of time, and RSUs are rights to receive our ordinary shares under certain conditions, for no consideration. The other terms and conditions of the 2003 Plan that are applicable to options also apply to restricted stock and RSUs, to the extent applicable. In December 2014, our Board of Directors extended the term of the 2003 Plan to December 31, 2023.




As of April 22, 2015, there were outstanding options to purchase a total of 66,667 ordinary shares, all of which were held by our directors, excluding the options to purchase 2,290,667 ordinary shares approved for grant to our Chief Executive Officer, as described below.




In March 2015, our shareholders approved a grant of options to our chief executive officer to purchase up to 2,090,667 ordinary shares, with quarterly vesting over a period of four years (130,667 shares per quarter), and additional options to purchase up to 200,000 ordinary shares, with quarterly vesting over a period of two years (25,000 shares per quarter).  The options are subject to partial accelerated vesting upon the termination of employment, except termination for cause. Our board of directors also agreed that the options will fully vest upon termination of employment following a change of control of our company. The options have an exercise price equal to $1.01 per share, which was at the time of the compensation committee meeting in December 2014, approximately two times higher than the market share price, i.e., a premium of 100% over the market price. The options have a term of ten years.


39




ITEM 7.
Major Shareholders andRelated Party Transactions





A. Major Shareholders




The following table sets forth certain information regarding the beneficial ownership of our ordinary shares as of April 22, 2015 (unless otherwise specified), by each person who is known to own beneficially more than 5% of the outstanding ordinary shares.  The voting rights of all major shareholders are the same as for all other shareholders.




Identity of Person or Group

Amount Owned


Percent of Class(1)Steven N. Bronson(2)


1,500,094



16.9
%Eric Paneth


1,156,602



13.0
%Izhak Tamir


1,061,701



11.9
%Aviv Boim(3)


885,287



9.9
%


_______________


(1)
Based on 8,898,861 ordinary shares outstanding on April 22, 2015.


(2)
Includes (i) 1,400,422 ordinary shares held jointly by Mr. Bronson and his spouse, (ii) 58,806 ordinary shares held in Mr. Bronson's IRA and (iii) 40,866 ordinary shares held in Mr. Bronson's spouse's IRA (with respect to which Mr. Bronson has voting and dispositive power). Based on a Schedule 13D/A filed February 5, 2013. Mr. Bronson has undertaken to us not to vote in excess of 1,334,829 ordinary shares, or 14.9% of our outstanding shares, until the 30th day following the termination of a confidentiality and standstill agreement between us, dated February 1, 2013, which may be terminated by either party upon ten business days' notice.  Based on a Schedule 13D/A filed by Mr. Bronson on February 19, 2010, he beneficially owned 1,198,755 ordinary shares, or 13.9% of our outstanding shares, at that time.


(3)
Excludes 2,290,667 options to purchase ordinary shares approved for grant in March 2015.





As of April 17, 2015, there were 33 holders of record of our ordinary shares in the United States who collectively held approximately 66% of our outstanding ordinary shares.  The number of record holders in the United States is not representative of the number of beneficial holders nor is it representative of where such beneficial holders are resident since many of these ordinary shares were held of record by brokers or other nominees.




B. Related Party Transactions




We entered into an agreement with Mr. Steven Bronson, one of our major shareholders, as of February 1, 2013, pursuant to which Mr. Bronson undertook to maintain the confidentiality of non-public information that we may provide to him about our business.  Mr. Bronson also undertook not to be the beneficial owner of more than 1,500,094 of our ordinary shares and not to vote more than 1,334,829 of our ordinary shares, or 14.99% of our outstanding ordinary shares.  We undertook to postpone the "Distribution Date" under our shareholder bonus rights plan for 30 business days following the termination of the agreement.  This agreement will be in effect until either of the parties elects to terminate it.
  40


C. Interests of Experts and Counsel




Not applicable.




ITEM 8.
Financial Information




A.
Consolidated Statements and other Financial Information




See financial statements under Item 18.




Legal Proceedings





We are currently not a party to any legal proceedings.




B.
Significant Changes


No significant change has occurred since December 31, 2014, except as otherwise disclosed in this Annual Report.




ITEM 9.
The Offer and Listing




A.
Offer and Listing Details





Our ordinary shares are currently quoted on the OTCQB, a marketplace of the OTC Markets Group, under the symbol TIKRF.  The OTCQB typically has lower liquidity than the Nasdaq Stock Market. The following table sets forth, for the periods indicated, the high and low sales prices of our ordinary shares as reported on the OTC Bulletin Board, the Pink Sheets or the OTCQB, as applicable.




41





Calendar Year

Price Per ShareHigh


Low2010


0.96



0.632011


0.78



0.442012


0.55



0.422013


0.75



0.452014


0.61



0.46Calendar Quarter2013First Quarter


0.70



0.45Second Quarter


0.69



0.47Third Quarter


0.75



0.58Fourth Quarter


0.64



0.512014First Quarter


0.61



0.51Second Quarter


0.61



0.48Third Quarter


0.55



0.50Fourth Quarter


0.50



0.462015First Quarter


0.73



0.47Second Quarter (through April 20, 2015)


0.64



0.50MonthlyOctober 2014


0.50



0.47November 2014


0.50



0.48December 2014


0.50



0.46January 2015


0.60



0.47February 2015


0.65



0.47March 2015


0.73



0.60April 2015 (through April 20, 2015)


0.64



0.50




42





B.           Plan of Distribution




Not applicable.




C.           Markets




Our ordinary shares are quoted on the OTCQB under the symbol TIKRF.




D.           Selling Shareholders




Not applicable.




E.           Dilution




Not applicable.




F.           Expenses of the Issue




Not applicable.




ITEM 10.
Additional Information




A.           Share Capital




Not applicable.




B.           Memorandum and Articles of Association




Objects and Purposes




We were organized under Israeli law on December 14, 1999 as a private company, and on June 30, 2000 became a public company. Our registration number with the Israeli registrar of companies is 51-286883-7. Our object is to engage, directly or indirectly, in any lawful undertaking or business whatsoever, including, without limitation, as stipulated in section 2 of our memorandum of association, which was filed with the Israeli registrar of companies.




Transfer of Shares and Notices




Fully paid ordinary shares may be freely transferred pursuant to our articles of association unless the transfer is restricted or prohibited by another instrument. Unless otherwise prescribed by law, shareholders of record are entitled to at least 21 calendar days’ prior notice of any general shareholders meeting.




The ownership or voting of our ordinary shares by non-residents of Israel, except with respect to citizens of countries which are in a state of war with Israel, is not restricted in any way by our memorandum of association or articles of association or by the laws of the State of Israel.




43




Dividend and Liquidation Rights




Our board of directors is authorized to declare dividends, subject to applicable law. Dividends may be paid only out of profits and other surplus, as defined in the Companies Law, as of the end of the most recent financial statements or as accrued over a period of two years, whichever is higher. Alternatively, if we do not have sufficient profits or other surplus, then permission to effect a distribution can be granted by order of an Israeli court.  In any event, a distribution is permitted only if there is no reasonable concern that the dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.




In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of ordinary shares in proportion to their respective holdings.  Dividend and liquidation right may be affected by the grant of preferential dividends or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future.




Voting, Shareholders’ Meetings and Resolutions




Holders of ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders. These voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future.  No cumulative voting is permitted.




We have two types of general shareholders meetings: the annual general meetings and extraordinary general meetings. These meetings may be held either in Israel or in any other place the board of directors determines. An annual general meeting must be held in each calendar year, but not more than 15 months after the last annual general meeting.  Our board of directors may convene an extraordinary meeting, from time to time, at its discretion and is required to do so upon the request of any two directors, at least 25% of the directors, or shareholders holding at least 5% of our ordinary shares.  The quorum required for an ordinary meeting of shareholders consists of at least two shareholders present in person or by proxy who hold or represent between them at least 25% of the outstanding voting shares unless otherwise required by applicable rules.  A meeting adjourned for lack of a quorum generally is adjourned to the same day in the following week at the same time and place or any time and place as the chairman may designate with the consent of the holders of a majority of the voting power represented at the meeting and voting on the matter adjourned.  At such reconvened meeting the required quorum consists of any two members present in person or by proxy.




Under the Companies Law and our articles of association, all resolutions of the shareholders require a simple majority of the shares present, in person or by proxy, and voting on the matter.




44




These voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future.




Duties of Shareholders




Under the Companies Law, each and every shareholder has a duty to act in good faith in exercising his rights and fulfilling his obligations towards us and other shareholders and to refrain from abusing his power in Tikcro, such as in voting in the general meeting of shareholders on the following matters:




·
any amendment to the articles of association;




·
an increase of our authorized share capital;




·
a merger; or




·
approval of certain actions and transactions which require shareholder approval.




In addition, each and every shareholder has the general duty to refrain from depriving other shareholders of their rights.




Furthermore, any controlling shareholder, any shareholder who knows that it possesses the power to determine the outcome of a shareholder vote and any shareholder that, pursuant to the provisions of the articles of association, has the power to appoint or to prevent the appointment of an office holder in Tikcro or any other power toward Tikcro is under a duty to act in fairness towards us.  The Companies Law does not describe the substance of this duty of fairness.




Mergers and Acquisitions under Israeli Law; Anti-takeover Provisions




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 the majority of its shares.  For purposes of the shareholder 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 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 (i) 50 days have passed from the time that a proposal of the merger has been filed with the Israeli Registrar of Companies by each merging company and (ii) 30 days have passed since the merger was approved by the shareholders of each merging company.




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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% or greater shareholder of the company and there is no existing 25% or greater shareholder in the company.  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% or greater shareholder of the company and there is no existing 45% or greater shareholder in the company.  This requirement does not apply if the acquisition (i) occurs in the context of a private placement by the company that received shareholder approval, (ii) was from a 25% shareholder of the company and resulted in the acquirer becoming a 25% shareholder of the company or (iii) was from a 45% shareholder of the company and resulted in the acquirer becoming a 45% shareholder of the company. The tender offer must be extended to all shareholders, but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders.  The tender offer may be consummated only if (i) at least 5% of the company’s outstanding shares will be acquired by the offeror and (ii) the number of shares tendered in the offer exceeds the number of shares whose holders objected to the offer.




If as a result of an acquisition of shares the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of a tender offer for all of the outstanding shares.  If as a result of a full the tender offer the acquirer would own more than 95% of the outstanding shares, then all the shares that the acquirer offered to purchase will be transferred to it. The law provides for appraisal rights if any shareholder files a request in court within six months following the consummation of a full tender offer, but the acquirer will be entitled to stipulate that tendering shareholders forfeit their appraisal rights.  If as a result of a full tender offer the acquirer would own 95% or less of the outstanding shares, then the acquirer may not acquire shares that will cause his shareholding to exceed 90% of the outstanding shares.




Finally, Israeli tax law treats stock-for-stock acquisitions between an Israeli company and a foreign company less favorably than does U.S. tax law.  For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his ordinary shares for shares in another corporation to taxation prior to the sale of the shares received in such stock-for-stock swap.




Our articles of association provide that our board of directors may, at any time in its sole discretion, adopt protective measures to prevent or delay a coercive takeover of Tikcro, including, without limitation, the adoption of a shareholder rights plan. In September 2005, our board of directors adopted a shareholder bonus rights plan pursuant to which share purchase bonus rights were distributed on September 26, 2005, at the rate of one right for each of our ordinary shares held by shareholders of record as of the close of business on that date.




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The rights plan is intended to help ensure that all of our shareholders are able to realize the long-term value of their investment in Tikcro in the event of a potential takeover which does not reflect the full value of Tikcro and is otherwise not in the best interests of Tikcro and its shareholders. The rights plan is also intended to deter unfair or coercive takeover tactics.




Each right initially will entitle shareholders to buy one-half of one of our ordinary shares for $7.50 (after giving effect to our 1-for-3 reverse split in 2006). The rights generally will only be exercisable and transferable apart from our ordinary shares ten business days after a person or group becomes an “acquiring person” by acquiring beneficial ownership of 15% or more of our ordinary shares, subject to certain exceptions set forth in the rights plan, or commencing a tender or exchange offer upon consummation of which such person or group would become an “acquiring person,” or on such later date as may be determined by our audit committee and board of directors. Subject to certain conditions described in the rights plan, once the rights become exercisable, the holders of rights, other than the acquiring person, will be entitled to purchase ordinary shares at a discount from the market price. In addition, at any time after a person becomes an acquiring person and prior to the acquisition by such person or group of 50% or more of the outstanding ordinary shares, we may exchange the rights (other than rights owned by the acquiring person), in whole or in part, at an exchange ratio of one ordinary share per right (subject to adjustment).


The rights expire on December 31, 2025 and are generally redeemable by our board of directors, at a nominal amount per right, at any time until the tenth business day following public disclosure that a person or group has become an “acquiring person”.


On November 20, 2012, Mr. Steven N. Bronson filed a Statement on Schedule 13D reflecting beneficial ownership of 1,500,094 of our ordinary shares, or 16.9% of our outstanding ordinary shares, thereby crossing the 15% ownership threshold. We have deferred the "Distribution Date" under the bonus rights plan to the close of business on the 30th business day following the termination of a standstill and confidentiality agreement that we entered into with Mr. Bronson, which shall remain in effect until terminated by either party.




Modification of Class Rights




Our articles of association provide that the rights attached to any class (unless otherwise provided by the terms of that class), such as voting, rights to dividends and the like, may be varied by a shareholders resolution, subject to the sanction of a resolution passed by the holders of a majority of the shares of that class at a separate class meeting.




Indemnification, Exculpation and Insurance of Office Holders




Exculpation of Office Holders




Under the Companies Law, an Israeli company may not exempt an office holder from liability for breach of his duty of loyalty, but may exempt in advance an office holder from liability to the company, in whole or in part, for a breach of his duty of care (except in connection with distributions), provided the articles of association of the company allow it to do so.  Our articles of associationallow us to exempt our office holders to the fullest extent permitted by law.




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Insurance of Office Holders




Our articles of association provide that, subject to the provisions of the Companies Law, we may enter into an insurancecontract which would provide coverage for any monetaryliability incurred byany of our office holders, with respect to an act performed in the capacity of an office holder for:




•
a breach of his duty of care to us or to another person;




•
a breach of his duty of loyalty to us, provided that the office holder acted in good faith and had reasonable cause to assume that his act would not prejudice our interests; or




•
a financial liability imposed upon him in favor of another person.




Indemnification of Office Holders




The Companies Law and our articles of association provide that a company may indemnify an office holder against the following obligations and expenses imposed on the office holder with respect to an act performed in the capacity of an office holder:




•
a financial obligation imposed on him in favor of another person by a court judgment, including a compromise judgment or an arbitrator’s award approved by the court; such indemnification may be approved (i) after the liability has been incurred or (ii) in advance, provided that our undertaking to indemnify is limited to events that our board of directors believes are foreseeable in light of our actual operations at the time of providing the undertaking and to a sum or criterion that our board of directors determines to be reasonable under the circumstances.




•
reasonable litigation expenses, including attorneys’ fees, expended by the office holder as a result of an investigation or proceeding instituted against him by a competent authority, provided that such investigation or proceeding concluded without the filing of an indictment against him and either (A) concluded without the imposition of any financial liability in lieu of criminal proceedings or (B) concluded with the imposition of a financial liability in lieu of criminal proceedings but relates to a criminal offense that does not require proof of criminal intent; and




•
reasonable litigation expenses, including attorneys’ fees, expended by the office holder or charged to him by a court in connection with:




•
proceedings we institute against him or that are instituted on our behalf or by another person;




•
a criminal charge from which he is acquitted; or




•
a criminal proceeding in which he is convicted of an offense that does not require proof of criminal intent.




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Limitations on Exculpation, Insurance and Indemnification




The Companies Law provides that a company may not exculpate or indemnify an office holder, or enter into an insurance contract which would provide coverage for any monetary liability incurred as a result of any of the following:




•
a breach by the office holder of his duty of loyalty unless, with respect to insurance coverage or indemnification, the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;




•
a breach by the office holder of his duty of care if the breach was done intentionally or recklessly;




•
any act or omission done with the intent to derive an illegal personal benefit; or




•
any fine levied against the office holder.




In addition, under the Companies Law, exculpation of, indemnification of, and procurement of insurance coverage for, our office holders must be approved by our audit committee and our board of directors and, if the beneficiary is a director, by our shareholders.




Our articles of associations also provide that, subject to the provisions of applicable law, we may procure insurance for or indemnify any person who is not an office holder, including without limitation, any of our employees, agents, consultants or contractors.




In accordance with the foregoing provisions, we have obtained liability insurance in favor of our directors and officers and have granted them letters of indemnification and exculpation.




C.           Material Contracts




On September 12, 2005, we entered into a bonus rights agreement, amended as of December 10, 2012, with a trustee on behalf of our shareholders, which is summarized above under Item 10.B “—Mergers and Acquisitions under Israeli Law; Anti-Takeover Provisions” and is incorporated by reference as an exhibit to this Annual Report.


On February 1, 2013, we entered into an agreement with Mr. Steven Bronson which is summarized above under Item 7.B “Major Shareholders and Related Party Transactions— Related Party Transactions”.




For information regarding our agreements with BioCancell, see Item 4.B “Business Overview - General.”




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D.           Exchange Controls




There are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our ordinary shares or the proceeds from the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions.  However, legislation remains in effect pursuant to which currency controls can be imposed by administrative action at any time.




E.           Taxation




The following is a general summary only and should not be considered as income tax advice or relied upon for tax planning purposes. Holders of our ordinary shares should consult their own tax advisors as to the United States, Israeli or other tax consequences of the purchase, ownership and disposition of ordinary shares, including, in particular, the effect of any foreign, state or local taxes.




United States Federal Income Tax Consequences




The following summary describes the material U.S. federal income tax consequences to “U.S. Holders” (as defined below) arising from the purchase, ownership or disposition of our ordinary shares. This summary is based on the Internal Revenue Code of 1986, as amended, or the “Code,” the final, temporary and proposed U.S. Treasury Regulations promulgated thereunder and administrative and judicial interpretations thereof, all as of the date hereof and all of which are subject to change (possibly with retroactive effect) or different interpretations. For purposes of this summary, a “U.S. Holder” will be deemed to refer only to any of the following holders of our ordinary shares:




·
an individual who is either a U.S. citizen or a resident of the U.S. for U.S. federal income tax purposes;




·
a corporation or other entity taxable as a corporation for U.S. federal income tax purposes created or organized in or under the laws of the U.S. or any political subdivision thereof;




·
an estate the income of which is subject to U.S. federal income tax regardless of the source of its income; and




·
a trust, if (a) a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) the trust has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person.




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This summary does not consider all aspects of U.S. federal income taxation that may be relevant to particular U.S. Holders by reason of their particular circumstances, including potential application of the U.S. federal alternative minimum tax, or any aspect of state, local or non-U.S. federal tax laws or U.S. federal tax laws other than U.S. federal income tax laws. In addition, this summary is directed only to U.S. Holders that hold our ordinary shares as “capital assets” within the meaning of Section 1221 of the Code and does not address the considerations that may be applicable to particular classes of U.S. Holders, including financial institutions, regulated investment companies, real estate investment trusts, pension funds, insurance companies, broker-dealers, tax-exempt organizations, grantor trusts, partnerships or other pass-through entities, partners or other equity owners in partnerships or other pass-through entities, U.S. Holders whose functional currency is not the U.S. dollar, U.S. Holders who have elected mark-to-market accounting, U.S. Holders who acquired our ordinary shares through the exercise of options or otherwise as compensation, U.S. Holders who hold our ordinary shares as part of a “straddle,” “hedge” or “conversion transaction,” U.S. Holders selling our ordinary shares short, U.S. Holders deemed to have sold our ordinary shares in a “constructive sale,” and U.S. Holders, directly, indirectly or through attribution, of 10% or more (by vote or value) of our outstanding ordinary shares. If a partnership (including for this purpose any entity, domestic or foreign, treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of our ordinary shares, the U.S. federal income tax treatment of a partner in such partnership generally will depend upon the status of the partner and the activities of the partnership.




Each U.S. Holder should consult with its own tax advisor as to the particular tax consequences to it of the purchase, ownership and sale of our ordinary shares, including the effects of applicable tax treaties, state, local, foreign or other tax laws and possible changes in the tax laws.




Sale, Exchange or Other Taxable Disposition of Ordinary Shares




Subject to the discussion below under “Passive Foreign Investment Company Status,” a U.S. Holder’s sale, exchange or other taxable disposition of ordinary shares generally will result in the recognition by such U.S. Holder of capital gain or loss in an amount equal to the difference between the U.S. dollar value of the amount realized and the U.S. Holder’s tax basis in the ordinary shares disposed of (determined in U.S. dollars).  This gain or loss will be long-term capital gain or loss if such ordinary shares have been held or are deemed to have been held for more than one year at the time of the disposition.  Individual U.S. Holders are subject to a maximum tax rate of 20% on long-term gains.  A noncorporate U.S. Holder may be subject to an additional tax based on its “net investment income” (generally, gross income from interest, dividends, annuities, royalties and rents and gain from the sale of property (other than property held in the active conduct of a trade or business that does not regularly trade financial instruments or commodities), less the amount of deductions properly allocable to such income or gain). Such tax is equal to 3.8% of the lesser of an individual U.S. Holder’s (i) net investment income, or (ii) the excess of such U.S. Holder’s “modified adjusted gross income” (adjusted gross income plus the amount of any foreign earned income excluded from income under Section 911(a)(1) of the Code, net of deductions and exclusions disallowed with respect to such foreign earned income) over a specified threshold amount ($250,000 in the case of a joint return or surviving spouse, $125,000 in the case of a married individual filing a separate return and $200,000 in any other case). In the case of a U.S. Holder which is an estate or trust, the tax is equal to 3.8% of the lesser of (i) undistributed net investment income, or (ii) the excess of adjusted gross income (as defined in Section 67(e) of the Code) over the dollar amount at which the highest tax bracket applicable to an estate or trust begins.  Short-term capital gains generally are taxed at the same rates applicable to ordinary income.  If the U.S. Holder’s holding period on the date of the taxable disposition is one year or less, such gain or loss is treated as a short-term capital gain or loss.  See “Israeli Tax Considerations — Capital Gains Tax” for a discussion of taxation by Israel of capital gains realized on sales of our ordinary shares.  Any capital loss realized upon the taxable disposition of ordinary shares generally is deductible only against capital gains and not against ordinary income, except that non-corporate U.S. Holders generally may deduct annually from ordinary income up to $3,000 of capital losses in excess of capital gains.  In general, any capital gain or loss recognized by a U.S. Holder upon the taxable disposition of ordinary shares will be treated as U.S.-source income or loss for U.S. foreign tax credit purposes, although the tax treaty between the United States and Israel may permit gain derived from the taxable disposition of ordinary shares by a U.S. Holder to be treated as foreign-source income for U.S. foreign tax credit purposes under certain circumstances.




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A U.S. Holder’s tax basis in his, her or its ordinary shares generally will be equal to the U.S. dollar purchase price paid by such U.S. Holder to acquire such ordinary shares.  The U.S. dollar cost of an ordinary share purchased with foreign currency generally will be equal to the U.S. dollar value of the purchase price on the date of purchase or, in the case of ordinary shares that are purchased by a cash basis U.S. Holder (or an accrual basis U.S. Holder that so elects), on the settlement date for the purchase.  Such an election by an accrual basis U.S. Holder must be applied consistently from year to year and cannot be revoked without the consent of the U.S. Internal Revenue Service. The holding period of each ordinary share owned by a U.S. Holder will commence on the day following the date of the U.S. Holder’s purchase of such ordinary share and will include the day on which the ordinary share is sold by such U.S. Holder.




In the case of a U.S. Holder who uses the cash basis method of accounting and who receives NIS in connection with a taxable disposition of ordinary shares, the amount realized will be based on the “spot rate” of exchange on the settlement date of such taxable disposition.  If such U.S. Holder subsequently converts NIS into U.S. dollars at a conversion rate other than the spot rate in effect on the settlement date, he, she or it may have a foreign currency exchange gain or loss treated as ordinary income or loss for U.S. federal income tax purposes.  A U.S. Holder who uses the accrual method of accounting may elect the same treatment required of cash method taxpayers with respect to a taxable disposition of ordinary shares, provided that the election is applied consistently from year to year.  Such election may not be changed without the consent of the U.S. Internal Revenue Service.  If an accrual method U.S. Holder does not elect to be treated as a cash method taxpayer (pursuant to U.S. Treasury Regulations applicable to foreign currency transactions), such U.S. Holder may be deemed to have realized an immediate foreign currency gain or loss for U.S. federal income tax purposes in the event of any difference between the U.S. dollar value of the NIS on the date of taxable disposition and the settlement date.  Any such currency gain or loss generally would be treated as U.S.-source ordinary income or loss and would be subject to tax in addition to any gain or loss recognized by such U.S. Holder on the taxable disposition of ordinary shares.






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Treatment of Distributions




Subject to the discussion below under “Passive Foreign Investment Company Status,” for U.S. federal income tax purposes, the amount of any distribution with respect to our ordinary shares will equal the amount of cash distributed, the fair market value of any property distributed and the amount of any Israeli taxes withheld on such distribution as described below under “Israeli Tax Considerations -- Tax on Dividends.” Other than distributions in liquidation or in redemption of our ordinary shares that are treated as exchanges, a distribution with respect to our ordinary shares to a U.S. Holder generally will be treated as a dividend to the extent the distribution does not exceed our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of any distribution that exceeds these earnings and profits will be treated first as a non-taxable return of capital, reducing the U.S. Holder’s tax basis in his, her or its ordinary shares (but not below zero), and then generally as capital gain from a deemed sale or exchange of such ordinary shares. Corporate U.S. Holders generally will not be allowed a deduction under Section 243 of the Code for dividends received on our ordinary shares and thus will be subject to tax at the rate applicable to their taxable income. A noncorporate U.S. Holder’s “qualified dividend income” generally is subject to tax at a rate of 20% and also may be subject to the additional tax on “net investment income” described above in “Sale, Exchange or Other Taxable Disposition of Ordinary Shares.”. For this purpose, “qualified dividend income” generally includes dividends paid by a foreign corporation if, among other things, the noncorporate U.S. Holder meets certain minimum holding period requirements and either (a) the stock of such corporation is readily tradable on an established securities market in the U.S.,  or (b) such corporation is eligible for the benefits of a comprehensive income tax treaty with the U.S. which includes an information exchange program and is determined to be satisfactory by the U.S. Secretary of the Treasury. The U.S. Secretary of the Treasury has indicated that the income tax treaty between the U.S. and Israel is satisfactory for this purpose. Dividends paid by us will not qualify for the 20% U.S. federal income tax rate, however, if we are treated, for the tax year in which the dividends are paid or the preceding tax year, as a “passive foreign investment company” for U.S. federal income tax purposes. See the discussion below under the heading “Passive Foreign Investment Company Status.”




A dividend paid by us in NIS will be included in the income of U.S. Holders at the U.S. dollar amount of the dividend, based on the “spot rate” of exchange in effect on the date of receipt or deemed receipt of the distribution, regardless of whether the payment is in fact converted into U.S. dollars.  U.S. Holders will have a tax basis in the NIS for U.S. federal income tax purposes equal to that U.S. dollar value. Any gain or loss upon the subsequent conversion of the NIS into U.S. dollars or other disposition of the NIS will constitute foreign currency gain or loss taxable as ordinary income or loss and will be treated as U.S.-source income or loss for U.S. foreign tax credit purposes.




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Dividends received with respect to our ordinary shares will constitute “portfolio income” for purposes of the limitation on the deductibility of passive activity losses and, therefore, generally may not be offset by passive activity losses. Dividends received with respect to our ordinary shares also generally will be treated as “investment income” for purposes of the investment interest deduction limitation contained in Section 163(d) of the Code, and as foreign-source passive income for U.S. foreign tax credit purposes or, in the case of a U.S. Holder that is a financial services entity, financial services income. Subject to certain limitations, U.S. Holders may elect to claim as a foreign tax credit against their U.S. federal income tax liability any Israeli income tax withheld from distributions on our ordinary shares which constitute dividends under U.S. income tax law. U.S. Holders that do not elect to claim a foreign tax credit may instead claim a deduction for Israeli income tax withheld, but only if the U.S. Holder elects to do so with respect to all foreign income taxes in such year. In addition, special rules may apply to the computation of foreign tax credits relating to “qualified dividend income,” as defined above. The calculation of foreign tax credits and, in the case of a U.S. Holder that elects to deduct foreign income taxes, the availability of deductions involves the application of complex rules that depend on a U.S. Holder’s particular circumstances.




U.S. Holders are urged to consult their own tax advisors regarding the U.S. federal income tax consequences of their receipt of any distributions with respect to our ordinary shares.




Passive Foreign Investment Company Status




Generally, a foreign corporation is treated as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes for any tax year if, in such tax year, either (i) 75% or more of its gross income (including its pro rata share of the gross income of any company in which it owns 25% or more of the shares by value) is passive in nature (the “Income Test”), or (ii) the average percentage of its assets during such tax year (including its pro rata share of the assets of any company in which it owns 25% or more of the shares by value)  which produce, or are held for the production of, passive income (determined by averaging the percentage of the fair market value of its total assets which are passive assets as of the end of each quarter of such year) is 50% or more (the “Asset Test”).   Passive income for this purpose generally includes dividends, interest, rents, royalties and gains from securities and commodities transactions.




There is no definitive method prescribed in the Code, U.S. Treasury Regulations or administrative or judicial interpretations thereof for determining the value of a publicly-traded foreign corporation’s assets for purposes of the Asset Test.  The legislative history of the U.S. Taxpayer Relief Act of 1997 (the “1997 Act”) indicates that for purposes of the Asset Test, “the total value of a publicly-traded foreign corporation’s assets generally will be treated as equal to the sum of the aggregate value of its outstanding stock plus its liabilities.”  It is unclear, whether other valuation methods could be employed to determine the value of our assets for purposes of the Asset Test.




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Based on the composition of our gross income, the composition and value of our gross assets and the amount of our liabilities during each year since 2003, we believe that we are likely to be treated as having been a PFIC in each such year, including 2014.  There also can be no assurance that we will not be deemed a PFIC in 2015 or any other future tax year.




If we are treated as a PFIC for U.S. federal income tax purposes for any year during a U.S. Holder’s holding period of ordinary shares and the U.S. Holder does not make a QEF Election or a “mark-to-market ”  election (both as described below):




·
The U.S. Holder would be required to (a) report as ordinary income any so-called “excess distributions” allocated to the current tax year,(b) pay tax on amounts allocated to each prior tax year in which we were a PFIC at the highest rate applicable to ordinary income in effect for such prior year, and (c) pay an interest charge on the resulting tax at the rate applicable to deficiencies of U.S. federal income tax. “Excess distributions” with respect to any U.S. Holder are amounts received by such U.S. Holder with respect to our ordinary shares in any tax year that exceed 125% of the average distributions received by such U.S. Holder from us during the shorter of (i) the three previous years, or (ii) such U.S. Holder’s holding period of our ordinary shares before the then-current tax year.  Excess distributions must be allocated ratably to each day that a U.S. Holder has held our ordinary shares.




·
The entire amount of any gain realized by such U.S. Holder upon the sale or other disposition of our ordinary shares also would be treated as an “excess distribution” subject to tax as described above.




·
The tax basis of ordinary shares acquired from a decedent who was a U.S. Holder generally would not receive a step-up to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis, if lower.




Although we generally will be treated as a PFIC as to any U.S. Holder if we are a PFIC for any year during the U.S. Holder’s holding period, if we cease to be a PFIC, the U.S. Holder may avoid the consequences of PFIC classification for subsequent years if such U.S. Holder elects to recognize gain based on the unrealized appreciation in such U.S. Holder’s ordinary shares through the close of the tax year in which we cease to be a PFIC.




A U.S. Holder who beneficially owns shares of a PFIC must file U.S. Internal Revenue Service Form 8621 (Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund) with the U.S. Internal Revenue Service for each tax year in which such U.S. Holder recognizes gain upon a disposition of our ordinary shares, receives certain distributions from us or makes the QEF Election or mark-to-market election described below




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For any tax year in which we are treated as a PFIC, a U.S. Holder may elect to treat his, her or its ordinary shares as an interest in a qualified electing fund (a “QEF Election”), in which case the U.S. Holder would be required to include in income currently his, her or its proportionate share of our earnings and profits in years in which we are a PFIC regardless of whether distributions of our earnings and profits are actually made to the U.S. Holder.  Any gain subsequently recognized by the U.S. Holder upon the sale of his, her or its ordinary shares, however, generally would be taxed as capital gain and the denial of the basis step-up at death described above would not apply.




A U.S. Holder may make a QEF Election with respect to a PFIC for any tax year of the U.S. Holder.  The election is effective for the tax year for which it is made and all subsequent tax years of the U.S. Holder.  Procedures exist for both retroactive elections and the filing of protective statements.  A  QEF Election is made by completing U.S. Internal Revenue Service Form 8621 and attaching it to a timely-filed (including extensions) U.S. federal income tax return for the first tax year to which the election will apply.  A U.S. Holder must satisfy certain additional filing requirements each year the election remains in effect. Upon the request of a U.S. Holder who wishes to make a QEF Election, we will provide to such U.S. Holder the information required to make the QEF Election and to make subsequent annual filings.




As an alternative to a QEF Election, a U.S. Holder generally may elect to mark his, her or its ordinary shares to market annually, recognizing ordinary income or loss (subject to certain limitations) equal to the difference, as of the close of each tax year, between the fair market value of his, her or its ordinary shares and the adjusted tax basis of such shares.  If a mark-to-market election with respect to ordinary shares is in effect on the date of a U.S. Holder’s death, the normally available step-up in tax basis to fair market value generally will not be available.  Rather, the tax basis of ordinary shares in the hands of a U.S. Holder who acquires them from a decedent will be the lesser of the decedent’s tax basis or the fair market value of the ordinary shares. Once made, a mark-to-market election generally continues, unless revoked with the consent of the U.S. Internal Revenue Service.




Due to the complexity of the PFIC rules, U.S. Holders should consult their own tax advisors regarding our status as a PFIC and, if we are treated as a PFIC, compliance with the applicable reporting requirements and the eligibility, manner and advisability of making a QEF Election or a mark-to-market election.




Information Reporting and Backup Withholding




Payments in respect of our ordinary shares that are made in the U.S. or by certain U.S.-related financial intermediaries may be subject to information reporting and backup withholding tax at a rate which currently is 28%.  Information reporting will not apply, however, with respect to payments to certain U.S. Holders, including corporations and tax-exempt organizations.  In addition, backup withholding will not apply to a U.S. Holder that (i) is a corporation or comes within certain exempt categories, and demonstrates that fact when so required, or (ii) furnishes a correct taxpayer identification number and other required certifications. U.S. Holders required to establish their exemption from backup withholding generally must provide a certification on U.S. Internal Revenue Service Form W-9 (or substitute form). The backup withholding tax is not an additional tax. Amounts withheld under the backup withholding rules may be credited against a U.S. Holder’s U.S. federal income tax liability, and a U.S. Holder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the U.S. Internal Revenue Service.  U.S. Holders should consult their own tax advisors regarding their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption, if applicable.




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In addition, U.S. Holders should be aware of annual reporting requirements on U.S. Internal Revenue Service Form 8938 (Statement of Specified Foreign Financial Assets) with respect to the holding of certain foreign financial assets, including our ordinary shares that are not held in an account maintained by certain types of financial institutions, if the aggregate value of all of such assets exceeds $50,000 (or $100,000 for married couples filing a joint return).




The foregoing discussion of certain U.S. federal income tax considerations is a general summary only and should not be considered as income tax advice or relied upon for tax planning purposes. Each U.S. Holder should consult with his, her or its own tax advisor regarding U.S. federal, state, local and non-U.S. income and other tax consequences of the acquisition, ownership and disposition of our ordinary shares.




Israeli Tax Considerations




The following is a summary of the principal tax laws applicable to companies in Israel, with special reference to their effect on us.  This section also contains a discussion of certain Israeli tax consequences to persons holding ordinary shares.  This summary does not discuss all the provisions of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to certain types of investors subject to special treatment under Israeli law, such as traders in securities or persons that own, directly or indirectly, 10% or more of our outstanding voting share capital.  To the extent that the discussion is based on new tax legislation which has not been subject to judicial or administrative interpretation, there can be no assurance that the views expressed in this discussion will be accepted by the tax authorities or the courts. The discussion should not be construed as legal or professional tax advice and is not exhaustive of all possible tax considerations.




Potential investors are urged to consult their own tax advisors as to the Israeli or other tax consequences of the purchase, ownership and disposition of ordinary shares, including, in particular, the effect of any foreign, state or local taxes.




General Corporate Tax Structure




Generally, Israeli companies are subject to Corporate Tax on taxable income at the rate of 25% for the 2012 and 2013 tax years and 26.5% for the 2014 tax year and future years. Israeli companies are generally subject to capital gains tax at the corporate tax rate.




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Capital Gains Tax on Sales of Our Ordinary Shares




Israeli law generally imposes a capital gains tax on the sale of any capital assets by residents of Israel, as defined for Israeli tax purposes, and on the sale of any capital assets located in Israel, including shares in Israeli companies by non-residents of Israel, unless a specific exemption is available or unless a tax treaty between Israel and the shareholder’s country of residence provides otherwise. The law distinguishes between real gain and inflationary surplus. The inflationary surplus is a portion of the total capital gain that is equivalent to the increase of the relevant asset’s purchase price that is attributable to the increase in the Israeli consumer price index, or in certain circumstances, a foreign currency exchange rate, between the date of purchase and the date of sale. The real gain is the excess of the total capital gain over the inflationary surplus.




Provisions of Israeli tax law may treat a sale of securities listed on a stock exchange differently than the sale of other securities. In the past, the Israeli Tax Authority, or the ITA, has indicated that it does not recognize the OTC market as a “stock exchange” for purposes of the Tax Ordinance. However, the current position of the ITA is to view securities quoted on the OTC market as listed on a “stock exchange” where such securities were previously delisted from a “stock exchange” (such as the Nasdaq Global Market or the Tel Aviv Stock Exchange), such as our ordinary shares.




The tax rate generally applicable to capital gains derived from the sale of shares, whether listed on a stock market or not, is 25% for Israeli individuals, unless such shareholder claims a deduction for financing expenses in connection with such shares, in which case the gain will generally be taxed at a rate of 30%. Additionally, if such shareholder is considered a “significant shareholder” at any time during the 12-month period preceding such sale (i.e., such shareholder holds directly or indirectly, including jointly with others, at least 10% of any means of control in the company) the tax rate will be 30%. However, the above tax rates may not apply to dealers in securities and shareholders who acquired their shares prior to an initial public offering. Israeli companies are subject to the corporate tax rate on capital gains derived from the sale of listed shares.




The tax basis of listed shares acquired prior to January 1, 2003 will be determined in accordance with the average closing share price in the three trading days preceding January 1, 2003.  However, a request may be made to the tax authorities to consider the actual adjusted cost of the shares as the tax basis if it is higher than such average price.




Starting with 2013, shareholders that are individuals who have taxable income that exceeds NIS 800,000 in a tax year (linked to the CPI each year, which increases the threshold to NIS 810,720 for the 2015 tax year), will be subject to an additional tax, referred to as High Income Tax, at the rate of 2% on their taxable income for such tax year which is in excess of such threshold. For this purpose, taxable income will include taxable capital gains from the sale of our shares and taxable income from dividend distributions.




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Non-Israeli residents are exempt from Israeli capital gains tax on any gains derived from the sale of shares of Israeli companies publicly traded on a recognized stock exchange outside of Israel, provided that such capital gains are not derived from a permanent establishment 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 Israeli residents (i) have a controlling interest of more than 25% in such non-Israeli corporation, or (ii) are the beneficiaries of or are 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 Convention between the Government of the United States of America and the Government of Israel with Respect to Taxes on income, as amended, known as the U.S.-Israel Tax Treaty, the sale, exchange or disposition of ordinary shares by a person who holds the ordinary shares as a capital asset and who qualifies as a resident of the United States within the meaning of the treaty and who is entitled to claim the benefits afforded to a resident by the treaty generally will not be subject to Israeli capital gains tax.  This exemption does not apply if: (i) the treaty U.S. resident holds, directly or indirectly, shares representing 10% or more of our issued voting power during any part of the twelve-month period preceding the applicable sale, exchange or disposition, subject to specific conditions, or (ii) the capital gains from such sale, exchange or disposition can be allocated to a permanent establishment in Israel. In these cases, the sale, exchange or disposition would be subject to Israel tax, to the extent applicable, as mentioned above. However, under the U.S.-Israel Tax Treaty, the treaty U.S. resident would be permitted to claim a credit for the capital gains tax paid in Israel against the U.S. federal income tax imposed with respect to the applicable sale, exchange or disposition, subject to the limitations in U.S. laws applicable to foreign tax credits. The U.S.-Israel Tax Treaty does not relate to U.S. state or local taxes.




Tax on Dividends to Non-Israeli Resident Shareholders




Non-residents of Israel are subject to income tax on income accrued or derived from sources in Israel.  These sources of income include passive income such as dividends.  On distributions of dividends other than bonus shares, or stock dividends, income tax is generally applicable at the rate of 25%, or 30% for a shareholder that is considered a significant shareholder at any time during the 12-month period preceding such distribution.  A different rate may be provided in a treaty between Israel and the shareholder’s country of residence.  Under the U.S.-Israel Tax Treaty, the maximum tax on dividends paid to a holder of ordinary shares who is a U.S. resident (as defined in the treaty) is 25%, and in certain circumstances if such shareholder is a U.S. corporation holding at least 10% of our issued voting power during the part of the tax year which precedes the date of payment of the dividend as well as the previous tax year, and not more than 25% of our gross income consists of interest or dividends,the maximum Israeli tax on dividends paid to such corporation is 12.5%.




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A non-resident of Israel who receives interest or dividend income derived from or accrued in Israel, from which tax was withheld at the source, is generally exempted from the duty to file tax returns in Israel with respect to such income, provided such income was not derived from a business conducted in Israel by the taxpayer and the taxpayer has no other taxable sources of income in Israel.


F.          Dividends and Paying Agents




Not applicable.




G.          Statement by Experts




Not applicable.




H.          Documents On Display




We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, applicable to foreign private issuers and fulfill the obligations with respect to such requirements by filing reports with the Securities and Exchange Commission.  You may read and copy any document we file with the Securities and Exchange Commission without charge at the Securities and Exchange Commission’s public reference room at 100 F Street, N.E., Washington, D.C. 20549.  Copies of such material may be obtained by mail from the Public Reference Branch of the Securities and Exchange Commission at such address, at prescribed rates.  The SEC also maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC.  The address of this web site is http://www.sec.gov.  Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the public reference room.




As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions contained in Section 16 of the Exchange Act.  In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the Securities and Exchange Commission as frequently or as promptly as United States companies whose securities are registered under the Exchange Act.




I.           Subsidiary Information




Not applicable.




ITEM 11.
Quantitative and Qualitative Disclosures about Market Risk




60




General




We are exposed to market risk, including movements in interest rates and foreign currency exchange rates.  Our financial results may be negatively impacted by foreign currency fluctuations because we generate most of our financial income in U.S. dollars but incur some of our expenses in new Israeli shekels. Because our financial results are reported in U.S. dollars, our results of operations may be impacted by fluctuations in the rates of exchange between the U.S. dollar and new Israeli shekels as our financial results are converted into U.S. dollars.




We do not presently engage in any hedging or other transactions intended to manage risks relating to foreign currency exchange rate or interest rate fluctuations.  At December 31, 2014, we did not own any market risk sensitive instruments. However, we may in the future undertake hedging or other similar transactions or invest in market risk sensitive instruments if our management determines that it is necessary to offset these risks.




Interest Rate Risk Management




As of December 31, 2014, we had $8.72 million of cash and short-term investments, primarily all of which was linked to the U.S. dollar.




ITEM 12.
Description of Securities other than Equity Securities




None.




PART II




ITEM 13.
Defaults, Dividend Averages and Delinquencies




Not applicable.




ITEM 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds




None.




ITEM 15.
Controls and Procedures




Disclosure Controls and Procedures




We performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), as of December 31, 2013. The evaluation was performed with the participation of our senior management and under the supervision and with the participation of our principal executive and financial officer. Based on this evaluation, our principal executive and financial officer has concluded that our disclosure controls and procedures are effective to alert him on a timely basis to material information required to be included in our periodic reports with the Securities and Exchange Commission.




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Management’s Annual Report on Internal Control Over Financial Reporting




Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Our internal control system was designed to provide reasonable assurance to our management and our board of directors regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements for external purposes in accordance with generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurances with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may decline.




Our management conducted an evaluation, pursuant to Rule 13a-15(c) under the Exchange Act, of the effectiveness, as of the end of the period covered by this Annual Report, of our internal control over financial reporting based on the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the results of this evaluation, management assessed the effectiveness of our internal control over financial reporting as at December 31, 2014 and concluded that our internal control over financial reporting was effective as of December 31, 2014.




Attestation Report of the Registered Public Accounting Firm




Not applicable.




Changes in Financial Control Over Financial Reporting




There were no changes in our internal control over financial reporting that occurred during 2014 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.




ITEM 16A.        Audit Committee Financial Expert




Our board of directors has determined that we require one director with "financial and accounting expertise", as defined under the Companies Law, and that Yiftach Atir has such expertise.  Mr. Atir qualifies as an "external director" under the Companies Law and as an "independent director" under the Nasdaq Listing Rules.  We do not believe that Mr. Atir satisfies all the qualifications of an "audit committee financial expert", as defined in Item 16A of Form 20-F, but we believe that his qualifications are sufficient for the scope and complexity of our operations.




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ITEM 16B.        Codeof Ethics




Our board of directors has adopted a Code of Ethics.  We will provide a copy of our Code of Ethics free of charge to any person who requests one. Such requests may be sentto Mr. Atir.




ITEM 16C.        Principal Accountant Fees and Services




For 2013 and 2014, our independent accountant was Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global. These accountants billed the following fees to us for professional services in each of the last two fiscal years:




Year Ended December 31,2013


2014Audit Fees

$
29,500


$
29,500Tax Fees


5,500



5,500All Other Fees


0



0Total

$
35,000


$
35,000





“Audit Fees” are the aggregate fees billed for the audit of our annual financial statements. This category also includes services that generally the independent accountant provides, consents and assistance with and review of documents filed with the SEC.




“Tax Fees” are the aggregate fees billed for professional services rendered for tax compliance, tax advice, other than in connection with the audit.  Tax compliance involves preparation of original and amended tax returns, tax planning and tax advice.




Our Audit Committee pre-approves the engagement of our independent accountant to perform audit and non-audit services.




ITEM 16D.        Exemptions from Listing Standards for Audit Committees




Not applicable.




ITEM 16E.        Purchases of Equity Securities by the Issuer and Affiliated Purchasers




None.




ITEM 16F.        Change in Registrant’s Certifying Accountant




None.




ITEM 16G.        Corporate Governance




Not Applicable.




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ITEM 16H.       Mine Safety Disclosure




Not Applicable.




PARTIII




ITEM 17.
Financial Statements




We have responded to Item 18 in lieu of this item.




ITEM 18.
Financial Statements




The financial statements required by this item are set forth in our current report on Form 6-K filed with the SEC on April 14, 2015 and incorporated by reference herein.




ITEM 19.
Exhibits




The exhibit lists required by this Item is incorporated by reference to the Exhibit Index, which appears following the signature page of this Annual Report.




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SIGNATURE




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.




TIKCRO TECHNOLOGIES LTD.By:
/s/ Aviv BoimAviv BoimChief Executive OfficerDate:  April 30, 2015
 65





Exhibit Index




Exhibit No.

Exhibit1.1

Memorandum of Association, as amended (a)1.2

Amended and Restated Articles of Association (a)1.3

Amended and Restated Bonus Rights Agreement, dated as of April 30, 2015, between Tikcro Technologies Ltd. and American Stock Transfer & Trust Company, as Rights Agent (b)4.1

Share Incentive Plan, as amended (c)4.2

Compensation Policy for Office Holders (d)4.3

Tikcro 2003 Stock Option Plan, as amended (e)8.1

List of Subsidiaries (e)12.1

Certification of Principal Executive Officer and Principal Financial Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act (e)13.1

Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act (e)15.1

Annual Consolidated Financial Statements as of December 31, 2012, 2013 and 2014 and for the years ended December 31, 2012, 2013 and 2014 (f)101.1

Interactive Data Files  in XBRL format of the materials set forth in Exhibit 15.1 (f)
 ________________________




(a)
Incorporated by reference to Tikcro’s Annual Report on Form 20-F for the year ended December 31, 2012.
  (b)
Incorporated by reference to Tikcro’s Report on Form 8-A/A filed with the Securities and Exchange Commission on April 30, 2015.
  (c)
Incorporated by reference to Tikcro’s Registration Statement on Form S-8 (File No. 333-12904).
  (d)
Incorporated by reference to Tikcro’s Report on Form 6-K filed with the Securities and Exchange Commission on November 21, 2013.
  (e)
Included herewith.
  (f)
Incorporated by reference to Tikcro’s Report on Form 6-K filed with the Securities and Exchange Commission on April 14, 2015.  In accordance with Rule 406T of Regulation S-T, the information in Exhibit 101.1 is furnished and deemed not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Exchange Act of 1934, and otherwise is not subject to liability under these sections and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.