---

---

# UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, 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, 2007

# 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)

# ISRAEL (Jurisdiction of
incorporation or organization)

126 Yigal Allon Street, Tel Aviv 67443, Israel(Address of principal executive offices)

Aviv Boim, T: +972-3-694-8648, F: +972-3-694-8684, 126 Yigal Allon Street, Tel Aviv 67443, 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                                                             | Name of each exchange on which registered
|None                                                                            |                                          



---

---

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:

# 8,055,466 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     x No

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     x No

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.

x  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 x

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

U.S. GAAP x
   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 o   Item 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).

x Yes      o No

2

---

---

|         |                                                       |   
|-------- | ----------------------------------------------------- | --
|
|
|
|
|PART 1   |                                                       | 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                                          | 3 
|ITEM 4.  | Information on the Company                            | 8 
|A.       | History and Development of the Company                | 8 
|B.       | Business Overview                                     | 8 
|C.       | Organizational Structure                              | 9 
|D.       | Property, Plants and Equipment                        | 9 
|ITEM 4A. | Unresolved Staff Comments                             | 9 
|ITEM 5.  | Operating and Financial Review and Prospects          | 9 
|A.       | Operating Results                                     | 9 
|B.       | Liquidity and Capital Resources                       | 13
|C.       | Research and Development, Patents and Licenses        | 13
|D.       | Trend Information                                     | 14
|E.       | Off-balance Sheet Arrangements                        | 14
|F.       | Tabular Disclosure of Contractual Obligations         | 14
|ITEM 6.  | Directors, Senior Management and Employees            | 14
|A.       | Directors and Senior Management                       | 14
|B.       | Compensation                                          | 15
|C.       | Broad Practices                                       | 16
|D.       | Employees                                             | 21
|E.       | Share Ownership                                       | 21

3

---

---

|         |                                                            |   
|-------- | ---------------------------------------------------------- | --
|
|
|
|
|ITEM 7.  | Major Shareholders and Related Party Transactions          | 22
|A.       | Major Shareholders                                         | 22
|B.       | Related Party Transactions                                 | 22
|C.       | Interests of Experts and Counsel                           | 23
|ITEM 8.  | Financial Information                                      | 23
|A.       | Consolidated Statements and other Financial Information    | 23
|B.       | Significant Changes                                        | 23
|ITEM 9.  | The Offer and Listing                                      | 23
|A.       | Offer and Listing Details                                  | 23
|B.       | Plan of Distribution                                       | 25
|C.       | Markets                                                    | 25
|D.       | Selling Shareholders                                       | 25
|E.       | Dilution                                                   | 25
|F.       | Expenses of the Issue                                      | 25
|ITEM 10. | Additional information                                     | 25
|A.       | Share Capital                                              | 25
|B.       | Memorandum and Articles of Association                     | 26
|C.       | Material Contracts                                         | 31
|D.       | Exchange Controls                                          | 31
|E.       | Taxation                                                   | 31
|F.       | Dividends and Paying Agents                                | 41
|G.       | Statement by Experts                                       | 41
|H.       | Documents On Display                                       | 41
|I.       | Subsidiary Information                                     | 41
|ITEM 11. | Quantitative and Qualitative Disclosures about Market Risk | 41
|ITEM 12. | Description of Securities other than Equity Securities     | 42

4

---

---

|          |                                                                              |   
|--------- | ---------------------------------------------------------------------------- | --
|
|
|
|
|PART 2    |                                                                              | 42
|ITEM 13   | Defaults, Dividend Averages and Delinquencies                                | 42
|ITEM 14   | Material Modifications to the Rights of Security Holders and Use of Proceeds | 42
|ITEM 15.  | Controls and Procedures                                                      | 42
|ITEM 16A. | Audit Committee Financial Expert                                             | 43
|ITEM 16B. | Code of Ethics                                                               | 43
|ITEM 16C. | Principal Accountant Fees and Services                                       | 43
|ITEM 16D. | Exemptions from Listing Standards for Audit Committees                       | 44
|ITEM 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers       | 44
|PART 3    |                                                                              | 44
|ITEM 17.  | Financial Statements                                                         | 45
|ITEM 18   | Financial Statements                                                         | 45
|ITEM 19.  | Exhibits                                                                     | 45

5

---

---

# PART 1

Unless the context otherwise
requires, Tikcro, us, we and our refer to
Tikcro Technologies Ltd., an Israeli company, and its subsidiaries.

All share and per share information
in this Annual Report has been adjusted to give retroactive effect to a one-for-three
reverse split of our ordinary shares that became effective on September 19, 2006.

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, Senior Management 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 from the financial statements of Tikcro, which have been prepared
in accordance with generally accepted accounting principles in the United States. You
should read the selected consolidated financial data together with Item 5 Operating
and Financial Review and Prospects and our consolidated financial statements
included elsewhere in this Annual Report. In April 2003, we sold substantially all of our
assets and liabilities to STMicroelectronics (other than financial indebtedness). Since
then, our plan of operation has been to explore the best course of action for Tikcro,
including to attempt to merge or effect a business combination with a domestic or foreign,
private or public operating company or to acquire minority stakes in one or more operating
companies in new areas of operations. Accordingly, the data presented below are not
indicative of our future operating results or financial position.

In June 2008, we signed an
agreement to provide $2.5 million in funding to BioCancell Therapeutics, Inc., an
Israel-based clinical-stage biopharmaceutical company, to continue development and
clinical trials of its drugs for the treatment of bladder, ovarian and pancreatic cancers.
This transaction is subject to certain closing conditions. Please see Item 4.A
Information on the Company  History and Development of the Company for
more information.

1

---

---

|                                                            | Years Ended December 31,
|----------------------------------------------------------- | ------------------------
|
|
|
|
|Statement of Operations Data:                               |                         
|Revenues                                                    |                         
|                                                            |                         
|                                                            |                         
|Research and development expenses and development           |                         
|services costs (1)                                          |                         
|Less - royalty-bearing grants                               |                         
|                                                            |                         
|                                                            |                         
|Research and development expenses, net and development      |                         
|services costs, net (1)                                     |                         
|Selling, marketing, general and administrative expenses (1) |                         
|Operating loss                                              |                         
|Other income                                                |                         
|Financial income (expense), net                             |                         
|Net income (loss)                                           |                         
|                                                            |                         
|Basic net earnings (loss) per share**)                      |                         
|                                                            |                         
|Diluted net earnings (loss) per share**)                    |                         
|                                                            |                         
|Number of shares used in computing basic net earnings       |                         
|(loss) per share**)                                         |                         
|                                                            |                         
|Number of shares used in computing diluted net earnings     |                         
|(loss) per share**)                                         |                         
|                                                            |                         

---

|(1) | Operating
expenses include stock compensation expenses as follows: research and
          development expenses, net and development services costs, net of, $47, $0, $0,
          $0 and $0 for the years ended December 31, 2003, 2004, 2005, 2006 and 2007,
          respectively; and selling, marketing, general and administrative expenses of
          $724, $0, $0, $9 and $12 for the years ended December 31, 2003, 2004, 2005,
          2006 and 2007, respectively.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*) | Represents
an amount lower than $0.01.
|-- | --------------------------------------

|**) | After
giving retroactive effect to the one-for-three reverse stock split in           September
19, 2006 for the years ended December 31, 2003 through 2005.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                         | December 31,
|---------------------------------------- | ------------
|
|
|
|
|Balance Sheet Data:                      |             
|Cash and cash equivalents and short term |             
|investments                              |             
|Working capital                          |             
|Total assets                             |             
|Shareholders equity                      |             

2

---

---

# B. Capitalization and
Indebtedness

Not
applicable.

C.
          Reasons for the offer and use of proceeds

Not
applicable.

# 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.

We have sold our business and
currently conduct no business activities.

In April 2003, we sold substantially
all of our assets and liabilities (other than financial indebtedness) to
STMicroelectronics. Since then, our plan of operation has been to evaluate the best course
of action for Tikcro, including to attempt to merge or effect a business combination with
a domestic or foreign, private or public operating company or to acquire minority stakes
in one or more operating companies in new areas of operations. Other than activities
relating to attempting to locate such a candidate and activities relating to the
investment of our funds, we do not currently conduct any operations.

We agreed to provide $2.5 million
of funding to BioCancell Therapeutics, Inc., an Israel-based clinical-stage
biopharmaceutical company whose future is uncertain.

We agreed to fund BioCancell, to
appoint a member to its board of directors and to provide it with certain consulting
services. This transaction is subject to certain closing conditions, including the
approval of BioCancells public shareholders. BioCancell is developing new drugs for
the treatment of various types of cancer. To be profitable, BioCancell must successfully
research, develop, obtain regulatory approval for, manufacture, introduce, market and
distribute its drugs. The path necessary to achieve these goals for any drug product is
long and uncertain. Before BioCancell can sell any drug, it will be required to
demonstrate through clinical trials that it is safe and effective for human use in the
treatment of individuals with cancer. BioCancell has never successfully commercialized a
drug product and no assurance can be given that BioCancell will be able to successfully
complete the clinical trials for its drugs in development in accordance with the standards
of the U.S. Federal Drug Administration, or if it is able, that its drugs will prove to be
safe and will produce the intended effects. If BioCancell does not successfully meet its
scientific, regulatory, financial and commercial challenges, then the value of our
investment in BioCancell may significantly decline.

BioCancell will require additional
funding, which may further draw on our resources or result in significant dilution of our
ownership.

BioCancell
is expected to need additional funding for its operations in 2009 and may not be able to
raise such funds without our participation. If we allocate additional funds to BioCancell,
our cash reserves will decline and the dependence of our results on the results of
BioCancell will increase. If we do not allocate additional funds to BioCancell, our
holding in BioCancell would be diluted, our influence over its business could weaken and
the value of our holding could materially decline.

We may not be successful in
identifying and evaluating suitable business opportunities or in consummating a business
combination or other acquisitions.

We expect to incur expenses in the
course of evaluating potential business combinations or other acquisitions, whether or not
such evaluation results in a transaction. There can be no assurance that we will be
successful in identifying and evaluating suitable business opportunities or in
consummating a business combination. No particular industry or specific business within an
industry has been selected for a target company. Accordingly, we may enter into a business
combination with a business entity having no significant operating history, losses,
limited or no potential for immediate earnings, limited assets, negative net worth or
other negative characteristics. In the event that we complete a business combination or
acquire stakes in one or more operating companies, the success of our operations will be
dependent upon the management of such target company or companies and numerous other
factors. There is no assurance that we will be able to negotiate a business combination or
other transactions on terms favorable to us, or at all.

We may be deemed an
investment company under the Investment Company Act of 1940.

Following the sale of our business to
STMicroelectronics in April 2003 and the investment of the cash proceeds of the sale, we
may be deemed an investment company under the Investment Company Act of 1940,
unless we qualify for an exemption. The likelihood of being deemed to be an investment
company increases over time if we do not enter into a business combination or develop an
operating business. Even if we acquire minority stakes in one or more 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.

3

---

---

Our shareholders may be subject to
dilution of the value of our shares if we conduct a business combination.

A business combination, which is one
of the business alternatives considered by us, normally will involve the issuance of a
significant number of additional shares. Depending upon the value of the assets acquired
in such business combination, the per share value of our ordinary shares may increase or
decrease, perhaps significantly.

We may need additional financing
in connection with a business combination or other transaction.

If we consummate a business
combination or acquire stakes in one or more operating companies, we may need to raise
funds through a public or private financing. We agreed to provide $2.5 million in funding
to BioCancell, which will require additional funding in 2009. We may not be provide
BioCancell with the support it requires unless we raise additional funds. We may be unable
to obtain additional financing on acceptable terms or at all.

# We may face tax
liabilities relating to our asset sales.

We havegenerated a
significantamount of income from the sale of the ASIC business of Silicon Value in
2001 and our various agreements with STMicroelectronics in 2002 to 2005. Based on our
assessment and that of our tax advisors, we believe that we have fully satisfied all tax
due in relation with these transactions. The tax authorities may not agree with our view.
Any such disagreement and subsequent tax dispute could result in tax liabilities in
amounts which we currently can not estimate.

# We might lose money from
the investment of our cash.

We plan to invest the majority of our
cash on hand in a variety of financial instruments. If the obligor of any of the
instruments we hold default or undergo a reorganization in bankruptcy, we may lose
all or a portion of our investment.  This will harm our financial condition. 
For information on the types of our investments as of December 31, 2007, see Item 11
 Quantitative and Qualitative Disclosures About Market Risk  Interest
Rate Risk Management.

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

As a foreign private issuer 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 and various SEC regulations. Section 404 of the Sarbanes-Oxley
Act requires managements annual review and evaluation of our internal control over
financial reporting and attestations of the effectiveness of these controls by our
management and, commencing from fiscal year 2009, by our independent registered public
accounting firm. There is no guarantee that these efforts will result in management
assurance or an attestation by our independent registered public accounting firm that our
internal control over financial reporting is adequate in future periods. Once we complete
a business combination, we will likely need to invest additional time and resources in
connection with our compliance with Section 404 and the other applicable provisions of the
Sarbanes-Oxley Act, to assure that we continue to comply with these requirements. 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.

4

---

---

Risks relating to our
incorporation 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 under the laws of
Israel. A state of hostility, varying in degree and intensity, has led to security and
economic problems for Israel. Political, economic and military conditions might deter
potential targets from effecting a business combination or other transaction with an
Israeli company.

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.

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.

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. final 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
judgment is enforceable in the state in which it was given;
| | - | ---------------------------------------------------------------

| |  | adequate
 service of process has been effected and the defendant has had a
                reasonable opportunity to be heard;
| | - | ------------------------------------------------------------------------------------------------------------------------------

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

5

---

---

| |  | 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 is not pending in
                any Israeli court at the time the lawsuit is instituted in the U.S. court.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

If a foreign judgment is enforced by
an Israeli court, it generally will be payable in new Israeli shekels, which can then be
converted into non-Israeli currency and transferred out of Israel. The usual practice in
an action to recover an amount in non-Israeli currency is for the Israeli court to render
judgment for the equivalent amount in new Israeli shekels at the rate of exchange on the
date of payment, but the judgment debtor also may make payment in non-Israeli currency.
Pending collection, the amount of the judgment of an Israeli court stated in new Israeli
shekels ordinarily will be linked to the Israel Consumer Price Index plus interest at the
annual rate (set by Israeli law) prevailing at that time. Judgment creditors bear the risk
of unfavorable exchange rates.

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

6

---

---

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 income tax risks.

As a consequence of our ownership of
substantial cash and investment assets but no operating business 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, during each of 2005, 2006 and 2007. We could also be
classified as a PFIC for 2008, 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 tax reporting requirements.

Complex rules apply to a U.S. holder
of our ordinary shares if we are treated as a PFIC for U.S. federal income tax purposes
for any year during such U.S. holders holding period. Accordingly, U.S. holders are
urged to consult their tax advisors regarding the application of these rules.

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 currently are
quoted on the OTC Bulletin Board, an electronic quotation medium regulated by the National
Association of Securities Dealers. Currently, we do not meet the initial listing
conditions of the Nasdaq Stock Market. The market for shares quoted on the OTC Bulletin
Board is typically less liquid than that for shares listed on the Nasdaq Stock Market.
This could make it more difficult for our shareholders to sell their shares at desired
prices and amounts.

# Two shareholders may be
able to control us.

Izhak Tamir and Eric Paneth,
directors of Tikcro, each beneficially own approximately 12.6% of our outstanding ordinary
shares. Currently, Messrs. Paneth and Tamir are not party to a shareholders agreement.
However, if Messrs. Paneth and Tamir 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.
Their combined equity interest in us 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 both of them.

7

---

---

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 only if 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. The rights will expire
on December 31, 2015. 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.

|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 126
Yigal Allon Street, Tel Aviv, Israel and our telephone number is (972-3) 694-8648.

# Recent Developments

In June 2008, we signed an agreement
to provide BioCancell, an Israel-based clinical-stage biopharmaceutical company, with $2.5
million in funding to continue development and clinical trials of its drugs for the
treatment of bladder, ovarian and pancreatic cancers. BioCancell is focused on the
development and commercialization of an innovative therapeutic molecular platform for
treating aggressive cancers. BioCancells lead drug candidate for the treatment of
bladder cancer is currently in Phase II trials, while its ovarian and pancreatic cancer
compounds are preparing to begin Phase I trials. Under the agreement, we will provide
BioCancell with $2.5 million in funding at the closing. Of this amount, $2.0 million will
be allocated to a four-year convertible note bearing interest at 10% per year and $0.5
million will be in the form of BioCancell common stock. In addition, we will receive a
five-year warrant, for an aggregate exercise price of approximately $2.5 million. The
common stock of BioCancell is listed on the Tel Aviv Stock Exchange, or TASE, under the
symbol BICL. The conversion and exercise prices of BioCancells stock
will be based on the average closing price of BioCancells common stock on the TASE
over the 60-day period preceding the closing date plus a premium of approximately 25%. The
common stock issuable to us will be subject to resale restrictions under applicable
securities laws. BioCancell has undertaken steps to register such stock for resale.

Initially, we will hold approximately
5% of the outstanding capital stock of BioCancell. If we convert the note in full, we will
hold an aggregate of approximately 20% of BioCancells outstanding capital stock.
Additionally, if we exercise the warrant in full, we will hold an aggregate of
approximately 34% of BioCancells outstanding capital stock. Such percentages would
be different to the extent that BioCancell issues shares to holders of other exercisable
securities. In connection with the agreement, Tikcro reached a voting agreement with three
existing major shareholders of BioCancell, Clal Biotechnology Ltd., or CBI, Prof. Abraham
Hochberg, Biocancells Co-Founder and Chief Scientific Officer, and Avi Barak, its
CEO. Subject to certain conditions, the parties to the agreement, who will initially hold
50% of BioCancells outstanding capital stock in the aggregate, will vote for one
member of the board designated by Tikcro, for one member designated by CBI and for one
member designated by Prof. Hochberg.

We will also provide general
consulting services to BioCancell. The closing is subject to the approval of
BioCancells public shareholders, for which a meeting has been called for July 29,
2008, and other customary conditions.

# Principal Capital
Expenditures

We did not have any capital
expenditures in 2005, 2006 or 2007.

# B. Business Overview

Our historical business was the
design, development and marketing of DSL chips used by manufacturers of telecommunications
equipment.

Upon the sale of our business to
STMicroelectronics in April 2003, we ceased the operations of our business as conducted
prior thereto. Since then, our plan of operation has been to explore the best course of
action for Tikcro, including to attempt to merge or effect a business combination with a
domestic or foreign, private or public operating company or to acquire minority stakes in
one or more operating companies in new areas of operations. We appointed a new Chief
Executive Officer as of January 1, 2008.

We may enter into one or more
transactions with a wide variety of businesses without limitation as to their industry or
revenues. It is not possible at this time to predict when we will enter into any such
transactions or what will be the industry, operating history, revenues, future prospects
or other characteristics of any such business.

8

---

---

# C. Organizational
Structure

We do not have 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 financial statements, accompanying
notes thereto and other financial information appearing elsewhere in this Annual Report.

# Overview

In April 2003, STMicroelectronics
acquired our business pursuant to an asset purchase agreement. In January 2004, we reached
an agreement with STMicroelectronics that settled certain reciprocal financial claims,
including with respect to an escrow account which had been established under the asset
purchase agreement. In April 2005, the remaining amount under escrow was paid to us.

Following the sale of our business to
STMicroelectronics in April 2003, our plan of operation has been to explore the best
course of action for Tikcro, including to attempt to merge or effect a business
combination with a domestic or foreign, private or public operating company or to acquire
minority stakes in one or more operating companies in new areas of operations.

In 2005, 2006 and 2007, we generated
only financial income, which exceeded our expenses, resulting in net income of $4,000,
$210,000 and $147,000, respectively.

# Application of Critical
Accounting Policies and Estimates

We prepare our consolidated financial
statements in conformity with accounting principles generally accepted in the United
States. These accounting principles require management to make certain estimates,
judgments and assumptions based upon the information available at the time they are made,
historical experience and various other factors believed to be reasonable under the
circumstances. These estimates, judgments and assumptions can affect the reported amounts
of assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the periods presented. Management evaluates its estimates
and judgments on an on-going basis. Some of those judgments can be subjective and complex,
and consequently actual results may differ from those estimates.

9

---

---

The Company is also subject to risks
and uncertainties that may cause actual results to differ from estimates and assumptions,
such as changes in the economic environment, competition, foreign exchange, taxation and
governmental programs. 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. Please refer to Note 2 to our consolidated financial statements included in
this Annual Report for a summary of all of our significant accounting policies

Marketable securities

SFAS 115, Accounting for Certain
Investments in Debt and Equity Securities, and Securities and Exchange Commission (SEC)
Staff Accounting Bulletin (SAB) 59, Accounting for Noncurrent Marketable Equity
Securities, provide guidance on determining when an investment is other-than-temporarily
impaired. Investments are reviewed quarterly for indicators of other-than-temporary
impairment. This determination requires significant judgment. In making this judgment, we
evaluate, among other factors, the duration and extent to which the fair value of an
investment is less than its cost, the financial health of the investee, and our intent and
ability to hold the investment. Investments with such an indicator are further evaluated
to determine the likelihood of a significant adverse effect on the fair value and amount
of the impairment as necessary. If market, industry and/or investee conditions
deteriorate, we may incur future impairments.

Accounting for
stock-based compensation

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

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

10

---

---

The Company adopted SFAS 123(R) using
the modified prospective transition method, which requires the application of the
accounting standard as of January 1, 2006, the first day of the Companys fiscal
year 2006. Under that transition method, compensation cost recognized in the year ended
December 31, 2006, includes: (a) compensation cost for all share-based payments granted
prior to, but not yet vested as of January 1, 2006, based on the grant date fair value
estimated in accordance with the original provisions of Statement 123, and (b)
compensation cost for all share-based payments granted subsequent to January 1, 2006,
based on the grant-date fair value estimated in accordance with the provisions of SFAS
123(R). As required by the modified prospective method results for prior periods have not
been restated.

The Company recognized compensation
expenses for the value of these awards, which has straight-line vesting, over the
requisite service period of each of the awards.

The Company estimates the fair value
of stock options granted using the Black-Scholes-Merton option-pricing model. The
option-pricing model requires a number of assumptions, of which the most significant are,
expected stock price volatility, and the expected option term. Expected volatility was
calculated based upon actual historical stock price movements over the most recent periods
ending at the date of grant, based on the expected option term (disregarding the term
before the Company started operating in its current mode). The expected option term
represents the period that the Companys stock options are expected to be outstanding
and was determined based on the simplified method, which is the average of the vesting
terms and original contractual terms of the stock options. The Company has historically
not paid dividends and has no foreseeable plans to issue dividends. The risk-free interest
rate is based on the yield from U.S. Treasury zero-coupon bonds with an equivalent term.

# Results of Operations

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

|                                                        | Years Ended December 31,
|------------------------------------------------------- | ------------------------
|
|
|
|
|Statement of Operations Data:                           |                         
|Selling, marketing, general and administrative expenses |                         
|Operating loss                                          |                         
|Financial income, net                                   |                         
|                                                        |                         
|Net income                                              |                         
|                                                        |                         

11

---

---

Revenues.
          We did not have any revenues in 2005, 2006 or 2007.

General and administrative
expenses. In 2005, 2006 and 2007, we incurred only general and administrative
expenses, which consisted primarily of management fees paid to Orckit Communications Ltd.
(Orckit) and professional fees. The increase is 2007 was primarily due to
professional fees incurred in negotiating and the evaluation of potential transactions and
other matters.

Financial income ,
net. Financial income consists primarily of interest on marketable securities and bank
deposits.

Net income. In 2005, we
had net income of $4,000, primarily as a result of financial income in the amount of
$237,000, which was partly offset by our general and administrative expenses in the amount
of $233,000.

In 2006, we had net income of
$210,000, primarily as a result of financial income in the amount of $419,000, which was
partly offset by our general and administrative expenses in the amount of $209,000.

In 2007, we had net income of
$147,000, primarily as a result of financial income in the amount of $481,000, which was
partly offset by our general and administrative expenses in the amount of $334,000.

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 2007, the value
of the U.S. dollar declined 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:

12

---

---

|Years Ended
December 31, | Israeli Inflation
Rate | Israeli Devaluation Rate | Israel Inflation Adjusted
for Devaluation
|------------------------ | ---------------------- | ------------------------ | -----------------------------------------
|
|
|
|
|2003                     |                        |                          |                                          
|2004                     |                        |                          |                                          
|2005                     |                        |                          |                                          
|2006                     |                        |                          |                                          
|2007                     |                        |                          |                                          

# B. Liquidity and Capital
Resources

We had working capital of
$9.7 million as of December 31, 2005, $10.0 million as of December 31, 2006 and $10.2
million as of December 31, 2007.

In 2005, we had net income of $4,000
and we generated $47,000 of cash from operations. In 2006, we had net income of $210,000
and we generated $237,000 of cash from operations. In 2007, we had a net income of
$147,000 and we used $46,000 million of cash in our operations.

We generated net cash from investing
activities of $750,000 in 2005 and $1.75 million in 2006, and we used net cash of $2.2
million from investment activities in 2007.

In 2005 and 2006, we did not have any
cash flow from financing activities. In 2007 we generated net cash of $11,000 from
financing activities.

# Government Grants

Under the Law for the Encouragement
of Industrial Research and Development, 1984, or the R&D Law, research and development
programs which meet specified criteria and are approved by a governmental committee of the
Office of the Chief Scientist of the Ministry of Industry, Trade and Labor of the
Government of Israel are eligible for grants of up to 50% of the projects
expenditure, as determined by the research committee, in exchange for the payment of
royalties from the sale of products (and related services) developed in accordance with
the program.

We did not recognize any grants from
the Office of the Chief Scientist in 2005 through 2007.

Our agreements with
STMicroelectronics were approved by the Office of the Chief Scientist. This approval was
conditioned upon the undertaking of STMicroelectronics to comply with the provisions of
the R&D Law and to pay to the Office of the Chief Scientist royalties on the sale of
the purchased products that are based on our funded intellectual property.

# C. Research and
Development, Patents and Licenses

We conduct no research and
development activities.

13

---

---

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, 2007, 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 June 15, 2007:

|Name         | Age |  | Position               
|------------ | --- |  | -----------------------
|
|
|
|
|Izhak Tamir  | 55  |  | Chairman of the Board  
|Eric Paneth  | 58  |  | Director               
|Irit Gal     | 56  |  | External Director      
|Yiftach Atir | 59  |  | External Director      
|Aviv Boim    | 41  |  | 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 as our Chief Executive Officer
from August 2003 to January 2008. He has served as President and a Director of Orckit
since it was co founded by him and by Mr. Paneth in 1990. Mr. Tamir has served as Chairman
of the Board of Corrigent Systems, a subsidiary of Orckit, since 2001 and as Chief
Executive Officer of Corrigent Systems since May 2007 and as a Director of Gilat Satellite
Networks Ltd. 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.

Eric Paneth has served as one
of our Directors since January 2000 and served as our President from February 2000 to June
2000. Mr. Paneth has also served as Chairman of the Board of Directors and Chief Executive
Officer of Orckit since it was co founded by him and by Mr. Tamir in 1990. From 1975 until
1983, Mr. Paneth was a senior engineer in the Israeli Government, and from 1985 to 1990,
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.

14

---

---

Irit Galhas served as one of
our external directors since August 2003. Since September 2002, she has served as an
Associate at Stanford University, California, Office of Technology Licensing. Prior to
that, she served as a director and a manager for investments and strategic relations of
ZettaLight, an optical communications company. From May 2000 to February 2002, she served
as Vice President of Runway Telecom Ventures, an Israeli-based venture capital fund
founded by Alcatel and others. From June 1999 to 2000, she served as Vice President for
marketing and business development of Ceramight Composites, which operates in the area of
ceramic composites. From 1997 to 1999, she served as a manager with PricewaterhouseCoopers
in the areas of business development and corporate finance for technology companies. 
Ms. Gal holds B.S. and M.S. degrees in Chemical Engineering from the Technion and an M.A.
degree in Economics from Queens College of the City University of New York.

Yiftach 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 in January 2008. From 1998 to 2007, he served as the Chief
Financial Officer of Orckit Communications Ltd. 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.

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 (four persons) who served in the capacity of director or
executive officer in the year ended December 31, 2007, was approximately $40,000, which
consisted of participation fees of $1,000 per director for attendance at each meeting of
the board of directors or committee thereof. We did not pay any compensation to any
executive officers in 2007, but we hired and started paying a chief executive officer as
of January 1, 2008.

15

---

---

# C. Board Practices

Israeli
Companies Law

We are subject to the provisions of
the new 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 nor 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. The required
shareholder approval is a majority of the shares voted on the matter, provided that at
least two-thirds of the shares of non-controlling shareholders voted in favor or no more
than 1% of the shares of non-controlling shareholders voted against. At the shareholder
meeting held in August 2006, our shareholders resolved to allow Mr. Tamir, our chairman,
to serve also as our chief executive officer for a period of up to three years. In January
2008, our board of directors appointed a new chief executive officer. Mr. Tamir did not
receive any compensation for serving in such office since 2004.

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 an
additional three-year term.

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.

16

---

---

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
the person or the persons relative, partner, employer or any entity under the
persons control 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
entity controlling the company; or
| | - | --------------------------------------

| |  | any
entity controlled by the company or by its controlling entity.
| | - | ------------------------------------------------------------------

The term affiliation includes:

| |  | an
employment relationship;
| | - | ---------------------------

| |  | a
business or professional relationship maintained on a regular basis;
| | - | ----------------------------------------------------------------------

| |  | control;
and
| | - | ------------

| |  | service
as an office holder.
| | - | ----------------------------

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 may not engage an external
director to serve as an office holder and cannot employ or receive services from that
person, either directly or indirectly, including through a corporation controlled by that
person.

17

---

---

Election
Of External Directors

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

| |  | at
least one third 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 one percent of the aggregate voting rights in the company.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------

The initial term of an external
director is three years and may be extended for an additional three years. 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. 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. Irit Gal
commenced her second term as an External Director on August 28, 2006, and Yiftach Atir
commenced his first term as an External Director on September 28, 2006.

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, but excluding:

| |  | the
chairman of the board of directors; and
| | - | -------------------------------------------

| |  | a
controlling shareholder or a relative of a controlling shareholder and any director
employed by the company or who provides services to the company on a regular basis.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The role of the audit committee is to
examine irregularities in the management of the companys business, in consultation
with the internal auditor and the companys independent accountants, suggest remedial
action and to approve specified related party transactions. Our audit committee consists
of our two external directors and one additional director, Eric Paneth.

We have adopted an audit committee
charter, which sets forth the powers and responsibilities of our audit committee. Our
audit committee assists the board of directors in fulfilling its responsibility for
oversight of the quality and integrity of our accounting, auditing and financial reporting
practices and financial statements and the independence qualifications and performance of
our independent auditors. 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.

18

---

---

Approval
of Interested Party Transactions

The approval of the audit committee
is required to effect specified actions and transactions with office holders, controlling
shareholders and entities in which they have a personal interest. An audit committee may
not approve an action or a transaction with related parties or with its office holders
unless at the time of approval the two external directors are serving as members of the
audit committee and at least one of whom was present at the meeting in which an approval
was granted.

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.

Approval
of Specified Related Party Transactions Under Israeli Law

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

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

19

---

---

Disclosure
of Personal Interest of 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. If the transaction is an extraordinary transaction, the office holder must also
disclose any personal interest held by:

| |  | the
office holders spouse, siblings, parents, grandparents, descendants, spouses
descendants and the spouses of any of these people; or
| | - | -----------------------------------------------------------------------------------------------------------------------------------------

| |  | any
corporation in which the office holder is a 5% or greater shareholder, director or
general manager or in which he has the right to appoint at least one director or the
general manager.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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. A transaction that is adverse to the companys interest may not be
approved.

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
director 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.

20

---

---

Disclosure
of Personal Interests of 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, and the engagement of a controlling shareholder as an office holder or
employee, 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 one-third 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 one percent of the voting rights in the company.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 have no employees, other than a
chief executive officer.

# E. Share Ownership

As of May 31, 2008, Messrs. Eric
Paneth and Izhak Tamir, each, directly or through a wholly owned company, beneficially
owned 1,061,701 ordinary shares, or approximately 12.6% of our outstanding ordinary
shares. As of such date, Mr. Aviv Boim beneficially owned 435,379 ordinary shares, or
approximately 5.2% of our outstanding ordinary shares. Of the shares beneficially owned by
Mr. Boim, 392,624 shares are subject to contractual restrictions on transfer and are
subject to repurchase by us for no consideration if his employment terminates under
certain circumstances. The transfer restrictions, as well as our repurchase right, with
respect to most of such shares expire in installments over the period ending on December
31, 2010, subject to 12-month acceleration if his employment terminates under certain
circumstances. None of our other directors beneficially owns 1% or more of our outstanding
ordinary shares.

21

---

---

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.

As of May 31, 2008, we had
outstanding options to purchase a total of 133,334 ordinary shares, all of which were held
by our directors, and 392,624 restricted shares.

|ITEM 7. |  | Major Shareholders and Related Party Transactions
|------- |  | -------------------------------------------------

A.
Major Shareholders

The following table sets forth
certain information regarding the beneficial ownership of our ordinary shares as of May
31, 2008 (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)                 |              |                    
|Eric Paneth                          |              |                    
|Izhak Tamir                          |              |                    
|Eugene Oshinsky and Rosa Oshinsky(3) |              |                    
|Aviv Boim(4)                         |              |                    

|
|

|(1) | Based
on 8,448,090 ordinary shares outstanding on May 31, 2008.
|--- | ---------------------------------------------------------------

|(2) | Based
on a Schedule 13D/A filed on October 18, 2007.
|--- | ----------------------------------------------------

|(3) | Based
on a Schedule 13G filed on January 6, 2006. The ordinary shares are held
               directly by RAM Capital Management Trust #01, a Massachusetts trust.
Eugene                Oshinsky and Rosa Oshinsky, as trustees, are deemed to have
beneficial ownership                of the ordinary shares.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes 392,624 restricted shares. See Item 6.E above.
|--- | -------------------------------------------------------

As of May 31, 2008, there were 68
holders of record of our ordinary shares in the United States who collectively held
approximately 70.2% 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

Relationship between
Tikcro and Orckit

Tikcro and Orckit, except as
otherwise contemplated in the agreement referred to below, operate independently of one
another as separate public companies.

22

---

---

We believe that the agreement
described below has been entered into on terms similar to terms that would be obtained
from independent third parties.

Services
Agreement

On July 1, 2003, Tikcro signed a
Services Agreement with Orckit for administrative services, including bookkeeping and
office services, as well as for certain services related to the evaluation of prospective
opportunities for a business combination. Total fees to Orckit for such services in 2004
were $25,000 per quarter. In 2005 the fees were reduced to $18,000 per quarter, and in
2006 the fees were further reduced to $12,000 per quarter.

# 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
have no material legal proceedings.

# B. Significant Changes

# C.

None.

|ITEM 9. |  | The Offer and Listing
|------- |  | ---------------------

A.
Offer and Listing Details

Our ordinary shares are currently
quoted on the OTC Bulletin Board, an electronic quotation medium regulated by the National
Association of Securities Dealers, under the symbol TIKRF. The OTC Bulletin Board
typically has lower liquidity than the Nasdaq Global Market.

The following table sets forth, for
the periods indicated, the high and low sales prices of our ordinary shares as reported on
the Nasdaq Global Market or the OTC Counter Bulletin Board. The price per share of our
ordinary shares has been retroactively adjusted to reflect the one-for-three reverse split
of our ordinary shares that became effective on September 19, 2006.

23

---

---

|Calendar Year | Price Per Share
|------------- | ---------------
|
|
|
|
|2003          |                
|2004          |                
|2005          |                
|2006          |                
|2007          |                

|Calendar Period | Price Per Share
|--------------- | ---------------
|
|
|
|
|2006            |                
|                |                
|                |                
|                |                
|                |                
|2007            |                
|                |                
|                |                
|                |                
|                |                
|2008            |                
|                |                

24

---

---

|Calendar Month | Price Per Share
|-------------- | ---------------
|
|
|
|
|
|2007           |                
|               |                
|2008           |                
|               |                
|               |                
|               |                
|               |                
|               |                

# B. Plan of Distribution

Not applicable

# C. Markets

Our ordinary shares are quoted on the
OTC Bulletin Board 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.

25

---

---

# 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.

# 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.

26

---

---

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.

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.

27

---

---

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 three months following the consummation of a full tender offer. 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.

28

---

---

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 $2.50. The rights generally
will be exercisable and transferable apart from our ordinary shares only if 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 commences a tender or exchange offer upon consummation of which such person or group
would become an acquiring person. 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.

The rights will expire on December
31, 2015 and are generally redeemable by our board of directors, at $0.01 per right, at
any time until the tenth business day following public disclosure that a person or group
has become an acquiring person.

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.

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

29

---

---

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

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;
| | - | -------------------------------------------------------------------------------------------------------------------------

30

---

---

| |  | 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

In September 2005, we entered into a
bonus rights agreement 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.

# 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:

31

---

---

| |  | 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.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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, 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. A
partnership that is a beneficial owner of our ordinary shares, and partners in such
partnership, are urged to consult their own tax advisors regarding the U.S. federal income
tax consequences of the purchase, ownership and disposition of our ordinary shares.

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.

32

---

---

Sale, Exchange or Other
Taxable Disposition of Our 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 our 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 currently are subject to a maximum tax rate of 15% on long-term capital gains
for tax years beginning on or before December 31, 2010. 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 will be a short-term capital gain or loss. See Israeli Tax Considerations
 Capital Gains Tax on Sales of Our Ordinary Shares 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. However, under the tax treaty between
the United States and Israel, gain derived from the taxable disposition of ordinary shares
by a U.S. Holder who is a resident of the United States for purposes of the treaty and who
sells the ordinary shares within Israel may be treated as foreign-source income for U.S.
foreign tax credit purposes.

A U.S. Holders tax basis in
his, her or its ordinary shares generally will be 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 the U.S. dollar value of the
purchase price on the date of purchase or, in the case of our 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 the 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.

33

---

---

Treatment of Distributions

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 to Non-Israeli Resident Shareholders. 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 paid by us to a U.S.
Holder generally will be treated as a dividend to the extent that 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. Currently, a noncorporate U.S. Holders
qualified dividend income generally is subject to tax at a rate of 15%. 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., including the Nasdaq
Global Market, 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 15% 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. 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.

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.

Dividends received with respect to
our ordinary shares will constitute portfolio income for purposes of the
limitation on the use 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 are complex and
involve the application of rules that depend on a U.S. Holders particular
circumstances. U.S. Holders are urged to consult their own tax advisors regarding the
availability to them of foreign tax credits or deductions in respect of any Israeli tax
withheld or paid with respect to any dividends which may be paid with respect to our
ordinary shares.

34

---

---

Passive Foreign
Investment Company Status

Generally, a foreign corporation is
treated as a passive foreign investment company, or 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 foreign corporations assets
for purposes of the Asset Test. The legislative history of the U.S. Taxpayer Relief Act of
1997, or the 1997 Act, however, 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 under current interpretations of the 1997 Act whether
other valuation methods could be employed to determine the value of our assets.

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

U.S.
          Holders are urged to consult their own tax advisors for guidance as to our
          status as a PFIC in any tax year. For those U.S. Holders who determine that we
          are a PFIC in any tax year and notify us in writing of their request for the
          information required in order to effectuate the QEF Election described below, we
          will promptly make such information available to them.

For each year during a U.S.
Holders holding period of ordinary shares in which we are treated as a PFIC for U.S.
federal income tax purposes and such U.S. Holder does not make a QEF Election or a
mark-to-market  election (both as described below):

35

---

---

| |  | Excess
distributions by us to such U.S. Holder would be taxed in a special way. 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. A U.S. Holder must include
amounts allocated to the current tax year in his, her or its gross income as ordinary
income for that year, pay tax on amounts allocated to each prior tax year in which we
were a PFIC at the highest rate on ordinary income in effect for such prior year and pay
an interest charge on the resulting tax at the rate applicable to deficiencies of U.S.
federal income tax.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 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 in ordinary shares acquired from a decedent who was a U.S. Holder 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 he, she or it elects to
recognize gain based on the unrealized appreciation in his, her or its 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 he, she or it holds shares in a
PFIC. This form describes any distributions received with respect to these shares and any
gain realized upon the disposition of these shares.

For any 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, known as 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.

36

---

---

A U.S. Holder may make a QEF Election
with respect to a PFIC for any tax year of the U.S. Holder. A QEF Election is effective
for the tax year in which the election 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 U.S. Holder making the QEF Election must make the election on or before the
due date, as extended, for the filing of the U.S. Holders U.S. federal income tax
return for the first tax year to which the election will apply. Upon his, her or its
request, we will provide to each U.S. Holder, who wishes to make a QEF Election for any
year in which we are treated as a PFIC, the information required to make a 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 the 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 will not be
available. Rather, the tax basis of the ordinary shares in the hands of a U.S. Holder who
acquired 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.

The implementation of many aspects of
the Codes PFIC rules requires the issuance of Treasury Regulations which in many
instances have yet to be promulgated and which may have retroactive effect when
promulgated. We cannot be sure that any of these regulations will be promulgated or, if
so, what form they will take or what effect they will have on the foregoing discussion.
Accordingly, and due to the complexity of the PFIC rules, U.S. Holders should consult
their own tax advisors regarding our status as a PFIC and the eligibility, manner and
advisability of making a QEF Election or a mark-to-market election if we are treated as a
PFIC.

Information Reporting and
Backup Withholding

Payments in respect of our ordinary
shares that are made in the United States or by certain U.S.-related financial
intermediaries may be subject to information reporting and backup withholding tax at rates
equal to 28% through 2010 and 31% after 2010 (unless legislation is enacted that provides
otherwise). 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 furnishes other required
certifications. U.S. Holders required to establish their exemption from backup withholding
generally must provide a certification on IRS Form W-9 (or substitute form). Backup
withholding 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 of obtaining such an exemption, if
applicable.

37

---

---

# 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 acts 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 29% for the 2007 tax year and
27% for the 2008 tax year. Following an amendment to the Israeli Income Tax Ordinance [New
Version], 1961, or the Tax Ordinance, which came into effect on January 1, 2006, the
corporate tax rate is scheduled to decrease as follows: 26% for the 2009 tax year and 25%
for the 2010 tax year and thereafter. Israeli companies are generally subject to capital
gains tax at a rate of 25% for capital gains (other than gains deriving from the sale of
listed securities) derived after January 1, 2003.

Taxation Under
Inflationary Conditions

The Income Tax (Inflationary
Adjustments) Law, 1985, which is referred to below as the Inflationary Adjustments Law,
attempts to overcome some of the problems presented to a traditional tax system by an
economy experiencing rapid inflation, which was the case in Israel at the time the law was
enacted. Generally, the Inflationary Adjustments Law provides significant tax deductions
and adjustments to depreciation methods and tax loss carry forwards to compensate for loss
of value resulting from an inflationary economy. Our taxable income is subject to the
provisions of this law.

The Israeli Income Tax Ordinance and
regulations promulgated thereunder allow Foreign-Invested Companies, which
maintain their accounts in U.S. dollars in compliance with the regulations published by
the Israeli Minister of Finance, to base their tax returns on their operating results as
reflected in the dollar financials statements or to adjust their tax returns based on
exchange rate changes rather than changes in the Israeli CPI, in lieu of the principles
set forth by the Inflationary Adjustments Law. For these purposes, a Foreign-Invested
Company is a company, more than 25% of whose share capital, in terms of rights to profits,
voting and appointment of directors, and of whose combined share and loan capital is held
by persons who are not residents of Israel. A company that elects to measure its results
for tax purposes based on the dollar exchange rate cannot change that election for a
period of three years following the election. We believe that we qualify as a Foreign
Investment Company within the meaning of the Inflationary Adjustments Law. We have not yet
elected to measure our results for tax purposes based on the U.S. dollar exchange rate,
but may do so in the future.

38

---

---

On February 26, 2008 the Israeli
parliament approved an amendment to the Inflationary Adjustments Law that limits the
applicability of such law so that it will generally cease to apply after the 2007 tax
year.

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 Bulletin Board 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 Bulletin Board 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
20% 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 25%. 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 25%. Israeli companies are
subject to the corporate tax rate on capital gains derived from the sale of listed shares,
unless such companies were not subject to the Inflationary Adjustments Law (or certain
regulations) as of August 10, 2005, in which case the applicable tax rate is 25%. However,
the different tax rates may not apply to dealers in securities and shareholders who
acquired their shares prior to an initial public offering.

The tax basis of 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.

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, that such
shareholders are not subject to the Inflationary Adjustments Law 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 25% or more 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.

39

---

---

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 withheld at the source at the
rate of 20%, or 25% 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%.

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.

Israel presently has no estate or
gift tax.

40

---

---

# 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. 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
|-------- |  | ----------------------------------------------------------

# 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, 2007, 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.

41

---

---

# Interest Rate Risk
Management

As of December 31, 2007, we had $10.3
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
|-------- |  | ------------------------------------------------------

Not applicable.

# PART 2

|ITEM 13. |  | Defaults, Dividend Averages and Delinquencies
|-------- |  | ---------------------------------------------

Not applicable.

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

For a discussion of our recently
adopted shareholder bonus rights plan, please refer to Item 10.B under the caption
Mergers and Acquisitions under Israeli Law; Anti-Takeover Provisions of
this Annual Report.

|ITEM 15. |  | Controls and Procedures
|-------- |  | -----------------------

# See Item 15T below.

|ITEM 15T. |  | 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, 2007. 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.

# 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.

42

---

---

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, 2007 and concluded that our
internal control over financial reporting was effective as of December 31, 2007.

This Annual Report does not include
an attestation report of our registered public accounting firm regarding internal control
over financial reporting. Managements report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the SEC that permit us to
provide only managements report in this Annual Report.

# Changes in Financial
Control Over Financial Reporting

In addition, there were no changes in our
internal control over financial reporting that occurred during 2007 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 Mr. Yiftach Atir qualifies as an audit committee financial expert as
defined in Item 16A of Form 20-F and is independent as defined in the
applicable regulations.

|ITEM 16B. |  | Code of 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 sent to our offices at 126 Yigal Allon Street, Tel
Aviv, Israel, Attention: Chief Executive Officer.

|ITEM 16C. |  | Principal Accountant Fees and Services
|--------- |  | --------------------------------------

Audit
Fees

For 2006 and 2007, 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,
|------------------ | -----------------------
|
|
|
|
|Audit Fees         |                        
|Audit-Related Fees |                        
|Tax Fees           |                        
|All Other Fees     |                        
|                   |                        
|Total              |                        
|                   |                        

43

---

---

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. Audit-Related Fees
are the aggregate fees billed for assurance and related services that are reasonably
related to the performance of the audit and are not reported under Audit Fees. These fees
include mainly accounting consultations regarding the accounting treatment of matters that
occur in the regular course of business, implications of new accounting pronouncements and
other accounting issues that occur from time to time. 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 has adopted a
pre-approval policy for the engagement of our independent accountant to perform certain
audit and non-audit services. Pursuant to this policy, which is designed to assure that
such engagements do not impair the independence of our auditors, the audit committee
pre-approves annually a catalog of specific audit and non-audit services in the categories
of Audit Service, Audit-Related Service, Tax Services and other services that may be
performed by our independent accountants and the maximum pre-approved fees that may be
paid as compensation for each pre-approved service in those categories. Any proposed
services exceeding the maximum pre-approved fees require specific approval by the Audit
Committee.

With respect to each pre-approved
service actually requested to be provided, an executive officer is required to notify the
Audit Committee in writing and state whether, in the executive officers view, the
provision of such service by the outside auditor would impair its independence.

The Audit Committee may delegate its
pre-approval authority to one or more of its members, subject to ratification by the
entire Audit Committee.

|ITEM 16D. |  | Exemptions from Listing Standards for Audit Committees
|--------- |  | ------------------------------------------------------

Not applicable.

|ITEM 16E. |  | Purchases Of Equity Securities by the Issuer and Affiliated Purchasers
|--------- |  | ----------------------------------------------------------------------

None.

# PART 3

|ITEM 17. |  | Financial Statements
|-------- |  | --------------------

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

44

---

---

|ITEM 18. |  | Financial Statements
|-------- |  | --------------------

The Financial Statements required by
this item are found at the end of this Annual Report, beginning on page F-1.

# 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.

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 Boim
Aviv BoimChief Executive Officer
| |  | ----------------------------------------------------------------------------------------

Date: June 26, 2008

45

---

---

Exhibit Index

|Exhibit No. |  | Exhibit
|----------- |  | -------

|1.1 |  | Memorandum
of Association, as amended (a)
|--- |  | -----------------------------------------

|1.2 |  | Amended
and Restated Articles of Association (a)
|--- |  | ------------------------------------------------

|1.3 |  | Bonus
Rights Agreement, dated as of September 12, 2005, between Tikcro Technologies Ltd.
                  and American Stock Transfer & Trust Company, as Rights Agent (b)
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.1 |  | Share
Incentive Plan, as amended (c)
|--- |  | ------------------------------------

|4.2 |  | Tikcro
2003 Stock Option Plan, as amended (d)
|--- |  | ---------------------------------------------

|8 |  | List
of Subsidiaries (a)
|- |  | ------------------------

|12.1 |  | Certification
of Principal Executive Officer and Principal Financial Officer pursuant to
                  17 to CFR 240.13a-14(a), as adopted pursuant toss.302 of the
Sarbanes-Oxley Act (d)
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13.1 |  | Certification
of Principal Executive Officer and Principal Financial Officer pursuant to
                  18 to U.S.C. 1350, as adopted Section 906 of the Sarbanes-Oxley Act of
2002 (d)
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14.1 |  | Consent
of Independent Registered Public Accounting Firm (d)
|---- |  | ------------------------------------------------------------

---

|(a) | Incorporated
by reference to Tikcros Annual Report on Form 20-F for the                year
ended December 31, 2006 (File No. 0-30820).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------

|(b) | Incorporated
by reference to Tikcros Report on Form 6-K filed with the                Securities
and Exchange Commission on September 14, 2005.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Incorporated
by reference to Tikcros Registration Statement on Form S-8                (File No.
333-12904).
|--- | -------------------------------------------------------------------------------------------------------------

|(d) | Filed
herewith.
|--- | ---------------

46

---

---

# TIKCRO TECHNOLOGIES LTD.

# CONSOLIDATED FINANCIAL
STATEMENTS

# AS OF DECEMBER 31, 2007

# IN U.S. DOLLARS

# INDEX

|                                                        | Page      
|------------------------------------------------------- | ----------
|
|
|
|
|Report of Independent Registered Public Accounting Firm | F-2       
|                                                       
|Consolidated Balance Sheets                             | F-3       
|                                                       
|Consolidated Statements of Income                       | F-4       
|                                                       
|Statements of Changes in Shareholders' Equity           | F-5       
|                                                       
|Consolidated Statements of Cash Flows                   | F-6       
|                                                       
|Notes to Consolidated Financial Statements              | F-7 - F-19



---

---

| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | Kost Forer Gabbay & Kasierer3 Aminadav St.
Tel-Aviv 67067, Israel
Tel: 972 (3)6232525
Fax: 972 (3)5622555
www.ey.com/il

# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

# To the Shareholders of

# TIKCRO TECHNOLOGIES
LTD.

We
have audited the accompanying consolidated balance sheets of Tikcro Technologies Ltd.
(the Company) and its subsidiaries as of December 31, 2007 and 2006, and the
related consolidated statements of income, changes in shareholders equity and cash
flows for each of the three years in the period ended December 31, 2007. These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits.

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

In
our opinion, the consolidated financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company and its
subsidiaries as of December 31, 2007 and 2006, and the consolidated results of their
operations and cash flows for each of the three years in the period ended
December 31, 2007, in conformity with accounting principles generally accepted in the
United States.

As
explained in Note 2(h) to the consolidated financial statements, on January 1, 2006 the
Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004),
Share Based Payment.

|                 |                                 
|---------------- | --------------------------------
|
|
|
|
|Tel-Aviv, Israel | /s/ KOST FORER GABBAY & KASIERER
|June 23, 2008    | A Member of Ernst & Young Global

F - 2

---

---

|TIKCRO TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|---------------------------------------------
|                                             
|CONSOLIDATED BALANCE SHEETS                  
|                                             
|U.S. dollars in thousands, except share data 

|                                                                               | December 31,
|------------------------------------------------------------------------------ | ------------
|
|
|
|
|ASSETS                                                                         |             
|                                                                               |             
|CURRENT ASSETS:                                                                |             
|Cash and cash equivalents                                                      |             
|Marketable securities (Note 3)                                                 |             
|Other current assets                                                           |             
|                                                                               |             
|                                                                               |             
|Total current assets                                                           |             
|                                                                               |             
|                                                                               |             
|Total assets                                                                   |             
|                                                                               |             
|                                                                               |             
|LIABILITIES AND SHAREHOLDERS' EQUITY                                           |             
|                                                                               |             
|CURRENT LIABILITIES:                                                           |             
|Related party - current account (Note 7)                                       |             
|Other current liabilities                                                      |             
|                                                                               |             
|                                                                               |             
|Total current liabilities                                                      |             
|                                                                               |             
|                                                                               |             
|COMMITMENTS AND CONTINGENT LIABILITIES (Note 4)                                |             
|                                                                               |             
|SHAREHOLDERS' EQUITY (Note 5):                                                 |             
|Share capital -                                                                |             
|Ordinary shares - Authorized: 16,666,667 shares at December 31, 2006 and 2007; |             
|Issued: 9,355,851 and 9,502,517 shares at December 31, 2006 and 2007           |             
|respectively; Outstanding: 7,908,800 and 8,055,466 shares at December 31,      |             
|2006 and 2007, respectively                                                    |             
|Additional paid-in capital                                                     |             
|Less - treasury shares, at cost 1,447,051 Ordinary shares at December 31, 2006 |             
|and 2007                                                                       |             
|Accumulated other comprehensive income (loss)                                  |             
|Accumulated deficit                                                            |             
|                                                                               |             
|                                                                               |             
|Total shareholders' equity                                                     |             
|                                                                               |             
|                                                                               |             
|Total liabilities and shareholders' equity                                     |             
|                                                                               |             

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

F - 3

---

---

|TIKCRO TECHNOLOGIES LTD. AND ITS SUBSIDIARIES   
|------------------------------------------------
|                                                
|CONSOLIDATED STATEMENTS OF INCOME               
|                                                
|U.S. dollars in thousands, except per share data

|                                                                   | Year ended December 31,
|------------------------------------------------------------------ | -----------------------
|
|
|
|
|Operating costs and expenses:                                      |                        
|                                                                   |                        
|General and administrative expenses                                |                        
|                                                                   |                        
|                                                                   |                        
|Operating loss                                                     |                        
|Financial income, net (Note 9)                                     |                        
|                                                                   |                        
|                                                                   |                        
|Net income                                                         |                        
|                                                                   |                        
|                                                                   |                        
|Net earnings  per share (Note 8):                                  |                        
|                                                                   |                        
|Basic net earnings  per share                                      |                        
|                                                                   |                        
|                                                                   |                        
|Weighted average number of shares used in computing basic earnings |                        
|per share                                                          |                        
|                                                                   |                        
|                                                                   |                        
|Diluted net earning per share                                      |                        
|                                                                   |                        
|                                                                   |                        
|Weighted average number of shares used in computing basic earnings |                        
|per share                                                          |                        
|                                                                   |                        

|*) | Represents
an amount lower than $ 0.01.
|-- | ---------------------------------------

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

F - 4

---

---

|TIKCRO TECHNOLOGIES LTD. AND ITS SUBSIDIARIES
|---------------------------------------------
|                                             
|STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
|                                             
|U.S. dollars in thousands, except share data 

|                                        | Outstanding
Ordinary shares | Additional
paid-in
capital | Accumulated
other
comprehensive
Income (loss) | Treasury
shares | Accumulated
deficit | Total
comprehensive
income (loss) | Total
shareholders'
equity
|--------------------------------------- | --------------------------- | -------------------------- | --------------------------------------------- | --------------- | ------------------- | --------------------------------- | --------------------------
|
|
|
|
|Balance at January 1, 2005              |                             |                            |                                               | 7,908,800       |                     | $                                 | -                         
|                                        |                             |                           
|Comprehensive income:                   |                             |                           
|Unrealized losses on available-for-sale |                             |                           
|marketable securities                   |                             |                            |                                               | -               |                     |                                   | -                         
|Net income                              |                             |                            |                                               | -               |                     |                                   | -                         
|                                        |                             |                            |                                               |                 |                     |                                   |                           
|                                        |                             |                           
|Total comprehensive income              |                             |                            |                                               |                 |                     |                                   |                           
|                                        |                             |                            |                                               |                 |                     |                                   |                           
|                                        |                             |                           
|Balance at December 31, 2005            |                             |                            |                                               | 7,908,800       |                     |                                   | -                         
|                                        |                             |                           
|Stock based compensation                |                             |                            |                                               | -               |                     |                                   | -                         
|Comprehensive income:                   |                             |                           
|Unrealized income on available-for-sale |                             |                           
|marketable securities                   |                             |                            |                                               | -               |                     |                                   | -                         
|Net income                              |                             |                            |                                               | -               |                     |                                   | -                         
|                                        |                             |                            |                                               |                 |                     |                                   |                           
|                                        |                             |                           
|Total comprehensive income              |                             |                            |                                               |                 |                     |                                   |                           
|                                        |                             |                            |                                               |                 |                     |                                   |                           
|                                        |                             |                           
|Balance at December 31, 2006            |                             |                            |                                               | 7,908,800       |                     |                                   |                           
|                                        |                             |                           
|Exercise of options                     |                             |                            |                                               | 146,666         |                     |                                   | -                         
|Stock based compensation                |                             |                            |                                               | -               |                     |                                   | -                         
|Comprehensive income:                   |                             |                           
|Unrealized income on available-for-sale |                             |                           
|marketable securities                   |                             |                            |                                               | -               |                     |                                   | -                         
|Net income                              |                             |                            |                                               | -               |                     |                                   | -                         
|                                        |                             |                            |                                               |                 |                     |                                   |                           
|                                        |                             |                           
|Total comprehensive income              |                             |                            |                                               |                 |                     |                                   |                           
|                                        |                             |                            |                                               |                 |                     |                                   |                           
|                                        |                             |                           
|Balance at December 31, 2007            |                             |                            |                                               | 8,055,466       |                     | $                                 | -                         
|                                        |                             |                            |                                               |                 |                     |                                   |                           

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

F - 5

---

---

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

|                                                                  | Year ended December 31,
|----------------------------------------------------------------- | -----------------------
|
|
|
|
|Cash flows from operating activities:                             |                        
|                                                                  |                        
|Net income                                                        |                        
|Adjustments required to reconcile net income to net cash provided |                        
|by (used in) operating activities:                                |                        
|Decrease in amount due from STMicroelectronics Ltd.               |                        
|Decrease (increase) in other current assets                       |                        
|Increase (decrease) in related party - current account            |                        
|Increase (decrease) in other current liabilities                  |                        
|Accrued interest on marketable securities                         |                        
|Amortization of premium and accretion of discount on marketable   |                        
|securities                                                        |                        
|Stock based compensation                                          |                        
|                                                                  |                        
|                                                                  |                        
|Net cash provided by (used in) operating activities               |                        
|                                                                  |                        
|                                                                  |                        
|Cash flows from investing activities:                             |                        
|                                                                  |                        
|Purchase of available-for-sale marketable securities              |                        
|Proceeds from realization of available-for-sale marketable        |                        
|securities                                                        |                        
|                                                                  |                        
|                                                                  |                        
|Net cash provided by (used in) investing activities               |                        
|                                                                  |                        
|                                                                  |                        
|Cash flows from financing activities:                             |                        
|Proceeds from exercise of options                                 |                        
|                                                                  |                        
|                                                                  |                        
|Net cash provided by financing activities                         |                        
|                                                                  |                        
|                                                                  |                        
|Increase (decrease) in cash and cash equivalents                  |                        
|Cash and cash equivalents at the beginning of the year            |                        
|                                                                  |                        
|                                                                  |                        
|Cash and cash equivalents at the end of the year                  |                        
|                                                                  |                        

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

F - 6

---

---

|TIKCRO TECHNOLOGIES LTD. AND ITS SUBSIDIARIES             
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 1: |  | GENERAL
|------- | - | -------

| | Tikcro
Technologies Ltd. (the Company or Tikcro) was incorporated in
1999, under the laws of Israel.
| | --------------------------------------------------------------------------------------------------------

| | On
January 30, 2000, the board of directors of Orckit Communications Ltd. (Orckit)
decided to execute a plan of separation under Section 350 of Israels Companies Law,
pursuant to which, Orckit will be formally divided into two separate companies: (i)
Tikcro (previously Tioga) which would own substantially all of Orckits
semiconductor chip business, and (ii) Orckit itself, which would continue to own and
operate its telecom equipment and other businesses.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Tikcro
had a wholly-owned subsidiary, Silicon Value (S.V.) Ltd. (SVL), which has
been voluntarily liquidated at the end of 2004. SVL had a wholly-owned U.S. subsidiary,
Tikcro Technologies Inc., which is currently inactive.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
2002 and 2003, the Company entered into strategic agreements with STMicroelectronics NV
and its Israeli subsidiary STMicroelectronics Ltd. (collectively ST).
Pursuant to these agreements ST acquired all of the Companys assets and, in
addition, assumed all of its liabilities except for certain liabilities.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Upon
the closing of the asset purchase agreement, the Company has ceased all its operations.
| | --------------------------------------------------------------------------------------------

| | As
of December 31, 2007 the Company had no business activities and it has been pursuing
investment opportunities.
| | -----------------------------------------------------------------------------------------------------------------

| | On
January 1, 2008, the board of directors appointed a new CEO.
| | ---------------------------------------------------------------

| | In
June 2008, the Company signed an agreement to provide $ 2,500 in funding to BioCancell
Therapeutics, Inc., an Israel-based clinical-stage biopharmaceutical company, whose
common stock is listed on the Tel Aviv Stock Exchange (see also Note 10).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 2: |  | SIGNIFICANT ACCOUNTING POLICIES
|------- | - | -------------------------------

| | a. | Basis
of presentation:
| | -- | ----------------------

| | The
consolidated financial statements have been prepared in accordance with United States
generally accepted accounting principles (U.S. GAAP).
| | -------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Use
of estimates:
| | -- | -----------------

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

| | c. | Financial
statements in U.S. dollars:
| | -- | -------------------------------------

| | The
income of the Company is generated in U.S. dollars (dollar). In addition, a
substantial portion of the Companys cash flow transactions is incurred in dollars.
The Companys management believes that the dollar is the currency of the primary
economic environment in which the Company and its subsidiaries operate. Thus, the
functional and reporting currency of the Company and its subsidiaries is the dollar.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Accordingly,
monetary accounts maintained in currencies other than the dollar are re-measured into
U.S. dollars in accordance with Statement of Financial Accounting Standard No. 52, Foreign
Currency Translation (SFAS No. 52). All transaction gains and losses of
the re-measurement of monetary balance sheet items are reflected in the statements of
income as financial income or expenses, as appropriate.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 7

---

---

|TIKCRO TECHNOLOGIES LTD. AND ITS SUBSIDIARIES             
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 2: |  | SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|------- | - | ---------------------------------------

| | d. | Principles
of consolidation:
| | -- | ----------------------------

| | The
consolidated financial statements include the accounts to of the Company and its
wholly-owned subsidiaries.
| | ---------------------------------------------------------------------------------------------------------------

| | Intercompany
transactions and balances had been eliminated upon consolidation.
| | ------------------------------------------------------------------------------

| | e. | Cash
equivalents:
| | -- | -----------------

| | Cash
equivalents are short-term highly liquid investments that are readily convertible to cash
with original maturities of three months or less.
| | ------------------------------------------------------------------------------------------------------------------------------------------------

| | f. | Marketable
securities:
| | -- | ----------------------

| | Management
determines the classification of investments in marketable securities at the time of
purchase and reevaluates such designations as of each balance sheet date. At December 31,
2007, all marketable securities covered by Statement of Financial Accounting Standard No. 115,
Accounting for Certain Investments in Debt and Equity Securities, (SFAS
No. 115) were designated as available-for-sale. Accordingly, these securities are
stated at fair value, with unrealized gains and losses reported in accumulated other
comprehensive income (loss), a separate component of shareholders equity. Realized
gains and losses on sales of investments, as determined on a specific identification
basis, are included in the consolidated statement of operations.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | g. | Income
taxes:
| | -- | -------------

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

| | In
June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48 (FIN
48), Accounting for Uncertainty in Income Taxes-An Interpretation of FASB Statement
No. 109.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Interpretation clarifies the accounting for uncertainties in income taxes recognized in
an enterprises financial statements and prescribes a recognition threshold and
measurement attributes of income tax positions taken or expected to be taken on a tax
return. Under FIN 48, the impact of an uncertain tax position taken or expected to be
taken on an income tax return must be recognized in the financial statements at the
largest amount that is more-likely-than-not to be sustained upon audit by the relevant
taxing authority. An uncertain income tax position will not be recognized in the
financial statements unless it is more likely than not of being sustained. The Company
adopted the provisions of FIN 48 as of January 1, 2007. As of January 1, 2007, there was
no difference between the provisions of SFAS 109 and FIN 48 therefore no
adjustment was recorded to the accumulated deficit.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 8

---

---

|TIKCRO TECHNOLOGIES LTD. AND ITS SUBSIDIARIES             
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 2: |  | SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|------- | - | ---------------------------------------

| | Interest
associated with uncertain income tax positions and penalties are classified as income tax
expenses. The Company has not recorded any interest or penalties during any of
the years presented.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | h. | Accounting
for stock-based compensation:
| | -- | ----------------------------------------

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

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

| | No
stock-based employee compensation cost was recognized in the statement of income for the
year ended December 31, 2005, as all options granted under those plans had an exercise
price lower or equal to the market value of the underlying common stock on the date of
grant.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company adopted SFAS 123(R) using the modified prospective transition method, which
requires the application of the accounting standard as of January 1, 2006, the first
day of the Companys fiscal year 2006. Under that transition method, compensation
cost recognized in the year ended December 31, 2006, includes: (a) compensation cost for
all share-based payments granted prior to, but not yet vested as of January 1, 2006,
based on the grant date fair value estimated in accordance with the original provisions
of Statement 123, and (b) compensation cost for all share-based payments granted
subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance
with the provisions of SFAS 123(R). As required by the modified prospective method
results for prior periods have not been restated.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company recognized compensation expenses for the value of these awards, which has
straight-line vesting, over the requisite service period of each of the awards.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 9

---

---

|TIKCRO TECHNOLOGIES LTD. AND ITS SUBSIDIARIES             
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 2: |  | SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|------- | - | ---------------------------------------

| | The
Company estimates the fair value of stock options granted using the Black-Scholes-Merton
option-pricing model. The option-pricing model requires a number of assumptions, of which
the most significant are, expected stock price volatility, and the expected option term.
Expected volatility was calculated based upon actual historical stock price movements
over the most recent periods ending at the date of grant, based on the expected option
term (disregarding the term before the Company started operating in its current mode).
The expected option term represents the period that the Companys stock options are
expected to be outstanding and was determined based on historical experience of similar
options, giving consideration to the contractual terms of the stock options. The Company
has historically not paid dividends and has no foreseeable plans to issue dividends. The
risk-free interest rate is based on the yield from U.S. Treasury zero-coupon bonds with
an equivalent term.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair value for the options granted in 2006 was estimated at the date of grant with the
following weighted average assumptions:
| | ----------------------------------------------------------------------------------------------------------------------------------

| |                         | Year ended
December 31,
2006
| | ----------------------- | ----------------------------
|
|
|
|
| | Risk free interest rate |                             
| | Dividend yields         |                             
| | Volatility              |                             
| | Expected life (years)   |                             

| | The
pro-forma table below reflects the Companys stock based compensation expense, net
income and earnings per share for the year ended December 31, 2005, had the Company
applied the fair value recognition provisions of SFAS 123. The fair value for these
options was estimated at the date of grant, in 2003, using a Black-Scholes Option
Valuation Model, with the following weighted-average assumptions: expected volatility of
66%, risk-free interest rates of 2%, dividend yield of 0% and a weighted-average expected
life of the option of three years.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Pro
forma information under SFAS No. 123 was as follows:
| | --------------------------------------------------------

| |                                                                                 | Year ended
December 31,
2005
| | ------------------------------------------------------------------------------- | ----------------------------
|
|
|
|
| | Net income as reported                                                          |                             
| | Total stock based compensation - intrinsic value                                |                             
| | Total stock based compensation determined under fair value based method for all |                             
| | awards                                                                          |                             
| |                                                                                 |                             
| |                                                                                 |                             
| | Pro forma net loss                                                              |                             
| |                                                                                 |                             
| |                                                                                 |                             
| | Basic and diluted net loss per share as reported                                |                             
| |                                                                                 |                             
| |                                                                                 |                             
| | Pro forma basic and diluted net loss per share                                  |                             
| |                                                                                 |                             

F - 10

---

---

|TIKCRO TECHNOLOGIES LTD. AND ITS SUBSIDIARIES             
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 2: |  | SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|------- | - | ---------------------------------------

| | i. | Fair
value of financial instruments:
| | -- | ------------------------------------

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

| | The
carrying amounts of cash and cash equivalents, other current assets and liabilities
approximate their fair value due to the short-term maturity of such instruments.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair value for marketable securities is based on quoted market price (see Note 3).
| | --------------------------------------------------------------------------------------

| | j. | Basic
and diluted net earnings per share:
| | -- | -----------------------------------------

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

| | The
total number of shares related to outstanding options, warrants, excluded from the
calculation of the diluted net earnings per share, because they had anti-dilutive effect,
for the years ended December 31, 2005, 2006 and 2007, were 0, 66,667 and 66,667,
respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | k. | Concentrations
of credit risks:
| | -- | -------------------------------

| | Financial
instruments that potentially subject the Company to concentrations of credit risk consist
principally of cash and cash equivalents, and available-for-sale marketable debt
securities.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Cash
and cash equivalents are invested in major banks in Israel and the U.S., mainly in U.S.
dollars. Management believes that the financial institutions that hold the Companys
investments are financially sound and, accordingly, minimal credit risk exists with
respect to these investments.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Companys marketable
securities include investments in corporate investment grade debentures. Management
believes that those investments are financially sound and accordingly, minimal credit risk
exists with respect to these marketable securities.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

F - 11

---

---

|TIKCRO TECHNOLOGIES LTD. AND ITS SUBSIDIARIES             
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 2: |  | SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|------- | - | ---------------------------------------

| | l. | Treasury
shares:
| | -- | ----------------

| | The
Companys repurchase of Ordinary shares on the open market which are held as
treasury shares. The Company presents the cost of repurchased treasury shares as a
reduction in shareholders equity.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | m. | Impact
of recently issued Accounting Standards:
| | -- | -----------------------------------------------

| | 1) | In
September 2006, the FASB issued Statement of Financial Accounting
          Standards No. 157, Fair Value Measurements (Statement
          No. 157) which defines fair value, establishes a framework for
          measuring fair value, and expands disclosures about fair value measurements.
          Statement No. 157 applies to other accounting pronouncements that require
          or permit fair value measurements and, accordingly, does not require any new
          fair value measurements. Statement No. 157 is effective for fiscal years
          beginning after November 15, 2007 for financial assets and liabilities, as
          well as for any other assets and liabilities that are carried at fair value on
a           recurring basis, and should be applied prospectively. The adoption of the
          provisions of Statement No. 157 related to financial assets and
liabilities           and other assets and liabilities that are carried at fair value on
a recurring           basis is not anticipated to materially impact the companys
consolidated           financial position and results of operations. Subsequently, the
FASB provided           for a one-year deferral of the provisions of Statement No. 157
for           non-financial assets and liabilities that are recognized or disclosed at
fair           value in the consolidated financial statements on a non-recurring basis.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
February 2007, the FASB issued FASB Staff Position FAS 157-2 (FSP FAS 157-2),
which provided for a one-year deferral of the provisions of SFAS 157 for non-financial
assets and liabilities that are recognized or disclosed at fair value in the consolidated
financial statements on a non-recurring basis. The Company is currently evaluating the
impact of adopting the provisions of Statement No. 157 for non-financial assets and
liabilities that are recognized or disclosed on a non-recurring basis.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2) | In
February 2007, the FASB issued SFAS 159, The Fair Value Option for
          Financial Assets and Financial Liabilities (SFAS 159). SFAS
          159 permits companies to choose to measure certain financial instruments and
          certain other items at fair value. The Standard requires that unrealized gains
          and losses on items for which the fair value option has been elected be
reported           in earnings. SFAS 159 is effective for financial statements issued for
fiscal           years beginning after November 15, 2007 and interim periods within those
fiscal           years, although earlier adoption is permitted. The company is currently
          evaluating the impact of adopting the provisions of Statement No. 159. The
          adoption of SFAS 159 is not expected to have material effect on the
          Companys consolidated financial statements.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 12

---

---

|TIKCRO TECHNOLOGIES LTD. AND ITS SUBSIDIARIES             
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 2: |  | SIGNIFICANT
ACCOUNTING POLICIES (Cont.)
|------- | - | ---------------------------------------

| | 3) | In
December 2007, the FASB issued SFAS No. 141 (Revised), Business
          Combinations (SFAS 141 (Revised)). SFAS 141 (Revised)
replaces           SFAS 141, Business Combination and establishes principles
and           requirements for how the acquirer of a business recognizes and measures in
its           financial statements the identifiable assets acquired, the liabilities
assumed,           and any noncontrolling interest in the acquiree. The statement also
provides           guidance for recognizing and measuring the goodwill acquired in the
business           combination and determines what information to disclose to enable
users of the           financial statements to evaluate the nature and financial effects
of the           business combination. The guidance will become effective for the fiscal
year           beginning after December 15, 2008. No impact is expected at the adoption
date,           since the standard will be applied prospectively  for future
business           combinations.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4) | In
December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
          Consolidated Financial Statements (SFAS 160). SFAS 160 amends
          Accounting Research Bulletin 51, Consolidated Financial Statements,
          to establish accounting and reporting standards for the noncontrolling interest
          in a subsidiary and for the deconsolidation of a subsidiary. It also clarifies
          that a noncontrolling interest in a subsidiary is an ownership interest in the
          consolidated entity that should be reported as equity in the consolidated
          financial statements. SFAS 160 also changes the way the consolidated income
          statement is presented by requiring consolidated net income to be reported at
          amounts that include the amounts attributable to both the parent and the
          noncontrolling interest. It also requires disclosure, on the face of the
          consolidated statement of income, of the amounts of consolidated net income
          attributable to the parent and to the noncontrolling interest. SFAS 160
requires           that a parent recognize a gain or loss in net income when a subsidiary
is           deconsolidated and requires expanded disclosures in the consolidated
financial           statements that clearly identify and distinguish between the
interests of the           parent owners and the interests of the noncontrolling owners
of a subsidiary.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SFAS
160 is effective for fiscal periods, and interim periods within those fiscal years,
beginning on or after December 15, 2008. The adoption of SFAS 160 is not expected to have
material effect on the Companys consolidated financial statements.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 3: |  | MARKETABLE
SECURITIES
|------- | - | ---------------------

| | The
following is a summary of available-for-sale marketable securities:
| | -----------------------------------------------------------------------

| |                     | December 31,
| | ------------------- | ------------
|
|
|
|
| | Available-for-sale: |             
| | Corporate           |             
| | debentures          |             
| |                     |             

F - 13

---

---

|TIKCRO TECHNOLOGIES LTD. AND ITS SUBSIDIARIES             
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 3: |  | MARKETABLE
SECURITIES (Cont.)
|------- | - | -----------------------------

| | The
unrealized losses as of December 31, 2006 were mainly caused by interest rate increases.
Based on the immateriality of the impairment and the intent and ability of the Company to
hold these investments until recovery of their fair value, these investments were not
considered to be other than temporary impaired, as of December 31, 2006.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 4: |  | COMMITMENTS
AND CONTINGENT LIABILITIES
|------- | - | --------------------------------------

| | Directors
and officers indemnification agreements:
| | --------------------------------------------------

| | The
Company, from time to time, has entered into indemnification agreements with several of
its directors and officers, in which the Company undertakes to indemnify them, to the
fullest extent permitted by law, for acts taken or omitted by them in their respective
capacities as directors or officers of the Company or its subsidiaries. Pursuant to these
agreements, the obligations of the Company remain in effect even after the termination of
the directors and officers services to or employment with the Company.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 5: |  | SHAREHOLDERS EQUITY
|------- | - | --------------------

| | a. | Ordinary
shares:
| | -- | ----------------

| | The
Ordinary shares confer upon the holders the right to receive notice to participate and
vote in general meetings of the Company and the right to receive dividends, if declared.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
August 2006, the Companys shareholders authorized an amendment to the Companys
Memorandum and Articles of Association converting each of its Ordinary shares, NIS 0.10
par value, to one Ordinary share with no par value and effecting a reverse share split of
Ordinary shares at a ratio of one-for-three. The reverse stock split became effective on
September 19, 2006. All shares and per share amounts were retroactivity adjusted to
reflect the reverse stock split.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Stock
option plans:
| | -- | -------------------

| | 1. | Under
the Companys stock option plan (the plan) options may be
          granted to employees, officers, consultants and directors of the Company or its
          subsidiaries.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | No
options were granted during 2007. As of December 31, 2007, an aggregate of
          2,391,863 of the Companys options are still available for future grant.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | The
options granted generally become fully exercisable after three to four years
          and expire no later than 10 years from the approval date of the option plan
          under terms of grant. Any option forfeited or cancelled before expiration
become           available for future grants.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 14

---

---

|TIKCRO TECHNOLOGIES LTD. AND ITS SUBSIDIARIES             
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 5: |  | SHAREHOLDERS EQUITY
(Cont.)
|------- | - | ----------------------------

| | The
following is a summary of the Companys stock options transactions in 2007:
| | -------------------------------------------------------------------------------

| |                                          | Year ended December 31, 2007
| | ---------------------------------------- | ----------------------------
|
|
|
|
| | Options outstanding at beginning of year |                             
| | Granted                                  |                             
| | Exercised                                |                             
| |                                          |                             
| |                                          |                             
| | Options outstanding at end of year       |                             
| |                                          |                             
| |                                          |                             
| | Vested and expected to vest at end of    |                             
| | year                                     |                             
| |                                          |                             
| |                                          |                             
| | Options exercisable at end of year       |                             
| |                                          |                             

| | The
options outstanding as of December 31, 2007, have been separated into two exercise prices
as follows:
| | ---------------------------------------------------------------------------------------------------------

| | Exercise
price | Options
outstanding
as of
December 31,
2007 | Weighted
average
remaining
contractual
life (years) | Weighted
average
exercise
price | Options
exercisable
as of
December 31,
2007 | Weighted
average
exercise
price of
options
exercisable
| | -------------- | ------------------------------------------- | --------------------------------------------------- | ------------------------------- | ------------------------------------------- | ------------------------------------------------------
|
|
|
|
| | $              | 0.87                                        |                                                     |                                 | 66,667                                      |                                                       
| | $              | 0.97                                        |                                                     |                                 | 66,667                                      |                                                       
| |                |                                             |                                                     |                                 |                                             |                                                       
| |                |                                             |                                                    
| |                |                                             |                                                     |                                 | 133,334                                     |                                                       
| |                |                                             |                                                     |                                 |                                             |                                                       

| | c. | On
August 17, 2006, the annual shareholders meeting approved a grant to two
                    directors of options to purchase up to 33,333 Ordinary shares each at
an                     exercise price per share equal to the average closing price of the
Ordinary                     shares over the three trading days immediately preceding the
date of the                     meeting. The options vest over a period of three years,
one-third each year,                     commencing on the first day of the upcoming term
of the option holder. The total                     fair value of the options granted was
$ 34 while the amount of $ 3 and $ 12 were                     recorded in 2006 and 2007,
respectively, as stock based compensation expenses.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d. | Shareholder
bonus rights plan
| | -- | -----------------------------

| | On
September 12, 2005, the Companys Board of Directors adopted a Shareholder Bonus
Rights Plan (the Rights Plan) pursuant to which share purchase bonus rights
(the Right) were distributed on September 26, 2005, at the rate of one Right
for each of the Companys Ordinary shares held by shareholders of record as of the
close of business on that date.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 15

---

---

|TIKCRO TECHNOLOGIES LTD. AND ITS SUBSIDIARIES             
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 5: |  | SHAREHOLDERS EQUITY
(Cont.)
|------- | - | ----------------------------

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

| | Each
right will entitle shareholders to buy one-half of one of the Companys Ordinary
shares. The Rights generally will be exercisable and transferable apart from the Companys
Ordinary shares only if a person or group becomes an Acquiring Person by
acquiring beneficial ownership of 15% or more of the Companys Ordinary shares,
subject to certain exceptions set forth in the Rights Plan, or commences a tender or
exchange offer upon consummation of which such person or group would become an Acquiring
Person. 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Rights will expire on December 31, 2015 and are generally redeemable by the Companys
Board of Directors, at $ 0.03 per Right, at any time until the tenth business day
following public disclosure that a person or group has become an Acquiring Person.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 6: |  | TAXES
ON INCOME
|------- | - | ---------------

| | a. | Tax
laws applicable to the Company:
| | -- | -----------------------------------

| | Income
Tax (Inflationary Adjustments) Law, 1985:
| | ------------------------------------------------

| | According
to the law, the results for tax purposes are measured based on the changes in the Israeli
CPI. The Company is taxed under this law.
| | ---------------------------------------------------------------------------------------------------------------------------------------------

| | In
February 2008, the Knesset (Israeli parliament) passed an amendment to the
Income Tax (Inflationary Adjustments) Law, 1985, which limits the scope of the law
starting 2008 and thereafter. Starting 2008, the results for tax purposes will be
measured in nominal values, excluding certain adjustments for changes in the Consumer
Price Index carried out in the period up to December 31, 2007. The amended law includes,
inter alia, the elimination of the inflationary additions and deductions and the
additional deduction for depreciation starting 2008.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 16

---

---

|TIKCRO TECHNOLOGIES LTD. AND ITS SUBSIDIARIES             
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 6: |  | TAXES
ON INCOME (Cont.)
|------- | - | -----------------------

| | Capital
gains/losses:
| | ---------------------

| | Pursuant
to the provisions of the Law for Amendment of the Income Tax Ordinance (No. 132),
2003 (the reform law), tax at a reduced rate of 25% will apply on capital
gains accrued after January 1, 2003, instead of the regular tax rate. In case of the sale
of properties purchased before the adoption of the reform law, the reduced tax rate will
apply only to the portion of the profit which accrued after the adoption of the law, as
computed according to the law. Further, the reform law states that capital losses carried
forward for tax purposes may be offset against capital gains indefinitely. The reform law
also provides for the possibility to offset capital losses from sales of properties
outside Israel against capital gains in Israel.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Tax
rates applicable to the income of the Company:
| | -- | --------------------------------------------------

| | In
June 2004, an amendment to the Income Tax Ordinance (No. 140 and Temporary Provision),
2004, was passed by the Knesset (Israeli parliament) and on July 25, 2005,
another law was passed, the amendment to the Income Tax Ordinance (No. 147) 2005,
according to which the corporate tax rate is to be progressively reduced to the following
tax rates: 2006  31%, 2007  29%, 2008  27%, 2009  26%, 2010 and
thereafter  25%.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Significant
components of the Companys deferred tax liabilities and assets are as follows:
| | -------------------------------------------------------------------------------------------

| |                                                  | December 31,
| | ------------------------------------------------ | ------------
|
|
|
|
| | Deferred tax assets:                             |             
| | Net operating loss and capital loss carryforward |             
| | Valuation allowance                              |             
| |                                                  |             
| |                                                  |             
| | Net deferred tax asset                           |             
| |                                                  |             

| | Management
currently believes that since the Company has a history of losses it is more likely than
not that the deferred tax assets regarding the loss carryforward and other temporary
differences will not be realized in the foreseeable future.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | Net
operating losses carryforward:
| | -- | ----------------------------------

| | The
Company has accumulated operating losses for tax purposes as of December 31, 2007,
in the amount of approximately $ 27,000 (denominated in NIS), which may be carried
forward and offset against taxable income in the future for an indefinite period.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has accumulated capital losses of approximately $ 115,000 (denominated in
NIS), which may be carried forward and offset against capital gains.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| | d. | The
main reconciling item from the statutory tax rate of the Company to the
                    effective tax rate is the offset of operating income with
carryforward losses.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 17

---

---

|TIKCRO TECHNOLOGIES LTD. AND ITS SUBSIDIARIES             
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 6: |  | TAXES
ON INCOME (Cont.)
|------- | - | -----------------------

| | e. | Tax
assessments for the tax years up to and including 2002 are considered as
                    final subject to the powers vested with the director of the tax
authority                     pursuant to sections 145,147 and 152 of the income tax
ordinance.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | f. | The
Company adopted the provisions of FIN 48 on January 1, 2007. Prior to 2007
                    the Company used the provisions of SFAS 5 to determine tax
contingencies. As of                     January 1, 2007 there was no difference between
the provision under FIN 48                     therefore there was no effect on the
Companys shareholders equity upon the                     Companys adoption
of FIN 48.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 7: |  | RELATED
PARTY TRANSACTIONS
|------- | - | --------------------------

| | The
balances with and the results of operations from transactions with related party (Orckit)
were as follows:
| | --------------------------------------------------------------------------------------------------------------

| |                 | December 31,
| | --------------- | ------------
|
|
|
|
| | Balances:       |             
| |                 |             
| | Current account |             
| |                 |             

| |                            | Year ended December 31,
| | -------------------------- | -----------------------
|
|
|
|
| | Transactions:              |                        
| |                            |                        
| | Administrative services *) |                        
| |                            |                        

| | *) | Orckit
provides the Company with certain administrative services.
| | -- | -----------------------------------------------------------------

F - 18

---

---

|TIKCRO TECHNOLOGIES LTD. AND ITS SUBSIDIARIES             
|----------------------------------------------------------
|                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                
|                                                          
|U.S. dollars in thousands, except share and per share data

|NOTE 8: |  | BASIC
AND DILUTED NET EARNINGS PER SHARE
|------- | - | ----------------------------------------

| | The
following table sets forth the computation of basic and diluted net earnings per share.
| | -------------------------------------------------------------------------------------------

| | a. | Numerator:
| | -- | ----------

| |    |                                                  | Year ended December 31,
| | -- | ------------------------------------------------ | -----------------------
|
|
|
|
| |    | Numerator for basic and diluted net earnings per |                        
| |    | share - income  available to shareholders of     |                        
| |    | Ordinary shares                                  |                        
| |    |                                                  |                        
| |    |                                                  |                        
| | b. | Denominator:                                     |                        
| |    |                                                  |                        
| |    | Denominator for basic net earnings  per share -  |                        
| |    | weighted average shares                          |                        
| |    |                                                  |                        
| |    | Effect of dilutive securities:                   |                        
| |    | Employee stock options                           |                        
| |    |                                                  |                        
| |    |                                                  |                        
| |    | Denominator for diluted net earnings  per share  |                        
| |    | - adjusted weighted average shares, assumed      |                        
| |    | conversions and exercise of options and          |                        
| |    | warrants                                         |                        
| |    |                                                  |                        

|NOTE 9: |  | FINANCIAL
INCOME, NET
|------- | - | ---------------------

| |                                                     | Year ended December 31,
| | --------------------------------------------------- | -----------------------
|
|
|
|
| | Financial expenses, mainly bank charges             |                        
| |                                                     |                        
| | Financial income, mainly from marketable securities |                        
| |                                                     |                        
| |                                                     |                        
| |                                                     |                        
| |                                                     |                        

|NOTE 10: |  | SUBSEQUENT
EVENT (UNAUDITED)
|-------- | - | ----------------------------

| | In June 2008, the Company signed an
agreement to provide $ 2,500 in funding to BioCancell Therapeutics, Inc.
(BioCancell), an Israel-based clinical-stage biopharmaceutical company, whose
common stock is listed on the Tel Aviv Stock Exchange. As part of the above mentioned
agreement, the Company agreed to provide the funding to BioCancell, to appoint a member to
its board of directors and to provide it with certain consulting services. This
transaction is subject to certain closing conditions, including the approval of
BioCancells public shareholders.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 19

---

---